COMMENTARY Group Results for the nine-month period ended 28 November Building a stronger bank, by making further progress in our strategic priorities 9M financial performance summary Profit before provisions of 78,3 million, up by 26% compared to 9M Profit after tax from continuing operations of 5,0 million, compared to 1,9 million for 9M Profit attributable to the Bank s shareholders at 4,5 million, compared to 6,1 million for 9M 1 Strong and liquid balance sheet Common Equity Tier 1 (CET 1) ratio bolstered by 45 basis points during 3Q to 14,37%, resulting in to a total capital adequacy ratio of 17,66%; Capital ratios significantly above minimum regulatory requirements as confirmed by the draft Supervisory Review and Evaluation Process (SREP) Ample liquidity reflecting a solid deposit franchise; Low ratio of loans to deposits of 50% enables business expansion Executing the Fix and Build strategy Non-performing exposures (NPEs) reduced for the fourth consecutive quarter to 2.395 million (down by 11% YoY), their lowest level post December 2014 NPEs ratio reduced to 57,1%, compared to 61,2% a year earlier NPEs provision coverage at 50%, while taking into account tangible collateral, overall NPEs coverage increases to 112% High loan restructuring activity, with 490 million of restructurings 2 during 9M Improving lending momentum, with 240 million of new lending approved during 9M Increased net interest margin of 2,1%, compared to 2,0% of December Commenting on the Group s financial results, Mr. Bert Piljs, the Group s Chief Executive Officer, stated: We have made further progress executing our strategic priorities in the third quarter of. We reduced NPEs for a fourth consecutive quarter to their lowest level post December 2014. We completed almost half a billion of restructurings during the first three quarters of and the loan restructuring momentum remains strong, with an increased number of restructuring agreements in the pipeline. We continue to explore all available options in an effort to decisively address problematic loans, using a tool case of sustainable solutions such as debt to asset swaps, balance reductions, maturity extensions, grace periods, instalment reductions and servicing support. We bolstered the Group s CET1 ratio by 45 basis points to 14,37% due to lower risk weighted assets and organic capital generation, and the Group s capital ratios are comfortably above the minimum regulatory requirements. We recorded profits for a third consecutive quarter in, with profit after tax for 3Q of 3,9 million. A very low loans to deposits ratio enables our lending expansion and about 240 million loans were approved since the beginning of the year, supporting creditworthy households and businesses. 1 9M profit attributable to the Bank s shareholders included a one-off amount of 4,8 million relating to the discontinued operations. 2 As per European Bank Authority (EBA) definition - client basis. Commentary - Group Results for the nine-month period ended 1
1. RESULTS OVERVIEW Profit for the nine-month period ended amounted to 5,0 million (9M-: 6,7 million). Profit from ordinary operations before impairment losses and provisions to cover credit risk for the nine-month period ended amounted to 78,3 million, registering an increase of 26% compared to 62,0 million for the respective nine-month period of. The increase was mainly due to the 14,0 million gain from the disposal of the Visa Europe Limited shares included in 2Q. The one off Visa shares gain was the main reason for the 46% decrease on a Quarter on Quarter basis (QoQ), where profitability before impairment losses and provisions to cover credit risk reached 19,6 million in 3Q and 36,0 million in 2Q. Adjusting the profit before impairment losses and provisions to cover credit risk of 2Q to exclude the one off gain on disposal, the reduction in profitability is 11%. Income Statement ( 000) 9M- 9M- 3Q 2Q QoQ 1Q Profit from ordinary operations before impairment losses and provisions to cover credit risk 78.316 61.997 +26% 19.566 36.015-46% 22.735 Taxation (9.248) (981) +843% (351) (8.453) -96% (444) Profit for the period from continuing operations 4.959 1.886 +163% 3.856 411 +838% 692 Profit from discontinued operations - 4.826-100% - - +0% - Profit for the period 4.959 6.712-26% 3.856 411 +838% 692 Profit attributable to the shareholders of the parent company 4.468 6.092-27% 3.764 369 +920% 335 Profit attributable to the Bank s shareholders for the nine-month period ended amounted to 4,5 million and included a charge of derecognised deferred tax asset of 8,5 million arising from tax losses which was posted in 2Q. In the nine-month period ended, profit attributable to the Bank s shareholders amounted to 6,1 million and included a profit of 4,8 million from discontinued operations that related to the disposal of a building owned by the Group in Moscow, following the sale of its Russian banking subsidiary in 2014. 2. INCOME STATEMENT 2.1 Net interest income (NII) Net Interest Income ( 000) 9M- 9M- 3Q 2Q QoQ 1Q Interest income 138.800 158.222-12% 45.298 46.600-3% 46.902 Interest expense (28.079) (49.994) -44% (9.312) (9.597) -3% (9.170) Net interest income 110.721 108.228 +2% 35.986 37.003-3% 37.732 Net interest income for the nine-month period ended reached 110,7 million, recording a 2% increase compared to the corresponding period ended. The substantial decrease in interest expense due to the decrease of deposit rates in compared to, had a positive impact on the net interest income. Reduction in interest income is mainly due to lower lending rates and due to the decreased balance of the impaired portfolio. Net interest income in 3Q was lower by 3% compared to 2Q, mainly due to the decreased unwinding of discount on the impaired portfolio in 3Q. The Group s net interest margin for the nine-month period ended amounted to 2,1% (9M-: 2,0%). Commentary - Group Results for the nine-month period ended 2
2.2 Non-interest income Non-interest Income ( 000) 9M- 9M- 3Q 2Q QoQ 1Q Net fee and commission income 37.159 42.217-12% 11.866 12.299-4% 12.994 Net gain on disposal and revaluation of foreign currencies and financial instruments 24.684 11.006 +124% 3.935 17.030-77% 3.719 Other income 13.532 14.744-8% 3.277 4.972-34% 5.283 Total non-interest income 75.375 67.967 +11% 19.078 34.301-44% 21.996 Total non-interest income for the nine-month period ended amounted to 75,4 million, recording an increase of 11% compared to the corresponding period ended. This increase was mainly due to the increase in Net gain on disposal and revaluation of foreign currencies and financial instruments which is explained with the gain of 14,0 million from the disposal of the shares in Visa Europe Limited included in the nine-month period ended. Excluding the gain of 14,0 million, net gain on disposal and revaluation of foreign currencies and financial instruments amounted to 10,7 million and is in line with the corresponding period ended. Net fee and commission income for the nine-month period ended amounted to 37,2 million and recorded a decrease of 12% compared to the nine-month period ended. The decrease was mainly due to lower card interchange fees and reduced commission income from incoming and outgoing payments in the international business division due to the Bank s efforts to reposition the said business. Total non-interest income in 3Q amounted to 19,1 million and decreased by 44% compared to the 34,3 million of 2Q, which was boosted by the one-off gain of 14,0 million from the disposal of the shares in Visa Europe Limited. 2.3 Expenses Expenses ( 000) 9M- 9M- 3Q 2Q QoQ 1Q Staff costs 61.234 59.613 +3% 20.518 20.126 +2% 20.590 Administrative and other expenses 42.192 51.005-17% 13.454 13.734-2% 15.005 Depreciation and amortisation 4.354 3.580 +22% 1.527 1.429 +7% 1.398 Total expenses 107.780 114.198-6% 35.499 35.289 +1% 36.993 The total expenses for the nine-month period ended amounted to 107,8 million, down by 6% compared to the 114,2 million of the respective nine-month period ended, mainly due to decreases in administrative and other expenses. Total expenses for 3Q amounted to 35,5 million in line with 2Q. Staff costs for the nine-month period ended represented the 56,8% of the Group s total expenses ( : 52,2%), showing an increase of 3% compared to the respective nine-month period ended. The increase was mainly due to the increase in the number of employees from 1.550 to 1.630, mainly due to recruitment of additional employees at the Arrears Management, Corporate Development and Risk Management Unit. Staff costs for 3Q represented 57,8% (2Q: 57,0%) of the Group s total expenses showing 2% increase compared to 2Q. Total administrative and other expenses for the nine-month period ended amounted to 42,2 million, down by 17% compared to the 51,0 million for the corresponding nine-month period ended 30 September. The decrease was mainly due to lower cost of advisory services and lower charge for provisions for pending litigations or complaints (about 5,5 million for the nine-month period ended 30 September, compared to 14,2 million for the period ended ). Commentary - Group Results for the nine-month period ended 3
The administrative and other expenses for 3Q amounted to 13,4 million, showing a decrease of 2% compared to the 13,7 million of 2Q, which 2Q were affected by the one-off penalty 3 of 1 million imposed by the Central Bank of Cyprus (CBC). During 3Q, the administrative and other expenses included cost of advisory services of 1,9 million (2Q: 1,1 million) and provisions for pending litigations or complaints of 0,1 million (2Q: 0,4 million). The cost to income ratio for the nine-month period ended was 57,9%, compared to the 64,8% for the nine-month period ended. For 3Q, the cost to income ratio was 64,5% compared to 49,5% in 2Q. Adjusting for the gain on disposal of the Visa Europe Limited shares, the cost to income ratio for the nine-month period ended was 62,6% ( : 64,8%) and for 2Q was 61,6%. 2.4 Impairment losses and provisions to cover credit risk Impairment losses and provisions ( 000) 9M- 9M- 3Q 2Q QoQ 1Q Impairment losses on the value of loans and advances Provisions to cover credit risk for contractual commitments and guarantees 66.679 58.511 +14% 14.981 26.388-43% 25.310 (2.570) 619-515% 378 763-50% (3.711) Total impairment losses and provisions 64.109 59.130 +8% 15.359 27.151-43% 21.599 For the nine-month period ended, the total provision charge for impairment losses to cover credit risk amounted to 64,1 million showing an increase of 8% in comparison to the respective nine-month period ended. The provision charge for impairment losses to cover credit risk for 3Q amounted to 15,4 million, down by 43% on a QoQ basis. The decrease was mainly attributable to the decreasing balance of the impaired portfolio and to the increase in the value of the tangible collateral. The cost of risk for the nine-month period ended was 2,1% (FY: 2,3%, 9M-: 1,8%). 3. STATEMENT OF FINANCIAL POSITION As at, the Group s total assets amounted to 7,0 billion, down by 5% compared to 31 December. This was mainly due to the decrease in cash and balances with Central Banks and more specifically due to the decrease in the Bank s placement with European Central Bank (ECB) by 60 million, decrease in deposits with other banks as well as the decrease of the loans. 3.1 Deposits and Loans The Bank maintained a net loans to deposits ratio of 50,0% as at ( : 50,4%). 3.1.1 Deposits Customer deposits amounted to 6,0 billion as at ( : 6,1 billion). They comprised of 4,5 billion deposits in Euro and 1,5 billion deposits in foreign currencies, mostly US Dollars. Trends in customer deposits reflect the Bank s strategy to maintain a low cost of deposits taking into account the Bank s strong liquidity position with excess customer deposits. The Bank s deposits market share 4 as at 30 September was 12,7% ( : 13,5%). 3 CBC financial penalty relating to controls omissions and weaknesses in the implementation of due diligence measures and customer identification procedures identified in 2014 and related to preceding years. The penalty does not relate to any identification of incidents of suppression of proceeds from any illegal activities. Hellenic Bank has made significant progress in rectifying these issues, following an independent review and subsequent restructuring of part of its business initiated since 2014 and overseen by the Board of Directors. 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. 4 Source: Central Bank of Cyprus and Hellenic Bank. Commentary - Group Results for the nine-month period ended 4
The composition of the customer deposits portfolio by currency was as follows: Deposits by currency 30 June Euro 76% 75% +100 bps 73% +300 bps US Dollars 21% 21% - 23% -200 bps GBP 2% 2% - 2% - Rubles 1% 1% - 1% - Other currencies 0% 1% -100 bps 1% -100 bps The composition of the customer deposits portfolio by deposit category was as follows: Composition of customer deposits portfolio 30 June Demand Deposits 48% 48% - 49% -100 bps Time Deposits 39% 40% -100 bps 39% - Savings Deposits 10% 9% +100 bps 9% +100 bps Notice Deposits 3% 3% - 3% - The composition of the customer deposits portfolio based on the customer s country of origin was as follows: Deposits by depositors country of origin 30 June Cyprus 52% 52% - 50% +200 bps Russia 19% 20% -100 bps 23% -400 bps Other countries of European Union 16% 16% - 16% - Other European countries 7% 7% - 6% +100 bps Other countries 6% 5% +100 bps 5% +100 bps 3.1.2 Loans Total new lending for the nine-month period ended reached 240,5 million (30 June : 152,0 million). The Bank continued providing lending to creditworthy businesses and households while examining other growth opportunities. Gross loans as at amounted to 4.194 million (31 December : 4.396 million) recording a decrease of 5% from. As of 1 st January, gross values of impaired loans are booked on a non interest accrual basis, whereas in previous years gross impaired loans included contractual interest accrued. The amount of contractual interest that was not accrued for the nine-month period ended amounted to 128,6 million. During the nine-month period ended exposures of 129,5 million were written off. Adjusting for this amount, gross loans suggest a decrease of 2% compared to. The Bank s loan market share 5 as at was 7,7% ( : 7,0%). The composition of the loans and advances to customers was as follows (net of provisions for impairment): Composition of loan portfolio 30 June Retail 30% 29% +100 bps 30% - Construction and Real Estate 24% 24% - 24% - Other 16% 17% -100 bps 17% -100 bps Trade 16% 15% +100 bps 15% +100 bps Manufacturing 7% 7% - 7% - Tourism 7% 8% -100 bps 7% - 5 Source: Central Bank of Cyprus and Hellenic Bank. Commentary - Group Results for the nine-month period ended 5
3.2 Loan Portfolio Quality Non Performing Exposures Non-Performing Exposures (NPEs)* (in million) 30 June 2.395 2.487-4% 2.602-8% NPEs (%) of gross loans 57,1% 57,7% -60 bps 59,2% -210 bps Coverage ratio 49,9% 50,2% -25 bps 50,1% -13 bps *In FY NPEs include suspended interest not recognised in the income statement. Committed efforts to resolve problematic loans continued. The level of NPEs has been reduced for a fourth consecutive quarter to 2.395 million at, down by 4% compared to 30 June and by 8% compared to. Terminated loans included in NPEs amounted to 1.444 million as at 30 September ( : 1.477 million). Gross loans with forbearance measures as at 30 September amounted to 1.262 million ( : 1.317 million). During the nine-month period ended the Bank continued focusing on the restructuring of NPEs, using a toolset of sustainable solutions, such as debt to asset swaps, balance/instalment reductions, extensions of maturity, grace periods, servicing support, etc. An amount of 489,6 million 6 relating to total customers exposures, was restructured during the nine-month period ended, while an amount of 129,5 million was written off as part of the whole curing process. The stock of properties held for sale, which are mostly from customers debt settlement, amounted to 73,4 million as at (30 June : 70,4 million, : 71,2 million). The ratio of NPEs to gross loans as at was reduced to 57,1% (30 June : 57,7%, 31 December : 59,2%). Including the contractual interest on impaired loans not accrued of 128,6 million, the ratio of NPEs to gross loans was 58,4% (30 June : 58,5%). Accumulated impairment losses 7, amounted to 1.196 million as at (30 June : 1.248 million, : 1.303 million) and represented 28,5% of the total gross loans (30 June : 29,0%, : 29,6%). The coverage of the NPEs by provisions 7 (coverage ratio) was 49,9% as at (30 June : 50,2%, : 50,1%), with the overall coverage taking into account tangible collaterals 8 totalling 111,9%. 6 As per EBA definition - client basis. 7 Individual and collective impairment losses. 8 Based on open market values (capped at client exposure). Commentary - Group Results for the nine-month period ended 6
The NPEs as at based on the counterparty sector are analysed below: Analysis of Non-Performing Exposures (NPEs) Provisions Coverage (% of NPEs) 30 June million % of total million % of total million % of total Total Non-Performing Exposures 2.395 100% 50% 2.487 100% 2.602 100% of which Non-financial corporations: 1.670 70% 48% 1.754 71% 1.844 71% Construction 636 27% 42% 666 27% 693 27% Wholesale and retail trade 394 16% 56% 408 16% 429 16% Real estate activities 159 7% 47% 168 7% 181 7% Accommodation and food service activities 139 6% 40% 154 6% 181 7% Manufacturing 106 4% 50% 116 5% 117 5% Other sectors 237 10% 55% 242 10% 243 9% of which Households: 680 28% 55% 688 28% 708 27% of which Residential mortgage loans 227 9% 39% 240 10% 282 11% of which Credit for consumption 138 6% 76% 138 6% 143 5% Note: Numbers may not add up due to rounding 3.3 Investment Assets The total value of investment assets amounted to 3,7 billion ( : 4 billion) and represented 52,9% of the total assets of the Group at ( : 54,2%). Investment assets are comprised of cash and balances with Central Banks, placements with other banks, investments in bonds, investments in shares and collective investment units. The Group s cash and placements with other banks and Central Banks amounted to 2,7 billion at 30 September ( : 2,9 billion), and included a placement of 1,9 billion with the European Central Bank ( : 1,9 billion). Most foreign currency placements were with P1 rated banks 9. The Group s investments in bonds amounted to 1,0 billion ( : 1,0 billion) at, which represented 14,3% of total assets ( : 14,1%). They comprised mainly of Cyprus Government Bonds and supranational organisations debt securities. The 42% of debt securities were Aaa rated 10. The Cyprus Government bonds held by the Group at amounted to 550 million (31 December : 394 million) of which 374 million will mature within 5 and 10 years, 40 million within 1 and 5 years and the remaining 136 million within a period of less than 1 year. At, the carrying amount of investments in bonds, based on their issuer, is analysed as follows: Investment in Bonds - m Governments Bonds - m Other 8 13 20 19 6 Cyprus - 550 Supranational 240 82 USA - 82 Canada - 13 Germany - 20 Banks64 Government 690 Netherlands - 19 Israel - 6 550 9 Prime-1 short term rating by Moody s. 10 Moody s ratings or Moody s ratings equivalents - based on the Regulation (EU) 575/2013 (CRR) and the Directive 2013/36/EU (CRD IV) for the RWA calculation (as per Section 4, Article 138 of the regulation). Commentary - Group Results for the nine-month period ended 7
3.4 Capital Base and Adequacy The Capital Adequacy Ratios of the Group and the Bank as at under Pillar I (transitional basis) were as follows: Capital Adequacy Ratios Group 30 June 31 December Bank 30 June 31 December Capital Adequacy Ratio 17,66% 17,15% 18,13% 17,61% 17,10% 18,12% Tier 1 Ratio 17,42% 16,90% 17,68% 17,37% 16,85% 17,66% Common Equity Tier 1 (CET 1) 14,37% 13,92% 14,75% 14,33% 13,88% 14,73% The increase in Common Equity Tier 1 Ratio compared to 30 June was mainly due to the decrease in risk weighted assets (RWA) being driven by balance sheet movement. The decrease in Common Equity Tier 1 Ratio compared to was mainly due to: - gradual elimination of transitional provisions towards full phase application of Regulation (EU) No 575/2013 on the calculation of Own Funds (effect of 38 basis points decrease), - increased risk weighting classification due to adoption of the Central Bank of Cyprus s recommendation (5 April ) and respective EBA s recommendation, regarding the risk weight to be assigned to high risk exposures (effect of 73 basis points decrease), - decrease in CET1 as a result of the decrease in retained earnings and accumulated other comprehensive income (effect of 16 basis points decrease), - decreased RWA (effect of 89 basis points increase) mainly as a result of the decrease of the investment assets. The Group s RWA amounted to 3.913 million as at (30 June : 4.017 million, 31 December : 3.958 million). The additional RWA stemming from the increased risk weighting classification mentioned above, amounted to 214 million (out of the RWA as at ). As at the Leverage Ratio for the Group was 9,42% (Bank: 9,40%) compared to 9,24% (Bank: 9,23%) as at 30 June and 9,05% (Bank: 9,04%) as at, as calculated in accordance with the Regulation (EU) No /62 of the European Parliament and Council dated 10 th of October 2014. The CET 1 ratio on a fully loaded basis for the Group was formed at 13,60% (Bank: 13,55%) compared to 13,18% (Bank: 13,14%) as at 30 June and 13,53% (Bank: 13,51%) as at. The Leverage Ratio on a fully loaded basis for the Group was formed at 9,17% (Bank: 9,15%) compared to 9,00% (Bank: 8,98%) as at 30 June and 8,60% (Bank: 8,59%) as at. As from 20 November the Bank is required to maintain, on a consolidated basis, a CET 1 capital ratio of 11,75%, as such ratio is defined in Regulation (EU) No 575/2013 of the European Parliament and of the Council. Notification to ECB is required if the Bank does not, or is likely not to, exceed by 25 basis points the CET1 minimum capital requirement of 11,75% listed in the ECB notification. In addition, the Bank is prohibited from paying out dividends to shareholders until. The decision was based on the Supervisory Review and Evaluation Process (SREP) conducted pursuant to Article 4(1)(f) of Regulation (EU) No 1024/2013 on the information available on 2014, and any other relevant information received after that date. The supervisory review and evaluation process has been conducted under the lead of the ECB. Refer to paragraph 3.5 for the minimum capital requirements that are applicable as from 1 January 2017. Commentary - Group Results for the nine-month period ended 8
The minimum CET 1 ratio set by the ECB for Hellenic Bank Group of 11,75% is covered by the Group s CET1 ratio of 14,37%. The CET 1 ratio of 11,75% includes: (i) the minimum CET 1 ratio required to be maintained at all times under Article 92(1)(a) of Regulation (EU) No 575/2013; (ii) the CET 1 ratio required to be held in excess of that minimum Common Equity Tier 1 ratio and to be maintained at all times in accordance with Article 16(2)(a) of Regulation (EU) No 1024/2013; and (iii) the capital conservation buffer required under Article 129 of Directive 2013/36/EU as implemented in the national law of the Republic of Cyprus. Τhe Bank was designated as an Other Systemically Important Institution (O-SII) 11.On 7 November, CBC notified the Bank that it must maintain an O-SII buffer of 1% of its total risk exposure amount calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013, on an individual and consolidated basis. The O- SII buffer will be phased-in gradually over four years, starting from 1 st January 2019 at 0,25% and increasing by 0,25% every year thereafter, until being fully implemented (1,0%) on 1 st January 2022. The O-SII buffer shall consist of and shall be supplementary to CET1. The CBC, in accordance with its macro-prudential policy, has set the counter-cyclical capital buffer at 0%, for the period 1 July to and also for the period 1 October to. 3.5 Supervisory Review and Evaluation Process (SREP) In September, the Bank was notified by ECB of its draft decision in establishing prudential requirements. The ECB decision is based on the SREP conducted pursuant to Article 4(1)(f) of Regulation (EU) No 1024/2013 with reference date, and also having regard to any other relevant information received thereafter. The capital ratios of the Group, are significantly above minimum regulatory requirements based on the draft SREP as shown below: Capital Adequacy Ratios Draft SREP Capital cushion Capital Adequacy Ratio 17,66% 14,00% +3,66% Tier 1 Ratio 17,42% 12,00% +5,42% Common Equity Tier 1 (CET 1) 14,37% 10,50% +3,87% Additionally, the ECB has set an additional Pillar II capital guidance buffer to be kept in the form of CET 1 capital. The new minimum capital requirements shall apply from 1 January 2017. These requirements are subject to the final confirmation from ECB, which is expected before the year-end. 3.6. 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 regulatory authorities are currently in the process of establishing the MREL requirement on a case-by-case basis. 11 According to the CBC policy on the designation of O-SII institutions and the determination of the O-SII buffer requirement, which is based on the provisions of the Macroprudential Oversight of Institutions Law of (Law 6(I) of ) and the EBA guidelines. Commentary - Group Results for the nine-month period ended 9
4. STRATEGIC TARGETS AND OUTLOOK The Bank s strategy focuses on two aspects: Fix and Build. The Fix aspect of the strategy predominantly relates to the reduction of the high level of NPEs. The Build aspect of the strategy relates to the growth of the loan portfolio and furthering the customer relationships, be those of deposit or lending nature. It also relates to advancements in technology and enhancement of the customer service, as well as simplification of procedures and processes. The Bank is continuing repositioning its International Banking Division strategy reflecting the changing regulatory environment with specific focus on anti-money laundering issues. Further, in order to meet the challenges of the competitive environment and streamline/empower the Executive Committee, the Bank revised its Group organisational structure. The economy has been exhibiting robust growth since the beginning of, with real GDP growth increasing by 2,8% on an annual basis during 3Q. The better than expected performance of the economy, along with the gradual restructuring of the banking sector, created and maintained an environment of improved confidence. The rise in deposits for the banking system as a whole, combined with deleveraging of the market, results in a declining loan-to-deposit ratio, suggesting positive effects on growth of the economy. From a sectoral point of view, growth in is particularly driven by the tourism sector, which performed particularly well throughout, along with a continued strong growth in the business and professional services sectors. The course of the steady recovery path is reflected in the labour market, which tends to follow the recovery with a time lag, and consolidates the climate of confidence and stability. The above developments are reflected in the recent upgrades of the country s and the largest domestic banks credit rating by international rating agencies. At the same time, the high percentage of NPEs remains the biggest challenge for the banking sector and the economy at large, since the successful strategic reduction in their levels will reduce the additional burden on the profitability of the banks, with all the positive consequences stemming from this for the financial system itself and the economy. It is encouraging that the first positive results from the application of all relevant actions are becoming visible. As part of implementing its strategic targets, the Group is focused on supporting the economy s recovery and contributing towards sustainable economic growth. The Bank maintains sufficient liquidity to exploit opportunities while maintaining its focus on organic growth. In order to undertake this, a key priority is to address the high level of NPEs, which continue to affect the Group s interest income and to pressure profitability through elevated provisions. At the same time the Bank recognises that the real estate market continues to be subdued, with changes in property prices affecting collateral values and, hence, provisions for impairments. The economic recovery is expected to accelerate the pace of tackling NPEs. Within the framework of tackling the Bank s loan portfolio quality, the Group is focusing on restructuring loans in a sustainable manner and on mutually beneficial terms using a toolset of sustainable solutions, such as debt to asset swaps, balance/instalment reductions, extensions of maturity, grace periods, servicing support, etc. The Bank has managed to navigate successfully through the banking crisis. It has maintained throughout the crisis its reputation for stability and trust and is concentrating on strengthening and better focusing of its market positioning. Through its focus on its Fix and Build initiatives, the Group has all the ingredients to continue the implementation of its strategy. At the same time the environment remains fragile and volatile and the Bank will remain vigilant of developments to turn them into opportunities both in Cyprus and internationally. Commentary - Group Results for the nine-month period ended 10
5. APPENDIX GROUP INCOME STATEMENT ( million) 9M- 9M- 3Q 2Q QoQ 1Q Interest income 138,8 158,2-12% 45,3 46,6-3% 46,9 Interest expense (28,1) (50,0) -44% (9,3) (9,6) -3% (9,2) Net interest income 110,7 108,2 +2% 36,0 37,0-3% 37,7 Fee and commission income 40,6 45,8-11% 13,0 13,4-4% 14,2 Fee and commission expense (3,4) (3,6) -3% (1,1) (1,1) -4% (1,2) Net fee and commission income 37,2 42,2-12% 11,9 12,3-4% 13,0 Net gains on disposal and revaluation of foreign currencies and financial instruments 24,7 11,0 +124% 3,9 17,0-77% 3,7 Other income 13,5 14,7-8% 3,3 5,0-34% 5,3 Total net income 186,1 176,2 +6% 55,1 71,3-23% 59,7 Staff costs (61,2) (59,6) +3% (20,5) (20,1) +2% (20,6) Depreciation and amortisation (4,4) (3,6) +22% (1,5) (1,4) +7% (1,4) Administrative and other expenses (42,2) (51,0) -17% (13,5) (13,7) -2% (15,0) Total expenses (107,8) (114,2) -6% (35,5) (35,3) +1% (37,0) Profit from ordinary operations before impairment losses and provisions to cover credit risk Impairment losses and provisions to cover credit risk 78,3 62,0 +26% 19,6 36,0-46% 22,7 (64,1) (59,1) +8% (15,4) (27,2) -43% (21,6) Profit before taxation 14,2 2,9 +396% 4,2 8,9-53% 1,1 Taxation (9,2) (1,0) +843% (0,4) (8,5) -96% (0,4) Profit for the period from continuing 5,0 1,9 +163% 3,9 0,4 +836% 0,7 operations Profit for the period from discontinued 4,8-100% operations after tax - - - - - Profit for the period 5,0 6,7-26% 3,9 0,4 +836% 0,7 Non-controlling interest (0,5) (0,6) -21% (0,1) (0,0) +119% (0,4) Profit attributable to the shareholders of the parent company 4,5 6,1-27% 3,8 0,4 +917% 0,3 Note: Numbers may not add up due to rounding Key performance Indicators 30 June Common Equity Tier 1 (CET 1) 14,37% 14,75% -38 bps 13,92% +45 bps Non performing Exposures (NPEs) (%) of gross loans 57,1% 59,2% -210 bps 57,7% -60 bps Coverage ratio 49,9% 50,1% -13 bps 50,2% -25 bps Net Interest Margin 2,1% 2,0% +13 bps 2,1% +1 bps Cost to income ratio 57,9% 59,3% // 12 55,2% +275 bps Cost to income ratio adjusted 13 62,6% n/a n/a 61,8% +86 bps 12 //: Non-comparable. 13 Cost to income ratio adjusted to exclude the 14 million profit from the sale of the investment in Visa Europe Limited. Commentary - Group Results for the nine-month period ended 11
5. APPENDIX GROUP STATEMENT OF FINANCIAL POSITION ( million) Cash and balances with Central Banks 1.961 2.029-3% Placements with other banks 721 910-21% Loans and advances to customers 2.998 3.093-3% Debt securities 1.002 1.043-4% Equity securities and collective investment units 17 15 +13% Property, plant and equipment 99 99 +0% Intangible assets 26 23 +15% Tax receivable 0 0 +0% Deferred tax asset 50 58-15% Other assets 127 128-1% Total assets 7.000 7.397-5% Deposits by banks 103 77 +33% Amounts due to Central Banks - 236-100% Customer deposits and other customer accounts 5.993 6.139-2% Tax payable 6 5 +7% Deferred tax liability 2 1 +15% Other liabilities 118 114 +3% Loan capital 140 181-23% Share capital 99 99 0% Reserves 537 540-1% Non-controlling interest 4 3 +17% Total liabilities and equity 7.000 7.397-5% Contingent liabilities and commitments 860 790 +9% Note: Numbers may not add up due to rounding Basic Financial Position highlights ( million) 30 June Gross loans 4.194 4.396-5% 4.310-3% Loans (net of provisions for impairment) 2.998 3.093-3% 3.062-2% Investment assets 3.701 4.010-8% 3.737-1% Total assets 7.000 7.397-5% 7.091-1% Deposits 5.993 6.139-2% 6.059-1% Shareholders Funds 636 640-1% 630 +1% Risk Weighted Assets (RWA) 3.913 3.958-1% 4.017-3% Notes to the Group results for the nine-month period ended : The Condensed Consolidated Financial Statements for the nine-month period ended have not been audited by the external auditors of the Group. The Condensed Consolidated Financial Statements and the presentation of the financial results for the nine-month period ended have been posted on the Group s website on the internet at the page www.hellenicbank.com (Investor Relations). Commentary - Group Results for the nine-month period ended 12