Annual Financial Report 2012 Annual Financial Report 2012: 1) Results Announcement 2) Results Presentation 3) Annual Financial Report 2012

Transcription

1 Annual Financial Report 2012 Annual Financial Report 2012: 1) Results Announcement 2) Results Presentation 3) Annual Financial Report / /en Annual Financial Report BANK OF CYPRUS PUBLIC COMPANY LTD BOCY Attachments: 1. Results Announcement 2. Results Presentation 3. Annual Financial Report 2012 Regulated Publication Date: 11/10/2013

2 Announcement Group Financial Results for the year ended 31 December 2012 Income statement highlights o Loss after tax mn ( mn for the year 2011) o Profit before impairments and restructuring costs 620 mn ( 797 mn for the year 2011) o Significant increase in provisions driven by the deterioration of the loan portfolio and the declining collateral values Provisions for impairment of loans mn ( 426 mn for the year 2011) Events following Eurogroup s decisions on Cyprus have significantly impacted the Bank of Cyprus Group o Disposal of the Greek operations, Acquisition of Laiki Bank s operations in Cyprus and the UK and Disposal of retail business in Romania o Recapitalisation via a bail-in of depositors. According to the Resolution Authority, the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio Nicosia, 11 October 2013 This announcement should be read in conjunction with the Annual Financial Report of Bank of Cyprus Group for the year 2012.

3 A. Summary of Group Financial Results for the year 2012 The year 2012 was characterised by the continuing economic recession and the deepening sovereign and financial crisis which led Cyprus to request the provision of financial assistance from other member states of the European Union and the International Monetary Fund. Amidst these adverse conditions, the Bank of Cyprus Group s ( Bank or Group ) profit before impairments and restructuring costs 1 reached 620 mn, noting a decline of 22% compared to Provisions for impairment of loans and advances have increased significantly ( mn in 2012, compared with 426 mn in 2011), reflecting the deterioration in the quality of the loan portfolio and the declining collateral values. Loss after tax for 2012, including the impairment of Greek Government Bonds (GGBs) ( 188 mn), the impairment of goodwill and other intangible assets ( 360 mn) and the restructuring costs ( 21 mn), reached mn compared to mn for The non-performing loans 2 ratio at 31 December 2012 reached 23,7%, compared to 10,2% at 31 December Taking into account the deterioration of its loan portfolio and the declining collateral values, the Group recorded significantly higher levels of provisions for impairment of loans, with accumulated provisions for impairment of loans reaching 3,7 bn and the provision coverage ratio of non-performing loans amounting to 55%. Despite the prevailing adverse economic conditions which affected the trust and confidence of depositors, the total deposits of the Group as at 31 December 2012 amounted to 28,4 bn, declining by 4% on an annual basis. As at 31 December 2012, the Group s net loans to deposits ratio stood at 86%, while the Group had no Eurosystem funding. At 31 December 2012, the Group s equity amounted to 258 mn. At 31 December 2012, the Group had Tier 1 capital ratio of 0,6% and a negative Core Tier 1 capital ratio of -1,9%. Following the Eurogroup s decisions on Cyprus, the Bank was placed under Resolution, from 25 March 2013 to 30 July , and was recapitalised via a bail-in of depositors and restructured in accordance with the decrees issued by the Central Bank of Cyprus in its capacity as Resolution Authority in accordance with the Resolution of Credit Institutions and Other Institutions Law of According to the Resolution Authority the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio. The events of March 2013 have adversely impacted the 2012 results with respect to conditions that existed at 31 December 2012, such as the recoverability of deferred tax assets in Greece, expectations about the realisable values from collaterals and the impact on the impairment testing on the assessment of the goodwill of overseas subsidiaries. 1 Profit before impairments and restructuring costs does not include impairment of loans and advances, GGBs, goodwill and other intangible assets. 2 Non-performing loans are defined as loans in arrears for longer than three months which are not fully covered by tangible collateral. 3 On 25 March 2013, the Central Bank of Cyprus in its capacity as Resolution Authority placed the Bank under Resolution and appointed a Special Administrator to implement the restructuring of the Bank. An interim Board of Directors was appointed by the Resolution Authority on 26 April

4 The main financial highlights of the Group for 2012 are set out below: Table 1 Main financial highlights for 2012 mn Annual Change Total Income -12% Profit before impairments and restructuring costs 5-22% Provisions for impairment of loans and advances +441% (2.306) (426) Impairment of GGBs and change in fair value of related hedging derivatives and tax - (188) (1.682) Impairment of goodwill and other intangible assets - (360) - Restructuring costs - (21) - Loss after tax +63% (2.214) (1.359) Basic loss per share (cent) -8 cent (144) (152) Cost / Income ratio +6,1 p.p.* 54,3% 48,2% Net Interest Margin + 1 b.p.* 2,99% 2,98% Table 2 Main financial highlights as at Annual Change Total Gross Customer Loans ( bn) -3% 28,1 28,9 Total Customer Deposits ( bn) -4% 28,4 29,7 Net Loans to Deposits ratio -6 p.p.* 86% 92% Non-Performing Loans ratio 6 +13,5 p.p.* 23,7% 10,2% * p.p. = percentage points, 1 percentage point = 1% * b.p. = basis points, 100 b.p. = 1 percentage point (1%) Total income: Total income for 2012 reached mn recording a 12% reduction compared to Total income was positively affected by profits from financial instruments and negatively affected by the reduced net interest income and the loss from revaluation of investment properties. Net interest income for the year 2012 reached mn noting a reduction of 13% compared to the previous year, mainly due to lower customer spreads as a result of the increase in impaired loans and the increase in the cost of deposits. Profits from financial instruments for 2012 reached 83 mn ( 49 mn for 2011) and include a realised gain of 97 mn from the participation in the repurchase programme by the Greek Republic of the new GGBs. Other income amounted in total, to a net expense of 4 Restated due to change in accounting policy with respect to IAS 19 'Employee Benefits'. 5 Profit before impairments and restructuring costs does not include impairment of loans and advances, GGBs, goodwill and other intangible assets. 6 Non-performing loans are defined as loans in arrears for longer than three months which are not fully covered by tangible collateral. 2

5 19 mn compared to an income of 31 mn for the year 2011, mainly due the o loss on the revaluation of investment properties (primarily repossessed assets) of 25 mn. Total expenses: Total expenses for 2012 reached 737 mn recording a small decrease (1%) compared to Staff costs have been reduced by 8% year on year reaching 397 mn, as a result of the lower employee retirement benefit costs in Cyprus (due to the change of the main retirement benefit plan from a defined benefit plan to a defined contribution plan). Other operating expenses reached 340 mn in 2012 compared to 312 mn in 2011, noting an increase of 9%, mainly due to higher legal claims costs. Efficiency: The cost to income ratio for 2012 increased to 54,3% from 48,2% in 2011, due to the decrease of total income. Profit before impairments and restructuring costs: Profit declined by 22% compared to 2011 and reached 620 mn, mainly due to lower income compared to Provisions for impairment of loans and advances: The ongoing deterioration of the economic environment in Cyprus and Greece has significantly affected the quality of the loan portfolio, with non-performing loans increasing by 3,7 bn during 2012, thus resulting in a significant increase in the provisions for impairment of loans which reached mn for 2012, compared to 426 mn for 2011, noting an increase of 441%. The Bank in its provisioning assessment took into consideration the further expected decline in collateral values following March 2013 events. Impairment of GGBs, goodwill and other intangibles: Impairment of GGBs and change in fair value of related hedging derivatives and tax for the year 2012 amounted to 188 mn compared to mn for the year In addition, following a goodwill impairment testing, the Bank fully impaired goodwill and other intangibles that arose from the acquisition of Uniastrum Bank in Russia and Bank of Cyprus Ukraine, totaling 360 mn. Restructuring costs: Restructuring costs totaling 21 mn, include an 11 mn expense relating to the voluntary retirement scheme in Greece and costs of 10 mn relating to the preparation of the restructuring plan and the diagnostic stress test exercise performed by PIMCO on behalf of the Cypriot Authorities and the Troika. Interest margin: The Group s net interest margin was maintained at 2,99% for 2012 (2,98% for 2011). The net interest margin for the last quarter of 2012 declined to 2,55% from 2,91% in the third quarter of 2012 as increased impaired loans resulted in lower recognised interest income. Loans and deposits: As at 31 December 2012, Group gross loans and deposits were 28,1 bn and 28,4 bn respectively. Funding structure: The Group s net loans to deposits ratio reached 86% at 31 December As at 31 December 2012, the Group had no funding from the Eurosystem. Loan portfolio quality: The non-performing loans ratio reached 23,7% at 31 December 2012 compared to 17,1% at 30 September 2012 and 10,2% at 31 December The non-performing loans provision coverage ratio (accumulated provisions as a percentage of non-performing loans) was 55% at 31 December 2012 compared to 47% at 30 September 2012 and 51% at 31 December Impaired loans (loans with a specific provision) and loans past-due for more than 90 days but not impaired, (together referred to as loans in arrears for more than 90 days), 3

6 accounted for 27,4% of gross loans as at 31 December 2012 compared to 22,9% at 30 September 2012 and 17,2% at 31 December B. Events After 31 December 2012 Following Cyprus request for the provision of financial assistance from other member states of the European Union, on 25 March 2013, the Cypriot government and the Eurogroup reached an agreement on a financial assistance facility of up to 10 bn to be granted to Cyprus, conditioned upon the implementation of an extensive programme of policy reforms. A Memorandum of Understanding (MoU) has been agreed between Cyprus and the Troika (European Commission, European Central Bank and the International Monetary Fund) on a package of measures for the years which includes financial sector reform, fiscal policy and fiscal structural measures, labour market reforms and improvements in goods and services markets. The package of measures included in the MoU are aimed at restoring the soundness of the Cypriot financial sector, address the general government deficit, increase the efficiency of public spending, improve the functioning of the public sector and support competiveness and sustainable balanced growth. In its statement on 25 March , Eurogroup noted that the Cyprus Popular Bank Public Co Ltd (second largest bank in Cyprus) would be resolved, that Bank of Cyprus would be recapitalised via a bail-in of its depositors and none of the programme s money would be used for its recapitalisation. The Bank was under resolution from 25 March 2013 until 30 July 2013, a period during which it was recapitalised and restructured in accordance with the decrees issued by the Central Bank of Cyprus in its capacity as Resolution Authority, in accordance with the Resolution of Credit Institutions and Other Institutions Law of The recapitalisation was implemented via the bail-in of depositors, through the conversion of 47,5% of unsecured deposits into equity 8. In addition, the holders of ordinary shares and debt securities 9 issued by the Bank as of 29 March 2013 have contributed to the recapitalisation through the absorption of losses. According to the Resolution Authority, the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio. Following the recapitalisation, the share capital of the Bank amounted to 4,7 bn. The shareholding structure of the Bank as at the above date comprised of 81% from shareholders arising from the conversion of deposits to equity, 0,5% from shareholders arising from the conversion of shares and debt securities in issue as of 29 March 2013 and 18,1% held by the Cyprus Popular Bank Ltd (Laiki Bank) as per the Bank of Cyprus Share Capital Issue for Compensation of Cyprus Popular Bank Public Co Ltd Decree of See link 8 As per the Bailing-in of Bank of Cyprus Public Company Limited Decrees of 2013 up to (No. 3), issued by the Central Bank of Cyprus in its capacity as Resolution Authority. Unsecured deposits are also calculated pursuant to the provisions of the Decrees. 9 Holders of the Bank s subordinated debt and claims as of 29 March 2013 have been affected according to the provisions of the Bailing-in of Bank of Cyprus Public Company Limited Decree of 2013 and the Bailing-in of Bank of Cyprus Public Company Limited Amended (No. 3) Decree of 2013 issued by the Central Bank of Cyprus under its capacity as Resolution Authority on the 29 March 2013 and 30 July 2013 respectively. 4

7 Pursuant to the decisions of the Eurogroup and the relevant decrees issued by the Central Bank of Cyprus, in its capacity as Resolution Authority, the Bank has: Disposed its loans, fixed assets and deposits of the Group in Greece to Piraeus Bank A.E. 10 Based on preliminary (unaudited) financial information Piraeus Bank acquired assets of 7,9 bn and liabilities of 7,7 bn. The Group made a payment to Piraeus Bank of 1,2 bn, resulting in a loss currently estimated at approximately 1,4 bn. This loss represents future expected losses for three years to June 2015 and other adjustments as determined by the Resolution Authority. Acquired from Cyprus Popular Bank Public Company Ltd (Laiki Bank) assets and uninsured deposits in Cyprus as well as Eurosystem funding of 9 bn. 11 The Bank is currently in the process of assessing the fair value of the transferred assets and liabilities for the purposes of accounting for the business combination of the Group with Laiki Bank on 29 March 2013 under IFRS. Acquired the business of Laiki Bank s branch in the United Kingdom. 12 Disposed the majority of deposits and part of the loans (mainly retail loans) of Bank of Cyprus branch in Romania to Marfin Bank (Romania) SA. 13 As a result of the above and other actions, the Group s customer deposits totalled 19 bn as at 31 March 2013, with deposits in Cyprus accounting for 85% of the total. The rest of the deposits were primarily in the operations in the United Kingdom (8%) and in Russia (6%). Gross loans amounted to 28 bn, of which 84% were in Cyprus, 7% in Russia and 6% in the United Kingdom. On 10 September 2013, the Bank held an Annual General Meeting which elected a new Board of Directors. C. Prospects for 2013 Faced with an unprecedented and intensifying economic crisis, the consequences of the Eurogroup decisions and the events after the balance sheet date as described above, Bank of Cyprus will define its strategy, business model and risk appetite, via a restructuring plan as per the requirements of the MoU between the Republic of Cyprus and the Troika. The plan, which is in the process of being finalised, will be submitted to the Central Bank of Cyprus for approval in October 2013 as per the requirements of the MoU. The plan will chart the Group s strategy, business model and risk appetite. The recapitalisation of the Bank, and the restructuring currently in progress, aim to create a healthy financial institution, able to best serve client needs and contribute to the recovery of the Cyprus economy by: Rebuilding trust and confidence of both depositors and investors in the Group. Preserving the Bank s status as the cornerstone of the domestic economy, continuing to support both businesses and households. Building a resilient institution, able to effectively manage its portfolio of assets and withstand further external shocks and economic turbulence. 10 As per the Sale of the Greek operations of Bank of Cyprus Public Company Ltd Decree of 2013, issued by the Central Bank of Cyprus in its capacity as Resolution Authority. 11 As per the Sale of certain operations of Cyprus Popular Bank Public Co Ltd Decrees of 2013, issued by the Central Bank of Cyprus in its capacity as Resolution Authority. 12 As per the Sale of certain operations in the United Kingdom of Cyprus Popular Bank Public Co Ltd Decree of 2013, issued by the Central Bank of Cyprus in its capacity as Resolution Authority. 13 As per the Sale of certain operations in Romania of Bank of Cyprus Public Company Ltd Decree of 2013, issued by the Central Bank of Cyprus in its capacity as Resolution Authority. 5

8 Smoothly integrating ex-laiki Bank operations, maximising synergies and bottomline impact for the combined entity through the realisation of synergies. Enhance the capital adequacy of the Group by internally generating capital through profitability, deleveraging and disposal of non-core assets. In an effort to improve its operational efficiency after the absorption of the Cypriot operations of Laiki Bank, where branches increased to 203 and staff to about 5.720, the Bank proceeded with decisive measures towards the restructuring of its Cyprus operations. A significant reduction in branch numbers has already been achieved, with the total number of branches in Cyprus decreased to 158. In addition, the Group offered a Voluntary Retirement Scheme (VRS) by which personnel has been reduced by to approximately (a reduction of full time employees by 25%). Following the VRS and salary cuts in Cyprus, staff costs in Cyprus have been reduced by 35% on an annualised basis for the combined operations of the Bank and Laiki Bank. The above provide a very important step towards the restructuring of the Group s Cyprus operations, the integration of Laiki Bank s operations and the restoration of the Bank s financial strength. Despite the above measures that support the Bank s pre-provision profitability, provisions for impairment of loans and advances are expected to remain high, as more borrowers are expected to default while collateral values are expected to fall even further, leading to increased non-performing loans and provisions for impairment. The decisions of the Eurogroup for the recapitalisation of the Bank via a bail-in of depositors and for the resolution of Laiki Bank have significantly dented the trust and confidence of customers towards the banking system in general. As a result, restrictive measures and capital controls with respect to banking and cash transactions were introduced by the authorities in March 2013 to prevent large deposit outflows and to preserve the solvency and liquidity of the credit institutions in Cyprus. These measures include restrictions on cash withdrawals, compulsory renewal of maturing deposits and restrictions on capital movements and are constantly being reviewed and revised. The temporary restrictive measures and capital controls are allowing the Bank some headroom to manage the risk of an outflow of deposits. In order to improve its liquidity position the Bank is deleveraging through the sale of assets and is stepping up its marketing efforts, both locally and internationally, launching new products to attract new deposits and planning the issue of bonds eligible for European Central Bank (ECB) collateral. Finally, on 1 August 2013 the Bank was reinstated as an eligible counterparty by the ECB for monetary policy operations. This has resulted in a reduction of Emergency Liquidity Assistance funding, as the Bank has regained access to direct funding from the ECB for monetary policy operations with improved terms that support the Bank s profitability and enhance confidence. D. Analysis of Results for the year 2012 D.1 Analysis of income The net interest income for 2012 reached mn, noting a 13% decrease compared to mn for Net interest income declined in Cyprus by 15% to 514 mn from 609 mn for 2011, and in Greece by 7% to 310 mn from 332 mn for The Group s net interest margin reached 2,99% for 2012 compared to 2,98% for The net interest margin for the last quarter of 2012 declined to 2,55% from 2,91% in the third 6

9 quarter of 2012 due to the increase in impaired loans, resulting into lower recognised interest income. Net fee and commission income was reduced by 6% compared to 2011 and amounted to 219 mn for Foreign exchange income and net gains on other financial instruments for 2012 amounted to 83 mn compared to 49 mn for These profits include a realised gain of 97 mn for the year 2012, recorded in Greece, from the participation in the repurchase programme of GGBs and a gain of 9 mn for the year 2011 from the sale of the banking subsidiary in Australia. Other income for the year 2012 amounted in total, to a net expense of 19 mn compared to an income of 31 mn for the year 2011, mainly due to loss on the revaluation of investment properties (primarily repossessed assets) of 25 mn. D.2 Analysis of expenses Total expenses for 2012 amounted to 737 mn recording an annual decrease of 1% compared to 744 mn for 2011.The cost to income ratio increased by 6,1 percentage points compared to 2011, reaching 54,3%. Staff costs amounted to 397 mn recording a decrease of 8% compared to 2011, mainly due to the lower employee retirement benefit costs as a result of the change of the main retirement benefit plan in Cyprus from a defined benefit plan to a defined contribution plan. The Group s other operating expenses (excluding staff costs) amounted to 340 mn in 2012 compared to 312 mn in 2011 noting an increase of 9%. D.3 Impairment of GGBs, Change in Fair Value of Related Hedging Derivatives and the Related Tax At the exchange of GGBs through the Private Sector Involvement (PSI) (March/April 2012) the Group received new GGBs of nominal value of 709 mn. On the date of exchange, the new GGBs were measured at their fair value at an average price of 21% of their nominal value based on the settlement price of credit default swaps for GGBs at the relevant auction. As a result, in addition to the impairment recognised in 2011, an additional loss before tax of 109 mn was recognised in the results for the year In addition to the loss arising on the initial recognition of the new bonds in March/April 2012, an additional loss before tax of 34 mn was recognised relating to changes in the fair value of derivatives used to hedge the interest rate risk of the GGBs. The derivatives have been terminated by April In December 2012, the Group participated in the voluntary repurchase of new GGBs by the Hellenic Republic. As a result the Group disposed all of its GGBs and realised a gain of 97 mn, which is included in gains from financial instruments. During the nine months of 2012 the Group has recognised a deferred tax asset of 223 mn relating to future tax benefits from the utilisation of the impairment losses of GGBs in Greece. This asset has been written off in the last quarter of 2012 as a result of the disposal of the Group s Greek operations in

10 D.4 Impairment of goodwill and other intangible assets Goodwill impairment testing performed as at 31 December 2012 indicated that there was impairment of goodwill as a result of the reduction of expected future cash flows of Uniastrum Bank in Russia and Bank of Cyprus Ukraine, both acquired in As a result, the Bank fully impaired goodwill and other intangibles that arose from the acquisition for the above subsidiaries amounting to 360mn in the fourth quarter of It is noted that goodwill impairment has no effect on the Group s liquidity and regulatory capital. D.5 Restructuring costs Restructuring costs totalling 21 mn, include a 11 mn expense relating to the voluntary retirement plan in Greece and costs of 10 mn relating to the preparation of the restructuring plan and the stress test exercise carried out by the Central Bank of Cyprus. E. Loan Portfolio Quality The quality of the Group s loan portfolio deteriorated significantly during 2012 due to the escalating economic crisis in Cyprus and Greece which led to an increase in unemployment, a significant credit crunch due to shortage of liquidity and the declining property prices which affect the value of collaterals held by the Group. Non-performing loans (loans in arrears for more than three months which are not fully covered by tangible collateral) increased by mn during the 4th quarter of 2012 and totalled mn at 31 December The ratio of non-performing loans to gross loans of the Group reached 23,7% at 31 December 2012 compared to 17,1% at 30 September 2012 and 10,2% at 31 December At 31 December 2012, the relevant ratio was 24,2% in Cyprus (31 December 2011: 9,5%) and 26,1% in Greece (31 December 2011: 11,6%). It is noted that the Central Bank of Cyprus has issued a new Directive for the Definition of Non-performing and Restructured Credit Facilities which is effective from 1 July Impaired loans (loans with a specific provision) and loans past-due for more than 90 days, together referred to as loans in arrears for more than 90 days, accounted for 27,4% of gross loans as at 31 December 2012 compared to 17,2% at 31 December 2011 and 22,9% at 30 September Provisions for the impairment of loans and advances have been significantly increased to mn for 2012 from 426 mn for 2011, an increase of 441%, recording a higher charge for impairment of loans for the period, which amounted to 8,1% of total loans on an annualised basis for 2012 (year 2011: 1,5%). Provisions in Cyprus increased to mn for 2012 compared to 132 mn for 2011 reflecting the significant increase in non-performing loans (increase of 2,2 bn during 2012). The Bank in its provisioning assessment took into consideration the further expected decline in collateral values following March 2013 events. Provisions in Greece increased to 967 mn for 2012 compared to 217 mn for 2011 due to the further deterioration of the economic environment and the prolonged recession. 14 For more information on this directive, please see 8

11 Provisions for impairment of loans as per IFRS (incurred loss model), require recognition of impairment losses that arose from past events and prohibit recognition of impairment losses that could arise from future events, no matter how likely those events be. The Group s non-performing loans coverage ratio (accumulated provisions / non-performing loans) reached 55% at 31 December 2012, compared to 47% at 30 September 2012 and 51% at 31 December F. Balance Sheet Analysis F.1 Group Loans As at 31 December 2012, Group loans before provisions amounted to 28,1 bn, recording a decrease of 3% since 31 December 2011 due to deleveraging in Greece, the United Kingdom and Romania. Table 3 Analysis of Gross Loans by Geographic Sector at mn Annual +% Contribution Cyprus % 53% Greece % 34% Russia % 7% United Kingdom % 3% Ukraine 331 0% 1% Romania 550-6% 2% Group % 100% F.2 Group Deposits The Group s total deposits at 31 December 2012 reached 28,4 bn recording a decrease of 4% since 31 December Table 4 Analysis of Deposits by Geographic Sector at mn Annual +% Contribution Cyprus % 65% Greece % 25% Russia % 5% United Kingdom % 4% Ukraine % 0% Romania % 1% Group % 100% 9

12 F.3 Capital Base At 31 December 2012, the Group s equity amounted to 258 mn. At 31 December 2012, the Group had Tier 1 capital ratio of 0,6% and a negative Core Tier 1 capital ratio of -1,9%. The minimum capital adequacy ratios set by the Central Bank of Cyprus for 31 December 2012 are set at 8,7% for Core Tier 1, 10,2% for Tier 1 and 12,2% for the total adequacy ratios. The minimum capital adequacy ratios are currently calculated based on a Central Bank Directive issued in July The MoU indicates that the Central Bank of Cyprus will increase the minimum Core Tier 1 capital ratio to 9% by 31 December The Group participated in a Capital Exercise conducted in 2011 by the European Banking Authority (EBA) in cooperation with the Central Bank of Cyprus (using September 2011 data). On 27 June 2012, in light of the 30 June 2012 deadline for the recapitalisation of banks, the Group announced that it was not able to fully cover the capital shortfall as estimated by the EBA and as a result applied to the Republic of Cyprus for capital support. Furthermore, in June 2012 the Republic of Cyprus applied for the provision of financial assistance from other member states of the European Union and the International Monetary Fund. The macroeconomic adjustments programme that was discussed between Cyprus and the Troika (comprising European Commission, European Central Bank and International Monetary Fund) was finalised on 25 March 2013, whereby the Cypriot government and the Eurogroup reached an agreement on the key elements of the programme. The financial assistance facility of up to 10 bn granted to Cyprus is conditional upon the implementation of an extensive programme of policy reforms. In its statement on 25 March , Eurogroup noted that the Cyprus Popular Bank Public Co Ltd (second largest bank in Cyprus) would be resolved, that Bank of Cyprus would be recapitalised via a bail-in of its depositors and none of the programme s money would be used for its recapitalisation. Following the Eurogroup s decisions on Cyprus, the Bank was placed under Resolution, from 25 March 2013 to 30 July , and was recapitalised via a bail-in of depositors and restructured in accordance with the decrees issued by the Central Bank of Cyprus in its capacity as Resolution Authority in accordance with the Resolution of Credit Institutions and Other Institutions Law of The recapitalisation was implemented via the bail-in of depositors, through the conversion of 47,5% of unsecured deposits into equity 18. In addition, the holders of ordinary shares and debt securities 19 issued by the Bank as of 29 March 2013 have contributed to the recapitalisation of the Bank through the absorption of losses. According to the Resolution Authority, the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio. 15 See link 16 See link 17 On 25 March 2013, the Central Bank of Cyprus in its capacity as Resolution Authority placed the Bank under Resolution and appointed a special administrator to implement the restructuring of the Bank. An interim Board of Directors was appointed by the Central Bank of Cyprus in its capacity as Resolution Authority on 26 April As per the Bailing-in of Bank of Cyprus Public Company Limited Decrees of 2013 up to (No. 3), issued by the Central Bank of Cyprus in its capacity as Resolution Authority. Unsecured deposits are also calculated pursuant to the provisions of the Decrees. 19 Holders of the Bank s subordinated debt and claims as of 29 March 2013 have been affected according to the provisions of the Bailing-in of Bank of Cyprus Public Company Limited Decree of 2013 and the Bailing-in of Bank of Cyprus Public Company Limited Amended (No. 3) Decree of 2013 issued by the Central Bank of Cyprus under its capacity as Resolution Authority on the 29 March 2013 and 30 July 2013 respectively. 10

13 Table 5 Analysis of Group Income Statement mn Annual change +% 4Q12 3Q12 Quarterly change +% Net interest income % % Net fee and commission income % % Net foreign exchange income and net gains on other financial instruments and disposal of subsidiaries % % Insurance income net of insurance claims % % Other (expenses)/income (19) % (24) 2 - Total income % % Staff costs (397) (432) -8% (101) (103) -2% Other operating expenses (340) (312) +9% (131) (47) +184% Total expenses (737) (744) -1% (232) (150) +55% Profit before impairments and restructuring costs % % Provisions for impairment of loans and advances (2.306) (426) +441% (1.484) (254) +485% Share of loss of associate - (1) -115% (Loss)/profit before tax and impairments and restructuring costs (1.686) % (1.380) (70) - Tax 32 (54) -158% 23 (8) -370% Loss attributable to non - controlling interests % % (Loss)/profit after tax and before impairments and restructuring costs (1.645) % (1.354) (77) - Restructuring Costs (21) - - (21) - - Impairment of GGBs and change in fair value of related hedging instruments including taxation (188) (1.682) - (268) - - Impairment of goodwill and other intangible assets (360) - - (360) - - Loss after tax (2.214) (1.359) +63% (2.003) (77) - Net Interest Margin (NIM) 2,99% 2,98% +1 b.p.* 2,55% 2,91% -36 b.p.* Cost to Income 54,3% 48,2% +6,1 p.p.* 69,1% 44,8% +24,3 p.p.* * b.p. = basis points, 100 b.p. = 1 percentage point (1%) 11

14 Table 6 Geographical Sector Analysis of Results and Other Financial Information Analysis does not include the impairment of GGBs, goodwill and other intangibles, the changes in fair value of hedging derivatives used to hedge GGBs and related tax mn Cyprus Greece Russia Other countries +% % % % Net interest income -15% % % % Net fee and commission income -2% % % % 7 11 Net foreign exchange income and (losses)/gains from financial instruments and disposal of subsidiaries -134% (13) % % 4 1 Insurance income net of insurance claims +5% % Other (expenses)/income -103% (1) % (30) 6-88% % 11 3 Total income -19% % % % Staff costs -8% (205) (223) -5% (108) (114) -1% (62) (62) -30% (22) (33) Other operating expenses +24% (172) (139) +9% (91) (83) -10% (52) (59) -20% (25) (30) Total expenses 20 +4% (377) (362) +1% (199) (197) -5% (114) (121) -25% (47) (63) Profit before impairments and restructuring costs -36% % % % Contribution 50% 61% 35% 26% 8% 7% 7% 6% Provisions for impairment of loans and advances +803% (1.186) (132) +345% (967) (217) +63% (89) (54) +178% (64) (23) Share of loss of associate -102% (0) (1) (0) -- (Loss)/profit before tax and before impairments and restructuring costs -348% (877) (744) (13) (43) 4-191% (22) 26 Tax -212% 43 (38) +129% (13) (6) -110% 1 (4) -129% 1 (6) Non - controlling interests (loss/(profit)) -54% % (Loss)/profit after tax and before impairments and restructuring costs -361% (832) (757) (19) - (35) 3-209% (21) 20 Net Interest Margin (NIM) -35 b.p. 2,05% 2,40% +36 b.p. 3,10% 2,74% -59 b.p. 5,25% 5,84% +14 b.p. 2,71% 2,57% Cost/Income Ratio +12,2 p.p. 54,9% 42,7% -2,1 p.p. 47,0% 49,1% +4,0 p.p. 71,2% 67,2% -2,8 p.p. 53,8% 56,6% * b.p. = basis points, 100 b.p. = 1 percentage point (1%) 20 Total expenses exclude Restructuring Costs totaling 21 mn, comprising of a 11 mn expense relating to the voluntary retirement plan in Greece and of costs 10 mn relating to the preparation of the restructuring plan and the stress test exercise carried out by the Central Bank of Cyprus. 12

15 Table 7 Condensed Balance Sheet mn +% Cash and balances with central banks -7% Placements with banks and reverse repurchase agreements -38% Debt securities, Treasury bills and equity investments -48% Net loans and advances to customers -11% Other assets -25% Total assets -17% Amounts due to banks and repurchase agreements -75% Customer deposits -4% Debt securities in issue -10% Other liabilities -22% Subordinated loan stock +4% Total liabilities -13% Share capital +100% Share premium reserve -63% Convertible Enhanced Capital Securities -50% Revaluation and other reserves Accumulated losses +272% (2.500) (671) Shareholder s equity -89% Non controlling interest -9% Total equity -86% Total liabilities and equity -17% Restated due to change in accounting policy Notes: 1. All geographical sector analyses are shown following restatements made to bring each sector s capital to the same percentage level of the sector s risk weighted assets as well as to reflect the excess/shortfall liquidity. 2. This announcement should be read in conjunction with the Annual Financial Report of Bank of Cyprus Group for the year 2012 which is available at the Bank of Cyprus Public Company Ltd Registered Office and on the Group s website, as follows: Registered Office: 51 Stassinos Street, Ayia Paraskevi, Strovolos, P.O. Box 24884, 1398 Nicosia, Cyprus Telephone: , Fax: Website: Relations/Financial Information) 3. The detailed presentation of the audited financial results for 2012 has been posted on the Group s website Relations/Presentations). 13

16 Bank of Cyprus Group Financial Results for the year ended 31 December 2012 Financial Results 2012 Highlights Income Statement Review Balance Sheet Review Performance by Geographical Market Events after 31 December 2012 Appendices 10 October

17 Disclaimer Certain statements, beliefs and opinions in this presentation are forward-looking. Such statements can be generally identified by the use of terms such as believes, expects, may, will, should, would, could, plans, anticipates and comparable terms and the negatives of such terms. By their nature, forward-looking statements involve risks and uncertainties and assumptions about the Group that could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. We have based these forwardlooking statements on our current expectations and projections about future events. Any statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which are based on facts known to and/ or assumptions made by the Group only as of the date of this presentation. We assume no obligation to update such forward -looking statements or to update the reasons that actual results could differ materially from those anticipated in such forward-looking statements. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any security in any jurisdiction in the United States, to United States Domiciles or otherwise. The delivery of this presentation shall under no circumstances imply that there has been no change in the affairs of the Group or that the information set forth herein is complete or correct as of any date. This presentation shall not be used in connection with any investment decision regarding any of our securities, which should only be made based on expressly authorised materials from us identified as such, nor in connection with any decision whether or how to vote on any matter submitted to our stockholders. The securities issued by Bank of Cyprus Public Company Ltd have not been, and will not be, registered under the US Securities Act of 1933 ( the Securities Act ), or under the applicable securities laws of Canada, Australia or Japan. 2

18 Table of Contents I. Financial Results Highlights II. Income Statement Review III. Balance Sheet Review IV. Performance by Geographical Market V. Events after 31 December 2012 VI. Appendices 3

19 Financial Results Highlights Financial Results 2012 Highlights Income Statement Review Balance Sheet Review Performance by Geographical Market Events after 31 December 2012 Appendices 4

20 FY12 Financial Highlights Income Statement Net interest income at 1.011mn (-13% yoy) due to the decrease in interest spread as a result of the increase in impaired loans and the cost of deposits Profit before impairments and restructuring costs 620 mn (-22% yoy) Provisions for impairment of loans mn (+441% yoy) Impairment of goodwill and intangible assets 360 mn Loss after tax mn Balance Sheet Gross loans at 28,1 bn (-3% yoy), deposits at 28,4 bn (-4% yoy) Group net loans to deposits ratio at 86% Deposits to total assets at 92% No Eurosystem funding at 31 December 2012 Asset Quality NPLs ratio at 23,7%, with NPLs provisioning coverage at 55% Impaired loans (loans with specific provision) and loans not impaired but pastdue over 90 days (in aggregate loans in arrears > 90 days) accounted for 27,4% of gross loans Capital Position Core Tier 1 ratio at -1,9% and Tier 1 ratio at 0,6% As per Eurogroup decisions, the Bank has been recapitalised through a bail-in of depositors with full contribution of holders of equity and debt during 2013 According to the Resolution Authority, the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio 5

21 Income Statement Review Financial Results 2012 Highlights Income Statement Review Balance Sheet Review Performance by Geographical Market Events after 31 December 2012 Appendices 6

22 Profit and Loss highlights Group Amounts in mn FY12 FY11 Change Total Income % Profit before impairments and restructuring costs % Provisions for impairment of loans and advances (2.306) (426) +441% Restructuring costs (21) Impairment of GGBs, change in fair value of related hedging derivatives and tax* (188) (1.682) -- Impairment of goodwill and other intangible assets** (360) Loss after tax (2.214) (1.359) +63% * Impairment of GGBs, change in fair value of related hedging instruments and tax amounting to 188 mn is the net amount of: Impairment of GGBs and change in fair value of related hedging instruments of 144 mn Write-off of net deferred tax asset of 44 mn relating to future tax benefits from the impairment losses of GGBs in Greece This asset has been written off in the 4th quarter 2012 as a result of the disposal of the Group s Greek operations in 2013 ** Impairment of goodwill and other intangibles that arose from the acquisition of Uniastrum Bank in Russia and Bank of Cyprus Ukraine was recorded in the 4 th quarter of

23 Analysis of income Group Profit & Loss highlights ( mn) FY09 FY10 FY11 FY12-13% % % 620 CAGR 7% CAGR 2% CAGR 0% Net Interest Income Operating income Profit before impairments and restructuring costs FY12 Net interest income reduction due to the exchange of the GGBs with new GGBs and the decrease in interest spread as a result of the increase of impaired loans and cost of deposits Operating income affected by: FY12 Profits from financial instruments of 83 mn (compared to 49 mn for FY11) mainly due to a realised gain of 97 mn from the repurchase programme of new GGBs FY12 Other income amounted in total to a net expense of 19 mn, mainly due to loss of the revaluation of investment properties of 25 mn 8

24 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Interest Margins and Net Interest Income Group Group Net Interest Margin (bp) Quarterly Net Interest Income ( mn) FY11: 298 FY12: Net Interest Income and NIM FY08 FY09 FY10 FY11 FY12 Net Interest Income ( mn) Net Interest Margin (bp) FY12 Group NIM at 2,99%, +1 basis points compared to FY11 (2,98%) 4Q12 Group NIM at 2,55% due to lower recognised interest income on impaired loans FY12 Net Interest Income at mn (-13% yoy) 4Q12 Net Interest Income at 202 mn, compared to 251 mn for 3Q12 9

25 Analysis of expenses Group Profit & Loss highlights ( mn) FY09 FY10 FY11 FY12-1% CAGR -1% -8% % CAGR 9% CAGR 3% 737 Staff costs Other operating expenses Total expenses FY12 Staff costs reduced as a result of the lower employee retirement benefit cost in Cyprus due to the change of the main retirement benefit plan from a defined benefit plan to a defined contribution plan FY12 Other operating expenses include higher legal claims costs FY12 Cost of Income ratio of 54,3%, compared to 48,2% for FY11 FY12 Total expenses exclude Restructuring costs of 21 mn, relating to (a) 11 mn from Voluntary Retirement Plan in Greece and (b) 10 mn from the preparation of the restructuring plan and the diagnostic stress test exercise performed by PIMCO 10

26 Balance Sheet Review Financial Results 2012 Highlights Income Statement Review Balance Sheet Review Performance by Geographical Market Events after 31 December 2012 Appendices 11

27 Funding Structure Group Net Loans % Customer deposits Customer deposits % Total Assets 92% 92% 93% 94% 93% 86% 79% 76% 76% 77% Eurosystem funding 9,3% 9,0% 10,0% 10,0% 5,2% 6,0% 4,1% 3,3% 3,5% 3,7 3,5 3,7 3,7 2,2 1,7 1,4 1,4 2,1 0 Dec-09 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Funding ( bn) Funding % Total Assets Net Loans/Deposits ratio at 86% Primarily deposit funded: 92% of assets funded by customer deposits Limited reliance on wholesale funding: As at 31 December 2012 subordinated and senior bonds 172 mn No funding from the Eurosystem at 31 December 2012 (ECB & ELA) 12

28 Gross loans and deposits Group Gross loans and deposits ( bn) FY09 FY10 FY11 FY12-3% 33,0-4% 28,9 28,9 28,6 29,7 28,1 28,4 26,5 CAGR 2% CAGR 0% Gross Loans Customer Deposits Balanced expansion always a priority for the Group Adverse economic conditions in 2011 and 2012 affected growth of loans and deposits 13

29 Analysis of Gross Loans Group Loans by geography Other countries Russia Greece Cyprus 28,9 28,8 28,5 28,2 28,1 2,0 1,9 1,8 1,7 2,0 2,1 2,1 2,1 1,7 2,0 10,0 9,8 9,7 9,5 9,5 14,9 15,0 14,9 14,9 14,9 Total ( bn) Loans by sector Consumer Credit Mortgage SMEs Corporate 28,9 28,8 28,5 28,2 28,1 3,6 3,6 3,5 3,4 3,8 5,4 5,3 5,4 5,5 5,5 7,2 7,0 6,9 6,6 6,0 12,7 12,9 12,7 12,7 12,8 Total ( bn) Other countries: Romania, Ukraine and United Kingdom 14

30 Analysis of Customer Deposits Group Deposits by geography Other countries Russia Greece Cyprus - IBU Cyprus - Non-IBU 29,7 29,2 28,2 27,9 28,4 1,5 1,4 1,5 1,6 1,4 1,3 1,3 1,3 1,3 1,3 7,7 7,2 6,3 6,5 7,2 8,0 7,8 7,3 7,2 7,8 11,2 11,5 11,8 11,3 10, Total ( bn) Deposits by type Current and demand accounts Savings accounts 29,7 29,2 28,2 27,9 28,4 6,6 6,5 6,2 5,9 6,4 2,3 2,1 2,1 2,0 1,9 Total ( bn) Time deposits 20,8 20,6 19,9 20,0 20, Other countries: Romania, Ukraine and United Kingdom IBU: International Business Units 15

31 Loan quality Group Non-performing loans by Geography Other Russia Greece Cyprus Group asset quality indicators NPLs Provision Coverage NPLs ratio Loans in arrears>90 days 51% 46% 50% 47% 55% 27,4% 22,9% 17,2% 17,6% 18,0% 23,7% 17,1% 14,2% 10,2% 11,9% Group Non-performing loans (NPLs defined as loans in arrears for longer than 90 days which are not fully covered by tangible collateral) increased by 3,7 bn during 2012 ( 1,8 bn during 4Q-12) On-going deterioration of loan portfolio due to the intensified economic crisis in the main markets, with NPLs: in Cyprus increasing by 2,2 bn in 2012 ( 1,2 mn during the 4Q-12) in Greece increasing by 1,3 bn in 2012 Group NPLs ratio at 23,7%, NPLs provision coverage improved to 55% Central Bank of Cyprus issued a new directive on the definition of NPLs and Restructuring Credit Facilities which is effective from 1 July

32 18,1% 15,9% 17,4% 16,5% 20,2% 16,6% 23,3% 23,3% 19,1% 28,1% 29,0% 24,5% 9,5% 11,6% 11,4% 11,5% 13,4% 11,8% 12,8% 17,3% 12,7% 15,8% 20,9% 14,8% 24,2% 26,1% 18,0% Loan quality Group NPLs ratio in main markets Cyprus Greece Russia Group 23,7% 10,2% 11,9% 14,2% 17,1% NPLs ratio in Cyprus at 24,2% and in Greece at 26,1% Loans in arrears > 90 days Cyprus Greece Russia Group 27,4% 22,9% 17,2% 18,0% Loans in arrears > 90 Days: Impaired loans (loans with specific provision) and loans not impaired but past-due over 90 days Loans in arrears > 90 Days: accounted for 27,4% of gross loans Ratio of Loans in arrears > 90 days in Cyprus at 28,1% and in Greece at 29,0% Central Bank of Cyprus issued a new directive on the definition of NPLs and Restructuring Credit Facilities which is effective from 1 July

33 Provisions for impairment of loans Group Accumulated provisions ( mn) The increase in provisions reflects the sharp increase in nonperforming loans The Bank in its provisioning assessment took into consideration the further expected decline in collateral values following March 2013 events Accumulated provisions (%) Gross Loans 13,1% 8,0% 7,1% 5,2% 5,5% 4,0% Provisions for impairment of loans (as per IFRS) require recognition of impairment losses that arose from past events and prohibit recognition of impairment losses that could arise from future events, no matter how likely those events be

34 Capital position Group Capital adequacy ratios 3,6% 7,5% 7,8% 6,8% 8,9% 9,2% 7,3% 7,6% 7,3% 5,1% 5,0% 7,6% 0,6% 0,9% Core Tier 1 ratio Tier 1 ratio Total Capital ratio -1,9% ,8 Evolution of RWAs ( bn) 25,2 24,1 23,6-13% yoy -9% qoq 21, Core Tier 1 capital ratio at -1,9%, Tier 1 capital ratio at 0,6% and Total capital ratio at 0,9% RWAs optimisation through Deleveraging Enhancing collaterals Investing in lower risk assets 19

35 Capital position Group ( mn) Shareholders equity Core Tier I capital Hybrid capital (Tier I) Tier I capital Tier II capital Total regulatory capital Risk weighted assets At 31 December 2012 the Group had a Core Tier 1 capital ratio of -1,9%, Tier 1 capital ratio of 0,6% and Total capital of 0,9% Minimum capital requirements set by the Central Bank of Cyprus are; Core Tier 1 capital ratio 8,7% Tier 1 capital ratio 10,2% Total capital ratio 12,2% EBA stress test revealed capital needs which the Group was not able to fully cover. In June 2012 the Bank applied to the Republic of Cyprus for capital support. As per Eurogroup decisions, the Bank has been recapitalised through a bail-in of depositors with full contribution of holders of equity and debt during 2013 As per the Resolution Authority, the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio 20

36 Performance by Geographical Market Financial Results 2012 Highlights Income Statement Review Balance Sheet Review Performance by Geographical Market Events after 31 December 2012 Appendices 21

37 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Financial performance in Cyprus Cyprus Profit & Loss Highlights ( mn) Cyprus NII ( mn), NIM and Spread (bp) FY11 FY12 NII NIM Customer Spread -15% -36% +803% Net Interest Income Profit before provisions Provisions Profit/(Loss) after tax* Cost to Income ratio (%) 54,9% 46,0% 44,0% 42,7% FY09 FY10 FY11 FY12 FY12 Cyprus performance affected by: Decrease of Net Interest Income (-15% yoy) Total Income (-19% yoy) Provisions at mn (+803% yoy) reflecting the sharp increase in NPLs and the further expected decline in collateral values which have been affected by the March 2013 events Restructuring costs of 10 mn relating to the preparation of restructuring plan and the diagnostic stress test exercise performed by PIMCO * Excluding (a) the impairment of GGBs, goodwill and other intangibles, (b) the change in fair value of related hedging instruments, (c) the related taxation and (d) restructuring costs 22

38 7,2% 6,8% 6,4% 17,0% 16,3% 15,8% 11,6% 24,3% 24,1% 20,4% 19,5% 15,3% 22,8% 19,2% 18,6% Loans market position Cyprus Gross Loans (bn) Corporate SMEs Mortgage Consumer Credit 14,9 14,9 14,9 14,9 1,9 1,9 1,8 1,8 3,5 3,5 3,8 3,7 2,5 2,5 2,3 2,3 7,0 7,0 7,0 7,1 0% yoy -8% yoy +7% yoy -10% yoy +2% yoy Loans market share (%) BOC Laiki Hellenic Coops International Banks Source: Central Bank of Cyprus, market shares between commercial, international banks and Co-ops 23

39 Deposits market position Cyprus Deposits ( bn) IBUs Non-IBUs 19,6 19,0 20,2 19,6 19,2 19,2 19,1 18,5 18,5 14,7 9,8 10,2 10,8 11,2 7,9 11,2 11,4 11,8 11,3 10,7-3% yoy -4% yoy 6,8 9,9 8,9 9,4 8,4 8,0 7,8 7,3 7,2 7,8-3% yoy 30% 25% 20% 15% 10% 5% Deposits Market Share (%) * 27,0% 21,6% 13,2% 13,0% 10,2% BOC Laiki Hellenic International banks Coops * Source: Central Bank of Cyprus, Financial system market shares 24

40 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Financial Performance in Greece Greece Profit & Loss Highlights ( mn) +345% -7% % FY11 FY12 Greece NII ( mn), NIM and Spread (bp) NII NIM Customer Spread Net Interest Income Profit before provisions Provisions -757 Loss after tax* Cost to Income ratio (%) 56,0% 57,0% 51,0% 49,1% 47,0% FY08 FY09 FY10 FY11 FY12 FY12 Greece performance affected by: Decrease in net interest income (-7% yoy) Higher gains from financial instruments ( 86 mn compared to 1 mn for 2011 mainly from the participation in the repurchase programme of the new GGBs) Significant increase in provisions (+345% yoy) due the further deterioration of the economic environment and the prolonged recession Restructuring costs of 11 mn relating to the voluntary retirement plan * Excluding (a) the impairment of GGBs, (b) the change in fair value of related hedging instruments, (c) the related taxation and (d) restructuring costs 25

41 Loans and Deposits in Greece Greece Gross Loans ( bn) Corporate SMEs Mortgage Consumer Credit 10,0 9,7 9,5 9,5 1,3 1,2 1,2 1,7 1,7 1,7 1,6 1,6 3,6 3,4 3,4 2,7 3,4 3,3 3,3 3, % yoy +24% yoy -4% yoy -24% yoy +2% yoy Active efforts to reduce the loan book During 1H-2012 deposits decreased by 18% due to the political uncertainty relating to elections period During 2H-2012 deposits increased by 14% Deposits ( bn) and Loans-to- Deposits ratio 121% 127% 138% 130% 111% Ratio of net loans to deposits improved to 111%, compared to 138% in June ,7 7,2 6,3 6,5 7,2 Deposits 1H2012: -18% 2H2012: +14% Deposits L/D ratio 26

42 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Russian operations Russia -7% Profit & Loss Highlights ( mn) -22% +63% FY11 FY Russia NII ( mn) & NIM (bp) Net Interest Income Net Interest Margin Net Interest Income Profit before provisions -35 Provisions Profit/(Loss) after tax FY12 Russia performance affected by: Reduction in net interest income (-7% yoy) Lower NIM (FY12: 5,25% vs FY11: 5,84%) Profit before provisions at 46 mn (-22% yoy) Higher provisions +63% yoy 27

43 Russian operations Russia Gross Loans ( bn) Customer Deposits ( bn) 2,00 2,09 2,09 2,08 2,02 1,12 1,29 1,35 1,25 1,28 1,25 1, Loan diversification Consumer Credit 20% Mortgages 3% SMEs 18% Corporate 59% Focus on SME and consumer credit Increase in loans by +1% yoy Efforts to become self-funded 28

44 Operations in Romania and Ukraine Romania - Ukraine 23,3 Profit and Loss Highlights Romania ( mn) FY11 19,8 16,1 17,5 FY12 40,0 8,5 5,9-22,3 22,4 Profit and Loss Highlights Ukraine ( mn) 24,3 10,5 FY11 14,2 FY12 6,9 11,9 3,2 2,6 Net Interest Income Profit before provisions Provisions Profit/(loss) after tax Net Interest Income Profit before provisions Provisions Profit after tax Romania Loans ( mn) Ukraine loans ( mn)

45 Operations in United Kingdom Profit and Loss Highlights UK ( mn) 28,6 22,4 Net Interest Income 12,7 FY11 9,0 Profit before provisions FY12 12,4 6,6 5,0 Provisions -2,1 Profit after tax The banking business of UK branch (Bank of Cyprus UK) was transferred to a banking subsidiary (Bank of Cyprus UK Limited) effective on 25 June 2012 Bank of Cyprus UK Limited is a UK-based banking subsidiary, that is fully authorised and regulated by the Prudential Regulation Authority UK Loans and Deposits ( mn) A fully self-funded subsidiary with a ratio of net loans to deposits of 70% Loans Deposits

46 Events after 31 December 2012 Financial Results 2012 Highlights Income Statement Review Balance Sheet Review Performance by Geographical Market Events after 31 December 2012 Appendices 31

47 Timeline of events after 31 December Mar-2013: 1 st Eurogroup Statement on Cyprus 22-Mar-2013: Parliament approved Resolution of Credit and Other Institutions Law Mar-2013: 2 nd Eurogroup Statement on Cyprus, calling for Bank of Cyprus (BOC) recapitalisation through a bail-in of depositors 25-Mar-2013: BOC and Cyprus Popular Bank (Laiki Bank) placed under Resolution -Appointment of Special Administrators 25-Mar-2013: Resolution Authority issued a decree for the sale of BOC s banking operations in Greece to Piraeus Bank 29-Mar-2013: Resolution Authority issued a decree for the recapitalisation of BOC through a bail in of depositors effective on 26 March 2013 balances (37,5% of uninsured deposits as defined by the decree) 29-Mar-2013: Resolution Authority issued a decree for acquisition by BOC of Laiki Bank s insured deposits, ELA funding and selected assets 01-Apr-2013: Resolution Authority issued a decree for the acquisition of Laiki-UK s loans by BOC and by deposits by BOC-UK 25-Apr-2013: Resolution Authority issued a decree for the disposal of certain assets and liabilities of BOC to Marfin Bank Romania Apr-2013: Resolution Authority appoints Interim Board of Directors and CEO 30-Jul-2013: Resolution Authority issued a decree for the completion of the recapitalisation (10% of uninsured deposits as defined in the decree) 30-Jul-2013: Exit from Resolution status 10-Sep-2013: Shareholder s General Meeting - Election of new Board of Directors Decrees were issued by the Central Bank of Cyprus in its capacity as Resolution Authority 32

48 Recapitalisation* through Bail-in Shareholder s structure following recapitalisation Conversion of Deposits 81% Shares and Debt Securities as at 29 March ,5% Cyprus Popular Bank 18% Share capital of 4,7 bn with ordinary shares of a nominal value of 1 The only shareholder owning more than 5% of the Bank s share capital is Cyprus Popular Bank Ltd. * Recapitalisation as per the Bailing-in of Bank of Cyprus Public Company Limited Decrees of 2013 up to (No. 3), issued by the Central Bank of Cyprus in its capacity as Resolution Authority. Unsecured deposits are also calculated pursuant to the provisions of the Decrees On 25 March 2013 the Cypriot government and the Eurogroup reached an agreement on a financial assistance facility of up to 10 bn to be granted to Cyprus, and a Memorandum of Understanding (MoU) on a package of measures for the years Eurogoup decided that Bank of Cyprus would be recapitalised via a bail-in of its depositors Recapitalisation* Holders of ordinary shares and debt securities issued by the Bank as of 29 March 2013 contributed through the absorption of losses Conversion of 47,5% of unsecured deposits to equity (shares) According to Resolution Authority, the Bank has been recapitalised to a level which can sustain possible future losses on its loan portfolio 33

49 Disposals & Acquisitions as per Resolutions Authority Decrees Disposal of Greek operations Net Assets Disposed mn Relevant Decrees* issued by the Central Bank of Cyprus in its capacity as Resolution Authority relate to: Loans and advances to customers 7,770 Property and equipment 98 Customer Deposits (7,654) Total net assets disposed 214 Less: Net consideration paid (1,153) Loss on disposal 1,367 *Sale of the Greek operations of Bank of Cyprus Public Company Ltd Decree of 2013, Sale of certain operations of Cyprus Popular Bank Public Co Ltd Decrees of 2013, Sale of certain operations in the United Kingdom of Cyprus Popular Bank Public Co Ltd Decree of 2013, Sale of certain operations in Romania of Bank of Cyprus Public Company Ltd Decree of All decrees were issued by the Central Bank of Cyprus in its capacity as Resolution Authority. Disposal of Greek operations to Piraeus Bank Loss of 1,4 bn, represents future expected losses for three years to June 2015 and other adjustments as determined by the Resolution Authority. Acquisition from Laiki Bank assets and insured deposits in Cyprus, including Eurosystem funding of 9 bn Acquisition of Laiki Bank s branch in the UK. Acquired deposits of 0,3 bn and Balances with Bank of England of 0,3 bn Disposal of certain gross assets 82 mn including customer deposits of 77 mn and part of the loans (and related collateral) of Bank of Cyprus branch in Romania to Marfin Bank 34

50 Restructuring Initial Restructuring actions aimed at the stabilitisation and the continuing viability of the Bank, the quick absorption of the Laiki operations and the improvement of the operational efficiency Decisive measures toward restructuring Reduction of branches From 203 branches in Cyprus following Laiki s acquisition To 158 as at 1 October 2013 Voluntary Retirement Scheme (VRS) to personnel From in Cyprus following Laiki Bank s acquisition To following VRS Staff costs reduced by around 35% on an annualised basis for the combined operations Restructuring Plan to be submitted for approval in October 2013 will chart the future strategic direction of the Group Rebuilding trust and confidence of both depositors and investors Preserving the Bank s status as the cornerstone of the domestic economy, continuing to support both businesses and households Building a resilient institution, able to effectively manage its portfolio of assets and withstand further external shocks and economic turbulence Smoothly integrating Laiki Bank s operations, maximising synergies and bottom-line impact for the combined entity through the realisation of synergies Enhance the capital adequacy of the Group by internally generating capital through profitability, deleveraging and disposal of non-core assets 35