ANNOUNCEMENT. Subject: Financial Results of the Group of Hellenic Bank Public Company Ltd for the six-month period ended 30 th June 2018

Transcription

1 10 th September, 2018 ANNOUNCEMENT Subject: Financial Results of the Group of Hellenic Bank Public Company Ltd for the six-month period ended 30 th June 2018 Hellenic Bank Public Company Ltd (the Bank ) announces that, the Board of Directors of the Bank during its meeting held on 7 th September 2018 approved, inter alia, the Financial Results of the Group of Hellenic Bank for the six-month period ended 30 th June 2018, and pursuant to the Regulations of the Cyprus Stock Exchange and Cyprus Securities and Exchange Commission, please find attached hereto: (a) the Condensed Consolidated Financial Statements of the Group of Hellenic Bank for the six-month period ended 30 th June 2018, (b) the relevant Commentary, (c) the Press Release which will be sent to the press for publication, (d) the relevant Financial Results Presentation and (e) the Condensed Consolidated Financial Results and Commentary of the Group of Hellenic Bank for the six-month period ended 30 th June 2018, which will be published in newspaper Phileleftheros on Tuesday 11 th September Copies of the Financial Results for the six-month period ended 30 th June 2018, as approved by the Board of Directors, will be available at the Head Office of Hellenic Bank, Corner Limassol Avenue & 200 Athalassas Avenue, Strovolos, Nicosia (5 th floor-financial Management). The Financial Results will also be available on the Bank s website HELLENIC BANK PUBLIC COMPANY LTD

2 Hellenic Bank Group Condensed Consolidated Financial Statements For the six-month period ended 30 June 2018

3 Hellenic Bank Group Condensed Consolidated Financial Statements For the six-month period ended 30 June 2018 CONTENTS Independent Auditors' Report on Review of Condensed Consolidated Interim Financial Statements to Hellenic Bank Public Company Limited 1 Condensed Consolidated Income Statement for the six-month period ended 30 June Condensed Consolidated Income Statement for the three-month period ended 30 June Condensed Consolidated Statement of Comprehensive Income for the six-month period ended 30 June Condensed Consolidated Statement of Comprehensive Income for the three-month period ended 30 June Condensed Consolidated Statement of Financial Position at 30 June Condensed Consolidated Statement of Changes in Equity for the six-month period ended 30 June Condensed Consolidated Statement of Cash Flows for the six-month period ended 30 June NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS INCORPORATION AND PRINCIPAL ACTIVITY SIGNIFICANT ACCOUNTING POLICIES Basis of preparation Adoption of new and revised International Financial Reporting Standards (IFRSs) and interpretations Comparatives IFRS 9 TRANSITION IMPACT ANALYSIS Changes in accounting policies and impact of adoption IFRS 9 - Summary of significant accounting policies applied from 1 January USE OF ESTIMATES AND JUDGEMENTS Measurement of expected credit loss (ECL) allowance Provisions for pending litigations or complaints and/or claims or cases subject to arbitration proceedings Impairment of goodwill and investments in subsidiaries and associated companies Fair value of investments Business Models and SPPI Properties held for sale/stock of properties held for sale Taxation SEGMENTAL ANALYSIS ADMINISTRATIVE AND OTHER EXPENSES REVERSAL OF IMPAIRMENT LOSSES/(IMPAIRMENT LOSSES) AND PROVISIONS TO COVER CREDIT RISK TAXATION BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE LOANS AND ADVANCES TO CUSTOMERS DEBT SECURITIES RECLASSIFICATION OF DEBT SECURITIES EQUITY AND OTHER SECURITIES AND COLLECTIVE INVESTMENT UNITS INVESTMENT IN ASSOCIATE COMPANY PROPERTY, PLANT AND EQUIPMENT DEFERRED TAX ASSET/DEFERRED TAX LIABILITY OTHER ASSETS LOAN CAPITAL SHARE CAPITAL REVALUATION RESERVES CONTINGENT LIABILITIES AND COMMITMENTS RELATED PARTY TRANSACTIONS FAIR VALUE ECONOMIC ENVIRONMENT CAPITAL BASE AND ADEQUACY BANK RECOVERY AND RESOLUTION DIRECTIVE (BRRD) DEPOSIT INSURANCE SCHEMES EU-WIDE STRESS TEST DECISIONS OF THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF HELLENIC BANK PUBLIC COMPANY LIMITED HELLENIC BANK S AGREEMENT TO ACQUIRE CERTAIN ASSETS AND LIABILITIES OF THE CYPRUS COOPERATIVE BANK EVENTS AFTER THE REPORTING PERIOD APPROVAL OF FINANCIAL STATEMENTS 67 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE DECLARATION BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BANK OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE FINANCIAL STATEMENTS 74

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6 HELLENIC BANK GROUP Condensed Consolidated Income Statement for the six-month period ended 30 June 2018 Six-month period ended 30 June Note '000 '000 Turnover Net interest income Net fee and commission income Net gains on disposal and revaluation of foreign currencies and financial instruments Other income Total net income Staff costs (37.606) (43.415) Depreciation and amortisation 15 (4.676) (3.650) Administrative and other expenses 6 (42.620) (29.607) Total expenses (84.902) (76.672) Profit from ordinary operations before impairment losses and provisions to cover credit risk Reversal of impairment losses/(impairment losses) and provisions to cover credit risk (77.627) Profit/(loss) before share of results of associate company (25.802) Share of results of associate company net of taxation Profit/(loss) before taxation (25.802) Taxation 8 (3.544) Profit/(loss) for the period (22.885) Profit/(loss) attributable to: Shareholders of the parent company (23.383) Non-controlling interests Profit/(loss) for the period (22.885) Basic and diluted earnings/(loss) per share ( cent) 9 17,48 (11,78) The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 3

7 HELLENIC BANK GROUP Condensed Consolidated Income Statement for the three-month period ended 30 June 2018 Three-month period ended 30 June '000 '000 Turnover Net interest income Net fee and commission income Net gains on disposal and revaluation of foreign currencies and financial instruments Other income Total net income Staff costs (18.039) (22.501) Depreciation and amortisation (2.402) (1.836) Administrative and other expenses (23.480) (13.286) Total expenses (43.921) (37.623) Profit from ordinary operations before impairment losses and provisions to cover credit risk Reversal of impairment losses/(impairment losses) and provisions to cover credit risk (50.313) Profit/(loss) before share of results of associate company (15.563) Share of results of associate company net of taxation Profit/(loss) before taxation (15.563) Taxation (2.402) Profit/(loss) for the period (12.805) Profit/(loss) attributable to: Shareholders of the parent company (12.871) Non-controlling interests Profit/(loss) for the period (12.805) The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 4

8 HELLENIC BANK GROUP Condensed Consolidated Statement of Comprehensive Income for the six-month period ended 30 June 2018 Six-month period ended 30 June Note '000 '000 Profit/(loss) for the period (22.885) Other comprehensive (expenses)/income Items that will not be reclassified in the income statement Taxation relating to components of other comprehensive income (20) Net revaluation deficit of investments in equity and other securities and collective investment units at fair value through other comprehensive income 20 (16) N/A 99 (20) Items that are or may be reclassified subsequently in the income statement Net revaluation surplus of investments in equity and other securities and collective investment units and debt securities available for sale 20 N/A Net revaluation deficit of investments in debt securities measured at fair value through other comprehensive income 20 (8.973) N/A Net revaluation surplus of investments in debt securities at fair value through other comprehensive income reclassified to income statement on disposal 20 (18.281) - Amortisation of revaluation of reclassified investments in debt securities available for sale 12 - (74) (27.254) Other comprehensive (expenses)/income for the period net of taxation (27.155) Total comprehensive income/(expenses) for the period (4.253) Total comprehensive income/(expenses) for the period attributable to: Shareholders of the parent company (4.744) Non-controlling interests (4.253) The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 5

9 HELLENIC BANK GROUP Condensed Consolidated Statement of Comprehensive Income for the three-month period ended 30 June 2018 Three-month period ended 30 June '000 '000 Profit/(loss) for the period (12.805) Other comprehensive (expenses)/income Items that will not be reclassified in the income statement Taxation relating to components of other comprehensive income 104 (26) Net revaluation surplus of investments in equity and other securities and collective investment units at fair value through other comprehensive income 54 N/A 158 (26) Items that are or may be reclassified subsequently in the income statement Net revaluation surplus of investments in equity and other securities and collective investment units and debt securities available for sale N/A Net revaluation deficit of investments in debt securities measured at fair value through other comprehensive income (3.485) N/A Amortisation of revaluation of reclassified investments in debt securities available for sale - (1) (3.485) Other comprehensive (expenses)/income for the period net of taxation (3.327) Total comprehensive income/(expenses) for the period (753) Total comprehensive income/(expenses) for the period attributable to: Shareholders of the parent company (825) Non-controlling interests (753) The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 6

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11 HELLENIC BANK GROUP Condensed Consolidated Statement of Changes in Equity for the six-month period ended 30 June 2018 Attributable to shareholders of the parent company Share capital (Note 19) Reduction of share capital reserve Share premium reserve Revenue reserve Translation reserve Revaluation reserves (Note 20) Total Noncontrolling interests Total '000 '000 '000 '000 '000 '000 '000 '000 '000 Balance 1 January ( ) Changes on initial application of IFRS (35.671) (33.684) - (33.684) Restated balance at 1 January ( ) Total comprehensive income/(expenses) for the period net of taxation Profit for the period Other comprehensive expenses (27.155) (27.155) - (27.155) Transfer due to the disposal of investments in equity and other securities and collective investment units measured at fair value through other comprehensive income (110) Transfer of excess depreciation on revaluation surplus (203) Transfer due to the disposal of immovable property (396) (27.864) Balance 30 June ( ) The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 8

12 HELLENIC BANK GROUP Condensed Consolidated Statement of Changes in Equity for the six-month period ended 30 June 2018 Attributable to shareholders of the parent company Share capital Reduction of share capital reserve Share premium reserve Revenue reserve Translation reserve Revaluation reserves (Note 20) Total Noncontrolling interests Total '000 '000 '000 '000 '000 '000 '000 '000 '000 Balance 1 January ( ) Total comprehensive (expenses)/income for the period net of taxation (Loss)/profit for the period (23.383) - - (23.383) 498 (22.885) Other comprehensive income/(expenses) (7) Transfer due to disposal of immovable property (429) Transfer of excess depreciation on revaluation surplus (24) (22.930) (4.744) 491 (4.253) Balance 30 June ( ) The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 9

13 HELLENIC BANK GROUP Condensed Consolidated Statement of Cash Flows for the six-month period ended 30 June 2018 Six-month period ended 30 June '000 '000 Cash flow from operating activities Profit/(loss) for the period (22.885) Adjustments to profit/(loss) for the period (34.013) Operating profit before working capital changes Working capital changes ( ) Net cash from/(used in) operating activities before taxation ( ) Tax paid (147) (285) Net cash from/(used in) operating activities ( ) Cash flow from investing activities Net proceeds from the sale of Non-Performing Loan portfolio and Real Estate Management Business Acquisition of investment in associate company - (6.811) Income from investments in debt and equity and other securities and collective investment units Net (additions)/disposals/maturity of investment in debt and equity and other securities and collective investment units Acquisitions less proceeds from disposal of property, plant and equipment and intangible assets (5.014) (7.983) Dividend received from associate company Proceeds from disposal of assets held for sale Net cash from investing activities Cash flow from financing activities Interest paid on loan capital (120) (120) Net cash used in financing activities (120) (120) Net increase/(decrease) in cash and cash equivalents (82.684) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The notes on pages 11 to 67 form an integral part of the Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 10

14 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS The Condensed Consolidated Interim Financial Statements for the six-month period ended 30 June 2018 have not been audited by the independent auditors of the Group. The independent auditors of the Group have conducted a review in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial Information performed by the Independent Auditor of the Entity issued by the International Auditing and Assurance Standards Board. 1. INCORPORATION AND PRINCIPAL ACTIVITY Hellenic Bank Public Company Limited (the "Bank") was incorporated in Cyprus and is a public company in accordance with the provisions of the Companies Law (Cap. 113), the Cyprus Stock Exchange Laws and Regulations and the Income Tax Laws. The Bank s registered office is located at 200, Corner of Limassol and Athalassa Avenues, 2025 Strovolos, P.O. Box 24747, 1394 Nicosia. The Bank is the holding company of Hellenic Bank Group (the "Group"). The principal activity of the Group is the provision of a wide range of banking and financial services, which include financial, investment and insurance services, custodian and factoring services as well as management and disposal of properties. The Condensed Consolidated Interim Financial Statements for the six-month period ended 30 June 2018 (hereafter refer to as "Financial Statements") comprise of the Financial Statements of Hellenic Bank Public Company Limited and its subsidiary companies, which together are referred to as the Group. 2. SIGNIFICANT ACCOUNTING POLICIES 2.1. Basis of preparation The Financial Statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting" as adopted by the European Union (EU) and should be read in conjunction with the Audited Consolidated Financial Statements for the year ended 31 December The Financial Statements do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group s financial position and performance since the last annual financial statements. The Financial Statements are presented in Euro ( ), which is the functional currency of the Bank. All figures have been rounded to the nearest thousand, except when otherwise indicated Adoption of new and revised International Financial Reporting Standards (IFRSs) and interpretations The accounting policies adopted in respect of items considered material in relation to the Financial Statements are consistent with the accounting policies applied in the Annual Report and Financial Statements for the year ended 31 December 2017, except for the adoption of new and revised standards, interpretations and amendments to existing standards with effect from 1 January 2018 and onwards as described below. The changes in accounting policies are also expected to be reflected in the Group s consolidated financial statements as at and for the year ending 31 December (i) Recently adopted IFRSs and interpretations The following Standards and interpretations are those standards and interpretations which are relevant to the Group and which have been applied in the preparation of these Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 11

15 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (continued) IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2018) The Group has adopted IFRS 9 as issued by the International Accounting Standards Board (IASB) in July 2014 with a date of transition of 1 January 2018, which resulted in changes in our accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets. The Group did not early adopt any of IFRS 9 requirements in the previous periods. Please refer to "IFRS 9 Transition Impact Analysis" section for the impact on the Group s Consolidated Financial Statements (Note 3). IFRS 15 "Revenue from Contracts with Customers" (effective for annual periods beginning on or after 1 January 2018) In May 2014, the IASB issued IFRS 15 "Revenue from Contracts with Customers" which is effective for annual periods beginning on or after 1 January In April 2016, the IASB issued clarifying amendments to IFRS 15 which provide additional application guidance but did not change the underlying principles of the standard. The standard was endorsed by the EU in September IFRS 15, which replaces IAS 18 "Revenue" and IAS 11 "Construction Contracts", provides a principles based approach for revenue recognition, and introduces the concept of recognising revenue for performance obligations as they are satisfied. The recognition of such revenue is in accordance with five steps to: 1) identifying the contract with the customer; 2) identifying each of the performance obligations included in the contract; 3) determining the transaction price; 4) allocating the transaction price to the performance obligations in the contract; and 5) recognising revenue as each performance obligation is satisfied. The Group has elected the cumulative effect transition method with a transition adjustment calculated as of 1 January 2018 recognised in retained earnings without restating comparative periods. The adoption of this Standard did not have a material effect on the retained earnings and the Financial Statements of the Group. IFRS 4 (Amendments) Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts" (effective for annual periods beginning on or after 1 January 2018) The amendments intend to address concerns about the different effective dates of IFRS 9 and the issued new insurance contracts standard (IFRS 17). The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4: a) an option permitting entities to reclassify from profit or loss to other comprehensive income some of the income or expenses arising from designated financial assets (overlay approach) or b) an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4 (deferral approach). The Group has elected the overlay approach. The adoption of this standard did not have a material effect on the Financial Statements of the Group. IFRS 2 (Amendments) "Classification and Measurement of Share based Payment Transactions" (effective for annual periods beginning on or after 1 January 2018) The amendments cover three main accounting areas: a) the effects of vesting conditions on the measurement of cash settled share based payments; b) classification of a share based payment transaction settled net of tax withholdings; and c) accounting where a modification to the terms and conditions of a share based payment transaction changes its classification from cash settled to equity settled. The new requirements could affect the classification and/or measurements of these arrangements and potentially the timing and amount of expense recognised for new and outstanding awards. The adoption of this Standard did not have a material effect on the Financial Statements of the Group. Hellenic Bank Group Condensed Consolidated Financial Statements 12

16 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (continued) IAS 40 (Amendments) "Transfers of Investment Property" (effective for annual periods beginning on or after 1 January 2018) The amendments clarify the requirements on transfers to, or from, investment property. A transfer is made when, and only when, there is an actual change in use i.e. an asset meets or ceases to meet the definition of investment property and there is evidence of the change in use. A change in management intention alone does not support a transfer. In addition, the amendments clarify that the revised examples of evidence of a change in use included in the amended version of IAS 40 are not exhaustive. The adoption of this Standard did not have a material effect on the Financial Statements of the Group. Annual Improvements to IFRSs Cycle (effective for annual periods beginning on or after 1 January 2018 (IFRS 1 and IAS 28)) The annual improvements impact three standards. The amendments to IFRS 1 remove the outdated exemptions for first time adopters of IFRSs. The amendments to IAS 28 clarify that the election to measure at fair value through profit or loss an investment in associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment by investment basis, upon initial recognition. The adoption of these standards did not have a material effect on the Financial Statements of the Group. IFRIC 22 "Foreign Currency Transactions and Advance Consideration" (effective for annual periods beginning on or after 1 January 2018) The interpretation clarifies how to determine the "date of transaction" for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non monetary asset or non monetary liability (e.g. a non refundable deposit or deferred revenue). IFRIC 22 specifies that the transaction date is the date on which the entity initially recognises the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The interpretation did not have a material impact on the Financial Statements of the Group. (ii) New IFRS s and interpretations The following Standards and interpretations have been issued but are not yet effective. The Group does not intend to adopt these standards prior to their effective date. Standards and Interpretations adopted by the European Union IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019) In January 2016, the IASB issued IFRS 16 "Leases", which will replace existing leases guidance including IAS 17 "Leases", IFRIC 4 "Determining whether an Arrangement contains a Lease", SIC 15 "Operating Leases-Incentives" and SIC 27 "Evaluating the Substance of Transactions Involving the Legal Form of a Lease". IFRS 16 introduces a single on balance sheet lease accounting model for lessees. A lessee recognises a right of use an asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional recognition exemptions for short term leases and leases of low value items. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as finance or operating leases. The standard was endorsed by the EU in November The Group is currently evaluating the expected impact of adopting the standard on its Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 13

17 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (continued) IFRS 9 (Amendments) "Prepayment Features with Negative Compensation" (effective for annual periods beginning on or after 1 January 2019) In October 2017, the IASB issued "Prepayment Features with Negative Compensation (Amendments to IFRS 9)".This amendment allows financial assets with such features to be measured at amortised cost or fair value through other comprehensive income provided that they meet the other relevant requirements of IFRS 9. The Group is currently evaluating the expected impact of adopting these amendments on its Financial Statements. Standards and Interpretations not adopted by the European Union IFRIC 23 "Uncertainty over Income Tax Treatments" (effective for annual periods beginning on or after 1 January 2019) IFRIC 23 clarifies the application of IAS 12 to accounting for income tax treatments that have yet to be accepted by tax authorities, in scenarios where it may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept an entity s tax treatment. The Group is currently evaluating the expected impact of adopting the interpretation on its Financial Statements. IFRS 17 "Insurance Contracts" (effective for annual periods beginning on or after 1 January 2021) In May 2017, the IASB issued IFRS 17 "Insurance Contracts", a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective IFRS 17 will replace IFRS 4 "Insurance Contract" that was issued in IFRS 17 applies to all types of insurance contracts (i.e. Life, Non-Life, direct insurance and reinsurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The Group is currently evaluating the expected impact of adopting this standard on its Financial Statements. IAS 28 (Amendments) "Long-term Interest in Associates and Joint Ventures" (effective for annual periods beginning on or after 1 January 2019) In October 2017, the IASB issued "Long-term interests in Associates and Joint Ventures" (Amendments to IAS 28). The amendments clarify that an entity applies IFRS 9 "Financial Instruments" to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture. The Group is currently evaluating the expected impact of adopting these amendments on its Financial Statements. Annual Improvements to IFRSs Cycle (effective for annual periods beginning on or after 1 January 2019) In December 2017, the IASB published Annual Improvements to IFRSs Cycle, containing the following amendments to IFRSs: IFRS 3 "Business Combinations" and IFRS 11 "Joint Arrangements". The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest in that business at fair value. The amendments to IFRS 11 clarify that when an entity maintains (or obtains) joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. IAS 12 "Income Taxes": the amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) are recognised consistently with the transactions that generated the distributable profits i.e. in profit or loss, OCI or equity. 14 Hellenic Bank Group Condensed Consolidated Financial Statements

18 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (continued) IAS 23 "Borrowing Costs": the amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings. The Group is currently evaluating the expected impact of adopting these amendments on its Financial Statements. IAS 19 (Amendments) "Plan Amendment, Curtailment or Settlement" (effective for annual periods beginning on or after 1 January 2019) In February 2018, the IASB issued amendments to the guidance in IAS 19, Employee Benefits, in connection with accounting for planned amendments, curtailments and settlements. The Group is currently evaluating the expected impact of adopting these amendments on its Financial Statements Comparatives Comparatives presented in the Financial Statements are restated, where considered necessary, to conform with changes in the presentation of the current period. 3. IFRS 9 TRANSITION IMPACT ANALYSIS 3.1 Changes in accounting policies and impact of adoption The Group has applied the requirements of IFRS 9 retrospectively as of 1 January 2018 by adjusting the opening statement of financial position and opening equity at 1 January As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative figures; accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and is therefore not comparable to the information presented for 2018 under IFRS 9 (marked by N/A in the relevant notes). Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition to IFRS 9 were recognised in the opening retained earnings and other reserves of the current period. The implementation of IFRS 9 as of 1 January 2018, led to a net reduction in the opening balance of the equity of the Group of 33,7 million (Bank: 33,6 million), net of taxes, representing: An increase of 1,9 million related to classification and measurement requirements, other than impairment; A reduction of 38,6 million related to the new impairment requirements (expected credit losses (ECL) model); and An increase of 3,0 million related to deferred tax impacts. Set out below are the aspects of the changes following the adoption of IFRS 9 with regards to classification and measurement and impairment as well as an overview of the impact on opening shareholder s equity. A reconciliation between IAS 39 reported numbers as included in the year-end Financial Statements 2017 to IFRS 9 numbers as adopted from 1 January 2018 is also included below. Comparative periods in the disclosures of the Financial Statements are presented in accordance with IAS 39. (a) Classification and measurement of financial instruments Οn adoption of the standard on 1 January 2018, the impact of the changes related to the classification and measurement of financial assets held as at 1 January 2018 (excluding impairment) is 1,9 million and is analysed as follows: Hellenic Bank Group Condensed Consolidated Financial Statements 15

19 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) The Group Note New New carrying Classification under IAS 39 classification under IFRS 9 Carrying amount IAS 39 amount IFRS 9 (before ECLs) '000 '000 Cash and balances with Loans and Amortised cost Central Banks Receivables Placements with other Loans and Amortised cost banks Receivables Loans and advances to 10 Loans and Amortised cost customers Receivables Debt securities 11 Held to maturity Amortised cost Debt securities 11 Held to maturity FVOCI* Debt securities 11 Loans and Amortised cost Receivables Debt securities 11 Available for FVOCI sale Debt securities 11 Available for Amortised cost sale Equity securities 13 Trading FVOCI (FVTPL**) Equity securities 13 Available for FVOCI sale Equity and other securities and collective 13 Available for sale FVTPL investment units Derivatives Trading (FVTPL) FVTPL *FVOCI: Fair value through other comprehensive income **FVTPL: Fair value through profit and loss There were no changes to the classification and measurement of financial liabilities. (b) Reconciliation of statement of financial position balances from IAS 39 to IFRS 9 The following table provides a comprehensive overview of the impact to the total assets under changes in classification and measurement and changes in impairment allowances from IAS 39 as of 31 December 2017 to IFRS 9 as of 1 January Hellenic Bank Group Condensed Consolidated Financial Statements 16

20 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) Reference IAS 39 Carrying Reclassifications Remeasurements amount (i) (ii) (iii) IFRS 9 carrying amount (iv) (iv=i+ii+iii) 31 December January 2018 '000 '000 '000 '000 Fair Value through profit or Loss (FVTPL) EQUITY AND OTHER SECURITIES AND COLLECTIVE INVESTMENT UNITS Opening balance under IAS Addition: From AFS (A) Subtraction: To FVOCI (B) - (450) - - Closing balance under IFRS DERIVATIVES Opening balance under IAS Closing balance under IFRS Total financial assets measured at FVTPL Fair Value through Other Comprehensive Income (FVOCI) EQUITY AND OTHER SECURITIES AND COLLECTIVE INVESTMENT UNITS Opening balance under IAS Remeasurement: From AFS to FV Addition: From FVTPL (B) Subtraction: To FVTPL (A) - (23.337) - - Closing balance under IFRS DEBT SECURITIES Opening balance under IAS Addition: From Amortised cost (C) Subtraction: To Amortised Cost (D) - (812) - - Remeasurement: from amortised cost to FV Remeasurement: ECL allowance - - (740) - Remeasurement: ECL allowance (FV adjustment) Closing balance under IFRS Total financial assets measured at FVOCI Amortised Cost DEBT SECURITIES Opening balance under IAS Subtraction: To FVOCI (C) - (38.942) - - Addition: From FVOCI (D) Remeasurement: from FVOCI to amortised cost - - (88) - Remeasurement: ECL allowance - - (634) - Closing balance under IFRS LOANS AND ADVANCES TO CUSTOMERS Opening balance under IAS Remeasurement: ECL allowance - - (37.931) - Closing balance under IFRS CASH AND BALANCES WITH CENTRAL BANKS Opening balance under IAS Remeasurement: ECL allowance - - (8) - Closing balance under IFRS PLACEMENTS WITH OTHER BANKS Opening balance under IAS Remeasurement: ECL allowance - - (75) - Closing balance under IFRS Hellenic Bank Group Condensed Consolidated Financial Statements 17

21 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) Reference IAS 39 Carrying Reclassifications Remeasurements amount (i) (ii) (iii) IFRS 9 carrying amount (iv) (iv=i+ii+iii) 31 December January 2018 '000 '000 '000 '000 Total financial assets at amortised cost (38.130) (38.736) PROVISIONS TO COVER CREDIT RISK RESULTING FROM COMMITMENTS AND GUARANTEES Opening balance under IAS 39 (11.503) Remeasurement: ECL allowance Closing balance under IFRS 9 (11.425) TOTAL (36.720) IAS 39 Carrying amount (i) IFRS 9 carrying amount (iv) 31 December January 2018 '000 '000 Cash and balances with Central Banks Placements with other banks Loans and advances to customers Debt securities Equity securities and collective investment units and other securities Derivatives Provisions to cover credit risk resulting from commitments and guarantees The total remeasurement loss of 36,7 million, which was recognised in opening reserves, consists of an increase in allowances of 38,6 million and a positive increase of 1,9 million from reclassifications and remeasurements of financial assets. The Group s accounting policies on the classification and measurement and impairment under IFRS 9 are set out in Note 3.2 below. The Group s accounting policies on the use of estimates and judgements under IFRS 9 are set out in Notes 4.1 and 4.5. The split of the expected credit loss (ECL) to different stages of the Group s loan portfolio is analysed in Note IFRS 9 - Summary of significant accounting policies applied from 1 January 2018 Classification and Measurement Implementation IFRS 9 requires the classification of financial assets to be determined based on the Bank s business model used for managing financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). There was no change from IAS 39 for the classification and measurement of financial liabilities. Business Model Assessment Debt instruments that are held within a business model whose objective is to hold assets to collect contractual cash flows (the "hold to collect" business model) and their contractual terms meet the SPPI criterion will be classified at amortised cost. Those debt instruments held within a business model whose objective is achieved by both collecting contractual cash flows and selling the asset (the hold to collect and sell business model) and their contractual terms meet the SPPI criterion will be classified at FVOCI. Financial assets with contractual terms that do not meet the SPPI criterion are classified as FVTPL. Hellenic Bank Group Condensed Consolidated Financial Statements 18

22 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) The Group assessed the objective of the business model in which debt instruments are held at a portfolio level because this best reflects the way in which the business is managed, and information is provided to management. The assessment reflected: the stated policies and objectives for the portfolio and the operation of those policies in practice, how the performance of the business model and the financial assets held within that business model are evaluated and reported to the Bank s management, the risks that affect the performance of the business model and, in particular the way in which those risks are managed, the frequency, volume and timing of sales in prior periods, the reason for such sales and expectations about future sales activity, which should be considered as part of an overall assessment of how the Bank s stated objective for managing the financial assets is achieved and how cash flows are generated. Financial assets that are held for trading and those that are managed and whose performance is evaluated on a fair value basis will be measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. Assessment whether contractual cash flows are solely payments of principal and interest The Group assessed whether contractual cash flows represent, on specified dates, solely payments of principal and interest (SPPI). "Principal" is defined as the fair value of the financial asset on initial recognition. "Interest" is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. In assessing whether the contractual cash flows are SPPI, the Group considered the contractual terms of the instrument at product level. Financial Assets at amortised cost A financial asset is classified and subsequently measured at amortised cost, unless designated under the fair value option, if the financial asset is held in a "Hold to Collect" business model and the contractual cash flows are SPPI. At initial recognition, the financial asset is measured at fair value including any directly attributable transaction costs and amortised using the effective interest method. The carrying amount of these assets is adjusted by any expected credit loss allowance recognised and measured in accordance with IFRS 9 ECL model. Financial Assets at Fair Value through Other Comprehensive Income (FVOCI) A financial asset is classified and measured at fair value through other comprehensive income (FVOCI), unless designated under the fair value option, if the financial asset is held in a "Hold to Collect and Sell" business model and the contractual cash flows are SPPI. Upon subsequent measurement of FVOCI a gain or loss on financial asset shall be recognised in other comprehensive income, except for impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss. Hellenic Bank Group Condensed Consolidated Financial Statements 19

23 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) Financial Assets at Fair Value through Profit or Loss (FVTPL) A financial asset that has been originated, acquired or incurred principally for the purpose of trading or that is not managed within a "hold to collect" or a "hold to collect and sell" business model shall be measured at FVTPL. Trading financial assets include debt and equity securities and derivatives held for trading. Additionally, instruments for which the contractual cash flows do not meet the SPPI assessment must be measured at FVTPL even if they are managed within a business model whose objective is "hold to collect" or "hold to collect and sell". At initial recognition, the Bank may also choose to irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. Upon subsequent measurement of FVTPL a gain or loss on financial asset shall be recognised in profit or loss. Equity securities An equity instrument is any instrument that meets the definition of equity from the issuer s perspective. Equity instruments are measured at FVTPL, unless they are not held for trading purposes, in which case an irrevocable election can be made on initial recognition to measure them at FVOCI. For equity securities at FVOCI, gain or loss on derecognition is not transferred to profit or loss. No impairment loss is recognised in profit or loss. Derivatives Derivatives are recognised initially and are subsequently measured at fair value. Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of IFRS 9 are not separated. Instead, the hybrid financial instrument is assessed for classification in its entirety. Financial Liabilities For financial liabilities designated at fair value through profit or loss, gains or losses attributable to changes in own credit risk may be presented in other comprehensive income. Impairment Model Implementation The IFRS 9 "Expected Credit Loss (ECL)" approach applies to all debt instruments that are measured at amortised cost or FVOCI, and to off balance sheet lending commitments such as loan commitments and financial guarantees. This contrasts to the IAS 39 impairment model which was not applicable to loan commitments and financial guarantee contracts, as these were covered by IAS 37 "Provisions, Contingent Liabilities and Contingent Assets". Equity instruments are not in the scope of impairment. IFRS 9 replaces the existing "incurred loss" impairment approach with a forward looking ECL model where provisions are taken upon initial recognition of the financial asset reflecting expectations of potential credit losses at the time of initial recognition. The Group recognise a loss allowance for such losses at each reporting date. Hellenic Bank Group Condensed Consolidated Financial Statements 20

24 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) Measurement of ECL The measurement of ECL reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes and considering reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The Group calculates ECL as the product of probability of default (PD), exposure at default (EAD) and loss given default (LGD). Refer to sections below for details on each of these components. IFRS 9 requires a loss allowance to be recognised at an amount equal to either 12-month ECL or lifetime ECL. At initial recognition, an impairment allowance is required for expected credit losses (ECL) resulting from default events that are possible within the next 12 months (12-month ECL). In the event of a significant increase in credit risk, an allowance is required for ECL resulting from all possible default events over the expected life of the financial instrument (lifetime ECL). The ECL model has three stages which are based on the change in the credit quality of assets since initial recognition: Stage 1: Financial Instruments are classified as stage 1 when the credit risk has not increased significantly since initial recognition. The Group recognises a credit loss allowance at an amount equal to 12-month expected credit losses. Stage 2: Financial Instruments are classified as stage 2 when the credit risk has increased significantly since initial recognition but not to the point that the asset is credit impaired. The Group recognises a credit loss allowance at an amount equal to lifetime expected credit losses. Stage 3: Financial Instruments are classified as stage 3 when the credit quality of a financial asset deteriorates to the point that the asset is credit impaired. The Bank aligned Stage 3 classification with the NPE classification consistent with the definition used for internal credit risk management purposes. The Group recognises a credit loss allowance at an amount equal to lifetime expected credit losses. Financial assets that are credit-impaired upon initial recognition are categorized within Stage 3 with a carrying value already reflecting the lifetime expected credit losses. The accounting treatment for these purchased or originated credit-impaired (POCI) assets is discussed further below. For accounts that meet the criteria to be individually assessed for provisions the Bank reviews and validates the Stage classification using a combination of backward looking, current and forward-looking indicators. Probability of default (PD) PD represents the likelihood of a borrower defaulting on their financial obligation in a specified time period, assuming it has not closed or defaulted since the reporting date. Projection of PDs is based on macro-economic scenarios and are differentiated based on segment (e.g. Retail, SME and Corporate), and status (e.g. 0 dpd, Restructured). For the external rated exposures (e.g. Treasury and International lending), the historical default rates published by Moody s per segment are utilized. For the non-external rated facilities, i.e. local loan book, the PD is estimated based on the Bank s historical default rates. Exposure at default (EAD) EAD represents the amount expected to be owed if a default event was to occur. The EAD is determined by calculating the expected cash flows which vary depending on the product type (e.g. revolving products). By analyzing the behavior of the product types, the behavioral maturity of these products is estimated. The utilization of the off-balance sheet of revolving products is also considered in determining Credit Conversion Factor (CCF) allocation. Hellenic Bank Group Condensed Consolidated Financial Statements 21

25 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) Loss given default (LGD) LGD represents an estimate of the loss arising on default. It is calculated as the expected loss at default divided by EAD. LGD is based on factors that impact the likelihood and value of any subsequent write-off, in which case it takes into account property prices, liquidation haircuts due to forced sale or market conditions, liquidation periods and other factors. Forward looking information In line with IFRS 9 impairment requirements, forward looking information, including current conditions and projections of macroeconomic and other factors, are incorporated in a range of unbiased future economic scenarios for ECL purposes. The ECL estimate incorporates the expected impact of all reasonable and supportable forward-looking information, taking into consideration the macroeconomic factors. The Bank incorporated three forward looking macroeconomic scenarios in its ECL calculations process: a baseline scenario, an optimistic scenario and a pessimistic scenario. Probability weights were attributed to each scenario. Definition of default IFRS 9 does not define default but requires the definition to be consistent with the definition of default used for internal credit risk management purposes. Under IFRS 9 default occurs when the borrower is unlikely to pay its credit obligations to the Group in full, and the borrower is more than 90 days past due on any material credit obligation to the Group. The Bank aligned Stage 3 classification with the European Banking Authority's (EBA) criteria for NPE classification. Purchased or Originated Credit-Impaired Financial assets (POCI) Financial assets are considered purchased or originated credit impaired (POCI) if upon initial recognition they are purchased or originated at a deep discount that reflects evidence of impairment. Since the asset is originated credit-impaired, the Bank only recognises the cumulative changes in lifetime ECL since initial recognition as a loss allowance in profit or loss until the POCI is derecognised. Significant increase in credit risk Under IFRS 9, an assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument. When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Bank will consider reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information and analysis based on the Group s historical experience, expert credit assessment and forward-looking information. The assessment of significant increase in credit risk is key in determining when to move from measuring an allowance based on 12 month ECLs to one that is based on lifetime ECLs. The criteria for determining whether the exposure has experienced significant deterioration in credit risk since origination are in line with Stage 2 criteria and are as follows: Days in Arrears: Exposures with more than 30 days in arrears, Forbearance flag: A performing account with an active forbearance flag in line with the European Banking Authority (EBA) definition, Accounts managed by recovery units (before default), 22 Hellenic Bank Group Condensed Consolidated Financial Statements

26 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) A pooling effect is applied at a customer level which classifies as Stage 2 accounts not meeting the above criteria but fall under the same customer whose other accounts exhibit credit triggers such as those above, Behavioural Score: Retail and SME exposures with low behavioural score resulting from models developed by the Bank for predicting defaults/delinquencies. Interest income recognition Interest income is calculated on the gross carrying amount of the financial assets in Stages 1 and 2 by applying the effective interest rate (EIR). For financial assets at Stage 3, interest income is calculated by applying EIR to the amortised cost (i.e. gross carrying amount less credit loss allowance). For POCI financial assets, interest income is recognised by applying a credit-adjusted EIR (CAEIR) (based on an initial expectation of further credit losses) on the amortised cost of the financial asset. Derecognition and contract modification The Bank sometimes modifies the terms of loans provided to customers due to commercial renegotiations, or for distressed loans, with a view to maximising recovery. Such restructuring activities include extended payment term arrangements, change in interest rates, payment holidays, payment forgiveness or exchange of debt instruments. A forborne exposure may be derecognised and the renegotiated loan recognised as a new loan at fair value when the new terms are substantially different to the original terms. The renegotiation date is consequently considered to be the date of initial recognition for impairment calculation purposes, including for the purpose of determining whether a significant increase in credit risk has occurred. However, the Group also assesses whether the "new" financial asset recognised is deemed to be credit impaired at initial recognition, especially in circumstances where the renegotiation was driven by the debtor being unable to make the originally agreed payments. Differences between the gross carrying amount of the original terms and the fair value at initial recognition of the "new" loan are recognised in profit or loss as a gain or loss on derecognition. If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in profit or loss and is presented together with impairment losses. The new gross carrying amount is recalculated by discounting the modified cash flows at the original effective interest rate (or credit adjusted effective interest rate for purchased or originated credit impaired financial assets) and is compared to the gross carrying amount of the original loan. Write-offs The Group reduces, either partially or in full, the carrying amount of a financial asset when there is no reasonable expectation of recovery. Regulatory capital position On 12 December 2017, a new Regulation (EU) 2017/2395 of the European Parliament and of the Council was issued, amending Regulation (EU) No 575/2013, as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds. Hellenic Bank Group Condensed Consolidated Financial Statements 23

27 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 3. IFRS 9 TRANSITION IMPACT ANALYSIS (continued) According to the Regulation, the Bank had the option to add back in its CET1 capital a portion of the increased expected credit loss provisions over a transitional period or recognise the full impact of IFRS 9 on capital and leverage ratios from 1 January The transitional period has a maximum duration of five years and started in The portion of expected credit loss provisions that can be included in CET 1 capital should decrease over time down to zero to ensure the full implementation of IFRS 9 on the day immediately after the end of the transitional period. The amount subject to transitional provisions which will be added back to the CET1 capital will be derived from the following: Increased credit loss provisions from the implementation of the IFRS 9 on 1 January 2018 compared to the credit loss provisions under IAS39 net of any tax impact. Additional credit loss provisions incurred after IFRS 9 implementation which rise unexpectedly due to a worsening macroeconomic outlook from non credit impaired financial assets. The Bank adobted both above transitional arrangements and informed the competent authority accordingly. The impact on the Group's CET 1 ratio and leverage ratio is presented in Note USE OF ESTIMATES AND JUDGEMENTS The preparation of Financial Statements requires Management to make use of judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances and the results of which form the basis of making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Therefore, they involve risks and uncertainties as they relate to events and depend on circumstances that will occur in the future. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and in future periods if the revision affects both current and future periods. The accounting policies that are deemed critical to the Group s results and financial position and which involve significant estimates and judgments are set out below: 4.1. Measurement of expected credit loss (ECL) allowance IFRS 9 replaced the existing "incurred loss" impairment approach with a forward-looking ECL model. The measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVOCI is an area that requires management s judgement in defining what is considered to be a significant increase in credit risk and in making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic conditions. The assumptions used are based, to the extent possible, on data and evidence. Whenever sufficient data is not available, the impairment calculation incorporates assumptions based on management judgement. Further information about the judgements involved is included in Note 3.2, sections Measurement of ECL and "Significant increase in credit risk" of IFRS 9. The Group evaluates individually loans, including loans of economic groups, that are individually significant based on certain thresholds set by the Bank. It then collectively assesses loans that are not individually significant and Stage 1 loans based on individual assessment. Hellenic Bank Group Condensed Consolidated Financial Statements 24

28 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. USE OF ESTIMATES AND JUDGEMENTS (continued) Individually assessed loans (Stages 2 and 3) The amount of impairment loss on the value of loans and advances to customers which are examined on an individual basis, is measured for a) financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive); b) financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows. In cases where the interest rate of the loan is variable, the original effective interest rate is measured with reference to the initial margin corresponding to the current base rate of the interest rate and the value of the current base rate at the reporting date. The estimated future cash flows are based on assumptions about a number of factors and therefore the actual losses may be different. To determine the amount of impairment loss on the value of loans and advances to customers, judgment is involved regarding the amount and timing of estimated future cash flows. The estimated future cash flows include any expected cash flows from the borrowers operations, any other sources of funds and the expected proceeds from the liquidation of collateral, where applicable. The timing of these cash flows is estimated on a case by case basis. Collectively assessed loans (Stages 1 to 3) For the calculation of impairment loss on a collective basis, loans and advances are grouped based on similar credit risk characteristics and appropriate models are applied that take into account the recent historical loss experience of each group with similar credit risk characteristics adjusted for current conditions using appropriate probabilities of default and loss given default. The grouping considers factors such as the customer type, industry, product, days in arrears and restructuring status. Restructured facilities are classified in a separate group. To measure ECL, the Group uses: (a) Exposure at default (EAD), (b) probability of default (PD), (c) Loss given default (LGD). These calculations include estimates and the use of judgment to supplement, assess and adjust accordingly the historical information and past experience events which determine the parameters and the measurement of ECL as at the reporting date. The main assumptions used to estimate loss given default relate to the treatment of property collateral such as the time needed for collateral liquidation and the liquidation discount at the point of sale. For loans and advances assessed individually, the specifics of each case are taken into consideration in determining the property parameters. In addition, management is required to exercise significant judgement in determining staging criteria, criteria for significant increase in credit risk as well as establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL. The Bank has taken significant steps in enhancing its provisioning methodology. Since 2016, the Bank improved its property collateral database that allowed a more granular approach in provisioning. The new collateral information which was incorporated both in collective and individual provisioning takes into account the specificities of the properties by segmenting them into various property types and sub types as well as by classifying them by district and location within each district. Different liquidation discounts are applied depending on the type and location of each collateral with the liquidation discount including cost ranging from 15% for a limited number of prime property types to 40% for non prime properties. The resulting average liquidation discount for the collectively assessed portfolio is approximately 26% including costs. Further improvements to the collective provisioning methodology relate to the alignment of the status of the portfolio and the NPL management strategies pursuit by the Bank with the collective provision assessment by differentiating the liquidation period assumptions. The average liquidation period of the collateralised non performing collectively assessed portfolio is currently approximately 4,5 years while for performing loans, the liquidation period assumption is 5 years. Hellenic Bank Group Condensed Consolidated Financial Statements 25

29 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. USE OF ESTIMATES AND JUDGEMENTS (continued) In addition, since June 2017 the Bank has proceeded with certain amendments to the parameters and assumptions for estimating the recoverable amount of property collateral values used in its provisioning methodology, relating primarily to the elimination of forward looking indexation in its collateral prices and the adoption of higher liquidation discounts at the point of sale for selected categories of non prime properties. The amendments were made in the context of the International Financial Reporting Standards and take into account the Bank s accelerated plans for resolving problem loans, latest market developments, as well as the ongoing regulatory engagement with the European Central Bank (ECB) as part of the 2017 Supervisory Review and Evaluation Process (SREP). Accumulated impairment losses of the Group's loans and advances are inherently uncertain due to their sensitivity to economic and credit conditions of the environment in which the Group operates. Conditions are affected by many factors with a high degree of interdependency and there is not one single factor to which these conditions are particularly sensitive. It is possible for the actual conditions in the next financial year to differ significantly from the assumptions made during the current year, so that the carrying amount of loans and advances to be adjusted significantly. For the purposes of providing an indication of the change in accumulated impairment losses as a result of changes in key loan impairment assumptions, the Bank utilised the collective models on the total loan and advances portfolio with reference date 30 June 2018, to carry out a sensitivity analysis. The simulated impact on the provisions for impairment of loans and advances is presented below: Increase/(decrease) on accumulated impairment losses on the total default Change on key assumptions loan and advances portfolio ' million Increase the liquidation period by 1 year 26 Decrease the liquidation period by 1 year (27) Increase the liquidation discount (i.e. reduce the recoverable amount from collateral) by 5% 37 Decrease the liquidation discount (i.e. increase the recoverable amount from collateral) by 5% (36) 4.2. Provisions for pending litigations or complaints and/or claims or cases subject to arbitration proceedings In order to assess whether a provision must be recognised, the Group examines whether there is a present obligation (legal or constructive) as a result of a past event, for which an outflow of resources embodying economic benefits is probable and a reliable estimate for the amount of the obligation can be made. The Group obtains legal advice on the value of the provision of specific complaints and/or claims and arbitration. The amounts recognised as provisions are the best estimates of the expenditure required to settle the present obligation at the end of the reporting period. When a separate liability is measured, the most likely outcome may be considered the best estimate of the liability. Due to the risks and uncertainties surrounding the facts and circumstances of any pending litigations or complaints and/or claims or cases subject to arbitration proceedings, a significant degree of judgement is required for the estimation of the relevant outcome Impairment of goodwill and investments in subsidiaries and associated companies The process of identifying and evaluating impairment of goodwill and investments in subsidiaries and associated companies, is inherently uncertain because it requires significant Management judgement in making a series of estimates, the results of which are highly sensitive to the assumptions used. The review of impairment represents Management s best estimate of the factors below. Hellenic Bank Group Condensed Consolidated Financial Statements 26

30 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. USE OF ESTIMATES AND JUDGEMENTS (continued) Firstly, significant Management judgement is required in estimating the future cash flows of the acquired entities. The values are sensitive to the cash flows projected for the periods for which detailed forecasts are available, and to assumptions regarding the long-term pattern of sustainable cash flows thereafter. The cash flow forecasts are compared with actual performance and verifiable economic data in future years. However, the cash flow forecasts necessarily and appropriately reflect Management s view of future business prospects. Additionally, the cost of capital used to discount future cash flows, can have a significant effect on the entity s valuation. For Special Purpose Vehicles (SPVs), the principal indication of impairment is a decrease in the carrying value of the underlying properties established using valuations carried out by qualified valuers who apply internationally accepted valuation models, use their market knowledge and professional judgement. Any impairment of goodwill of the acquired entities affects the Group's results while any impairment of investments in subsidiaries and associated companies affects the Bank's results. PVIF are tested for impairment, annually and when circumstances indicate that the carrying value may be impaired. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the income statement Fair value of investments The best evidence of fair value of investments is a quoted price in an actively traded market. If the market for a financial instrument is not active, a valuation technique is used. The majority of valuation techniques employed by the Group use only observable market data and thus the reliability of the fair value measurement is relatively high. The Group uses models with unobservable inputs only for the valuation of non-listed investments. In these cases, the Group takes into account, amongst others, the net positions of the entities in which the investment has been made, as well as estimates of the Group s Management to reflect uncertainties in fair values resulting from the lack of data and significant adverse changes in technology, market, economic or legal environment in which the entity operates Business Models and SPPI IFRS 9 requires the classification of financial assets to be determined based on both business model used for managing the financial assets and whether the contractual cash flows generated by an asset constitute solely payments of principal and interest (SPPI). The assessment of the business model requires judgement based on the facts and circumstances at the date of the assessment. The Bank has considered both quantitative and qualitative factors in its assessment such as how the performance of the business model and the financial assets held within that business model are evaluated and reported to the Bank s management as well as the frequency, volume and timing of sales in prior periods. Detailed information about the basis of business model assessment are provided in Note 3.2. If a financial asset is held in either a "hold to collect" or a "hold to collect and sell" business model, then an assessment to determine whether the contractual cash flows are SPPI is required. In making this assessment the Group exercises judgement in considering whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and profit margin. Hellenic Bank Group Condensed Consolidated Financial Statements 27

31 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. USE OF ESTIMATES AND JUDGEMENTS (continued) 4.6. Properties held for sale/stock of properties held for sale Properties held for sale are measured at the lower of carrying amount and fair value less costs to sell. Impairment is considered both at the time of classification as held for sale and subsequently. Any impairment loss that arises is recognised in the income statement. A gain for any subsequent increase in the fair value less costs to sell of an asset can be recognised in the income statement to the extent that it is not in excess of the cumulative impairment loss that has been recognised. Stock of properties is measured at the lower of cost and net realisable value. Any write-down to NRV is recognised as an expense in the period in which the write-down occurs and any reversal is recognised in the income statement in the period in which the reversal occurs. The estimated sales price is determined with reference to the fair value of properties. The best evidence of fair value is a quoted price in an active market. When the market is not active the fair value is established through valuations carried out by independent qualified valuers who apply internationally accepted valuation models, use their market knowledge and professional judgement. This exercise, depending on the nature of the underlying asset and available market information involves a degree of uncertainty. The determination of costs to sell may also require professional judgement which involves a degree of uncertainly due to the relatively low level of market activity. Hellenic Bank Group Condensed Consolidated Financial Statements 28

32 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. USE OF ESTIMATES AND JUDGEMENTS (continued) 4.7. Taxation The Group is subject to corporation tax in the countries in which it operates. Estimates are required in determining the provision for corporation taxes as at the date of the financial position. There is the possibility of a change in the tax treatment of impairment losses on the value of loans and advances other than those concerning customers individually assessed, as indicated in correspondence from the office of the Commissioner of Taxation and contrary to the policy applied by the Bank to date. Where the final tax is different from the amounts initially recognised in the income statement, such differences will impact the tax expense, the tax liabilities and deferred tax assets or liabilities of the period in which the final tax is agreed with the relevant tax authorities. Deferred tax assets arising from tax losses are recognised to the extent that it is probable that the Group will generate future taxable profits against which these losses can be utilised. The recognition of deferred tax asset in respect of tax losses is based on judgements made in relation to the probability, sufficiency and timing of future taxable profits as well as the applicability of future tax planning strategies. These judgements rely on historical available information and estimations regarding, among others, macroeconomic conditions, changes in interest rates, real estate prices and demand, the level of the nonperforming exposures and the expected results of operations based on the business model and strategic plan of the Group. The parameters underlying the judgements made are subject to uncertainty and may result in changes in the measurement of deferred tax asset compared to initial estimates. Aiming at fulfillment of undertakings concerning harmonisation with EU VAT legislation given by the Republic on accession to the EU, the House of the Representatives approved amendments to the Cyprus VAT Legislation which were published in the Official Gazette on 13 November 2017, and provide that: With effect from 2 January 2018, transactions involving supply of undeveloped buildable land, which are carried out as an economic activity, will be subject to VAT. With effect from 2 January 2018, VAT imposed on supply of property within the loan restructuring process and transfers to the lender within the foreclosures procedure, will be settled through the reverse charge mechanism. With effect from 13 November 2017, VAT is imposed on lease and/or rental income from immovable property used in the exercise of economic activities that are subject to VAT. The option not to tax may be exercised under certain prerequisites published by the Commissioner of Taxation in the Government Gazette. The above amendments affect the value of the portfolio of immovable property either owned by the Group or held as collateral, depending on the location of each property, the legal status and nature of activities carried out by its owner and prevailing market conditions. 5. SEGMENTAL ANALYSIS For management purposes, the Group is organised into two operating segments based on the provision of services, as follows: Banking and financial services segment-principally providing banking and financial services, including financing and investment services, custodian and factoring services as well as management and disposal of properties. Banking and financial services segment also includes the share of results of associate company. Insurance services segment - principally providing life and general insurance services. The table below presents income, expenses, impairment losses and provisions to cover credit risk, profit/(loss) before taxation and share of results of associate company and information on assets and liabilities regarding the Group's operating segments. Hellenic Bank Group Condensed Consolidated Financial Statements 29

33 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 5. Segmental analysis (continued) Banking & Financial services Insurance Services Intersegment transactions Total Six-month period ended 30 June Six-month period ended 30 June Six-month period ended 30 June Six-month period ended 30 June '000 '000 '000 '000 '000 '000 '000 '000 Turnover (1.947) (1.874) Net interest income Net fee and commissions income (1.571) (1.317) (673) (813) Net gains on disposal and revaluation of foreign currencies and financial instruments (58) (29) Other income (112) (60) Total net income (785) (873) Staff costs (35.008) (40.926) (2.598) (2.489) - - (37.606) (43.415) Depreciation and amortisation (4.570) (3.605) (106) (45) - - (4.676) (3.650) Administrative and other expenses (41.934) (28.679) (801) (993) (42.620) (29.607) Total expenses (81.512) (73.210) (3.505) (3.527) (84.902) (76.672) Profit/(loss) from ordinary operations before impairment losses and provisions to cover credit risk (670) (808) Impairment losses and provisions to cover credit risk (77.627) (77.627) Profit/(loss) before share of results of associate company (29.281) (670) (808) (25.802) Share of results of associate company net of taxation Profit/(loss) before taxation (29.281) (670) (808) (25.802) Banking & Financial services Insurance Services Intersegment balances Total June 2018 December June 2018 December June 2018 December June December 2017 '000 '000 '000 '000 '000 '000 '000 '000 Total assets (15.888) (11.671) Total liabilities (14.943) (11.985) Hellenic Bank Group Condensed Consolidated Financial Statements 30

34 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 6. ADMINISTRATIVE AND OTHER EXPENSES Administrative and other expenses are analyzed below: 30 June June 2017 '000 '000 Operating leases of land and buildings Repairs and maintenance Consultancy and other professional services fees Regulatory Supervisory fees Special Levy on Credit Institutions Provisions for pending litigations or complaints and/or claims Servicer's administration fees (Note 14) Other administrative expenses Consultancy and other professional services fees Consultancy and other fees include cost of advisory services which resulted mainly from the engagement of various consultants in relation to the offer for the Cyprus Cooperative Bank (Note 30). Servicer's administration fees NPLs with a value of approximately 1,9 billion and REO portfolio with a market value of approximately 230 million are managed by APS Cyprus in consideration for an administration fee payable by the Bank. The administration fee paid to APS Cyprus comprises of both a fixed and a variable element. The level of fees payable to APS Cyprus varies according to the progress of collections with the majority of the fees being driven by the successful resolution of the portfolio and services provided in relation to the real estate assets owned. 7. REVERSAL OF IMPAIRMENT LOSSES/(IMPAIRMENT LOSSES) AND PROVISIONS TO COVER CREDIT RISK 30 June June 2017 '000 '000 Impairment losses on the value of loans and advances N/A (79.068) Provisions to cover credit risk for contractual commitments and guarantees (refer to Note 10) N/A month expected credit losses on the value of loans and advances (refer to Note 10) N/A Lifetime expected credit losses (Stage 2) on the value of loans and advances (refer to Note 10) (317) N/A Lifetime expected credit losses (Stage 3) on the value of loans and advances (refer to Note 10) N/A 12 month expected credit losses on the value of debt securities 292 N/A 12 month expected credit losses on the value of Placements with other banks (20) N/A 12 month expected credit losses on the value of contractual commitments and guarantees 74 N/A Lifetime expected credit losses (Stage 2) on the value of contractual commitments and guarantees 157 N/A Lifetime expected credit losses (Stage 3) on the value of contractual commitments and guarantees (182) N/A Net modification losses recongised (4.610) N/A (77.627) Hellenic Bank Group Condensed Consolidated Financial Statements 31

35 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 8. TAXATION 30 June June 2017 '000 '000 Corporation tax (544) (266) Taxes withheld at source (7) (29) Deferred tax (2.993) (3.544) According to the Income Tax Law 118(I)/2002 as amended, the Bank s taxable profit and that of its subsidiaries in Cyprus, is subject to corporation tax at the rate of 12,5%. Tax losses of Group companies in Cyprus, other than companies affected by article 13(8)(d)(i) of the Income Tax Law, can be offset against taxable profits of other Group companies in Cyprus and any tax losses not utilised can be carried forward and offset against the same entity s taxable profits of the next five years. Article 13(8)(d)(i) of the Income Tax Law provides that in the case where the disposal of shares held by one company in another company member of the same group is taxed as a trading transaction then the two companies are not considered group companies for loss relief purposes. Profits earned by subsidiary companies abroad or/and permanent establishments outside Cyprus are subject to taxation at the rates applicable in the country in which the operations are carried out. Tax exemptions, allowances, deductions and offsets pursuant to Articles 8, 9, 10 and 13 of the Income Tax Law 118(I)/2002 are taken into consideration for the calculation of the tax liability. According to the provisions of the Special Contribution for the Defence of the Republic Law, Companies that do not distribute 70% of their profits after tax, as these profits are defined by this Law, during the two years following the end of the year to which the profits refer, will be deemed to have distributed this amount as dividend. Special contribution for defence at 17% will be payable on such deemed dividends to the extent that the shareholders (individuals and companies), at the end of the period of two years from the end of the fiscal year to which the profits refer, are Cyprus residents and in the case of individuals, Cyprus domiciled as well. The amount of the deemed dividend distribution is reduced by any actual dividend already distributed in respect of the year to which the profits refer. The special contribution for defence is paid by the Bank on behalf of the shareholders. Other developments on taxation issues Loan Restructuring Exemption An exemption from Capital gains tax (CGT)/Income Tax/Corporate Tax/Land Registry Fees/Stamp Duties is available on all transfers of immovable property (IP) or shares of companies owning IP as a result of loan restructuring arrangements concluded between Credit Institutions and borrowers. Following an amendment to the Laws this exception has been extended and will be available until 31 December With an amendment to the Tax Laws, published in the Official Gazette on 17 July 2018, the definition of restructuring has been broadened as to include transfers/disposals of property to third persons, non-related with the borrower, following the consent of the Credit Institution. These restructuring arrangements however, will be restricted to facilities which were rendered non-performing on or prior to 31 December The restriction however was included in the general definition of restructurings and subsequently as from 17 July 2018 and until a new amendment to the provisions of the relevant Laws is effected, the tax exemptions will be applicable only to restructuring arrangements the facilities of which were rendered non-performing on or prior to 31 December With an additional amendment to the Laws the definition of Creditor has been broadened so as to include companies which acquire credit facilities pursuant to the Sale of Loans Law. Through this amendment the tax exemptions for loan restructurings will also be available for loan restructurings effected by these companies. Hellenic Bank Group Condensed Consolidated Financial Statements 32

36 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 8. TAXATION (continued) Bank Special Levy The provisions of the Law have been amended in order to allow each Bank to deduct from the annual payable amount of Special Levy its contribution to the Single Resolution Fund and or the Resolution Fund as the case may be. As from 1 January 2018 and for every subsequent year, 35/60 of the special levy paid in accordance with the Law, will be transferred to the Recapitalisation Fund within 45 days of their deposit in the Government General Account and the remaining 25/60 will remain in that Account. All transfers to the Recapitalisation Fund will cease upon accumulation of a total amount of 175 million in that Fund. The carrying amount of the deferred tax asset is based on judgements of the Management of the Bank on its ability to generate future taxable profits. These judgements are based on available information including historical data, improved macroeconomic estimates, the reduction in deposit rates, the stabilisation of the non performing loans, the Bank's impairment process and the results of operations. During the six-month period ended 30 June 2018, deferred taxation of 2,9 million (related to tax losses utilisation) was charged in the Income Statement as a result of the period s taxable profit, while an amount of 3,0 million was credited in opening retained earnings resulting from the increase in provisions due to the IFRS 9 implementation. This resulted in a positive movement in deferred tax asset of 0,1 million. 9. BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE 30 June June 2017 Basic and diluted earnings/(loss) per share Profit/(loss) attributable to owners of the parent company ( thousand) (23.383) Average number of shares in issue during the period (thousand) Basic and diluted earnings/(loss) per share ( cent) 17,48 (11,78) As at 30 June 2018 and 2017 there were no options or instruments convertible into new shares therefore basic and diluted earnings/(loss) per share are the same. 10. LOANS AND ADVANCES TO CUSTOMERS June 2018 December 2017 '000 '000 Loans and advances to customers Accumulated impairment losses ( ) ( ) Hellenic Bank Group Condensed Consolidated Financial Statements 33

37 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) The table below discloses the changes in the gross carrying amount of loans and advances under IFRS 9 by staging: Stage 1 Stage 2 Stage 3 Total '000 '000 '000 '000 1 January Transfer from Stage 1 to Stage 2 (54.194) Transfer from Stage 1 to Stage 3 (1.479) Transfer from Stage 2 to Stage 3 - (18.359) Transfer from Stage 3 to Stage (17.707) - Transfer from Stage 2 to Stage (34.983) - - Transfer from Stage 3 to Stage (287) - Net movement during the period (18.160) (62.136) Exchange difference June Hellenic Bank Group Condensed Consolidated Financial Statements 34

38 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) The table bellow discloses the accumulated impairment losses on the value of loans and advances as per IFRS 9: 30 June December 2017 Stage 1 Stage 2 Stage 3 Total Individually measured allowances Collectively measured allowances Total '000 '000 '000 '000 '000 '000 '000 1 January Transfer from Stage 1 to Stage 2 (323) Transfer from Stage 1 to Stage 3 (9) Transfer from Stage 2 to Stage 3 - (1.450) Transfer from Stage 3 to Stage (5.353) Transfer from Stage 2 to Stage (1.671) Transfer from Stage 3 to Stage (138) Net write-offs of loan impairment losses (406) (781) (67.899) (69.086) ( ) (6.917) ( ) Contractual interest on impaired loans Unwinding of discount - - (20.729) (20.729) (43.366) - (43.366) Charge/(reversal) for the period/year (1.526) 317 (10.499) (11.708) (4.112) Transfer to/(from) other assets ( ) (2) ( ) Exchange difference (10.069) (316) (10.385) 30 June/31 December Unwinding of discount amounting to 20,7 million (31 December 2017: 43,4 million) relates to interest income on impaired loans and advances to customers and is recognised in the income statement. During the second quarter of 2017 the Bank proceeded with certain amendments to the parameters and assumptions used for estimating the recoverable amount of property collateral values used in its provisioning methodology, relating primarily to the elimination of forward looking indexation in its collateral prices and the adoption of higher liquidation discounts at the point of sale. The amendments were made in the context of the International Financial Reporting Standards and take into account the Bank s accelerated plans for resolving problematic loans, latest market developments, as well as the ongoing regulatory engagement with the ECB as part of the 2017 SREP (refer to Note 25). Hellenic Bank Group Condensed Consolidated Financial Statements 35

39 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Collateral On the basis of the Group s policy, the amount of credit facilities granted should be based on the repayment capacity of the relevant counterparties. Furthermore, policies are applied for the hedging and mitigation of credit risk through the holding of collateral. These policies define the types of collaterals held and the methods for estimating their fair value. The main collaterals held by the Group include mortgage interests over property, pledging of cash, government and bank guarantees, charges over business assets as well as personal and corporate guarantees. Property collateral relates to immovable commercial, residential and land real estate collateral. The Bank maintains a Property Valuations Policy which provides a standardized approach for acceptable property valuations from independent professional valuers, the selection criteria and the processes to evaluate the performance of property valuers. The Policy outlines the frequency for revaluations, establish the criteria for monitoring collateral values and introduces the use of indexation. The open market value of property is indexed to present, using appropriate property indices (CBC and RICS). Indices are monitored, validated and back tested in order to accurately reflect the current market values of the property collaterals of the Bank. The value of tangible collateral for loans and advances classified as impaired both under Collective and Individual assessments amounted to million as at 30 June 2018 (31 December 2017: million). Aiming at fulfillment of undertakings concerning harmonization with EU VAT legislation given by the Republic on accession to the EU, the House of the Representatives approved amendments to the Cyprus VAT Legislation which were published in the Official Gazette on the 13 November These amendments affect the value of the portfolio of immovable property either owned by the Group or held as collateral, depending on the location of each property, the legal status and nature of activities carried out by its owner and prevailing market conditions. Forborne Exposures According to the European Banking Authority s (EBA) technical standards, forborne exposures are (i) exposures which involve changes in their terms and/or conditions and (ii) the forbearance measures consist of concessions towards a debtor which aim to address existing or anticipated difficulties on the part of the borrower to service debt in accordance with the current repayment schedule. Changes in the terms and conditions of a contract that do not occur because the customer is not able to meet the terms and conditions of the contract due to financial difficulties do not constitute forbearance measures. The most significant prerequisite for the forbearance of an exposure is the existence of customer repayment ability i.e. the customer is viable. The Bank s Restructuring Policy includes the terms and conditions on which the Bank determines whether or not a renegotiated repayment schedule shall be granted. The forbearance measures to be taken and their duration thereof are determined on the basis of specific customer information, based on the prevailing economic conditions and in accordance with relevant legislation or regulatory Directives. Every effort is taken by the Bank for the proper assessment of the new repayment schedule on the basis of the forbearance measures, in order to avoid a new default. Hellenic Bank Group Condensed Consolidated Financial Statements 36

40 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Non-performing exposures (NPEs) according to the EBA s technical standards The EBA published in 2014 its technical standards with respect to non-performing and forborne exposures which were adopted by the European Commission (EC) through the Commission Implementation Regulation (EU) 2015/1278. Exposures include all debt instruments (loans and advances and debt securities) and off-balance sheet exposures, except those held for trading exposures. As per the above regulation, the following are considered as NPEs: (i) Material exposures that are over 90 days past due, (ii) The debtor is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the existence of any past-due amount or of the number of days past due, (iii) Exposures in respect of which a default is considered to have occurred in accordance with Article 178 of Regulation (EU) No 575/2013, (iv) Exposures of debtors against whom legal action has been taken by the Bank or exposures of bankrupt debtors, (v) Exposures that are found impaired as per the applicable accounting framework, (vi) Forborne exposures that were NPE at forbearance or became NPE after forbearance and which are re-forborne while under probation (the probation period for forborne exposures begins once the contract is considered as performing and lasts for two years minimum), (vii) Forborne exposures reclassified from NPE status i.e. that were NPE at forbearance or became NPE after forbearance and present more than 30 days past due while under probation, (viii) Further to the above the all-embracing criteria apply as follows: (a) for debtors classified as retail debtors as per the Regulation (EU) No 575/2013, when the Bank has on-balance sheet exposures to a debtor that are material and are past due by more than 90 days the gross carrying amount of which represents more than 20% of the gross carrying amount of all on-balance sheet exposures to that debtor, all on and off-balance sheet exposures to that debtor shall be considered as non-performing, else only exposures that are non-performing will be classified as such and (b) for debtors classified as non-retail debtors as per the Regulation (EU) No 575/2013, when any on-balance sheet exposure to that debtor is non-performing, all on and off-balance sheet exposures to that debtor shall be considered as NPE. The below materiality thresholds apply only for the NPE criterion of arrears over 90 days past due. For exposures to debtors classified as Retail as per the Regulation (EU) No 575/2013: For term loans: if the past due amount of each exposure is over 500 the exposure shall be classified as material. For overdrafts/current accounts: if the past due amount or the excess of the exposure exceeds 500 or 10% of the limit approved by the Bank the exposure shall be classified as material. For exposures to debtors not classified as Retail as per the Regulation (EU) No 575/2013: If the total excesses/past dues of debtors exceed or exceed 10% of their total on balance sheet exposures then all the exposures of the debtor shall be classified as material. If as per the above the exposures are not classified as material, then they may be classified as performing NPE even if they present arrears over 90 days past due. Exposures may be considered to have ceased being non-performing when all of the following conditions are met: (a) the situation of the debtor has improved to the extent that full repayment, according to the original or when applicable the modified conditions, is likely to be made, (b) the debtor does not have any amount past-due by more than 90 days. Hellenic Bank Group Condensed Consolidated Financial Statements 37

41 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) When forbearance measures are extended to non-performing exposures or to exposures which had been non-performing at forbearance or became non-performing after forbearance, the exposures may be considered to have ceased being non-performing only when all the following conditions are met: (a) the extension of forbearance measures do not lead to the recognition of impairment or default, (b) one year has passed since the forbearance measures were extended, (c) there is not, following the forbearance measures, any past-due amount or concerns regarding the full repayment of the exposure according to the post-forbearance conditions, (d) the debtor does not have any amount past due by more than 90 days. As per EBA technical standards evidence of a concession towards a debtor which aim to address existing or anticipated difficulties on the part of the borrower to service debt in accordance with the current repayment schedule, includes: (a) the modification of the previous terms and conditions of a contract would not have been granted had the debtor not been in financial difficulties, (b) a difference in favour of the debtor between the modified and the previous terms of the contract, (c) cases where a modified contract includes more favourable terms than other debtors with a similar risk profile could have obtained from the same institution. Examples of exposures that should be classified as forborne as per the EBA technical standards include: (a) Exposures that were non-performing at forbearance, (b) Exposures that were past due more than 30 days anytime within 3 months prior to forbearance, (c) Forbearance measures such as partial write-offs. The forbearance classification shall be discontinued when all of the following conditions are met: (a) the contract is considered as performing, including if it has been reclassified from the nonperforming category after an analysis of the financial condition of the debtor showed it no longer met the conditions to be considered as non-performing, (b) a minimum 2 year probation period has passed from the date the forborne exposure was considered as performing, (c) regular payments of more than an insignificant aggregate amount of principal or interest have been made during at least half of the probation period, (d) none of the exposures to the debtor is more than 30 days past due at the end of the probation period. The Group s loans and advances with forbearance measures are analysed below: After individual Gross Loans impairment 30 June December June December 2017 '000 '000 '000 '000 Trade Construction and Real Estate Manufacturing Tourism Other sectors Retail The tangible collateral relating to loans and advances with forbearance measures amounted to million as at 30 June 2018 (31 December 2017: million). Hellenic Bank Group Condensed Consolidated Financial Statements 38

42 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Non-Performing Exposures (NPEs) The non performing exposures portfolio of the Group as at 30 June 2018 amounted to million (31 December 2017: million). The ratio of NPEs to gross loans was 51,6% (31 December 2017: 53,3%). The gross book value of NPEs include contractual interest not recognised in the income statement. The NPEs provision coverage was 61,9% as at 30 June 2018 (31 December 2017 adjusted with IFRS 9 initial application impact: 61,3%, 31 December 2017: 59,6%). Hellenic Bank Group Condensed Consolidated Financial Statements 39

43 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Analysis of loan portfolio according to the counterparty sector as at 30 June 2018 Total loan portfolio of which nonperforming exposures of which exposures with forbearance measures Cumulative Impairment losses of which nonperforming exposures of which exposures with forbearance measures of which on nonperforming exposures of which on nonperforming exposures '000 '000 '000 '000 '000 '000 '000 '000 Loans and advances* General Governments Other financial corporations Non-financial corporations of which: Small and Medium-sized enterprises of which: Commercial real estate** By sector 1. Construction Wholesale and retail trade Real estate activities Accommodation and food service activities Manufacturing Other sectors Households of which: Residential mortgage loans of which: Credit for consumption *Excluding loans and advances to central banks and credit institutions. **As from 1Q2018 it includes loans and advances that are collateralised by immovable property other than residential porperty. Hellenic Bank Group Condensed Consolidated Financial Statements 40

44 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Analysis of loan portfolio according to the counterparty sector as at 31 December 2017 Total loan portfolio of which nonperforming exposures of which exposures with forbearance measures Cumulative Impairment losses of which nonperforming exposures of which exposures with forbearance measures of which on nonperforming exposures of which on nonperforming exposures '000 '000 '000 '000 '000 '000 '000 '000 Loans and advances* General Governments Other financial corporations Non-financial corporations of which: Small and Medium-sized enterprises of which: Commercial real estate By sector 1. Construction Wholesale and retail trade Real estate activities Accommodation and food service activities Manufacturing Other sectors Households of which: Residential mortgage loans of which: Credit for consumption *Excluding loans and advances to central banks and credit institutions. Hellenic Bank Group Condensed Consolidated Financial Statements 41

45 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Analysis of loan portfolio* on the basis of loan origination date as at 30 June 2018 Total loan portfolio Loans to non-financial corporations Loans to other financial corporations Loans to households Loan origination date** Total exposures Non-performing exposures Cumulative Impairment losses Total exposures Non-performing exposures Cumulative Impairment losses Total exposures Non-performing exposures Cumulative Impairment losses Total exposures Non-performing exposures Cumulative Impairment losses '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 Within 1 year years years years years years Over 10 years Total *Excluding loans and advances to general governments. **Loan origination date is defined as the contractual loan origination date for each account. For restructured loans the origination date was derived based on the origination date of the original loan that was restructured. Hellenic Bank Group Condensed Consolidated Financial Statements 42

46 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. LOANS AND ADVANCES TO CUSTOMERS (continued) Analysis of loan portfolio* on the basis of loan origination date as at 31 December 2017 Total loan portfolio Loans to non-financial corporations Loans to other financial corporations Loans to households Loan origination date** Total exposures Non-performing exposures Cumulative Impairment losses Total exposures Non-performing exposures Cumulative Impairment losses Total exposures Non-performing exposures Cumulative Impairment losses Total exposures Non-performing exposures Cumulative Impairment losses '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 Within 1 year years years years years years Over 10 years Total *Excluding loans and advances to general governments. **Loan origination date is defined as the contractual loan origination date for each account. For restructured loans the origination date was derived based on the origination date of the original loan that was restructured. Hellenic Bank Group Condensed Consolidated Financial Statements 43

47 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 11. DEBT SECURITIES June 2018 December 2017 '000 '000 Securities classified at fair value through other comprehensive income Listed N/A 12 month expected credit losses (460) N/A N/A Securities classified at amortised cost Listed N/A 12 month expected credit losses (626) N/A N/A Securities held to maturity Listed N/A Securities classified as loans and receivables Listed N/A Securities available for sale Listed N/A Analysis of Debt securities by sector: June 2018 December 2017 '000 '000 Concentration by sector: Governments Banks Other sectors As at 30 June 2018 the Group s exposure in Cyprus Government Bonds amounted to thousand (31 December 2017: thousand), and as per Moody's their credit ratings are rated at Ba3. The category "Other sectors" mainly consists of debt securities of supranational organisations. The Group closely monitors developments in the international markets so that any measures needed are promptly taken to reduce credit risk. 12. RECLASSIFICATION OF DEBT SECURITIES On 1 January 2009, the Group proceeded with a review of its intention for the holding of debt securities and consequently of its policy for classifying them under the various categories. As a result of this review, a number of debt securities, which were included in the held for trading and available for sale categories, were reclassified to the held to maturity and loans and receivables categories. In accordance with the provisions of the amended IAS 39, the Group had reclassified certain available for sale debt securities to loans and receivables, in view of the fact that there was no active market for these debt securities and the Group did not have the intention to sell these securities in the foreseeable future. All reclassified held for trading debt securities and all reclassified available for sale debt securities matured. On 1 January 2009, the Group reclassified certain available for sale debt securities, that intended to hold to maturity, to the held to maturity category. The carrying amount of these debt securities transferred on 1 January 2009 amounted to million. As at 31 December 2016 these remaining bonds matured. Hellenic Bank Group Condensed Consolidated Financial Statements 44

48 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 12. RECLASSIFICATION OF DEBT SECURITIES (continued) As a result of the above decision, for the period ended 30 June 2017, an amount of 74 thousand being amortisation of revaluation of reclassified debt securities available for sale, was transferred from the investment revaluation reserve to the income statement. This amount was the final since all bonds have matured. 13. EQUITY AND OTHER SECURITIES AND COLLECTIVE INVESTMENT UNITS June 2018 December 2017 '000 '000 Equity and other secuirities at fair value through profit or loss Unlisted securities N/A Collective investment units N/A Equity securities classified at fair value through other comprehensive income Listed securities N/A Unlisted securities N/A N/A Equity securities held for trading Listed securities N/A 450 Equity securities available for sale Listed securities N/A Provisions for impairment N/A (370) N/A 943 Unlisted securities N/A Provisions for impairment N/A (970) N/A Collective investment units N/A Total securities available for sale N/A Equity and other secuirities at fair value through profit ot loss include the Bank's stakeholding of Series C Visa Inc. shares convertible into Class A Common Stock which are valued based on the stock price of the underlying shares on each reporting date. Due to the conversion of the shares taking place on the twelfth anniversary of the closing date of the agreement (21 June 2016) after settling any unresolved and outstanding cover claims, it was considered prudent to apply a haircut of 50% on the calculated value of the shares. As per IAS 39 they were previously classified as secuirties available for sale. As at 30 June 2018, the value of the shares was estimated at thousand (31 December 2017: thousand). During 2018, the Group continued investing in collective investments units which are shares/units in well diversified investments funds. Hellenic Bank Group Condensed Consolidated Financial Statements 45

49 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 14. INVESTMENT IN ASSOCIATE COMPANY Within the framework of the Bank s "Fix" strategy and the efforts of tackling assets quality, the Bank signed an agreement with APS Holding a.s (APS Holding) in January 2017 for the management of real estate assets and servicing of the NPEs portfolio. The agreement entailed the disposal of the operations of the Bank s Arrears Management Division (AMD) to a newly established entity APS Debt Servicing Cyprus Ltd (APS Cyprus), while the ownership of the real estate and loan portfolio remains with the Bank. The new entity is owned 51% by APS Holding and 49% by Hellenic Bank. The completion of the transaction and the transfer of business was effected on 30 June 2017 while APS Cyprus commenced operations on 3 July By creating the first debt servicing and real estate asset management platform in the Cypriot market, the Bank is able to effectively deal with its non performing exposures (NPEs) in an accelerated and effective way through leveraging on the knowhow and expertise of APS Holding. Furthermore, it allows the Bank to better allocate its resources on managing and growing the performing loan book by using its excess liquidity to the benefit of the market. APS Cyprus acquired the operations of the Bank s internal AMD, including the necessary resources to independently carry out the servicing of NPLs and REO portfolio. Simultaneously, the Bank has executed a 10-year service level agreement with APS Cyprus for the management of the Bank s NPLs and REO Portfolio. It is noted that the Bank retains the ownership of the said NPLs and REO portfolio. The contract was priced at arms length basis following a two stage competitive auction process. APS Cyprus has assumed all operating expenses associated with the management of the Bank s NPLs and REO portfolio including but not limited to the costs of payroll, IT licenses, processes, products, services and other operations related overheads. 129 employees from the Bank s AMD moved to APS Cyprus while additional resources, expertise and knowhow were brought in as needed to further enhance the capabilities and capacity of the operation. NPLs with a value of approximately 1,9 billion and REO portfolio with a market value of approximately 230 million are managed by APS Cyprus in consideration for an administration fee payable by the Bank. The administration fee paid to APS Cyprus comprises of both a fixed and a variable element. The level of fees payable to APS Cyprus varies according to the progress of collections with the majority of the fees being driven by the successful resolution of the portfolio. Movement in the investment in associate company: June 2018 December 2017 '000 '000 1 January Dividend paid (774) - Initial recognition of investment in associate Share of profit of investment in associate June/31 December Hellenic Bank Group Condensed Consolidated Financial Statements 46

50 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 14. INVESTMENT IN ASSOCIATE COMPANY (continued) The main financial highligths of the associate company as at 30 June 2018: '000 Total assets Total liabilities (7.224) Net assets Transactions between the associate company and the Group recognised in the income statement for the period ended 30 June 2018: '000 Servicer's administration fees (including VAT) License to use services (233) Provision of support services to servicer (129) License to use services relate to the use of premises, parking spaces and services provided by the Bank to APS Cyprus. Balances between associate company and the Group as at 30 June 2018: '000 Deferred cash consideration receivable by the Bank Deposits held with the Bank (2.146) Unutilised overdraft limit 500 Servicer's administration fees payable by the Group (including VAT) (6.065) 15. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment Intangible assets '000 '000 Net book value 1 January Additions less disposals Depreciation/amortisation (2.898) (1.778) Net book value 30 June DEFERRED TAX ASSET/DEFERRED TAX LIABILITY Deferred tax asset arises from: June 2018 December 2017 '000 '000 Tax losses Movement of Deferred tax asset: 30 June 2018 Balance 1 Effect on income Effect on revenue Balance 30 January statement reserve June '000 '000 '000 '000 Tax losses (2.890) N/A IFRS 9- Deferred tax impact N/A N/A (2.890) Hellenic Bank Group Condensed Consolidated Financial Statements 47

51 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 16. DEFERRED TAX ASSET/DEFERRED TAX LIABILITY (continued) 31 December 2017 Balance 1 Effect on income Balance 31 January statement December '000 '000 '000 Property revaluation differences and differences between depreciation and capital allowances 1 (1) - Tax losses Deferred tax liability arose as follows: June 2018 December 2017 '000 '000 Property revaluation differences and differences between depreciation and capital allowances Movement of Deferred tax liability: 30 June 2018 Balance 1 Effect on revaluation Effect on income Balance 30 January reserve statement June '000 '000 '000 '000 Property revaluation differences and differences between depreciation and capital allowances (115) (115) December 2017 Effect on Balance 1 revaluation Effect on income Balance 31 January reserve statement December '000 '000 '000 '000 Property revaluation differences and differences between depreciation and capital allowances Other temporary differences 5 - (5) An analysis of accumulated tax losses is presented below: Tax losses for which deferred tax was not recognised Tax losses for which deferred tax was recognised Tax losses '000 '000 '000 Expiring within the current year Expiring within 3 years Expiring between 4 and 5 years The carrying amount of the deferred tax asset is based on judgements of the Management of the Bank on its ability to generate future taxable profits. These judgements are based on available information including historical data, improved macroeconomic estimates, the reduction in deposit rates, the stabilisation of the non performing loans, the Bank's impairment process and the results of operations. Hellenic Bank Group Condensed Consolidated Financial Statements 48

52 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 16. DEFERRED TAX ASSET/DEFERRED TAX LIABILITY (continued) The applicable tax rate is 12,5%.The tax losses relate to the same jurisdiction with the deferred tax asset. 17. OTHER ASSETS June 2018 December 2017 '000 '000 Prepaid expenses Fair value of derivatives Assets held to cover liabilities of unit linked funds Assets held for sale Stock of properties Debtors and other receivables Investment property As at 30 June 2018, other assets amounting to thousand (31 December 2017: thousand) included among others: Stock of properties The carrying amount of stock of properties as at 30 June 2018 amounted to thousand (31 December 2017: thousand). The stock of properties include residential, offices and other commercial properties, industrial buildings and land (fields and plots). As at 31 December 2017, properties were revalued by independent professional valuers based on open market value for their existing use. The fair value of these assets for the Group amounted to thousand. The Bank, as part of its non performing exposures management, is entering into a number of debt to asset swap transactions. Assets acquired in satisfaction of debt are acquired either directly or indirectly through wholly owned Special Purpose Vehicles (SPVs) which are formed with the purpose of holding and managing these immovable properties. For properties held through SPVs and for which the titles have not yet been issued, the ownership is ensured via filing of the acquisition agreement in the Land Registry. As at 30 June 2018, stock of properties owned by the Bank indirectly through SPVs amounted to thousands (31 December 2017: thousands). Assets held for sale During the fourth quarter of 2017, another step within the context of the Bank s Fix strategy, was the agreement to sell a non performing loan portfolio of predominantly non retail unsecured exposures to B2Kapital Cyprus Ltd, a wholly owned subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange ( the Transaction / the NPE trade agreement). Further to the Bank s announcement on 2 January 2018, all required procedures under the relevant legislation and required approvals and clearances from the relevant regulatory authorities were obtained and the agreement was completed on 6 June The gross contractual outstanding balance of the assets sold pursuant to the Transaction was 144 million comprising of borrowers and facilities (in each case as at 31 May 2018). The NPE trade agreement did not have a material impact on the income statement and capital position of the Bank due to existing provisions taken against these assets. Hellenic Bank Group Condensed Consolidated Financial Statements 49

53 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 17. OTHER ASSETS (continued) The NPE trade agreement was in line with the European Central Bank and International Monetary Fund guidelines on the management of non-performing loans. In addition to organic reduction of the problematic portfolio, the Bank continues to explore the process of de-risking its non-performing exposures through portfolio disposals and other transactions. Β2Kapital Cyprus Ltd will contact the affected customers and their respective guarantors / security providers, in accordance with applicable laws. The Group s movement of stock of properties from customers debt settlement is presented as follows: Banking & Financial services Insurance Services Total '000 '000 '000 1 January Additions Disposals (10.443) (184) (10.627) Impairment losses (41) - (41) 30 June Banking & Financial services Insurance Services Total '000 '000 '000 1 January Additions Disposals (40.821) - (40.821) Impairment losses - (18) (18) 30 June LOAN CAPITAL June 2018 December 2017 '000 '000 Tier 1 Capital Convertible Capital Securities Convertible Capital Securities Tier 2 Capital Non-Convertible Bonds Full details/terms of issue of the Bonds and Securities of the Bank are included in the Prospectus and the Supplementary Prospectuses of each issue. Convertible Capital Securities 1 (CCS 1)/ Convertible Capital Securities 2 (CCS 2) Pursuant to the terms of the Prospectus dated 30 September 2013, CCS1/CCS2 holders may exercise the right to convert the CCS1/CCS2 into ordinary shares, during the periods between January and July of each year ( the Conversion Period ) with the first Conversion Period commencing on 15 January 2016 and the last Conversion Period commencing on 15 July If a CCS1/CCS2 holder exercises his Right to convert, any interest accrued ceases to be calculated and becomes due until the end of the conversion period duringwhich the holder has exercised voluntary conversion, according to the provisions of Paragraph 10.B.(d) of Part IV/B/III and 11.B.(d) of Part IV/C/III of the prospectus. Hellenic Bank Group Condensed Consolidated Financial Statements 50

54 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 18. LOAN CAPITAL (continued) The first Conversion Period for CCS1/CCS2 commenced on 15 January 2016 and ended on 29 January During all the conversion periods the Bank did not receive a Voluntary Conversion Application from any CCS1 /CCS2 holder. 19. SHARE CAPITAL 30 June 2018 Number of shares 31 December 2017 Number of shares '000 (thousand) '000 (thousand) Authorised million shares 0,50 each June 2018 Number of shares 31 December 2017 Number of shares '000 (thousand) '000 (thousand) Issued share capital During the six-month period ended 30 June 2018 there was no movement to the Bank s issued or authorised share capital. At 30 June 2018, fully paid shares were in issue, with a nominal value of 0,50 each (31 December 2017: shares with a nominal value 0,50 each). 20. REVALUATION RESERVES 30 June June 2017 '000 '000 Property revaluation reserve 1 January Surplus on revaluation of land and buildings - - Deferred taxation on property revaluation 115 (20) Transfer to revenue reserve due to excess depreciation (203) (24) Transfer to revenue reserve due to disposal of immovable property (396) (429) Revaluation reserve of available for sale securities 1 January Changes on initial application of IFRS N/A Restated balance at 1 January Net revaluation surplus of investments in equity and other securities and collective investment units at fair value through other comprehensive income (16) N/A Net revaluation of investments in debt securities at fair value through other comprehensive income (8.973) N/A Net revaluation surplus of investments in equity and other securities and collective investment units available for sale N/A 336 Transfer to retained earnings reserve due to the disposal of investments in equity securities measured at fair value though other comprehensive income (110) N/A Transfer to income statement due to the disposal of investments in debt securities (18.281) - Revaluation of investment in debt securities available for sale N/A Amortisation of revaluation of reclassified debt securities available for sale N/A (74) Total revaluation reserves 30 June Hellenic Bank Group Condensed Consolidated Financial Statements 51

55 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 21. CONTINGENT LIABILITIES AND COMMITMENTS Capital Commitments At 30 June 2018, the Group s commitments for capital expenditure, not recognised in the statement of financial position, amounted to thousand (31 December 2017: thousand). Contingent liabilities for pending litigations or complaints and/or claims The Group is engaged in various legal proceedings and regulatory matters arising out of its normal business operations, where an obligation may be created for which an outflow of resources embodying economic benefits is possible. The existence of these obligations will be confirmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of the Group. Hence the effect of the outcome of these matters cannot be predicted with certainty but may impact the Group s financial results. The Group is of the opinion that there are adequate defences in place for a successful outcome, in the course of the relevant proceedings. It is not practicable to provide an aggregate estimate of potential liability for such legal proceedings to be disclosed as a class of contingent liabilities. Consumer Protection Service On 12 October 2017 the director of the Consumer Protection Service (CPS) issued a decision in relation to specific terms included in the Bank s standard housing loan agreements used in the period The CPS s decision provides that these contracts contain certain unfair/non-transparent terms and has invited the Bank to inform the CPS of any actions it intends to take in relation to such findings. The Bank has provided a response describing the proposed actions pursuant to the relevant decision and is currently in discussions with the CPS to reach an agreeable solution to any concerns of the CPS. 22. RELATED PARTY TRANSACTIONS Members of the Board of Directors and connected persons Connected persons include the spouse, the children, the parents and the companies in which Directors hold, directly or indirectly, at least 20% of the voting rights at a general meeting June December '000 '000 Loans and advances Tangible securities 6 6 Deposits Additionally, as at 30 June 2018, there were contingent liabilities and commitments in respect of Members of the Board of Directors and their connected persons in the form of documentary credits, guarantees and unused limits amounting to 66 thousand which did not exceed 1% of the Bank s net assets (31 December 2017: 60 thousand). For the period ended 30 June 2018 there was no interest income in relation to Members of the Board of Directors and their connected persons (30 June 2017: nil), while interest expense in respect of Members of the Board of Directors and their connected persons amounted to 6 thousand (30 June 2017: 8 thousand). Hellenic Bank Group Condensed Consolidated Financial Statements 52

56 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 22. RELATED PARTY TRANSACTIONS (continued) Emoluments and fees of Members of the Board of Directors 30 June June 2017 '000 '000 Emoluments and fees of Members of the Board of Directors: Emoluments and benefits in executive capacity Employer s contributions for social insurance, etc 14 8 Retirement benefits - 7 Total emoluments for Executive Directors Fees Other transactions with Members of the Board of Directors and their connected persons The sales of insurance policies for the period ended 30 June 2018 by the Group s subsidiary, Pancyprian Insurance Ltd, to Members of the Board and their connected persons as defined above, amounted to 7 thousand (30 June 2017: 5 thousand), while sales of insurance policies by the Group s subsidiary, Hellenic Alico Life Insurance Company amounted to 707 (30 June 2017: 428). For the period ended 30 June 2018 non interest income which relates to Members of the Board of Directors and their connected persons was nil (30 June 2017: nil). Key Management personnel who are not Directors and their connected persons Key Management personnel are those persons who have the authority and the responsibility for the planning, management and control of the Banks operations, directly or indirectly. The Group, according to the provisions of IAS 24 considers as Key Management personnel the General Managers of the Bank who were not Directors, the members of the Asset and Liability Committee (ALCO) as well as management personnel who refer directly to the Chief Executive Officer. Connected persons include spouses, minor children and companies in which the Key Management personnel who were not Directors hold, directly or indirectly, at least 20% of the voting rights at a general meeting June December '000 '000 Loans and advances Tangible securities Deposits Emoluments of Key Management personnel of the Group The emoluments of Key Management personnel who were not Directors were: 30 June June 2017 '000 '000 Emoluments of Key Management personnel who were not Directors: Salaries and other short term benefits Employer s contributions for social insurance, etc Retirement benefits The number of Key Management personnel as at 30 June 2018 was 13 (31 December 2017: 13). Hellenic Bank Group Condensed Consolidated Financial Statements 53

57 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 22. RELATED PARTY TRANSACTIONS (continued) As at 30 June 2018, there were contingent liabilities and commitments to Key Management personnel who were not Directors and their connected persons amounting to 356 thousand (31 December 2017: 308 thousand). Interest income in relation to Key Management personnel and their connected persons for the period ended 30 June 2018 amounted to 6 thousand (30 June 2017: 8 thousand), while interest expense in relation to Key Management personnel and their connected persons amounted to 17 thousand (30 June 2017: 24 thousand). The sales of insurance policies for the period ended 30 June 2018 by the Group s subsidiary, Pancyprian Insurance Ltd, to Key Management personnel and their connected persons, as defined above, amounted to 11 thousand (30 June 2017: 12 thousand) while the sales of insurance policies by the Group s subsidiary, Hellenic Alico Life Insurance Company amounted to 12 thousand (30 June 2017: 21 thousand). Shareholders with significant influence and their connected persons Pursuant to the provisions of IAS 24, related parties are considered, among others, the Shareholders who have significant influence to the Bank or/and hold directly or indirectly more than twenty percent (20%) of the nominal value of the issued capital of the Bank. Connected persons include the entities controlled by Shareholders with significant influence as they are defined above June December '000 '000 Loans and advances 1 3 Tangible securities Deposits On 30 June 2018, there were contingent liabilities and commitments in relation to Shareholders with significant influence and connected persons in the form of documentary credits, guarantees and unused limits amounting to 715 thousand (31 December 2017: 712 thousand). Interest income in relation to Shareholders and connected persons for the period ended 30 June 2018 amounted to nil (30 June 2017: nil) while the corresponding interest expense was 2 thousand (30 June 2017: 1 thousand). Other transactions with Shareholders with significant influence and their connected persons During the period ended 30 June 2018, there were no purchases of goods and services by Shareholders with significant influence and their connected persons as defined above (30 June 2017: nil). In addition, the sales of insurance policies by the Group's subsidiary, Pancyprian Insurance Ltd, to Shareholders with significant influence and their connected persons as defined above, amounted to 60 thousand (30 June 2017: 46 thousand). For the period ended 30 June 2018 non-interest income amounting to 61 thousand (30 June 2017: 81 thousand) was received which relates to Shareholders with significant influence and their connected persons. On 30 June 2018 shareholders holding more than 5% of the share capital, had in their possession CCS2 amounting to 8,0 million (31 December 2017: 8,0 million). Hellenic Bank Group Condensed Consolidated Financial Statements 54

58 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 22. RELATED PARTY TRANSACTIONS (continued) All transactions with Members of the Board of Directors, Key Management personnel, Shareholders with significant influence and their connected persons are at an arm s length basis. Regarding the Key Management personnel, facilities have been granted based on current terms as those applicable to the rest of the Group s personnel. 23. FAIR VALUE Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. The Group measures the fair value of an instrument using the quoted price in an active market, when available, for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the main factors that market participants would take into account in pricing a transaction. Fair value of financial instruments The table below presents the analysis of the Group s financial instruments measured at fair value on the basis of the three-level hierarchy by reference to the source of data used to derive the fair values. The levels of hierarchy of fair value are as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Data other than quoted prices included within level 1 that is observable for the asset or liability, either directly or indirectly. Level 3: Import data for the asset or liability that is not based on observable market data (nonobservable import data). 30 June 2018 Level 1 Level 2 Level 3 Total '000 '000 '000 '000 Financial assets Derivatives: Foreign currency forwards Currency swaps Other financial assets at fair value through profit or loss Equity and other securities and collective investment units Investments at fair value through other comprehensive income Debt securities: Government Banks Other issuers Equity and other securities and collective investment units Total Hellenic Bank Group Condensed Consolidated Financial Statements 55

59 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 23. FAIR VALUE (continued) 30 June 2018 Level 1 Level 2 Level 3 Total '000 '000 '000 '000 Financial liabilities Derivatives: Currency swaps Interest rate swaps Total December 2017 Level 1 Level 2 Level 3 Total '000 '000 '000 '000 Financial assets Derivatives: Foreign currency forwards Interest rate swaps Foreign currency swaps Other financial assets at fair value through profit or loss Debt securities: Banks Other issuers Equity and other securities and collective investment units Investments available for sale Debt securities: Government Banks Other issuers Equity and other securities and collective investment units Total December 2017 Level 1 Level 2 Level 3 Total '000 '000 '000 '000 Financial liabilities Derivatives: Foreign currency forwards Interest rate swaps Foreign currency swaps Total Hellenic Bank Group Condensed Consolidated Financial Statements 56

60 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 23. FAIR VALUE (continued) The tables below present the movement of fair value of financial instruments categorised at level 3 hierarchy: Investments at fair value through other comprehensive income Other financial assets at fair value through profit or loss Total '000 '000 '000 1 January Reclassified (2.531) Gains recognised in consolidated income statement in the category Net income from fees, commissions, net gains on disposal and revaluation of foreign currencies and financial instruments and other income" Gains recognised in consolidated statement of comprehensive income in the category Surplus on revaluation of investments in equity & Other securities & Collective Investment Units and debt securities measured at fair value though other comprehensive income Losses recognised in consolidated income statement in the category Net gains on disposal and revaluation of foreign currencies and financial instruments (237) - (237) 30 June Investments available for sale Debt Equity Shares held securities securities for sale Total '000 '000 '000 '000 1 January Gains recognised in consolidated income statement in the category Net gains on disposal and revaluation of foreign currencies and financial instruments June For the valuation at fair value of the investments in equity securities which are classified as Level 3, a valuation method based on the company's equity at which the investment in shares is held as well as estimates of the Management of the Group have been used. At 30 June 2018 the fair value of investments in debt securities classified in the category "Investments at amortised cost" and which are not measured at fair value amounted to thousand and in the three level hierarchy an amount of fair value of thousand would be classified as level 1 and an amount of fair value of thousand would be classified as level 2. At 31 December 2017 the fair value of investments in debt securities classified in the category "Assets held to maturity" and which are not measured at fair value amounted to thousand and in the three level hierarchy would be classified as level 1. Also the fair value of investments in debt securities classified in the category "Loans and receivables" and which are not measured at fair value, as at 31 December 2017 amounted to thousand and in the three level hierarchy would be classified as level 2. The fair value of loans and advances to customers is based on the present value of expected future cash flows. Hellenic Bank Group Condensed Consolidated Financial Statements 57

61 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 23. FAIR VALUE (continued) The level of subjectivity and degree of management judgment required is significant in these discounted cash flow models given that management is required to exercise judgment in the selection and application of parameters and assumptions where some or all of the parameter inputs are less observable. Future cash flows have been based on the future expected loss rate per loan category, taking into account expectations in the credit quality of the borrowers. The discount rate includes components that capture: the Group s funding cost, cost of capital and an adjustment for the future cost of risk. The fair value of loans and advances to customers not measured at fair value at 30 June 2018 amounted to million (31 December 2017: million) for the Group and would have been classified at level ECONOMIC ENVIRONMENT Economic Environment and Group operations in Cyprus Cyprus has achieved an impressive turnaround following the 2013 economic crisis as the recovery continued strengthening for fourteen consecutive quarters. The broad-based economic recovery gathered pace in 2017, with real GDP increasing by an annual 3,9%; the best growth performance for almost a decade. Cyprus real GDP increased by 4% year-on-year in the first half of 2018 when seasonally adjusted. The recovery has been broad-based and has contributed to the increase of employment in almost all sectors and to the reduction of unemployment, though still remaining high. The recovery phase, accompanied by positive surprises, has passed and the economy is settling into its growth phase. In absolute terms, the value of all final goods and services produced domestically at constant prices, i.e, real GDP, stood at 16,6 billion at end 2017, recovering to the pre-crisis level. Correspondingly, nominal GDP, the value of all final goods and services produced domestically at current prices, reached 19,2 billion in 2017, up from 18,2 billion in the previous year. While consumption continued to be a key recovery driver, investment demand also rebounded, particularly for large construction and infrastructure projects. The main factor driving the increase in private consumption was the rise in labour income, which resulted from the growth in the number of employed people, rather than higher wages. Private consumption was also supported by the flourishing tourism sector with positive spillover effects in other sectors of the economy. From a sectoral point of view, growth was supported by resilient export performance in the services sectors of tourism and professional business. Specifically, for the period of January May 2018 revenue from tourism is estimated at 677,2 million compared to 649,2 million in the corresponding period of 2017, recording an increase of 4,3%. For the period of January June 2018 arrivals of tourists totaled compared to in the corresponding period of 2017, recording an increase of 12,4%. Public finances have been consolidated to a large extent to secure the sustainability of public debt. The preliminary General Government fiscal results for the first half of 2018, indicate a surplus of 326,9 million (1,6% of GDP), as compared to a surplus of 64,5 million for the corresponding period of 2017 (0,3% of GDP). Significant progress has also been made to restructure and restore confidence in the Cypriot banking system. The level of non performing exposures (NPEs) is declining but remains very high, which has led to the increase of provisions for loan impairments during 2017, ensuring collateral valuations are reliable and enhancing provisioning levels. The better than expected economic recovery, along with the improved domestic financial conditions, have created and maintained an environment of improved confidence. This is reflected in higher credit rating for the country and the largest domestic banks by international rating agencies. In March 2018, Standard and Poor s affirmed Cyprus long-term credit rating at BB+, one notch below investment grade. In April 2018, Fitch upgraded the rating for the Cyprus sovereign to BB+ from BB, one notch below investment grade. Most recently in July 2018, Moody s upgraded the Cyprus sovereign to Ba2 from Ba3 with a stable outlook. Despite the upgrades, the country s current credit rating reflects the associated risks to the economic outlook which relate to the high NPE level and the high public and private debt. Hellenic Bank Group Condensed Consolidated Financial Statements 58

62 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 24. ECONOMIC ENVIRONMENT (continued) The course of the steady recovery path is reflected in the labor market, which tends to follow the recovery with a time lag. The gradual de-escalation of the unemployment rate in Cyprus is mainly due to the increased employment rate of the last year. In 2017, the unemployment rate stood at 11,1% recording a decrease from 13,0% in the previous year. In June 2018, the unemployment rate declined further to 8,2% of the labor force, recording a decrease compared to the same month of the previous year (11%). The housing market continued its adjustment during the first quarter of 2017 (latest available data), bringing the cumulative fall in prices since mid-2008 to 29% (Central Bank of Cyprus s Property Price Index (PPI)). In the first quarter of 2018, the PPI recorded a positive annual growth rate (1,85%). During 2017 property sales recorded a new increase according to Land Registry data. Specifically, the sales contracts submitted in 2017 increased to versus in the previous year, recording an annual increase of 24%. Also, sales contracts submitted during the first seven months of 2018 increased an annual 23%. During the period January May 2018, building permits were issued compared to in the corresponding period of the previous year. The total value of these permits increased by 27,4% and the total area by 25,6%. Τhe number of dwelling units recorded an increase of 23,5%. Cyprus' macroeconomic outlook is positive and is accompanied by a significant increase in real gross domestic product during the first quarter of 2018, a robust employment growth and further improvement in key domestic indicators. Growth is expected to be supported by private consumption and investment and by an improving and robust labour market. Despite the important steps taken towards restoring the positive economic climate, some degree of uncertainty remains, as the country still has certain issues to resolve, such as the high level of NPEs, high unemployment, the high ratio of public debt to GDP, which together render Cyprus vulnerable to negative shocks and delays in the advancement of structural reforms. The high private indebtedness levels that have led to deleveraging, including the high level of NPEs, continue to pose significant risks to the stability of the domestic banking system and to the outlook for the economy. The improved macroeconomic environment is expected to support banks efforts to tackle the high level of delinquent loans. The modernization of the legislation on insolvency and foreclosure framework which is now in place will be an invaluable tool towards this direction. From an exogenous perspective, the economic οutlook may be negatively influenced due to a slower than expected growth in the UK, the uncertainty effects of Brexit and a weaker pound, including the developments in Russia (sanctions) and fluctuations of the rouble against the euro. Also, increased geopolitical tensions in the Middle East and Eastern Mediterranean, could trigger adverse spillovers to economic confidence, tourism and consequently to the aggregate economic activity. On the other hand, geopolitical tensions in neighbouring countries render Cyprus as a safer tourist destination and could therefore counterbalance, to a significant extent, any potential reduction in tourist traffic from the UK. Additionally, developments over a potential reunification of Cyprus along with the exploitation of Cyprus natural resources are being closely monitored to assess potential prospects and risks as they are evolving. In spite of these challenges, Cyprus' macroeconomic outlook is positive. Official forecasts by the Central Bank of Cyprus anticipate growth of 4,1% in 2018 and 3,9% in The pick-up in domestic demand is expected to lead to further improvement in labor market conditions. Inflation is expected to turn positive, but remain relatively low, at around 0,7% in Consequences of the recent developments The Cyprus banking sector has gone through a reformation phase and is now in a strengthened capital and liquidity position. Its size has been reduced to a moderate 3,5 times the GDP or about the EU average. Foreign exposures have been eliminated and domestic operations form the main focus. While decisive steps were taken and swift progress has been achieved throughout the banking sector, the high share of NPEs continues to impact banks balance sheets. Hellenic Bank Group Condensed Consolidated Financial Statements 59

63 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 24. ECONOMIC ENVIRONMENT (continued) The Bank has managed to navigate successfully through the banking crisis. Ιt has retained throughout the crisis its reputation for stability and confidence and is now focusing on strengthening and improving its market position within the Group's strategy of reorganizing and reforming its business model. The main pillars of the strategy is the reduction of NPEs, the expansion of new lending, thus increasing the Bank s market share, and the increase of its revenues through other banking activities. Through the creation of the first debt servicing platform in the Cypriot market, the Bank is continuing the efforts for effectively resolving its NPEs in an accelerated way and with higher recoveries, leveraging on the knowhow, proven expertise and technical experience of APS Holding. Furthermore, the debt servicing platform allows the Bank to better allocate its resources on managing and growing the performing loan portfolio, by using its excess liquidity to the benefit of the market, as well as on continuing its digital transformation journey, the optimisation of corporate governance and the adaptation to the expanding compliance framework. The Bank maintains sufficient liquidity which allows the exploitation of opportunities, maintaining its focus on organic growth. The focus of new loans will be to companies that increase the competitiveness and productivity of the country, such as in the sectors of retail and commercial activities, manufacturing, tourism and on shipping by targeting specific customer profiles. At the same time, loans to the retail sector will be geared toward mortgages, small loans to new customers and supporting current customers who are deemed viable. 25. CAPITAL BASE AND ADEQUACY The proforma 1 Capital Adequacy Ratios of the Group and the Bank under Pillar I, which are above the minimum regulatory requirements, were as follows: Minimum regulatory Group (transitional basis) Group (fully loaded basis) Bank (Transitional basis) capital requirements (Phase-in) 2 Capital Adequacy Ratios Δ Capital Adequacy Ratio 17,41 % 17,68% -27 bps 16,54 % 17,67 % 17,34 % 13,075% Tier 1 Ratio 17,40 % 17,64% -24 bps 16,53 % 17,63 % 17,33 % 11,075% Common Equity Tier 1 (CET 1) Ratio (%) 13,73 % 13,85% -12 bps 12,81 % 13,84 % 13,66 % 9,575% Common Equity Tier 1 capital ( million) % N/A Risked Weighted Assets (RWAs) ( million) % N/A The decrease of 12 basis points in CET 1 ratio 1 (transitional basis) compared to 31 December , was mainly the result of the below: 1. Including 6M2018 unaudited profits. 2. Excluding Pillar II capital guidance. 3. Adjusted with IFRS 9 initial application impact and applying transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and for the large exposure treatment of certain public-sector exposures denominated in the domestic currency of any Member state as per Regulation (EU) 2017/2395 of the European Parliament and Council of 12 December Under IAS 39. Hellenic Bank Group Condensed Consolidated Financial Statements 60

64 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 25. CAPITAL BASE AND ADEQUACY (continued) (i) overall increase in CET1 capital, mainly due to: current period profits (effect of 100 basis points increase out of which 53 basis points relate to the gain on disposal of the CGBs in 1Q2018) the decrease in other comprehensive income (effect of 75 basis points decrease), due to the decrease in revaluation reserve from bonds mainly as result of the disposal of CGBs the increase in IFRS 9 transitional arrangements due to Q2 ECL provisions, the decrease in deferred tax asset arising from tax losses and the increase in intangible assets (effect of 8 basis points increase), (ii) overall increase in RWAs, mainly due to the increase in net funded exposures due to new lending (effect of 45 basis points decrease). As at 30 June 2018 the Leverage Ratio 1, 5 for the Group was 8,59% (Bank: 8,56%) compared to 8,57% as at 31 December The Leverage Ratio 1, 5 on a fully loaded basis for the Group was formed at 8,10% (Bank: 8,07%) compared to 8,09% as at 31 December (fully loaded basis under IAS 39 Group: 8,56%, Bank:8,54%). Supervisory Review and Evaluation Process (SREP) 2017 In December 2017, following ECB s final decision in establishing prudential requirements, which was based on the SREP conducted pursuant to Article 4(1)(f) of Regulation (EU) No 1024/2013 with reference date 31 December 2016, and also having regard to other relevant information received thereafter, the Bank is required to maintain for 2018, on a consolidated basis, a phase-in Capital Adequacy Ratio of 13,075%, which includes: the minimum Pillar I own funds requirements of 8% in accordance with Article 92(1) of Regulation (EU) No 575/2013 (of which up to 1,5% can be met with Additional Tier 1 Capital and up to 2% with Tier 2 Capital), an own funds Pillar II requirement of 3,2% required to be held in excess of the minimum own funds requirement (to be made up entirely of CET 1 Capital), and a phased-in combined buffer requirement which for 2018 includes the capital conservation buffer (CCB) of 1,875%, which has to be made up with CET 1 capital. Additionally, applicable for Hellenic Bank, the combined buffer requirement includes: an O-SII buffer of 1% fully loaded and is phased in over a period of four years with application starting from 1 January 2019, a Counter-Cyclical Capital Buffer (CCyB) for which the CBC has set the level at 0% for exposures located in Cyprus for 2017 and 2018 (the institution specific CCyB rate for 2017 was 0%), Systemic Risk Buffer (currently applicable only for exposures located in Estonia of credit institutions authorised in Cyprus, for which the CBC reciprocated the Estonian macroprudential measure. For Hellenic Bank these exposures are immaterial). Based on the final SREP letter the Pillar II requirement which is applicable as from 1 January 2018 has been reduced from 3,5% to 3,2%. Furthermore, the Bank shall refrain from making distributions to its shareholders. 5. According to the Regulation (EU) No 2015/62 of the European Parliament and Council dated 10 October Hellenic Bank Group Condensed Consolidated Financial Statements 61

65 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 25. CAPITAL BASE AND ADEQUACY (continued) Taking into account the above, the Group s minimum CET1 and Tier 1 ratios effective as from 1 January 2018 are set at 9,575% and 11,075% respectively. In addition to the above, the ECB has provided on a consolidated basis, a revised Pillar II capital guidance to be made up entirely of CET 1 capital, which has been reduced. 26. BANK RECOVERY AND RESOLUTION DIRECTIVE (BRRD) The Bank within the framework of the Bank Recovery and Resolution Directive (BRRD) is subject to the minimum requirement for own funds and eligible liabilities (MREL). The framework, which entered into effect on 1 January 2016, provides authorities with a credible set of tools to intervene sufficiently early and quickly in an unsound or failing institution so as to ensure the continuity of the institution s critical financial and economic functions, while minimising the impact of an institution s failure on the economy and financial system. This is achieved by requiring banks to have a funding structure with a certain proportion of liabilities that can be written off or converted into equity in the event of a bank failure (that is: bailedin ). Such liabilities, in combination with equity, are known as MREL. The Bank s MREL requirement, as well as the time framework for compliance, have not been finalised. Nevertheless, the Bank is closely monitoring the developments on this front. The BRRD, also provides for the Member States to be prepared to handle situations involving both systemic crises and failures of individual institutions, with significant funding implications for credit institutions, which include the establishment of pre-funded resolution funds of 1% of deposits covered under the EU Deposit Guarantee Schemes Directive (DGSD) 2014/49 to be built up by 31 December Further details are presented in Note DEPOSIT INSURANCE SCHEMES European Deposit Insurance Scheme (EDIS) As of 1 January 2016, the European Union within the Banking Union framework has put forward a third pillar, a deposit insurance scheme (EDIS-European Deposit Insurance Scheme) which will gradually take over the national Depositors Guarantee Scheme (DGS). The first pillar of the Banking Union consists of a common framework for supervision of banks implemented by the Single Supervisory Mechanism (SSM); the second pillar consists of a common framework for bank resolution implemented by the Single Resolution Mechanism (SRM). The SRM provides that the Single Resolution Fund (SRF) will be built up over a period of 8 years with ex-ante contributions from the banking industry. EDIS is established in three specified stages: The first stage would be a re-insurance scheme and would apply for 3 years until In this stage, a National Guarantee Scheme will have access to EDIS funds only after exhausting its own resources. EDIS funds will provide extra funds only up to a certain level. In order to limit moral hazard and avoid first-mover advantages, a DGS can only benefit from EDIS in this stage if it has met its requirements and filled its national fund to the required level, and only if those funds have been fully depleted. The second stage would be a co-insurance scheme and would apply for 4 years until For this phase, a national scheme would not have to be exhausted before accessing EDIS. EDIS will contribute from first euro of loss and would absorb a progressively larger share of any losses over the 4-year period in the event of a pay-out or resolution procedure. Access to EDIS would continue to be dependent on compliance by national DGS with the required funding levels. In the final stage, EDIS would fully insure deposits and would cover all liquidity needs and losses in the event of a pay-out or resolution procedure. 62 Hellenic Bank Group Condensed Consolidated Financial Statements

66 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 27. DEPOSIT INSURANCE SCHEMES (continued) The contribution of the Bank to the SRF for 2018 amounted to 2,0 million and was paid in June 2018 and was netted off with the Special Levy for Special levy is imposed on credit institutions on a quarterly basis, at the rate of 0,0375% on qualifying deposits held on 31 December, 31 March, 30 June and 30 September. Deposit Guarantee and Resolution of Credit and Other Institutions Scheme (DGS) The Deposit Guarantee and Resolution of Credit and Other Institutions Scheme (DGS) was established in Cyprus as a separate legal entity and has been operating since 2000 under the relevant legal framework. For the purpose of the Scheme a Committee was established, consisting representatives from the Ministry of Finance and the Central Bank of Cyprus. The funds that are under the administration of the Committee are the Deposit Guarantee Fund for Banks, the Deposit Guarantee Fund for Cooperative Credit Institutions and the Resolution Fund of Credit and Other Institutions. The DGS is used to compensate depositors of a covered credit institution which is unable to meet its financial obligations, up to the guaranteed amount of (subject to certain other circumstances). A target is set whereby the available financial means for each Deposit Guarantee Fund must reach 0,8 % of the amount of the covered deposits of its members by 3 July 2024 (subject to extensions). The contribution amount to be paid by each credit institution is calculated by the DGS taking into account its covered deposits and its risk level. The contribution must be paid within 21 business days from the date on which the institution is notified in writing by the Committee to pay the contribution. As at 31 December 2017 the amount of deposits protected by the Deposit Guarantee Fund for Banks was million and its available financial means were 65,6 million (source: If the DGS does not have sufficient funds to cover the amount required to compensate the relevant deposits, then the DGS proceeds to find alternative financing means to do so as follows: The DGS may require the members of the DGS to provide additional contributions. From fines imposed on DGS members if the latter do not comply with the Law and relevant Regulations. By obtaining loans from third parties or other equivalent deposit guarantee schemes within the EU. By liquidating assets and investments EU-WIDE STRESS TEST The European Banking Authority (EBA) launched the 2018 EU wide stress test exercise, designed to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of EU banks to economic shocks. For the first time, it incorporates IFRS 9 accounting standards. No pass-fail threshold has been included as the results of the exercise are designed to serve as an input to the Supervisory Review and Evaluation Process (SREP) under which decisions are made on appropriate capital resources. The EU-wide stress test is conducted on a sample of 48 EU banks covering roughly 70% of the banking sector in the EU and is run at the highest level of consolidation. The stress test involves the economic conditions under a baseline and an adverse scenario and were published by EBA on 31 January DECISIONS OF THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF HELLENIC BANK PUBLIC COMPANY LIMITED The 44 th Annual General Meeting (AGM) of the Shareholders of the Bank which was held on Wednesday 11 July 2018, was attended by 77 shareholders, either physically or by proxy, representing shares, being 76,20% of the issued share capital of the Bank. The AGM examined and approved the Management Report, the Financial Statements and the Auditors' Report for the year ended 31 December Hellenic Bank Group Condensed Consolidated Financial Statements 63

67 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 29. DECISIONS OF THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF HELLENIC BANK PUBLIC COMPANY LIMITED (continued) Messrs David Whalen Bonanno, Andreas Christofides, Andrew Charles Wynn, Demetrios Efstathiou and Lars Kramer were re-elected as Members of the Board of Directors. Mr Lambros Papadopoulos had withdrawn his candidacy for re- election as Member of the Board of Directors before the commencement of the AGM. Following the AGM, the Board of Directors of the Bank convened and elected Mr Youssef A. Nasr, Independent Non-Executive Member of the Board of Directors, as Chairman of the Board of Directors of the Bank. It is noted that Mr Marinos S. Yannopoulos remains Vice-Chairman of the Board of Directors of the Bank and Dr. Evripides A. Polykarpou remains Senior Independent Director of the Bank. The AGM examined and approved the Remuneration Policy Report for the year 2017 and fixed the Remuneration of the Directors for the year 2018 at the same level as last year. KPMG Limited was re-appointed as Auditors of the Bank for 2018 and the AGM decided that the Board of Directors be authorized to fix the remuneration of the Auditors. 30. HELLENIC BANK S AGREEMENT TO ACQUIRE CERTAIN ASSETS AND LIABILITIES OF THE CYPRUS COOPERATIVE BANK On 25 June 2018, the Bank signed a business transfer agreement ( BTA ) to acquire certain assets and liabilities of the Cyprus Cooperative Bank ( CCB ) ( Acquisition ). On 3 September 2018, the Bank announced the completion of the Acquisition, establishing the Bank as a leading retail and small and medium-sized enterprises bank in Cyprus. Acquisition Perimeter The Bank signed the BTA to acquire substantially all the performing business of CCB, including the related business of lending, deposit taking and the provision of other banking services, to the extent comprised of the acquired assets (the Assets ) and the assumed liabilities (the Assumed Liabilities ), as carried on by CCB (the Business ). The Assets comprise a portfolio of primarily performing loans, Cyprus Government Bonds, cash and other current assets, while the Assumed Liabilities comprise customer deposits and other current liabilities. The terms of the Acquisition include an asset protection scheme ( APS ), which provides for CCB to pay to the Bank 90% of the losses incurred on non-performing exposures and high-risk performing exposures acquired. CCB s obligations under the APS, the BTA and the transitional services agreement between the Bank and the CCB are guaranteed by the Republic of Cyprus. The Bank has agreed to pay CCB 74,2 million in cash as consideration for the transfer of the Assets andthe Assumed Liabilities with a target asset value of 247 million ( Target Asset Value ). As announced on 25 June 2018 and with reference to 31 December 2017 figures, the balance sheet (before fair value and other adjustments) comprises of a portfolio of primarily performing loans (net loans: 4,6 billion), Cyprus Government Bonds ( 4,1 billion), cash ( 1,6 billion), customer deposits ( 9,7 billion) and certain other current liabilities and assets. In accordance with the BTA, the CCB will provide the Bank with updated financial information regarding the Assets and Assumed Liabilities within 10 business days from the date of Completion for the Bank to proceed with a valuation of such items. If the value of the Assets less the value of Assumed Liabilities (the Final Asset Value ) exceeds the Target Asset Value, then the cash in the perimeter of Assets transferred will be reduced by the amount of the difference between the Final Asset Value and the Target Asset Value and accordingly the Bank will repay that amount to CCB. If the Final Asset Value is less than the Target Asset Value, then the perimeter of Assets transferred will be increased by the amount of the difference and accordingly additional assets or cash equal in value to that amount will be transferred by CCB to the Bank. Upon the completion of the valuation exercise, the Bank will disclose in detail the composition of the Assets and Assumed Liabilities of the acquired Business. Hellenic Bank Group Condensed Consolidated Financial Statements 64

68 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 30. HELLENIC BANK S AGREEMENT TO ACQUIRE CERTAIN ASSETS AND LIABILITIES OF THE CYPRUS COOPERATIVE BANK (continued) Combined Entity The Acquisition accelerates the Bank s strategy of strengthening its banking franchise across Cyprus withan enlarged and diversified customer base. Through the Acquisition, the Bank is expanding its services toapproximately customers of CCB. The Business is complementary to the Bank s existing business model, diversifying its loan portfolio from its current focus on corporates and SME clients to establish an enlarged retail presence. The Bank s strong liquidity position enabled it to provide a comprehensive offer to CCB s tender process for the sale of certain assets and liabilities, through an offer to absorb the entirety of customer deposits and provide liquidity to CCB depositors. Post-completion, the Bank will continue to maintain a prudent liquidity position, allowing it to further support the financing needs of its customers. The Acquisition improves significantly the Bank s asset quality and, hence, its financial profile, allowing it to focus on its core strategic initiatives. The Bank expects to achieve significant synergies from the Acquisition reflecting the complementary characteristics of the combined businesses. The main revenue synergies are expected to arise from (a) potential convergence of the funding costs of the combined deposit base, and (b) potential from crossselling products and services to an enlarged customer base. Operational cost synergies are expected from (a) the rationalisation of the combined branch network, (b) the Bank onboarding employees from CCB, following an employee exit scheme implemented by CCB and (c) economies of scale across head office and support functions. The Bank is launching a full-scale plan for the integration of the acquired Business, with the support of Accenture and Logicom Solutions as integration advisors, and is expected to be completed within the next 15 months. The Bank has obtained regulatory approval for the Acquisition prior to the completion of the associated Capital Raise (see Note 31), as it has secured the full subscription amount of the Capital Raise, creating capital certainty for the Acquisition. As from 1 August 2018, the Board of Directors of the Bank established a temporary/ad hoc Integration Committee of the Board to ensure the effective oversight and input of the Board of Directors in smoothly implementing the integration strategy of the acquired business of certain assets and deposits of the CCB. It is anticipated that the Integration Committee will be operational for a period of up to 18 months. The Bank will keep investors informed of any developments relating to the Acquisition and the Capital Raise to the extent required by applicable laws and regulations. Further details regarding the finalisation of the agreement, can be found through the Bank s website, 31. EVENTS AFTER THE REPORTING PERIOD Subscription agreement with Emma Alpha The Bank announced on the 13 August 2018 that it has entered into a subscription agreement with Emma Alpha Holding Ltd (Emma Alpha) whereby Emma Alpha has committed to subscribe for shares up to a total amount of 50 million that are not subscribed for by shareholders of the Bank in the upcoming pre-emptive rights issue. As previously announced, the pre-emptive rights issue forms part of the Bank s planned capital raise of approximately 150 million (Capital Raise) relating to the acquisition by the Bank of a business comprising certain assets and liabilities of the Cyprus Cooperative Bank Ltd (CCB) (the Acquisition") (see Note 30). Hellenic Bank Group Condensed Consolidated Financial Statements 65

69 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 31. EVENTS AFTER THE REPORTING PERIOD (continued) Further to previous announcements of the Bank relating to the Acquisition, the Bank intends to strengthenits capital position following the Acquisition with the Capital Raise, of which approximately 100 million will be via a pre-emptive rights issue (the Rights Issue ) and approximately 50 million will be via a private placement to Poppy Sarl, an entity ultimately owned by funds whose investment manager is the Pacific Investment Management Company LLC or an affiliate thereof. As part of the Rights Issue, the Bank has already entered into a subscription agreement with Demetra Investment Public Ltd (Demetra), whereby Demetra has agreed to subscribe for its pro rata share of the Rights Issue and, in addition, for any shares not subscribed for by other shareholders in exercise of their pre-emption rights in the Rights Issue, up to such a number that the total percentage shareholding of Demetra in the Bank at completion of the Capital Raise is 20,09%. Demetra also has an obligation, if required by the Bank, to subscribe for additional shares not subscribed for by other shareholders in exercise of their pre-emption rights in the Rights Issue, so that the total amount of all shares subscribed for by Demetra in the Capital Raise is up to 50 million. With the subscription agreement entered with Emma Alpha, the Bank is securing the full subscription amount of the Capital Raise, creating capital certainty in relation to the Acquisition. Specifically, pursuant to the subscription agreement, Emma Alpha has committed to subscribe for shares of a maximum amount of 50 million that are not subscribed for by shareholders of the Bank in the Rights Issue, with the Board of Directors of the Bank having an absolute discretion as to the number, if any, of shares to be subscribed by Emma Alpha. The Bank has an obligation to pay Emma Alpha a commission of 4,5% on the amount of 50 million irrespective of whether Emma Alpha subscribes or not. Depending on the percentage of the rights exercised, Emma Alpha s shareholding in the Bank will range between 0% and 17,3%. Emma Alpha is a wholly owned subsidiary of Emma Capital Ltd, an international investment group focusing on Europe, CIS and Asia. Emma Capital has a diversified range of investment activities, with primary focus on consumer finance, lotteries and natural gas distribution. Decisions of the Extraordinary General Meeting of the Bank for Capital Raise The Extraordinary General Meeting of the Shareholders of the Bank, which was held on Wednesday 22 August 2018, was attended by shareholders, either physically or by proxy, representing shares, being 76,30% of the issued share capital of the Bank. At the abovementioned Extraordinary General Meeting, among others, the following resolutions were discussed and approved. That the Bank issues rights (the Rights ) on a pre-emptive basis to all the registered shareholders of the Bank as these will appear in the Register of Members of the Bank as at the record date which will be determined by the Board of Directors, for the raising of an amount of up to ,40. The Rights will be issued and allocated gratis at a ratio of one Right to every one existing ordinary share. Every 25 Rights to be exercised will be converted into 18 new ordinary shares of nominal value 0,50 each with an exercise price of 0,70 each. The Board of Directors was authorised to issue and allot up to ordinary shares at a price of 0,70 each, which will result from the exercise of the Rights; and to the extent that any Rights are not exercised, the Board of Directors is hereby authorised to issue and allot any shares that are not taken up as a result of the non -exercise of the said Rights. Hellenic Bank Group Condensed Consolidated Financial Statements 66

70 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 31. EVENTS AFTER THE REPORTING PERIOD (continued) The Bank disapplies any pre-emption rights the Banks s shareholders may have by operation of law and/or pursuant to the articles of association of the Bank and/or otherwise in connection with the issue and allotment of up to fully paid ordinary shares in the Bank to POPPY SARL, a company incorporated under the laws of Luxembourg ( POPPY SARL ) for a total consideration of up to ,40 (i.e. at a price of 0,70 per share) and the Board of Directors is hereby authorised to issue and allot up to fully paid ordinary shares in the Bank to POPPY SARL at an allotment price of 0,70 per share. Further details regarding the decisions of the Extraordinary General Meeting as well as all relevant announcements made, can be found through the Bank s website, Subsequent events relating to the Bank s agreement to acquire certain assets and liabilities of the CCB are described in Note 30 to the Financial Statements. 32. APPROVAL OF FINANCIAL STATEMENTS The Condensed Consolidated six-month Financial Statements were approved by the Board of Directors on 7 September Hellenic Bank Group Condensed Consolidated Financial Statements 67

71 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 Results Overview Profit before taxation for 30 June 2018 amounted to 38,8 million (mainly as a result of the gain on disposal of CGBs in first quarter of 2018), compared to a loss before taxation of 25,8 million for 30 June 2017 (mainly from the increased impairment losses and provisions to cover credit risk). On a quarterly basis, a profit of 9,1 million was reported for second quarter of 2018 compared to a profit of 29,7 million for first quarter of Profit for the period amounted to 35,3 million (second quarter of 2018: 6,7 million, first quarter of 2018: 28,6 million) compared to a loss for 30 June 2017 of 22,9 million. Profit attributable to the Bank s shareholders for 30 June 2018 amounted to 34,7 million compared to a loss of 23,4 million in 30 June Income Statement Analysis Net interest income Net interest income for 30 June 2018 was 57,6 million, down by 13% compared to 66,3 million in 30 June 2017 mainly as a result of the lower interest income. The key factors that contributed to the decrease of interest income were the downward trend of lending rates primarily affecting the performing loan portfolio and the decreasing carrying amount of the impaired 6 loan portfolio. In the second quarter of 2018 net interest income of 28,4 million was down by 3% when compared to 29,3 million in the first quarter of The decrease was driven by the lower interest income due to the reducing carrying amount of the impaired loan portfolio primarily as a result of the debt to asset swaps. The Group s net interest margin for 30 June 2018 amounted to 1,81% (30 June 2017: 2,02%). Non-interest income Total non-interest income for 30 June 2018 amounted to 57,1 million, down by 8% compared to 62,2 million in 30 June The drop is driven by the lower other income which offsets the higher net gains on disposal and revaluation of foreign currencies and financial instruments. For 30 June 2018, net gains on disposal and revaluation of foreign currencies and financial instruments amounted to 23,0 million and was 199% higher than 30 June 2017 mainly due to the gain of 18,3 million from the disposal of Cyprus Government Bonds (CGBs) during the first quarter of Other income for 30 June 2018 amounted to 13,4 million, down by 59% compared to 30 June 2017 mainly due to the 19,0 million gain on disposal of the operations of the Arrears Management Division (AMD) of the Bank in June 2017 to APS Cyprus. Net fee and commission income for 30 June 2018 was 20,7 million, down by 6% compared to 30 June 2017, with the decrease mainly reflecting reduced fees and commission income in the International Business Division due to the Bank s efforts to reposition its strategy on the said business. Total non-interest income for the second quarter of 2018 of 19,3 million compared to 37,8 million in the first quarter of 2018, is down by 49% mostly due to the said gain from the disposal of CGBs included in the first quarter of 2018 in net gains on disposal and revaluation of foreign currencies and financial instruments. Expenses Total expenses for 30 June 2018 amounted to 84,9 million, up by 11% compared to the 76,7 million for 30 June 2017 with the increase being largely driven by the higher administrative and other expenses. On a quarterly basis, in the second quarter of 2018 total expenses of 43,9 million recorded an increase of 7% compared to 41,0 million in the first quarter of The cost to income ratio for 30 June 2018 was 74,0%, compared to the 59,7% for 30 June The cost to income ratio for the second quarter of 2018 was 92,2% (first quarter of 2018: 61,1%). 6. As defined in IFRS9. Following the IFRS 9 implementation, credit impaired assets (Stage 3) are aligned with the NPE classification which is consistent with the definition used for internal credit risk management purposes. Hellenic Bank Group Condensed Consolidated Financial Statements 68

72 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 (continued) Staff costs Staff costs for 30 June 2018 amounted to 37,6 million (30 June 2017: 43,4 million) and accounted for 44% (30 June 2017: 57%) of the Group s total expenses. The main reasons for the 13% YoY decrease were the transfer of 129 employees to APS Cyprus as a result of the disposal of the AMD operations and decrease in the number of staff during the first quarter of 2018, as a result of the VEES 7 (Voluntary Early Exit Scheme). Staff costs for the second quarter of 2018 of 18,0 million compared to 19,6 million in the first quarter of 2018 were down by 8% mainly as a result of the decrease in the number of staff in February 2018 as part of the VEES. Administrative and other expenses Total administrative and other expenses for 30 June 2018 amounted to 42,6 million with 44% increase compared to 29,6 million in 30 June 2017, mostly due to the Servicer's administration fees of 11,5 million 8 included in 30 June Q2018 total administrative and other expenses of 23,5 million compared to the 19,1 million in the first quarter of 2018, were up by 23%. The increase was largely driven by the higher cost of advisory services in the second quarter of 2018, which resulted mainly from the engagement of various consultants in relation to the offer for the CCB. Impairment losses and provisions to cover credit risk Total reversal of impairment losses and provisions to cover credit risk amounted to 7,4 million for the period ended 30 June 2018 and compared to the charge of 77,6 million in 30 June 2017, recorded a decrease of 110%. In the second quarter of 2018 and first quarter of 2018 recorded 4,2 million reversal and 3,2 million reversal respectively, mainly due to the improvement of the loan portfolio quality. As from 1 January 2018, the Bank has introduced a new impairment model which is based on expected credit losses (ECL) as per the requirements of IFRS 9. The cost of risk (annualised) for 30 June 2018 amounted to -0,6% (31 December 2017: 2,1%). Share of results in associate net of taxation Share of results in associate net of taxation, amounted to 1,5 million profit for 30 June 2018 (30 June 2017: N/A, second quarter of 2018: 1,2 million, first quarter of 2018: 0,4 million). Taxation During the six month period ended 30 June 2018, deferred taxation of 2,9 million was charged in the Income Statement as a result of the period s taxable profit, while an amount of 3,0 million was credited in opening retained earnings resulting from the increase in provisions due to the IFRS 9 implementation. This resulted in a positive movement in deferred tax asset of 0,1 million. 7. As part of its strategic plan, the Group completed the VEES during 4Q2017, aiming to reduce personnel expense base. The Scheme was in line with the rules of Corporate Governance and offered the staff the right to depart voluntarily from the Group, with an ex gratia amount. 8. Including VAT. Hellenic Bank Group Condensed Consolidated Financial Statements 69

73 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 (continued) Statement of Financial Position Analysis As at 30 June 2018, the Group s total assets amounted to 6,9 billion, up by 1% compared to 31 December The increase was mainly driven by the increase in investment assets and loans and advances to customers. Deposits Customer deposits amounted to 5,9 billion as at 30 June 2018 (31 December 2017: 5,8 billion). They comprised of 4,8 billion deposits in Euro (Euro deposits as at 31 December 2017: 4,7 billion) and 1,1 billion deposits in foreign currencies (foreign currency deposits as at 31 December 2017: 1,1 billion), mostly in US Dollars. Trends in customer deposits reflect the Bank s strategy to maintain a low cost of deposits considering its existing strong liquidity position. The Bank s deposits market share 9 as at 30 June 2018 was 12,0% (31 December 2017: 11,9%). Loans Total new lending approved during 30 June 2018 reached 327,5 million (31 December 2017: 525,8 million). The Bank continued providing lending to creditworthy businesses and households while examining other growth opportunities. Gross loans as at 30 June 2018 amounted to million, up by 1% compared to million as at 31 December The performing loan portfolio increased by 4% while the non-performing loan portfolio decreased by 2% compared to 31 December During 30 June 2018 exposures of 69,1 million were written off (31 December 2017: 147,8 million). The Bank s loan market share as at 30 June 2018 was 8,6% (31 December 2017: 8,1%). The net loans to deposits ratio stood at 46,7% as at 30 June 2018 (31 December : 47,0%). Loan Portfolio Quality As part of the Bank s Fix strategy, the Bank signed an agreement to sell a non-performing loan portfolio of predominantly non-retail secured and unsecured exposures to B2Kapital Cyprus Ltd, a wholly owned subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange ( the Transaction / the NPE trade agreement ). The gross contractual outstanding balance of the portfolio was 144 million comprising of borrowers and facilities (in each case as at 31 May 2018). The NPE trade agreement did not have a material impact on the income statement and capital position of the Bank due to existing provisions taken against these assets. The NPE trade agreement is in line with the European Central Bank and International Monetary Fund guidelines on the management of non-performing loans. In addition to organic reduction of the problematic portfolio, the Bank remains focused to accelerate the de-risking of its non-performing exposures through portfolio disposals and other transactions. Further to the Bank s announcement on 2 January 2018, all required procedures under the relevant legislation and the obtaining of applicable approvals and clearances from the relevant regulatory authorities were completed and the agreement was completed on 6 June As at 31 December 2017, the carrying amount of the said non-performing loan portfolio, was classified in other assets as assets held for sale. 9. Source: Central Bank of Cyprus (CBC) and Hellenic Bank. 10. Adjusted with IFRS 9 initial application impact. Hellenic Bank Group Condensed Consolidated Financial Statements 70

74 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 (continued) The level of NPEs 11 has been reduced to million at 30 June 2018, down by 2% compared to the million at 31 December The decrease was mainly driven by the curing of restructured loans, collections, debt to asset swaps and write offs. Terminated loans included in NPEs amounted to million as at 30 June Gross loans with forbearance measures as at 30 June 2018 amounted to million (31 December 2017: million). The stock of properties, which are mostly from customers debt settlement, amounted to 163,0 million as at 30 June 2018 (31 December 2017: 148,2 million). The movement in the balance of stock of properties from customers debt settlement for 6M2018 included an amount of 25,7 million of additions and an amount of 10,6 million of disposals. The NPEs to gross loans ratio as at 30 June 2018 was reduced to 51,6% (31 December 2017: 53,3%). Total accumulated impairment losses, amounted to million as at 30 June 2018 (31 December : million) and represented 32,0% of the total gross loans (31 December : 32,7%). The NPEs provision coverage stood at 61,9% as at 30 June 2018 (31 December : 61,3%). Taking into account tangible collaterals 13 the overall NPEs coverage was 116,1%, while the net NPEs collateral coverage stood at 142,2% as at 30 June For more details for the Loan portfolio please refer to Note 10 to these Condensed Consolidated Interim Financial Statements. Investment Assets The carrying value of investment assets amounted to 3,7 billion as at 30 June 2018 (31 December : 3,7 billion) and represented 54,0% of the total assets of the Group (31 December : 52,8%). Investment assets are comprised of cash and balances with Central Banks, placements with other banks, investments in debt securities, investments in shares and other securities and collective investment units and investment in associate. Total investment assets increased by 1% compared to 31 December The increase was largely driven by the increase of the ECB placement which was partly offset by the decrease in the investments in debt securities. The Group s cash and placements with other banks and Central Banks amounted to 2,8 billion as at 30 June 2018 (31 December : 2,6 billion), and included a placement of 2,4 billion with ECB (31 December : 2,2 billion). Most foreign currency placements were with P1 rated banks 14. The Group s investments in debt securities amounted to 0,9 billion as at 30 June 2018 (31 December : 1,0 billion), which represented 12,6% of total assets (31 December : 14,9%) and were down by 15%. The decrease was mainly due to disposal of CGBs during 1Q2018. The Group s investments in debt securities comprised mainly of CGBs and supranational organisations debt securities. 36,4% of the 0,9 billion debt securities are Aaa rated 15. The CGBs 16 held by the Group at 30 June 2018 amounted to 496 million (31 December : 678 million) of which 285 million will mature within 5 and 10 years, 198 million within 1 and 5 years and the remaining 13 million within a period of less than 1 year. The Group s investment in associate as at 30 June 2018 amounted to 8,4 million (31 December 2017: 7,6 million) and corresponded to the Bank s retained interest in the newly established entity, resulted from the agreement 17 with APS for the management of real estate assets and servicing of the NPEs portfolio and the share of profits. 11. Gross carrying amount, including the contractual interest on impaired loans. 12. Adjusted with IFRS 9 initial application impact. 13. Based on open market values (capped at client exposure). 14. Prime-1 short term rating by Moody s. 15. Moody s issuer ratings. 16. Republic of Cyprus is currently being rated as Ba2 by Moody s, BB+ by Fitch, BB+ by S&P. 17. See announcement dated 3 July 2017 (Sale of Non-Performing Loan and Real Estate Management Business by Hellenic Bank to APS Debt Servicing Cyprus Ltd) posted on the Group s website (Investor Relations). Hellenic Bank Group Condensed Consolidated Financial Statements 71

75 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 (continued) Capital Base and Adequacy The Capital Adequacy Ratios of the Group and the Bank under Pillar I are above the minimum regulatory requirements and are further described in Note 25 to these Financial Statements. Details for the capital management of the Group for the year 2017 are disclosed in Note 47 to the Annual Financial Statements for the year ended 31 December Related party transactions Related party transactions for the six-month period ended 30 June 2018 are presented in Note 22 to these Condensed Consolidated Interim Financial Statements. Risk Management The main risks to which the Group is exposed and how they are monitored and managed are presented in Note 47 to the Annual Financial Statements for the year ended 31 December In addition, the accounting policies that are deemed critical to the Group s results and financial position and which involve significant estimates and judgements are set out in Note 4 to these Condensed Consolidated Interim Financial Statements. The Bank s agreement to acquire certain assets and liabilities of the Cyprus Cooperative Bank Details of the Bank s agreement to acquire certain assets and liabilities of the Cyprus Cooperative Bank are presented in Note 31 to these Financial Statements. Strategic Targets and Outlook In delivering its strategic plans, Hellenic Bank remains committed to be a strong bank that meets the expectations of the economy, society, investors and shareholders. During the course of the crisis, the Bank has retained its reputation for stability and confidence and is now focusing on strengthening and improving its market position. The Bank s strategy focuses on two aspects: Fix and Build. The Fix aspect predominantly relates to the reduction of the high level of NPEs. The Build aspect of the strategy relates to focused growth through new lending and strengthening of customer relationships. The Bank intends to continue to carry out its role in supporting the local economy while safeguarding its shareholders value through prudent policies and in line with the Bank's target risk profile. At the same time, the Bank is continuing repositioning its International Banking Division strategy reflecting the changing regulatory environment with specific focus on anti-money laundering issues. The Bank s strategy also includes advancements in technology, digital transformation, enhancement of the customer service, as well as simplification of procedures and processes. The Bank, advancing towards decisive actions to tackle its loan portfolio quality, disposed the operations of the Arrears Management Division, to a newly established entity APS Debt Servicing Cyprus Ltd ( APS Cyprus ) which commenced operations in July Through the creation of the first debt servicing platform in the Cypriot market, the Bank is able to effectively tackle its NPEs in an accelerated way and with higher recoveries, leveraging on the knowhow, proven expertise and technical experience of APS Holding. Moreover, the Bank remains focused to accelerate the de-risking of its non-performing exposures through portfolio disposals, therefore in June 2018 the Bank has completed its first sale of a non-performing loan portfolio of predominantly non-retail unsecured exposures to B2Kapital Cyprus Ltd, a wholly owned subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange. Hellenic Bank Group Condensed Consolidated Financial Statements 72

76 INTERIM MANAGEMENT REPORT FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 (continued) Aiming to facilitate the Build strategy, the Bank completed in September 2018 a transaction acquiring Cooperative Central Bank s ( CCB ) certain assets and liabilities a portfolio of primarily performing loans, Cyprus Government Bonds, cash, customer deposits and certain other current liabilities and assets. The Acquisition, is expected to accelerate the Bank s strategy of growth and strengthen its banking franchise across Cyprus with an enlarged and diversified customer base and is expected to achieve a reduction to the non-performing exposure ( NPE ) ratio of the Bank. The Bank will have a significant exposure to Cyprus Government Bonds and plans to maintain the domestic bonds until maturity, whilst the Bank s capital position, following the execution of the capital plan, will be sufficient to satisfy the regulatory capital requirements for such exposure. Following the Acquisition, the Bank aims to continue its pivotal role in the recovery of the real economy supporting creditworthy Cypriot businesses and households with a comprehensive range of quality banking services. The Acquisition perimeter is complementary to the Bank s existing business model, diversifying its loan portfolio from its current focus on corporates and SME clients to establish an enlarged retail presence and also the Bank expects to achieve significant synergies (to revenue and operational cost) from the Acquisition reflecting the complementary characteristics of the combined businesses. The Bank will maintain sufficient liquidity following the Acquisition allowing the exploitation of opportunities in various sectors of the economy and maintaining its focus on organic growth. Exploiting the benefits from the Acquisition, the focus of new loans will continue to be to companies that increase the competitiveness and productivity of the country, such as in the sectors of retail and commercial activities, manufacturing and tourism. At the same time, loans to the retail sector are geared toward mortgages, small loans to new customers and supporting current clients who are deemed viable. Through the Acquisition and the Bank s focus on its Fix and Build strategies, the Bank has all the ingredients to continue the implementation of its strategy. At the same time, the operating environment remains challenging and the Bank will remain vigilant of developments to turn them into opportunities. Events after the reporting period The events after the reporting period of 30 June 2018 are presented in n Note 31 to these Condensed Consolidated Interim Financial Statements. Hellenic Bank Group Condensed Consolidated Financial Statements 73

77

78 COMMENTARY Group Financial Results for six-month period ended 30 June September 2018 ACQUISITION OF CCB BUSINESS Acquisition of certain assets and liabilities of Cyprus Cooperative Bank ( CCB ) expected to accelerate the Bank s strategy of strengthening its franchise across Cyprus with an enlarged and diversified customer base, leading to a more diversified loan portfolio The acquisition provides attractive strategic, commercial and financial benefits to the Bank A Capital Raise of 150 million, approved by shareholders at an Extraordinary General Meeting on 22 August 2018, is expected to be completed by year-end 2018 ASSET QUALITY NPEs reduced for 11 consecutive quarters; Net NPEs ratio at 28,9% and NPEs ratio at 51,6% NPEs provision coverage at 61,9% with Net NPEs collateral coverage at 142,2% 1 Net NPEs 2 to Assets at 11,7% 1 st Cypriot bank to agree to sell an NPEs 3 portfolio, totaling 144 million CAPITAL STRENGTH Proforma 4 CET1 ratio 5 of 13,73% and Tier 1 ratio 5 of 17,40% Capital ratios well above minimum regulatory requirements and compare well with EU average Post Capital Raise, the CET1 ratio and total capital ratio are expected to be in excess of 14,0% and 17,0%, respectively LIQUIDITY AND FUNDING STRUCTURE Ratio of net loans to deposits of 46,7% enables business expansion Deposit funded, with deposits accounting for 86,3% of total assets PERFORMANCE 6M2018 Profit before provisions of 29,9 million, including a gain of 18,3 million from the disposal of Cyprus Government Bonds (CGBs) 6M2018 Profit after tax of 35,3 million and Earnings per share of 17 cents De-risking initiatives affect profitability, through pressured interest income and reduced fee income Interest margins reflect a highly liquid, underleveraged balance sheet and current ECB monetary policy SYSTEMIC BANK IN A GROWING ECONOMY Post-Acquisition, the Bank is the leading retail bank in Cyprus with expected market shares of performing loans and customer deposits of approximately 22% and of approximately 31%, respectively High lending momentum; 327,5 million of loans approved during 6Μ2018, up by 77% YoY; Performing loans up by 7% YoY Cypriot economy expanded by 4% during 6Μ2018, on the back of a broad based recovery Hellenic Bank Public Company Ltd ( Hellenic Bank ) profile Headquartered in Nicosia (Cyprus), Hellenic Bank is the third largest financial institution in Cyprus and offers a wide range of banking and financial services, including financing, investment, insurance services, as well as custodian and factoring services. Its network includes 44 branches in Cyprus as well as 4 representative offices. At 30 June 2018, Hellenic Bank had total assets and shareholders equity of 6,9 billion and 532,8 million, respectively. 1 Taking into account tangible collateral, based on open market values (capped at client exposure). 2 Net NPEs= NPEs minus Accumulated impairment losses million relates to the gross contractual outstanding balance of the portfolio sold, with the gross carrying amount being 132 million. 4 Including 6M2018 unaudited profits. 5 On a transitional basis. Commentary - Group Financial Results for the six-month period ended 30 June

79 CEO STATEMENT Commenting on the Group s financial results, Mr. Υannis Matsis, the Group s Chief Executive Officer, stated: During 1H2018 we made further progress in our strategic priorities, strengthening the Bank through the continuous resolution of NPEs and growing the Bank s franchise by becoming a more customer-centric institution. We completed the first NPE portfolio trade by a Cypriot bank, totalling 144 million, in June 2018 and have reduced NPEs for the 11th consecutive quarter. Net NPEs ratio is down to 29% and the NPEs provision coverage has improved to 62%. New lending for the first half of 2018 amounted to 328 million, 77% higher compared to the year before, reflecting an increased new lending momentum. In terms of performance, the Group reported profit after tax of 6,7 million for 2Q2018 and 35,3 million for 1H2018. The effects of the key measures taken in 2017, such as the Voluntary Early Exit Scheme (VEES), the reorganisation and the setting-up of APS Cyprus, are becoming now more visible. The Group s capital position is today stronger, with the Group managing to absorb the costs related to the balance sheet strengthening initiatives and VEES during the last couple of years. The Group s proforma capital adequacy ratio, was 17,41% on a transitional basis at 30 June 2018, well above the minimum requirement. As announced recently, we have successfully completed the acquisition of certain assets and liabilities from the Cyprus Cooperative Bank (CCB) that will accelerate the Bank s strategy of strengthening its franchise across Cyprus with an enlarged and diversified customer base, leading to a more diversified loan portfolio. Through this transformation transaction, the Bank will be become the second largest bank and the leading retail bank on the island. The Bank will proceed with a Capital Raise of 150 million, already approved by the EGM of 22 August 2018, by the end of the year in order to fund the acquired business. Commentary - Group Financial Results for the six-month period ended 30 June

80 PERFORMANCE HIGHLIGHTS Income Statement highlights ( million) 6M M-2017 Δ YoY 2Q2018 1Q2018 Δ QoQ Profit from ordinary operations before impairment losses and provisions to cover credit risk Reversal of impairment losses/(impairment losses) and provisions to cover credit risk Share of results of associate company net of taxation 29,9 51,8-42% 3,7 26,1-86% 7,4 (77,6) -110% 4,2 3,2 +29% 1,5 0,0 +100% 1,2 0,4 +236% Taxation (3,5) 2,9-221% (2,4) (1,1) +110% Profit/(loss) for the period 35,3 (22,9) -254% 6,7 28,6-77% Profit/(loss) attributable to the shareholders of the parent company 34,7 (23,4) -248% 6,6 28,1-76% Key performance Indicators (KPIs) 6M M-2017 Δ YoY 2Q2018 1Q2018 Δ QoQ Net Interest Margin (%) 1,81% 2,02% -22 bps 1,78% 1,84% -6 bps Cost to income ratio (%) 74,0% 59,7% bps 92,2% 61,1% bps Cost of risk (%) -0,6% 3,8% -434 bps -0,8% -0,4% -42 bps Return on equity (%) 12,7% -8,3% bps 5,0% 20,6% bps Earnings/(loss) per share (cent ) 17,48 (11,78) -248% 3,33 14,15-76% Financial Position highlights ( million) adjusted with IFRS 9 initial application impact Δ Δ Gross loans % % Gross Non-Performing Loans % % Gross Performing Loans % % Loans (net of provisions for impairment) % % Investment assets % % Total assets % % Deposits % % Shareholders Funds % 559-5% Risk Weighted Assets (RWAs) % // 7 Key Performance Indicators (KPIs) adjusted with IFRS 9 initial Δ Δ application impact CET 1 Ratio (%) 13,73% 4,5 13,85% 8-12 bps 13,84% // 7 Capital Adequacy Ratio (%) 17,41% 4,5 17,68% 8-27 bps 17,67% // 7 NPEs to gross loans (%) 51,6% 53,3% bps 53,3% -167 bps NPEs provision coverage (%) 61,9% 61,3% +59 bps 59,6% // 7 Net loans to deposits ratio (%) 46,7% 47,0% -25 bps 47,6% // 7 Tangible book value per share ( ) 2,50 2,47 +1% 2,64 // 7 The implementation of IFRS 9 as of 1 January 2018, led to a net reduction in the opening balance of the equity of the Group of 33,7 million (Bank: 33,6 million), (net of taxes), representing: An increase of 1,9 million related to classification and measurement requirements, other than impairment; A reduction of 38,6 million related to the new impairment requirements, and An increase of 3,0 million related to deferred tax impact. 6 No change with IFRS 9 initial application. 7 Not comparable. 8 Adjusted with IFRS 9 initial application impact and applying transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and for the large exposure treatment of certain public-sector exposures denominated in the domestic currency of any Member state as per Regulation (EU) 2017/2395 of the European Parliament and Council of 12 December Commentary - Group Financial Results for the six-month period ended 30 June

81 1. ANALYSIS OF THE FINANCIAL RESULTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE Income Statement Analysis Net interest income for 6M2018 was 57,6 million, down by 13% compared to 66,3 million in 6M2017 mainly as a result of the lower interest income. The key factors that contributed to the decrease of interest income were the downward trend of lending rates primarily affecting the performing loan portfolio and the decreasing carrying amount of the impaired 9 loan portfolio. 2Q2018 net interest income of 28,4 million was down by 3% when compared to 29,3 million in 1Q2018. The decrease was driven by the lower interest income due to the reducing carrying amount of the impaired 9 loan portfolio primarily as a result of the debt to asset swaps. The Group s net interest margin for 6M2018 amounted to 1,81% (6M2017: 2,02%). Total non-interest income for 6M2018 amounted to 57,1 million, down by 8% compared to 62,2 million in 6M2017. The drop is driven by the lower other income which offsets the higher net gains on disposal and revaluation of foreign currencies and financial instruments. For 6M2018, net gains on disposal and revaluation of foreign currencies and financial instruments amounted to 23,0 million and was 199% higher than 6M2017 mainly due to the gain of 18,3 million from the disposal of Cyprus Government Bonds (CGBs) during 1Q2018. Other income for 6M2018 amounted to 13,4 million, down by 59% compared to 6M2017 mainly due to the 19,0 million gain on disposal of the operations of the Arrears Management Division (AMD) of the Bank in June 2017 to APS Cyprus. Net fee and commission income for 6M2018 was 20,7 million, down by 6% compared to 6M2017, with the decrease mainly reflecting reduced fees and commission income in the International Business Division due to the Bank s efforts to reposition its strategy on the said business. Total non-interest income for 2Q2018 of 19,3 million compared to 37,8 million in 1Q2018, is down by 49% mostly due to the said gain from the disposal of CGBs included in 1Q2018 in net gains on disposal and revaluation of foreign currencies and financial instruments. Total expenses for 6M2018 amounted to 84,9 million, up by 11% compared to the 76,7 million for 6M2017 with the increase being largely driven by the higher administrative and other expenses. On a quarterly basis, 2Q2018 total expenses of 43,9 million recorded an increase of 7% compared to 41,0 million in 1Q2018. Staff costs for 6M2018 amounted to 37,6 million (6M2017: 43,4 million) and accounted for 44% (6M2017: 57%) of the Group s total expenses. The main reasons for the 13% YoY decrease were the transfer of 129 employees to APS Cyprus as a result of the disposal of the AMD operations and decrease in the number of staff during the first quarter of 2018, as a result of the VEES 10 (Voluntary Early Exit Scheme). Staff costs for 2Q2018 of 18,0 million compared to 19,6 million in 1Q2018 were down by 8% mainly as a result of the decrease in the number of staff in February 2018 as part of the VEES. Total administrative and other expenses for 6M2018 amounted to 42,6 million with 44% increase compared to 29,6 million in 6M2017, mostly due to the Servicer's administration fees of 11,5 million 11 included in 6M Q2018 total administrative and other expenses of 23,5 million compared to the 19,1 million in 1Q2018, were up by 23%. The increase was largely driven by the higher cost of advisory services in 2Q2018, which resulted mainly from the engagement of various consultants in relation to the offer for the CCB. The cost to income ratio for 6M2018 was 74,0%, compared to the 59,7% for 6M2017. The cost to income ratio for 2Q2018 was 92,2% (1Q2018: 61,1%). Total reversal of impairment losses and provisions to cover credit risk amounted to 7,4 million for 6M2018 and compared to the charge of 77,6 million in 6M2017, recorded a decrease of 110%. 2Q2018 and 1Q2018 recorded 4,2 million reversal and 3,2 million reversal respectively, mainly due to the improvement of the loan portfolio quality. As from 1 January 2018, the Bank has introduced a new impairment model which is based on expected credit losses (ECL) as per the requirements of IFRS 9. 9 As defined in IFRS9. Following the IFRS 9 implementation, credit impaired assets (Stage 3) are aligned with the NPE classification which is consistent with the definition used for internal credit risk management purposes. 10 As part of its strategic plan, the Group completed the VEES during 4Q2017, aiming to reduce personnel expense base. The Scheme was in line with the rules of Corporate Governance and offered the staff the right to depart voluntarily from the Group, with an ex gratia amount. 11 Including VAT. Commentary - Group Financial Results for the six-month period ended 30 June

82 The cost of risk (annualised) for 6M2018 amounted to -0,6% (FY2017: 2,1%). Share of results in associate net of taxation, amounted to 1,5 million profit for 6M2018 (6M2017: n/a, 2Q2018: 1,2 million, 1Q2018: 0,4 million). Profit before taxation for 6M2018 amounted to 38,8 million (mainly as a result of the gain on disposal of CGBs in 1Q2018), compared to a loss before taxation of 25,8 million for 6M2017 (mainly from the increased impairment losses and provisions to cover credit risk). On a quarterly basis, a profit of 9,1 million was reported for 2Q2018 compared to a profit of 29,7 million for 1Q2018. During 6M2018, deferred taxation of 2,9 million was charged in the Income Statement as a result of the period s taxable profit, while an amount of 3,0 million was credited in opening retained earnings resulting from the increase in provisions due to the IFRS 9 implementation. This resulted in a positive movement in deferred tax asset of 0,1 million. Profit for the period amounted to 35,3 million (2Q2018: 6,7 million, 1Q2018: 28,6 million) compared to a loss for 6M2017 of 22,9 million. Profit attributable to the Bank s shareholders for 6M2018 amounted to 34,7 million compared to a loss of 23,4 million in 6M Statement of Financial Position Analysis As at 30 June 2018, the Group s total assets amounted to 6,9 billion, up by 1% compared to 31 December The increase was mainly driven by the increase in investment assets and loans and advances to customers Deposits and Loans Customer deposits amounted to 5,9 billion as at 30 June 2018 (31 December 2017: 5,8 billion). They comprised of 4,8 billion deposits in Euro (Euro deposits as at 31 December 2017: 4,7 billion) and 1,1 billion deposits in foreign currencies (foreign currency deposits as at 31 December 2017: 1,1 billion), mostly in US Dollars. Trends in customer deposits reflect the Bank s strategy to maintain a low cost of deposits considering its existing strong liquidity position. The Bank s deposits market share 12 as at 30 June 2018 was 12,0% (31 December 2017: 11,9%). Total new lending approved during 6M2018 reached 327,5 million (FY2017: 525,8 million). The Bank continued providing lending to creditworthy businesses and households while examining other growth opportunities. Gross loans as at 30 June 2018 amounted to million, up by 1% compared to million as at 31 December The performing loan portfolio increased by 4% while the non-performing loan portfolio decreased by 2% compared to 31 December During 6M2018 exposures of 69,1 million were written off (FY2017: 147,8 million). The Bank s loan market share 12 as at 30 June 2018 was 8,6% (31 December 2017: 8,1%). The net loans to deposits ratio stood at 46,7% as at 30 June 2018 (31 December : 47,0%). 12 Source: Central Bank of Cyprus (CBC) and Hellenic Bank. 13 Adjusted with IFRS 9 initial application impact. Commentary - Group Financial Results for the six-month period ended 30 June

83 1.2.2 Loan Portfolio Quality As part of the Bank s Fix strategy, the Bank signed an agreement 14 to sell a non-performing loan portfolio of predominantly non-retail unsecured exposures to B2Kapital Cyprus Ltd, a wholly owned subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange ( the Transaction / the NPE trade agreement ). The gross contractual outstanding balance of the portfolio was 144 million comprising of borrowers and facilities (in each case as at 31 May 2018). The NPE trade agreement did not have a material impact on the income statement and capital position of the Bank due to existing provisions taken against these assets. The NPE trade agreement was in line with the European Central Bank and International Monetary Fund guidelines on the management of non-performing loans. In addition to organic reduction of the problematic portfolio, the Bank remains focused to accelerate the de-risking of its non-performing exposures through portfolio disposals and other transactions. On 6 June 2018 the agreement was completed after all required procedures under the relevant legislation were finalised and all applicable approvals and clearances from the relevant regulatory authorities were obtained. As at 31 December 2017, the carrying amount of the said non-performing loan portfolio, was classified in other assets as assets held for sale. The level of NPEs 15 has been reduced to million at 30 June 2018, down by 2% compared to the million at 31 December The decrease was mainly driven by the curing of restructured loans, collections, debt to asset swaps and write offs. Terminated loans included in NPEs amounted to million as at 30 June Gross loans with forbearance measures as at 30 June 2018 amounted to million (31 December 2017: million). The stock of properties, which are mostly from customers debt settlement, amounted to 163,0 million as at 30 June 2018 (31 December 2017: 148,2 million). The movement in the balance of stock of properties from customers debt settlement for 6M2018 included an amount of 25,7 million of additions and an amount of 10,6 million of disposals. The NPEs to gross loans ratio as at 30 June 2018 was reduced to 51,6% (31 December 2017: 53,3%). Total accumulated impairment losses, amounted to million as at 30 June 2018 (31 December : million) and represented 32,0% of the total gross loans (31 December : 32,7%). The NPEs provision coverage stood at 61,9% as at 30 June 2018 (31 December : 61,3%). Taking into account tangible collaterals 16 the overall NPEs coverage was 116,1%, while the net NPEs collateral coverage stood at 142,2% as at 30 June Investment Assets The carrying value of investment assets amounted to 3,7 billion as at 30 June 2018 (31 December : 3,7 billion) and represented 54,0% of the total assets of the Group (31 December : 52,8%). Investment assets are comprised of cash and balances with Central Banks, placements with other banks, investments in debt securities, investments in shares and other securities and collective investment units and investment in associate. Total investment assets increased by 1% compared to 31 December The increase was largely driven by the increase of the ECB placement which was partly offset by the decrease in the investments in debt securities. 14 See announcement dated 2 January 2018 (Agreement to sell a portfolio of non-performing loans) posted on the Group s website (Investor Relations). 15 Gross carrying amount, including the contractual interest on impaired loans. 16 Based on open market values (capped at client exposure). Commentary - Group Financial Results for the six-month period ended 30 June

84 The Group s cash and placements with other banks and Central Banks amounted to 2,8 billion as at 30 June 2018 (31 December : 2,6 billion), and included a placement of 2,4 billion with ECB (31 December : 2,2 billion). Most foreign currency placements were with P1 rated banks 17. The Group s investments in debt securities amounted to 0,9 billion as at 30 June 2018 (31 December : 1,0 billion), which represented 12,6% of total assets (31 December : 14,9%) and were down by 15%. The decrease was mainly due to disposal of CGBs during 1Q2018. The Group s investments in debt securities comprised mainly of CGBs and supranational organisations debt securities. 36,4% of the 0,9 billion debt securities are Aaa rated 18. The CGBs 19 held by the Group at 30 June 2018 amounted to 496 million (31 December : 678 million) of which 285 million will mature within 5 and 10 years, 198 million within 1 and 5 years and the remaining 13 million within a period of less than 1 year. The Group s investment in associate as at 30 June 2018 amounted to 8,4 million (31 December 2017: 7,6 million) and corresponded to the Bank s retained interest in the newly established entity, resulted from the agreement 20 with APS for the management of real estate assets and servicing of the NPEs portfolio and the share of profits. 17 Prime-1 short term rating by Moody s. 18 Moody s issuer ratings. 19 Republic of Cyprus is currently being rated as Ba2 by Moody s, BB+ by Fitch, BB+ by S&P. 20 See announcement dated 3 July 2017 (Sale of Non-Performing Loan and Real Estate Management Business by Hellenic Bank to APS Debt Servicing Cyprus Ltd) posted on the Group s website (Investor Relations). Commentary - Group Financial Results for the six-month period ended 30 June

85 1.2.4 Capital Base and Adequacy The proforma 21 Capital Adequacy Ratios of the Group and the Bank under Pillar I, which are above the minimum regulatory requirements, were as follows: Capital Adequacy Ratios Group (transitional basis) Group (fully loaded basis) Bank (transitional basis) Minimum regulatory capital requirements (Phase-in) Δ Capital Adequacy Ratio (%) 17,41% 17,68% -27 bps 16,54% 17,67% 17,34% 13,075% Tier 1 Ratio (%) 17,40% 17,64% -24 bps 16,53% 17,63% 17,33% 11,075% Common Equity Tier 1 (CET 1) Ratio (%) Common Equity Tier 1 capital ( million) Risk Weighted Assets (RWAs) ( million) 13,73% 13,85% -12 bps 12,81% 13,84% 13,66% 9,575% % n/a % n/a The decrease of 12 basis points in CET 1 ratio 21 (transitional basis) compared to 31 December , was mainly the result of the below: i) overall increase in CET1 capital, mainly due to: - current period profits (effect of 100 basis points increase out of which 53 basis points relate to the gain on disposal of the CGBs in 1Q2018) - the decrease in other comprehensive income (effect of 75 basis points decrease), due to the decrease in revaluation reserve from bonds mainly as result of the disposal of CGBs - the increase in IFRS 9 transitional arrangements due to 6M2018 ECL provisions, the decrease in deferred tax asset arising from tax losses and the increase in intangible assets (effect of 8 basis points increase), ii) overall increase in RWAs, mainly due to the increase in net funded exposures due to new lending (effect of 45 basis points decrease). As at 30 June 2018 the Leverage Ratio 21,25 for the Group was 8,59% (Bank: 8,56%) compared to 8,57% as at 31 December The Leverage Ratio 21,25 on a fully loaded basis for the Group was formed at 8,10% (Bank: 8,07%) compared to 8,09% as at 31 December (fully loaded basis under IAS 39 Group: 8,56%, Bank:8,54%). Supervisory Review and Evaluation Process (SREP) 2017 In December 2017, following ECB s final decision in establishing prudential requirements, which was based on the SREP conducted pursuant to Article 4(1)(f) of Regulation (EU) No 1024/2013 with reference date 31 December 2016, and also having regard to other relevant information received thereafter, the Bank is required to maintain for 2018, on a consolidated basis, a phase-in Capital Adequacy Ratio of 13,075%, which includes: the minimum Pillar I own funds requirements of 8% in accordance with Article 92(1) of Regulation (EU) No 575/2013 (of which up to 1,5% can be met with Additional Tier 1 Capital and up to 2% with Tier 2 Capital), an own funds Pillar II requirement of 3,2% required to be held in excess of the minimum own funds requirement (to be made up entirely of CET 1 Capital), and a phased-in combined buffer requirement which for 2018 includes the capital conservation buffer (CCB) of 1,875%, which have to be made up with CET 1 capital. 21 Including 6M2018 unaudited profits. 22 Excluding Pillar II capital guidance. 23 Αdjusted with IFRS 9 initial application impact and applying transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and for the large exposure treatment of certain public-sector exposures denominated in the domestic currency of any Member state as per Regulation (EU) 2017/2395 of the European Parliament and Council of 12 December Under IAS According to the Regulation (EU) No 2015/62 of the European Parliament and Council dated 10 th of October Commentary - Group Financial Results for the six-month period ended 30 June

86 Additionally, applicable for Hellenic Bank, the combined buffer requirement includes: an O-SII buffer of 1% fully loaded and is phased in over a period of four years with application starting from 1 January 2019, a Counter-Cyclical Capital Buffer (CCyB) for which the CBC has set the level at 0% for exposures located in Cyprus for 2017 and 2018 (the institution specific CCyB rate for 2017 was 0%), Systemic Risk Buffer (currently applicable only for exposures located in Estonia of credit institutions authorised in Cyprus, for which the CBC reciprocated the Estonian macroprudential measure. For Hellenic Bank these exposures are immaterial). Based on the final SREP letter the Pillar II requirement which is applicable as from 1 January 2018 has been reduced from 3,5% to 3,2%. Taking into account the above, the Group s minimum CET 1 and Tier 1 ratios effective as from 1 January 2018 are set at 9,575% and 11,075% respectively. In addition to the above, the ECB has provided on a consolidated basis, a revised Pillar II capital guidance to be made up entirely of CET 1 capital, which has been reduced. Commentary - Group Financial Results for the six-month period ended 30 June

87 2. STRATEGIC TARGETS AND OUTLOOK In delivering its strategic plans, Hellenic Bank remains committed to be a strong bank that meets the expectations of the economy, society, investors and shareholders. During the course of the crisis, the Bank has retained its reputation for stability and confidence and is now focusing on strengthening and improving its market position. The Bank s strategy focuses on two aspects: Fix and Build. The Fix aspect predominantly relates to the reduction of the high level of NPEs. The Build aspect of the strategy relates to focused growth through new lending and strengthening of customer relationships. The Bank intends to continue to carry out its role in supporting the local economy while safeguarding its shareholders value through prudent policies and in line with the Bank's target risk profile. At the same time, the Bank is continuing repositioning its International Banking Division strategy reflecting the changing regulatory environment with specific focus on anti-money laundering issues. The Bank s strategy also includes advancements in technology, digital transformation, enhancement of the customer service, as well as simplification of procedures and processes. The Bank, advancing towards decisive actions to tackle its loan portfolio quality, disposed the operations of the Arrears Management Division, to a newly established entity APS Debt Servicing Cyprus Ltd ( APS Cyprus ) which commenced operations in July Through the creation of the first debt servicing platform in the Cypriot market, the Bank is able to effectively tackle its NPEs in an accelerated way and with higher recoveries, leveraging on the knowhow, proven expertise and technical experience of APS Holding. Moreover, the Bank remains focused to accelerate the de-risking of its non-performing exposures through portfolio disposals, therefore in June 2018 the Bank has completed its first sale of a non-performing loan portfolio of predominantly non-retail unsecured exposures to B2Kapital Cyprus Ltd, a wholly owned subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange. Aiming to facilitate the Build strategy, the Bank completed in September 2018 a transaction acquiring Cooperative Central Bank s ( CCB ) certain assets and liabilities a portfolio of primarily performing loans, Cyprus Government Bonds, cash, customer deposits and certain other current liabilities and assets. The Acquisition, is expected to accelerate the Bank s strategy of growth and strengthen its banking franchise across Cyprus with an enlarged and diversified customer base and is expected to achieve a reduction to the nonperforming exposure ( NPE ) ratio of the Bank. The Bank will have a significant exposure to Cyprus Government Bonds and plans to maintain the domestic bonds until maturity, whilst the Bank s capital position, following the execution of the capital plan, will be sufficient to satisfy the regulatory capital requirements for such exposure. Following the Acquisition, the Bank aims to continue its pivotal role in the recovery of the real economy supporting creditworthy Cypriot businesses and households with a comprehensive range of quality banking services. The Acquisition perimeter is complementary to the Bank s existing business model, diversifying its loan portfolio from its current focus on corporates and SME clients to establish an enlarged retail presence and also the Bank expects to achieve significant synergies (to revenue and operational cost) from the Acquisition reflecting the complementary characteristics of the combined businesses. The Bank will maintain sufficient liquidity following the Acquisition allowing the exploitation of opportunities in various sectors of the economy and maintaining its focus on organic growth. Exploiting the benefits from the Acquisition, the focus of new loans will continue to be to companies that increase the competitiveness and productivity of the country, such as in the sectors of retail and commercial activities, manufacturing and tourism. At the same time, loans to the retail sector are geared toward mortgages, small loans to new customers and supporting current clients who are deemed viable. Through the Acquisition and the Bank s focus on its Fix and Build strategies, the Bank has all the ingredients to continue the implementation of its strategy. At the same time, the operating environment remains challenging and the Bank will remain vigilant of developments to turn them into opportunities. Commentary - Group Financial Results for the six-month period ended 30 June

88 3. APPENDIX 1 GROUP INCOME STATEMENT ( million) 6M M-2017 Δ YoY 2Q2018 1Q2018 Δ QoQ Interest income 73,5 85,3-14% 36,3 37,2-3% Interest expense (15,8) (19,0) -17% (7,9) (7,9) -0% Net interest income 57,6 66,3-13% 28,4 29,3-3% Fee and commission income 23,6 24,6-4% 12,0 11,5 +4% Fee and commission expense (2,8) (2,5) +12% (0,9) (1,9) -49% Net fee and commission income 20,7 22,1-6% 11,1 9,7 +14% Net gains on disposal and revaluation of foreign currencies and financial instruments 23,0 7,7 +199% 2,7 20,3-87% Other income 13,4 32,4-59% 5,6 7,8-28% Total net income 114,8 128,5-11% 47,7 67,1-29% Staff costs (37,6) (43,4) -13% (18,0) (19,6) -8% Depreciation and amortisation (4,7) (3,7) +28% (2,4) (2,3) +6% Administrative and other expenses (42,6) (29,6) +44% (23,5) (19,1) +23% Total expenses (84,9) (76,7) +11% (43,9) (41,0) +7% Profit from ordinary operations before impairment losses and provisions to cover credit risk 29,9 51,8-42% 3,7 26,1-86% Reversal of impairment losses/(impairment losses) and provisions to cover credit risk 7,4 (77,6) -110% 4,2 3,2 +29% Profit/(loss) before share of results of associated company 37,3 (25,8) -244% 7,9 29,4-73% Share of results of associate company net of taxation 1,5 0,0 +100% 1,2 0,4 +236% Profit/(loss) before taxation 38,8 (25,8) -250% 9,1 29,7-69% Taxation (3,5) 2,9-221% (2,4) (1,1) +110% Profit/(loss) for the period 35,3 (22,9) -254% 6,7 28,6-77% Non-controlling interest (0,6) (0,5) +13% (0,1) (0,5) -83% Profit/(loss) attributable to the shareholders of the parent company 34,7 (23,4) -248% 6,6 28,1-76% Note: Numbers may not add up due to rounding Commentary - Group Financial Results for the six-month period ended 30 June

89 3. APPENDIX 1 GROUP STATEMENT OF FINANCIAL POSITION ( million) Δ Cash and balances with Central Banks % Placements with other banks % Loans and advances to customers % Debt securities % Equity & Other securities & Collective Investment Units % Investment in associate company % Property, plant and equipment % Intangible assets % Tax receivable 1 1-2% Deferred tax asset % Other assets % Total assets % Deposits by banks % Customer deposits and other customer accounts % Tax payable % Deferred tax liability 2 2-1% Other liabilities % Loan capital % Total liabilities % Share capital % Reserves % Shareholder s equity % Non-controlling interest % Total liabilities and equity % Contingent liabilities and commitments % Note: Numbers may not add up due to rounding Notes to the Group results for the six-month period ended 30 June 2018: The Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union and should be read in conjunction with the Audited Consolidated Financial Statements for the year ended 31 December The Condensed Consolidated Financial Statements for the six-month period ended 30 June 2018 have not been audited by the independent auditors of the Group. The independent auditors of the Group have conducted a review in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial Information performed by the Independent Auditor of the Entity issued by the International Auditing Assurance Standards Board. The Condensed Consolidated Financial Statements and the presentation of the financial results for the six-month period ended 30 June 2018 have been posted on the Group s website (Investor Relations). Commentary - Group Financial Results for the six-month period ended 30 June

90 4. APPENDIX 2 Glossary and Definitions YoY: year on year QoQ: quarter on quarter FY: financial year 1H: first half 2H: second half ECB: European Central Bank CBC: Central Bank of Cyprus EBA: European Banking Authority SREP: Supervisory Review and Evaluation Process RWAs: risk weighted assets CCB: capital conservation buffer O-SII: Other Systemically important institution NPEs: On-Balance sheet non-performing exposures NPEs ratio: gross non-performing exposures (EBA definition) divided by gross loans Net NPE ratio: NPEs less accumulated impairment losses divided by net loans NPEs provision coverage ratio: accumulated impairment losses divided by gross non-performing exposures Net NPEs collateral coverage ratio: NPEs collateral (Based on open market values - capped at client exposure) divided by NPEs net of accumulated impairment losses CET 1 ratio: Common Equity Tier 1 capital divided by Risk Weighted Assets Leverage ratio: capital measure divided by the total on- and off- balance sheet items (Tier 1/total exposure measure) Net Interest Margin ratio (NIM): net interest income divided by interest bearing assets, annualised Cost to income ratio: total expenses over total net income Cost of risk ratio: impairment losses (excluding any modification gain/losses) on the value of loans and advances divided by gross loans at the end of the period (annualised) (Loss)/earnings per share: (loss)/profit divided by the number of shares issued Return on Equity: profit attributable to shareholders of the parent company (annualised) divided by average equity attributable to shareholders of the parent company Net tangible book value per share: equity attributable to shareholders of the parent company less intangible assets divided by the number of issued shares Commentary - Group Financial Results for the six-month period ended 30 June

91 Hellenic Bank: Profit after tax of 35 million for 1H2018 Strategic plan is on track delivering results 1H2018 Profit after tax of 35 million High lending momentum; 328 million of loans approved during 6M2018, up by 77% YoY Non-performing exposures (NPEs) reduced organically for eleven consecutive quarters High NPEs provision coverage, at 62% with Net NPEs collateral coverage at 142% Net NPEs to Assets reduced to 11,7% Pro forma 1 Common Equity Tier 1 (CET 1) Ratio at 13,7% and Capital Adequacy Ratio of 17,4%, on a transitional basis CCB deal provides attractive strategic, commercial and financial benefits to the Bank During the first half of 2018 the Group s proforma 1 CET1 ratio of 13,7% and the capital adequacy ratio of 17,4%, both on a transitional basis, 1 are well above minimum regulatory capital requirements. The Bank continued supporting the growth of the economy by financing creditworthy households and businesses. 328 million of loans were approved in the first half of 2018, supporting industry sectors such as tourism, manufacturing, wholesale trade and transportation, as well as households. NPEs reduction One of the strategic priorities of the Bank is the reduction of NPEs. Continuing the efforts for resolving its asset quality problem, on 6 th June 2018 the Bank completed the agreement to sell a non performing loan portfolio of predominantly non-retail unsecured exposures, to B2Kapital Cyprus Ltd, a wholly owned subsidiary of Norwegian B2Holding ASA. The gross contractual outstanding balance of the portfolio was 144 million comprising of borrowers and facilities (in each case as at 31 st May 2018.) In addition to organic reduction of the problematic portfolio, the Bank remains 1 Including the 1H18 unaudited profit.

92 focused to accelerate the de-risking of its non-performing exposures through portfolio disposals and other transactions. The level of NPEs has been reduced to million at 30 th June 2018, down by 2% compared to the million at 31 December The decrease was mainly driven by the curing of restructured loans, collections, debt to asset swaps and write offs. The NPEs provision coverage stood at 62% as at 30 June 2018 (31 December 2017: 61%). Taking into account tangible collaterals, the net NPEs collateral coverage stood at 142% as at 30 June Capital Position Remains Strong The Group s proforma 1 capital adequacy ratios remain well above the minimum required by the relevant regulatory authorities. As at 30 June 2018, the CET 1 Ratio stood at 13,7% and the Capital Adequacy Ratio was 17,4%, both on a transitional basis. Deposits and Loans The Group maintains a strong liquidity position. The net loan to deposits ratio stood at 47%, enabling further business expansion. At 30 June 2018, total customer deposits amounted to 5,9 billion (31 December 2017: 5,8 billion) while gross loans amounted to million, up by 1% compared to million as at 31 December 2017, with the performing loan portfolio being increased by 4%. The Bank s loan market share as at 30 June 2018 was 8,6% (8,1% at 31 December 2017) and its deposits market share was 12,0% (11,9% at 31 December 2017). Way forward In September 2018 the Bank completed the transaction of acquisition of certain assets and liabilities of the Cooperative Central Bank ( CCB ) ( Acquisition ). The Acquisition is expected to accelerate the Bank s strategy of strengthening its banking franchise across Cyprus with an enlarged and diversified customer base. The business acquired is complementary to the Hellenic Bank s existing business model and creates economies of scale and synergies. Hellenic Bank s existing loan portfolio focuses on corporates and SME and with this expansion, the enlarged customer base of Hellenic Bank will exceed , establishing it as a leading bank in Cyprus in the retail banking sector. The deposit market share rises from 12% to 31%, while the performing loan market share is multiplied from 7% to 22% 2. Following the Acquisition, the Bank aims to continue its pivotal role in the recovery of the real economy supporting creditworthy Cypriot businesses and households with a comprehensive range of quality banking services. One of the Bank s strategic priorities is to timely execute the integration plan, for the fast and seamless transition to the new era and the smooth integration of former CCB systems and staff. 2 Latest available figures (i.e. December 2017 for the Bank and for the banking system as per Central Bank of Cyprus statistics for April 2018).

93 Statement by Mr. Υannis Matsis, the Group s Chief Executive Officer: During 1H2018 we made further progress in our strategic priorities, strengthening the Bank through the continuous resolution of NPEs and growing the Bank s franchise by becoming a more customer-centric institution. We completed the first NPE portfolio trade by a Cypriot bank, totalling 144 million, in June 2018 and have reduced NPEs for the 11th consecutive quarter. Net NPEs ratio is down to 29% and the NPEs provision coverage has improved to 62%. New lending for the first half of 2018 amounted to 328 million, 77% higher compared to the year before, reflecting an increased new lending momentum. In terms of performance, the Group reported profit after tax of 6,7 million for 2Q2018 and 35,3 million for 1H2018. The effects of the key measures taken in 2017, such as the Voluntary Early Exit Scheme (VEES), the reorganisation and the setting-up of APS Cyprus, are becoming now more visible. The Group s capital position is today stronger, with the Group managing to absorb the costs related to the balance sheet strengthening initiatives and VEES during the last couple of years. The Group s proforma capital adequacy ratio, was 17,41% on a transitional basis at 30 June 2018, well above the minimum requirement. As announced recently, we have successfully completed the acquisition of certain assets and liabilities from the Cyprus Cooperative Bank (CCB) that will accelerate the Bank s strategy of strengthening its franchise across Cyprus with an enlarged and diversified customer base, leading to a more diversified loan portfolio. Through this transformation transaction, the Bank will be become the second largest bank and the leading retail bank on the island. The Bank will proceed with a Capital Raise of 150 million, already approved by the EGM of 22 August 2018, by the end of the year in order to fund the acquired business..

94 Group Financial Results for the six months ended 30 June September

95 Highlights 1H18 Group Financial Results Acquisition of CCB business Asset quality Capital Strength Acquisition of certain assets and liabilities of Cyprus Cooperative Bank ( CCB ) expected to accelerate the Bank s strategy of strengthening its franchise across Cyprus with an enlarged and diversified customer base, leading to a more diversified loan portfolio The acquisition provides attractive strategic, commercial and financial benefits to the Bank A Capital Raise of 150 m, approved by shareholders at an Extraordinary General Meeting on 22 August 2018, is expected to be completed by year-end 2018 NPEs reduced for 11 consecutive quarters; Net NPEs 1) ratio at 29% and NPEs ratio at 52% NPEs provision coverage at 62% 2), with Net NPEs collateral coverage at 142% 3) Net NPEs to Assets reduced to 12% 1st Cypriot bank to sell an NPEs portfolio 4), totaling 144 m CET1 ratio 5) of 13,7% and Tier 1 5) ratio of 17,4% Capital ratios well above minimum regulatory requirements and compare well with EU average Post Capital Raise, the CET1 ratio and total capital ratio are expected to be in excess of 14,0% and 17,0%, respectively Liquidity and funding Ratio of loans to deposits of 47% enables business expansion Deposit funded, with deposits accounting for 86% of total assets. Performance Systemic bank in a growing economy 1H18 Profit before provisions of 30 m, including a gain of 18,3 m from the disposal of Cyprus Government Bonds (CGBs) 1H18 Profit after tax of 35 m and Earnings per share of 17 cents De-risking initiatives affect profitability, through pressured interest income and reduced fee income; Interest margins reflect a highly liquid, underleveraged balance sheet and current ECB monetary policy Post Acquisition, the Bank is the leading retail bank in Cyprus with market shares of performing loans and customer deposits of c. 22% 6) and of c.31% 6), respectively High lending momentum; 328 m of loans approved during 1H18, up by 77% y-o-y; Performing loans up by 7% y-o-y Cypriot economy expanded by 4% during 1H18, on the back of a broad based recovery 1) Net NPEs = NPEs minus Accumulated impairment losses. For a list of definitions and abbreviations, please refer to Glossary in slides ) Accumulated impairment losses 3) Taking into account tangible collateral, based on open market values (capped at client exposure) 4) 144 m relates to the gross contractual outstanding balance of the portfolio sold, with the gross carrying amount being 132 m 5) On a transitional basis proforma including 6M2018 unaudited profits 6) As per Circular dated 31 July 2018 Hellenic Bank Public Co Ltd All rights reserved 2

96 CCB Transaction Highlights Acquisition of certain assets and liabilities of Cyprus Cooperative Bank ( CCB ) Balance sheet size of Acquisition perimeter of 10,3 b, comprising a portfolio of primarily performing loans (c. 4,1 b net performing loans and c. 0,5 b of net non-performing loans), CGBs ( 4,1 b), cash ( 1,6 b), customer deposits ( 9,7 b) and certain other current liabilities and assets 1 An Asset Protection Scheme ( APS ) provides credit protection through 90% vertical loss sharing with CCB, guaranteed by the Republic of Cyprus ( RoC ) over 2,6 b of net loans, including NPEs ( 0,5 b net) Acquisition highlights Capital raise and tentative timetable The Bank will pay 74,2 m for a Target Asset Value (TAV) of 247 m (P/NAV multiple of 0,30x) and will proceed with a valuation of the assets and liabilities assumed to determine the Final Asset Value (FAV). In case (a) FAV>TAV, then the cash in the perimeter will be reduced or (b) FAV<TAV, then the assets transferred will be increased accordingly The Acquisition provides attractive strategic, commercial and financial benefits to the Bank through: The creation of a leading retail and SME bank in Cyprus A unique opportunity for sector consolidation at the right time in the economic cycle of the Cypriot economy An attractive transaction structure, resulting in a de-risked balance sheet, and Value creation, through funding cost reductions and realisation of cost synergies by reducing the branch network and rationalising the employee headcount The Bank will proceed with a 150 m Capital Raise at an issue price of 0,70 per New Ordinary Share, comprising a pre-emptive Rights Issue ( RI ) of c. 100 m and a private placement of c. 50 m to Poppy Sarl, an entity ultimately owned by funds whose investment manager is the Pacific Investment Management Company LLC For the RI, (a) Demetra Investment Public Ltd ( Demetra ) has agreed to subscribe for its pro rata share of the RI and for any shares not subscribed for by other shareholders, up to such a number that Demetra s percentage shareholding post Capital Raise is 20,09%. Demetra also has an obligation to subscribe for additional shares not subscribed for by other shareholders, so that the total amount of all shares subscribed for by Demetra is up to 50 m (b) Emma Alpha Holding Ltd ( Emma Alpha ) has committed to subscribe for shares up to a total amount of 50 m that are not subscribed for by shareholders, with the Bank paying Emma Alpha a commission of 4,5% on 50 m Based on the latest tentative timetable, the Capital Raise is expected to be completed by year-end ) Figures included in this bullet point are as disclosed by CCB during the transaction process and are dated 31 December They might have been subject to material changes and might no longer be an accurate representation as at the date of this presentation. 3

97 CCB Integration TRANSACTION COMPLETION INTEGRATION PLANNING AND GOVERNANCE Obtained regulatory approval for the acquisition prior to the Capital Raise, through the creation of capital certainty Regulatory announcements have been issued Onboarded approx customers after perimeter separation Launching of a full-scale plan for the integration of the acquired Business, expected to be completed within the next 15 months. The Bank has engaged with international specialised advisors. Establishment of Integration Governance which involves specialised work streams, an Integration Management Office and an Integration Steering Committee Establishment of an ad hoc Integration Committee of the Board to ensure the effective oversight OPERATIONAL READINESS INTEGRATION EXECUTION employees were successfully onboarded, following an employee exit scheme implemented by CCB On 3 September 2018, the change of control date, the ex-ccb branch network was fully operational ATM charges for HB and ex CCB customers have been eliminated (for both networks) SEPA payments fees between the two entities have been waived First phase of 43 branch closures being implemented by 5 October The communication to internal and external stakeholders has been completed accordingly Transfer of approximately mortgages has been completed 4

98 Performance across key indicators Profit before provisions ( m) Profit/(Loss) after tax ( m) NIM (bps) Cost to income ratio 1) 34, , ,3 CGBs gain 3,7 2Q17 1Q18 2Q ,8 28,6 6,7 2Q17 1Q18 2Q18 New lending and Loans NPEs ( m) Provision coverage market share 2) Capital ratios (trans) 3) 55% 60% 18,3 CGBs gain 62% 62% 215 Loans market share 8,6% 7,9% 7,7% New lending ( m, ytd) FY16 FY17 1H % CET1 ratio SREP18 CET1 17,0% 86% 68% FY16 FY17 FY17 Adj 74% 80% 1H18 1H18 Adj Tier 1 ratio SREP18 T1 17,7% 17,4% 13,8% 14,1% 13,7% 11,075% 9,575% Dec-16 Dec-17 Mar-18 Jun-18 Dec-16 Dec-17 Mar-18 Jun-18 1H16 1H17 1H18 Dec-16 Dec-17 Jun-18 1) Adjustments to Cost to Income ratio relate to VEEs for FY17-Adj and to CGBs, Consultancy Fees and APS Income for 1H18-Adj 2) Based on CBC data 3) Proforma including 6M2018 unaudited profits.srep18 CET1 and SREP18 T1 ratio requirements based on ECB s SREP conducted during 2017 with reference date 31 December Hellenic Bank Public Co Ltd All rights reserved 5

99 Further improvement in asset quality Eleven consecutive quarters of NPE reduction 90dpd 1) and 90dpd ratio 59,2% 58,2% 49,6% 42,0% 38,6% ,3% 52,1% 51,6% 31,6% 29,4% 28,9% ,9% ,1% 41,6% ,0% Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 NPEs ( m) Net NPEs ( m) NPEs ratio Net NPEs ratio 90dpd ( m) 90dpd ratio NPEs fully covered by provisions and collateral Net NPEs 127% 129% collateral coverage 2) 50% 55% 136% 142% 142% 60% 62% 62% Net NPEs to Assets significantly reduced 3) 18% 16% 13% 12% 12% Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 NPEs provision coverage 1) For a list of definitions and abbreviations, please refer to Glossary in slides ) Net NPEs collateral coverage = Collateral values (taking into account tangible collateral, based on open market values (capped at client exposure) ) % (NPEs minus Accumulated Impairment Losses) 3) Net NPEs = NPEs minus Accumulated Impairment Losses Hellenic Bank Public Co Ltd All rights reserved 6

100 NPEs reduced by 21% since peak Majority of NPE reduction experienced in Corporate NPEs NPEs movement 1) (97) (134) (76) (132) (22) (66) (18) Dec-16 D2A Write offs Cured loans Newly Classified NPEs Other Dec-17 Pre-Agr. NPE Trade Dec-17 Post-Agr. D2A Write offs Cured loans Newly Classified NPEs Other Jun-18 NPEs by segment 2) ( m) % Sep-15 Dec-15 Dec-16 Dec-17 Pre-Agr. Mar-18 Post- Agr. Jun-18 In June , the Bank sold an NPE portfolio of predominantly nonretail unsecured exposures to B2Kapital Cyprus Ltd, a wholly owned subsidiary of B2Holding ASA, a Norwegian corporation listed on the Oslo Stock Exchange. The portfolio totaled 144 m of NPEs, being the gross contractual outstanding balance NPEs reduced by 52 m or 2% during 1H18. Since peak, NPEs are down by 21% Majority of NPEs reduction experienced in Corporate NPEs, which were reduced by 43% since peak. Retail Business Corporate Other 1) Category Other refers to interest, repayments etc 2) Classification based on internal operational segmentation (business line). Other includes: International, International Corporates, Shipping, Leverage finance and Other 3) The NPE portfolio sale was agreed in January 2018 Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 7

101 Improved provision coverage for problem loans Accumulated provisions for impairments Provisions for impairments 1) and provision coverage 18,9% 26,9% ,6% 32,0% 31,8% 32,1% 32,0% % 66% 67% 65% 66% 66% 61% 56% 56% 54% 60% 61% 62% 62% 60% 50% 52% 53% 55% 57% ,3 26,4 15,0 55,6 27,4 51,6 8,8-1,7-3,7-7,1 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Accumulated provisions ( m) Accumulated provisions % gross loans Impairment losses ( m) NPEs provision coverage 90dpd provision coverage Cost of risk (bps) 2) Accumulated provisions at 32% of gross loans. During 1H18 there was a total impairment losses reversal of 7,4 m as per Income Statement. NPEs provision coverage at 62% at Jun-18, compared to 60% a year earlier 6M18 Cost of risk of -57bps, compared to 376bps for 6M17 12M14 12M15 12M16 3M17 6M17 9M17 12M17 3M18 Pre-Agr. Post-Agr. Cost of risk (ytd) Cost of risk (quarterly) 6M18 1) Includes impairment on the value of loans and advances and modification loss and does not include provisions for contractual commitments and guarantees or expected credit losses on the value of Debt Securities/Placements with other banks. 2) ) Includes impairment on the value of loans and advances and does not include provisions for contractual commitments and guarantees or expected credit losses on the value of Debt Securities/Placements with other banks or modification gains/losses Hellenic Bank Public Co Ltd All rights reserved 8

102 Properties managed by APS Cyprus Movement of property stock ( m) 1) Post 30 June 2018 update 63 (41) 31 (23) 14 (3) 12 (8) m Book value Number of properties X ~ Dec-16 Additions Disposals Jun-17 Additions Disposals Dec-17 Additions Disposals Mar-18 Additions Disposals Jun-18 SPA Signed Offer accepted SPA in process Assessing offers received 2) Real Estate by type of property 1) Number of properties by type 7% 10% 12% 12% 12% 13% 10% 25% 45% 36% 38% 42% 41% 43% 68% 45% 52% 50% 46% 46% 47% Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Land Commercial Residential Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Land Commercial Residential 1) Book Value 2) Offer subject to minimum internal acceptance criteria. Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 9

103 NPE resolution strategy The Bank is well positioned to achieve deleveraging Progress achieved APS Cyprus fully independent. Servicer continues to record increasing momentum particularly in the areas of settlements and cases processed for foreclosures. The amendment of the foreclosure law is expected to further support this momentum Net NPEs 127% 142% collateral coverage 1) Successful completion of NPL sale with B2Kapital Cyprus. The experience and credibility gained through the completion of the transaction (June 2018) will facilitate future NPL Sales Significant reduction of NPEs by 21% since peak; Net NPEs collateral coverage at 142% which allows optionality in regards to future strategies including NPL sales and settlements Intensification of NPL resolution. The focus is set on the management of early arrears and prevention of new defaults in combination with more deleveraging evidenced by the increased pace of foreclosures and settlements Net NPEs b REO disposals (BV) (post Dec-16) -44% 1,4 0,8 Sep-15 Jun m 1) m Portfolio Provision coverage Collateral / Net NPEs Resolution strategy Back-to-core Sub-performing Back to core 26% 151% Clients with the majority of their accounts exhibiting less than 30dpd and with satisfactory cash payments received during last years Sub-performing 42% 187% Clients with significant arrears post economic recession and with lower than average LTVs. Strategies include restructurings or D2As Residential mortgage backed Legacy NPE Portfolio Residential mortgage backed 1) Including SPA signed as per slide 8. Numbers may not add up due to rounding 63% 182% Foreclosure strategy may be pursued if clients remain uncooperative, though efforts to reach consensual agreements are pursued. This segment may positively benefit from governmental plans Legacy 72% 171% Exposures in significant arrears with less room for possible restructurings or consensual agreements. Level of provisions facilitate potential NPL transactions, while litigation & foreclosure strategies against non-cooperative borrowers will be pursued. Some exposures are backed by memos or personal guarantees, with APS expected to yield improved results. Hellenic Bank Public Co Ltd All rights reserved 10

104 Capital Raise will allow ratios to be above the medium-term target Capital ratios 1) Leverage Ratio 1) 18,13% 17,24% 17,86% 17,63% 17,41% RWA /Total assets 54% 53% 50% 51% 51% 17,68% 17,01% 17,71% 17,60% 17,40% 9,0% 8,8% 8,6% 8,8% 8,6% 14,75% 13,83% 14,12% 13,85% 13,73% ,01% (0,28%) 0,77% 0,22% (0,67%) (0,44%) 14,12% 13,85% 13,73% CET1 Dec-17 (trans) Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 IFRS Impact 1/1 CET1 ratio Tier 1 ratio Total Capital ratio CET1 ratio evolution DTA&IA &Trans. adj CET1 Dec-17 (trans) IFRS 9 Profit Provisions before provisions OCI & 2) other adj. 3) RWAs change 1) CET1 Jun-18 IFRS 9 (trans) (0,92%) IFRS 9 Trans. 12,81% CET1 Jun- 18 (FL) IFRS 9 Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 Risk weighted assets ( m) Leverage ratio CET1 1) ratio (transitional) totalled 13,7% at 30 June m of CCSs constitute additional loss absorbing buffer and are considered as Additional Tier 1 capital; Tier 1 ratio (transitional) totaled 17,4% at June 2018 Issuance of up to 214 m of New Ordinary Shares through a Capital Raise of 150 m. Capital Raise includes offer of 143 m shares 4) through a RI at a price of 0,70 per share. Demetra has committed to subscribe for a total of up to 50 m and Poppy Sarl will subscribe by way of private placement for a total of c. 50 m. Emma Alpha has committed to subscribe for a total of up to 50 m that are not subscribed for by shareholders during the RI 1) Transitional including 6M18 unaudited profits 2) Other comprehensive income (OCI) 3) Includes DTA, IA and other adjustments 4) For a list of definitions and abbreviations, please refer to Glossary in slides Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 11

105 Capital ratios well above minimum regulatory requirements and compare well with EU average 9,575% 1,875% 3,20% 13,075% 1,875% 3,20% 2,00% 1,50% 4,50% 4,50% SREP18 CET1 Req. SREP18 OCR P1R of 8% P1 AT1 Tier 2 P2R CCB 13,075% 11,075% 9,575% SREP18 requirement Capital cushion 4,3% 6,3% 4,2% 17,41% 17,40% 13,73% Jun-18 (Trans.) CET1 ratio Tier 1 ratio Total Capital ratio 1) Prudential requirements for ) 2018 minimum required CET1 and T1 ratios of 9,575% and 11,075%, respectively, based on ECB s decision for SREP18. The Group is required to maintain an OCR of 13,075% (trans.), including: P1R of 8% (up to 1,5% in AT1 capital and up to 2% in T2 capital), P2R of 3,2% (down from 3,5%) in CET1 capital and the combined buffer requirement which includes the capital conservation buffer (CCB) 3)4) The ECB has set a reduced, non-public, P2 guidance in CET 1 capital, effective from 1 January 2018 Capital ratios compare well to EU average 5) Rationale T1 ratio (trans.) EU average 16,0% 32,3% 23,4% 22,9% 22,5% 21,9% 21,8% 20,3% 19,9% 19,8% 19,4% 19,3% 18,6% 18,5% 17,9% 17,7% 17,6% 17,4% 17,3% 17,2% 16,8% 16,5% 16,0% 15,9% 15,6% 15,5% 14,8% 14,5% 14,4% 13,7% 13,6% 13,0% EE* SE IS LU LV FI HR LT BG IE DK SI RO NL BE CZ HB NO MT GB DE PL GR SK HU FR AT IT PT CY ES 1) On a transitional basis proforma including 2Q2018 unaudited profits 2) Based on ECB s decision for SREP18 conducted during 2017 with reference date 31 December 2016, 3) The Bank must maintain an Other Systemically important institution buffer (O-SII) of 1,0% of RWAs on 1 January 2022 starting from 1 January 2019 at 0,25% and increasing by 0,25% every year. The CBC has set the counter-cyclical capital buffer at 0% for 2016, 2017 and the first and second quarter of ) In February 2017, the Cypriot Parliament voted for an amendment to the Business of Credit Institutions Law allowing the gradual phase-in of the CCB, starting Accordingly, the CCB for 2016 was set at 0,625%, for 2017 at 1,25%, for 2018 at 1,875% and for 2019 at 2,5% 5) As per EBA Risk Dashboard 1Q 2018 Hellenic Bank Public Co Ltd All rights reserved 12

106 A deposit-funded balance sheet Liabilities Mix ( m) Assets Mix ( m) Net NPEs Net NPEs Net NPEs L/D ratio at 47% Performing loans Net Loans 2.779m Performing loans Net Loans 2.767m Performing loans Net Loans 2.926m Customer deposits Deposits exceeding loans by 3,2 b Cash and balances with Central Banks& Bank placements 2) Loan Capital 1) Shareholders equity Other 4) Dec-16 Dec-17 Jun Jun-18 Dec-17 Dec-16 Debt / Equity securities 3) Other 1) 130 m of Convertible Capital Securities (CCSs) constitute additional loss absorbing buffer and are treated as Additional Tier 1 capital 2) 2,35 b with the ECB at -40bps. Most foreign currency placements with banks rated Prime-1 short term rating by Moody s (P-1) 3) Deployment of liquidity in interest bearing assets. 4) Includes Deposits by banks Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 13

107 A stable, deposit-funded structure Customer deposits ( b) Stable funding structure 5,51 6,35 6,14 6,11 5,81 5,79 5,95 83% 87% 87% 86% 86% 85% 86% 86% 2,14 2,77 2,66 2,41 2,03 1,94 1,93 50% 48% 48% 48% 48% 48% 48% 47% 3,38 3,58 3,48 3,70 3,78 3,85 4,02 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 Dec-15 Dec-16 Mar-17 Jun-17 Net loans % Customer deposits Sep-17 Dec-17 Mar-18 Jun-18 Customer deposits % Total assets Non-IBU deposits IBU deposits Deposit market share (%) 1) 18,7% 18,5% 17,3% 16,4% 16,3% 14,9% 15,2% 14,5% 13,2% 12,3% 12,6% 13,8% 11,9% 12,0% 13,4% 12,5% 12,0% 11,7% 10,2% 11,8% 10,6% 11,8% 11,5% 11,2% 11,2% 11,6% 10,8% 7,9% Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18 Total Other Financial Intermediaries Non-financial corporations Households 1) Source system data: CBC 2) As per EBA Risk Dashboard Q Numbers may not add up due to rounding Deposit trends reflect the Bank s efforts to maintain a low deposit cost given its liquidity position and the recent banking system developments Liquidity deployment affected by (a) CBC Prudential Liquidity Ratios (b) limited capital availability and (c) due to capital management, targeting low RWA investments remains unattractive due to ECB s policy Deposits by main business lines: Retail about 52% of total deposits, business about 6%, corporate banking about 6%, IBU deposits about 32% A stable funding structure, with a loans to deposits ratio of 47% (compared to an average of 76% for Cypriot banks and an average of 122% for EU banks) 2) ; Funding structure enables business expansion Deposit market share of 12,0% at June 2018 Hellenic Bank Public Co Ltd All rights reserved 14

108 High lending momentum mitigates pressure from loan repayments, customer deleverage and loan restructuring activity Gross loans composition ( m) 1) and lending market share 2) New lending ( m) Performing loan book Loans market share Other NPEs Other PEs Corporate NPEs Corporate PEs ,7% ,1% ,6% Total : 1,2 b Corporate Business Retail Other Q18 2Q18 Business NPEs Business PEs Retail NPEs Retail PEs Gross loans totaled m at Jun-18. Gross loans reduction driven by loan repayments, customer deleverage, increased restructuring activity, including debt to asset swaps (D2As) and write offs, as well as the effect of the NPE Sale New lending of 328 m during 1H18; Total new lending of 1,2 b post 31 December 2015, as part of the Bank s Build strategy Lending to businesses (Corporate and Business) accounted for 645 m (53%) of total new lending post 31 December 2015 Dec-16 Dec-17 Pre-Agr. Jun-18 1) Other includes: International, In.Corp. & Inv, Leverage Finance and Other. 2) Source for system data: CBC. Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 15

109 Income Statement highlights [ m] 1H18 1H17 y-o-y 2Q18 1Q18 q-o-q Net interest income 1 57,6 66,3 (13%) 28,4 29,3 (3%) Net fee & commission income 2 20,7 22,1 (6%) 11,1 9,7 14% Other income 3 36,4 40,1 (9%) 8,2 28,1 (71%) Total net income 114,8 128,5 (11%) 47,7 67,1 (29%) Staff costs (37,6) (43,4) (13%) (18,0) (19,6) (8%) Admin. & other expenses (47,3) (33,3) 42% (25,9) (21,4) 21% Total expenses 4 (84,9) (76,7) 11% (43,9) (41,0) 7% Profit before provisions 29,9 51,8 (42%) 3,7 26,1 (86%) Impairment losses 5 7,4 (77,6) (110%) 4,2 3,2 29% Share of results of associate 1,5 0,0 100% 1,2 0,4 236% Profit / (Loss) before taxation 38,8 (25,8) (250%) 9,1 29,7 (69%) Taxation (3,5) 2,9 (221%) (2,4) (1,1) 110% Profit / (Loss) after tax 6 35,3 (22,9) (254%) 6,7 28,6 (77%) Net interest margin (bps) (22) (6) Cost to income ratio (%) Return on Equity (%) 12,7 (8,3) 21 5,0 20,6 (15,7) Earnings/(Loss) per share ( cent) 17,5 (11,8) 29,3 3,33 14,1 (10,8) Highlights Lower net interest income (NII) q-o-q, mainly due to the reducing impaired loan portfolio primarily as a result of debt to asset swaps. On a yearly basis, NII and NIM were down primarily due to the lower lending rates and the decreasing impaired loan portfolio. Fee and commission income under pressure due to lower fees from the IBS 1) division. Q-o-Q improvement driven by seasonality 1Q18 other income included the gain of 18 m from the CGBs disposal. 2Q17 includes the gain on disposal of the operations of the Arrears Management division to APS of 19 m Staff cost reduction was mainly due to transfer of 129 employees to APS and the cost of the staff that have left with the VEES. Administrative and other expenses have increased on a yearly basis mainly due to the APS fees of 11,5m and on a quarterly basis mainly due to the engagement of various consultants in relation to the CCB Acquisition and the Capital Raise Impairment losses and provisions reversal 2) of 7,4 m for 1H18 mainly due to reduced NPEs and level of accumulated provisions 1H18 Profit after tax of 35 m positively affected by the CGBs disposal, compared to a loss of 23 m in 1H17, mainly affected by the increased impairment losses 1) International Business Services 2) Includes Impairment losses on the value of loans and advances, provisions to cover credit risk for contractual commitments and guarantees, expected credit losses on the value of Debt securities/placements with other banks and modification loss. bps = basis points ; p.p. = percentage points. Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 16

110 Adjusted Income Statement Adjustments relate to CGBs disposal, APS transaction gain, VEES cost and Consultancy Fees [ m] 2Q18 1Q18 4Q17 3Q17 2Q17 1Q17 Net interest income 28,4 29,3 32,0 32,9 32,6 33,8 1 Adjustments FY17 other income included the APS gain of 19,0 m (2Q17) Net fee & commission income 11,1 9,7 12,0 11,2 11,3 10,8 Other income 8,2 3 9,8 9,4 8,5 1 9,6 11,5 Total net income 47,7 48,8 53,4 52,5 53,4 56,1 Staff costs (18,0) (19,6) (23,2) (20,3) (22,5) (20,9) Admin. & other expenses 4 (20,4) 4 (20,5) 2 (20,7) (18,7) (15,1) (18,1) Total expenses (38,4) (40,1) (43,9) (39,0) (37,6) (39,0) Pre-provision income 9,2 8,7 9,6 13,5 15,8 17,1 Impairment losses & provisions 4,2 3,2 2,4 (7,7) (50,3) (27,3) FY17 Administrative & other expenses include the VEES cost of 41,3 m (4Q17) Gain from the CGBs disposal of 18,3 m (1Q18) 6,4 m from the engagement of various consultants in relation to the Acquisition of certain assets and liabilities of CCB and the upcoming capital raise ( 5,5 m for 2Q18 and 0,9 m for 1Q18), in total Consultancy Fees Share of results of associate company 1,2 0,4 0,3 0,5 0 0 Additional Provisions due to SREP Profit /(loss) before taxation 14,6 12,3 12,3 6,3 (34,6) (10,2) Taxation (2,4) (1,1) 1,8 (1,2) 2,8 0,2 Profit/(loss) after tax 12,2 11,2 14,0 5,1 (31,8) (10,1) Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 17

111 NII driven by lower interest income and reflects a highly liquid, underleveraged balance sheet and current ECB monetary policy Evolution of NII and NIM; Interest Earning Assets Components of NII ,3 42,0 40,8 39,8 37,2 36,3-9,5-9,5-7,9-7,9-7,9-7,9 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 NII ( m; quartely) NIM (bps; quartely) X Interest Earning Assets m Average contractual interest rates Dec-15 Dec-16 Dec-17 Mar-18 Jun-18 Gross Loans Gross Deposits Net Client spread 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Interest Expense m Interest Income m 2Q18 NII of 28,4 m, down by 3% q-o-q, mainly due to lower interest income from the decreasing impaired loan portfolio, primarily as a result of the debt to asset swaps Y-o-Y, NII and NIM were down primarily due to the lower lending rates resulting from competition downward pressure as well as the decreasing impaired loan portfolio 2Q18 NIM of 178bps, reflecting a highly liquid balance sheet (net loans accounting for 40% of total assets compared to an average of 64% for Cypriot and 63% for EU banks) 1) and an ECB placement of 2,35 b (c. 34% of total assets) at a cost of 40bps 1) As per EBA Risk Dashboard 1Q18 Hellenic Bank Public Co Ltd All rights reserved 18

112 Non-interest income under pressure due to reduced fee income in the IBS division Breakdown of non-interest income ( m) 56,1 72,4 40% 55% 39,8 52,5 38% 53,4 40% 67,1 56% 37,8 47,7 41% 2Q18 Net fee and commission income of 11,1 m, up by 14% q-o-q and down by 6% y-o-y The reduction in fee and commission income compared to earlier years reflects the Bank s derisking efforts in the IBS business, including the enhancement of processes and procedures, which resulted in significant reductions in IBS customers, in incoming payments related to the IBS business, and reduction in deposits from higher risk countries clients 22,3 19,0 APS Transaction 19,7 21,5 18,3 CGBs gain 19,3 2Q18 Other income of 8,2 m compared to 28,1 m for 1Q18 which included a gain of 18,3 m from the CGBs disposal. 2Q17 Other Income included the 19,0m gain related to the disposal of the operations of the Arrears Management Division 11,5 9,6 8,5 9,4 9,8 8,2 10,8 11,3 11,2 12,0 9,7 11,1 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Net Fee and Commission Income Other income X Total net income m % Total non-interest income % Total net income Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 19

113 Cost to income ratio reflects a low NIM Total expenses evolution ( m) Cost to income ratio (%) 1) VEES SRF Contribution APS Fee Other expenses Cost of employees transferred to APS Staff costs 85,2 41,3 43,9 47% 60% 159% 82% 61% 81% 92% 79% 39,0 2,0 37,6 39,0 4,6 4,6 41,0 4,8 6,7 59% 58% 86% 68% 61% 81% 74% 80% Dec-15 Dec-16 Dec-17 Dec-17 Adj Mar-18 Mar-18 Adj Jun-18 Jun-18 Adj 16,1 15,1 16,1 14,1 16,6 19,2 1,8 20,9 20,7 20,3 23,2 19,6 18,0 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Cumulative Quarterly 2Q18 Staff costs totaled 18,0 m, with the quarterly decrease of 8% primarily driven by the departure of staff in February 2018 as part of the VEES implemented by the Bank in December 2017 Adjusted Cost to income ratio of 79% for 2Q18 compared to 81% for 1Q18 Going forward, the Bank s cost base will reflect the acquired CCB business and the related expected cost synergies, with the main ones expected to be (a) the rationalisation of the combined branch network, (b) the Company onboarding employees from CCB, and (c) economies of scale across head office and support functions. 1) Adjustments to Cost to Income ratio relate to VEEs for Dec-17-Adj and to CGBs, Consultancy Fees and APS income for Mar-18 Adj and Jun-18-Adj Numbers may not add up due to rounding Hellenic Bank Public Co Ltd All rights reserved 20

114 Highlights of income statement Income Statement trends ( m) APS Transaction 19,0 m 72,4 CGBs gain 18,3 m 67,1 2Q17 3Q17 4Q17 1Q18 2Q18 53,4 52,5 53,4 48,8 47,7 VEES cost 41,3 m 34,8 13,5 26,1 3,7 2,4 3,2 4,2 2,8 1,8 5,1 28,6 6,7-43,9-41,0-37,6-39,0-43,9-31,7-50,3-7,7-1,2-1,1-2,4-12,8-27,3-85,2 Total net income Total expenses Profit before provisions Impairment losses and provisions Profit before provisions/ RWAs (%) 2,9% 3,0% 1,7% Return on Equity (%) 0,2% 12,7% Taxation Profit/(loss) after tax 2Q18 Profit after tax of 6,7 m, compared to a profit after tax of 28,6 m for 1Q18 1H18 Profit before provisions of 29,9 m, positively benefiting from the CGBs disposal gain of 18,3 m -8,3% 1H16 1H17 1H18 1H16 1H17 1H18 Hellenic Bank Public Co Ltd All rights reserved 21

115 Way forward A clear strategy plan Key Performance Indicators and Targets Strategic Pillars and Plan of action Integration Strategy NPE Strategy Asset Strategy Effective implementation of the Integration Plan Synergies maximization and close monitoring of synergy targets Achieve the value created by the transaction while protecting and improving the customer experience APS Cyprus with solutions such as D2As, cash collection, maturity extensions, grace periods, foreclosures NPE Trades Finance assets that provide a healthy risk/return relationship Focus resources on the performing loan book by seizing opportunities both domestically/internationally Target retail/households and key business sectors to improve NIM and increase fees and commissions Category Asset quality Funding Profitability Key performance Indicator FY16 FY17 1H18 Combined Medium Term Targets 5) NPEs ratio 58% 53% 52% <20% 1) NPEs coverage ratio 55% 60% 62% c.55% Cost of risk 2) 2,8% 2,1% -0,6% <1,0% Net loans to deposits ratio Net interest margin (Net interest income % Average total assets) 48% 48% 47% >55% 2,0% 1,9% 1,7% >2,3% Cost to Income ratio 3) 58% 68% 80% <55% Funding and Capital Strategy Maintain a stable funding base and adequate capital to cover the current and forecast business needs and risks, as well as the acquisition of the CCB operations Return on equity (11%) (8%) 12,7% Low double digits Cost Strategy New organisation structure to improve service, procedures and efficiency Cost-conscious culture Capital CET1 ratio 4) 13,5% 13,8% 12,8% c.14,0% Capital adequacy ratio 4) 17,0% 17,7% 16,5% c.17,0% 1) Excludes the impact of any potential future NPE trades or any similar related transactions and excluding NPEs under the Asset Protection Scheme 2) For a list of definitions and abbreviations, please refer to Glossary in slides ) Adjustments to Cost to Income ratio relate to VEEs for FY17 and to CGBs, Consultancy Fees and APS income for 1H18 4) On a Fully Loaded basis, with June 2018 ratios including the 6M18 unaudited profits 5) Medium Term Targets refer to a period of three to five years. Hellenic Bank Public Co Ltd All rights reserved 22

116 Key takeaways Acquisition of CCB business to accelerate the Bank s strategy of strengthening its franchise across Cyprus with an enlarged and diversified customer base, leading to a more diversified loan portfolio Improving asset quality 11 th consecutive quarterly NPEs reduction; NPEs ratio at 52% and Net NPEs ratio at 29% NPEs provision coverage at 62% and Net NPEs collateral coverage at 142% Net NPEs to Assets reduced to 12% 1 st Cypriot bank to sell an NPE portfolio CET1 1) ratio (Trans.) of 13,7% and Tier 1 1) ratio (Trans.) of 17,4%, well above minimum capital requirements and compare well with EU average; Post acquisition, the Capital Rationale Raise of 150 m is expected to result in the CET1 and total capital ratios being in excess of 14% and 17%, respectively New lending of 328 m during 1H18, as part of the Bank s Build strategy; Performing loan book increased by 7% y-o-y A solid deposit franchise, with low ratio of loans to deposits enabling business expansion 1H18 Profit before provisions of 30 m and 1H18 Profit after tax of 35 m; Earnings per share of 17 cents for 1H18 1) On a transitional basis proforma including 6M2018 unaudited profits Hellenic Bank Public Co Ltd All rights reserved 23

117 Other information Investor Relations Team Constantinos Pittalis (Investor Relations Manager): Maria Elia: Website: Credit Ratings Moody s 13 July 2018 Long and short-term Bank Deposit Rating: Caa1/NP Commercial Paper: Not Prime Baseline Credit Assessment: caa2 On review for upgrade Fitch 29 June 2018 Long and short-term Issuer Default Rating: B/B Viability rating: b Rating Watch Positive Branch Network: 44 branches and 8 cash offices 7 Commercial Centres 2 Corporate Centres 1 Transaction Banking Shipping (Shipping customers can be serviced at any International Business Centre) 3 International Business Centres 4 Representative Offices Securities ISIN numbers: ΗΒ (shares) - CY HBCS1 (CSC 1) - CY HBCS2 (CSC 2) - CY Hellenic Bank Public Co Ltd All rights reserved 24

118 Appendix Economic environment and Additional information Hellenic Bank Public Co Ltd All rights reserved 25

119 Strong growth driven by consumption and investment Annual Real GDP growth (y-o-y % change) Quarterly Real GDP growth (y-o-y and q-o-q % change) f 3,9% 0,8% 1,3% 0,3% -3,2% -5,9% -1,5% 1,7% 2,8% 3,9% 4,2% Real GDP growth and contributions (y-o-y % change) Source: Ministry of Finance, HB Economic Research Hellenic Bank Public Co Ltd All rights reserved Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 real GDP, QoQ real GDP, YoY Strong rebound in Economic Sentiment Indicator ,3% 0,3% -3,1% -5,9% -1,4% 2,0% 3,4% Investments Government Consumption Net exports GDP growth 3,9% Cyprus EZ

120 Labor market conditions and inflation continue to improve Unemployment in steady decline 15,9% 16,3% 15,0% 13,3% 11,9% 68% 11,0% 69% 9,2% 7,9% 6,3% 67% 65% 65% 64% 63% 62% 62% f Inflation on a positive trajectory f 3,1% 0,4% 0,7% 0,7% -0,3% -1,5% -1,2% Unemployment Rate (ages 15-64) - LHS Employment Rate (ages 15-64) - RHS Number of Unemployed and Unemployment rate Historical evolution of Consumer Price Index ,5% 20% 16% 12% 8% ,5 4% Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 0% Number of unemployed ('000) Unemployment rate, % (rhs) Headline CPI Energy Prices Core CPI Source: Ministry of Finance, HB Economic Research Hellenic Bank Public Co Ltd All rights reserved 27