Bank of Cyprus Group Group 1 Financial Results for the year ended 31 December 2016 The Group Financial Statements have been audited by the Group s external auditors 28 March 2017 (1) The Group Financial Results referred to in this Presentation relate to the Bank of Cyprus Public Company Limited, the Bank, and together with its subsidiaries, the Group, which was listed on the Cyprus Stock Exchange (CSE) and the Athens Exchange as at 31 December 2016. On 18 January 2017, Bank of Cyprus Holdings Public Limited Company (BOC Holdings) was introduced in the Group structure as the new holding company of the Bank. On 19 January 2017, the total issued share capital of BOC Holdings was admitted to listing and trading on the London Stock Exchange and the CSE.
FY2016 Financial Results - Highlights Key Milestones Achieved in January 2017 Seven consecutive quarters of NPL improvement Listing on LSE Trading of shares on the LSE and the CSE commenced on 19 January 2016 ELA fully repaid Another significant milestone in journey back to strength Successful issuance of 250 mn Tier 2 Notes 90+ DPD 1 down by 459 mn or 5% qoq; down by 3,0 bn or 27% in FY2016 NPEs down by 867 mn or 7% qoq; down by 2,9 bn or 21% in FY2016 Loan restructurings of 6,2 bn 2 in FY2016 Normalising liability stack Deposits up by 867 mn or 6% qoq; up by 2,3 bn or 16% in FY2016 Ratio of Loans to Deposits (L/D) improved to 95% Maintaining Strong Capital Position Operating profitability directed to de-risk balance sheet Leading market Position in a Recovering Economy Total Capital ratio at 15,7% (pro forma) 3,4 CET1 ratio at 14,5% 4 ; 50 basis points added during FY2016; RWA intensity at 85%; Conservative leverage ratio 5 of 13,2% Modest profitability of 64 mn for FY2016; 2 mn for 4Q2016 Strong pre provision operating profitability of 148 mn for 4Q2016 and 566 mn for FY2016 Sustained NIM at 3,47% Healthy C/I ratio of 41% for FY2016 Loan market share 6 at 39,7%; Deposit market share 6 at 30,8%; Economy growing for a second consecutive year at 2,8% yoy (compared to 1,7% in 2015) New lending of c. 1,5 bn, in 2016 (1) Problem loans (90+ DPD) are loans in arrears for more than 90 days (90+ DPD) and are defined as loans past-due for more than 90 days and those that are impaired (impaired loans are those which are not considered fully collectable and for which a provision for impairment has been recognised on an individual basis or for which incurred losses exist at their initial recognition or customers in Debt Recovery). (2) Including debt for asset swaps, write offs & non contractual write offs (3) Adjusted for the issuance of 250 mn Tier 2 Notes in January 2017 based on the Group financial results as at and for the year ended 31 December 2016. (4) Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the DTA phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016 that resulted in a final CET 1 ratio as at 31 December 2016 of 14,5% (compared to 14,7% previously reported in the Preliminary Group Financial Results), and a final Total capital ratio of 15,7% when including the Bank s Tier 2 Capital Notes issued in January 2017 (compared to c.16% previously reported in the Preliminary Group Financial Results) (5) Leverage ratio = Tangible Total Equity over Total Assets 6) As at 31 January 2017 2
11,3% 14,0% 14,2% 15,6% 14,9% 15,0% 14,0% 14,1% 14,4% 14,5% 14,5% 14,6% 14,5% 15,7% Mar 15 Jun 15 Sept 15 Dec 15 Mar 16 Jun 16 Sept 16 Dec 16 2009 2010 2011 2012 2013 1H2014 2H2014 1H2015 2H2015 1H2016 2H2016 At a glance- Significant Improvement in all Financial Indicators 3,0 bn reduction in 90+DPD in FY2016; Down by 36% since peak 2,9 bn reduction in NPEs in FY2016; Down by 27% since peak Rising coverage ratios Change in 90+ DPD 1 ( bn) 5,3 2014: ( 0,4 bn) 2015: ( 1,3 bn) 2016: ( 3,0 bn) Change in NPEs ( bn) 2015: ( 1,0 bn) 2016: ( 2,9bn) 90+DPD ratio 90+DPD provision coverage NPEs provision coverage NPE ratio 0,9 1,3 1,4 2,7 0,0 0,2 62,9% 61,9% 61,8% 59,3% 54,8% 53% 54% 48% 38% 39% 41% 43% (0,4) (0,0) (1,3) (2,0) (1,0) (0,4) (0,6) (0,2) (0,6) (0,8) (0,6) (0,9) 35% 33% 34% 36% 39% 39% 41% 49% 50% 53% 53% 50% 44% 41% Dec 2013 Jun 2014 Dec 2014 Jun 2015 Dec 2015 Jun 2016 Dec 2016 Full repayment of ELA Loan to Deposit Ratio at 95% Strong Capital Position ELA ( bn) ELA as % of total assets Loan to deposit ratio (L/D) CET 1 transitional Total Capital Ratio 11,4 11,1 Apr 2013 34% 31% 31% 28% Jun 2013 9,6 Dec 2013 8,8 Jun 2014 7,4 Dec 2014 23% 5,9 Jun 2015 16% 3,8 Dec 2015 11% 2,4 1,3 Jun 2016 6% Sep 2016 1% 0% 0,2 Dec 0,0 Jan 2016 2017 145% 148% Dec 2013 Jun 2014 141% 136% (1) Mainly attributable to loan restructuring activity and slower formation of new problem loans (2) Based on EBA Risk Dashboard Report, data as at 30 September 2016 (3) Leverage ratio defined as tangible equity over total assets (4) Adjusted for the issuance of 250 mn Tier 2 Notes in January 2017 based on the Group financial results as at and for the year ended 31 December 2016 (5) Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the DTA phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016 that resulted in a final CET 1 ratio as at 31 December 2016 of 14,5% (compared to 14,7% previously reported in the Preliminary Group Financial Results), and a final Total capital ratio of 15,7% when including the Bank s Tier 2 Capital Notes issued in January 2017 (compared to c.16% previously reported in the Preliminary Group Financial Results) Dec 2014 Jun 2015 121% Dec 2015 EBA average L/D 2 : 120% 110% Jun 2016 95% Dec 2016 9,4% Jun 2014 12,5% 12,5% 12,6% 13,0% 13,2% Dec 2014 Leverage ratio 3 Jun 2015 Dec 2015 Jun 2016 3 Dec 2016 Dec 2016 pro forma 4,5
1,6 03-2009 321 2,0 06-2009 380 2,3 09-2009 329 12-2009 2,2 (85) 2,5 03-2010 265 06-2010 2,9 410 558 09-2010 3,5 12-2010 3,6 96 232 03-2011 3,8 156 06-2011 4,0 402 09-2011 4,4 12-2011 5,0 609 100 03-2012 5,1 06-2012 5,1 64 1.319 09-2012 6,5 12-2012 7,7 1.240 1 06-2013 11,0 3.319 09-2013 13,0 1.972 12-2013 13,0 20 03-2014 12,8 (247) 06-2014 12,6 (164) 09-2014 13,0 386 12-2014 12,7 (325) 03-2015 12,8 136 06-2015 12,6 (143) 09-2015 12,0 (649) 12-2015 11,3 (668) 03-2016 10,3 (1.041) (1.020) 06-2016 9,3 09-2016 8,8 (501) (459) 12-2016 8,3 Seven consecutive quarters of material improvement in 90+DPD High correlation between formation of problem loans & economic cycle Quarterly change of 90+ DPD ( mn) 90+ DPD ( bn) Slow deterioration Economic crisis Stabilisation Recovery 90+ DPD Reduction FY2016: 17% of Cyprus GDP 3,0 bn or 27% drop in 90+DPDs in FY2016 49,8% 48,6% 48,6% 47,4% 52,5% 53,2% 53,1% 52,9% 52,5% 50,1% 47,1% 44,0% 42,6% 41,3% 90+DPD ratio 13,0 13,0 12,8 12,6 13,0 12,7 12,8 12,7 12,0 11,3 10,3 9,3 8,8 8,3 Sep 2013 Dec 2013 90+DPD ( bn) Mar 2014 Jun 2014 Sep 2014 90+DPD ratio 36% drop since peak Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 3bn/ (27%) drop Mar 2016 Jun 2016 Sep 2016 Dec 2016 90+DPD % of total assets 90+DPD ( bn) Provision coverage ratio 48,7% 37,5% 11,3 8,3 FY2015 FY2016 50,1% 41,3% 48,1% 54,4% Progress on asset quality underpinned by: Robust strategy Relentless execution Economic improvement Legal improvements (1) Information for 1Q2013 and 2Q2013 is not available as it was not possible to publish the financial results for the three months ended 31 March 2013 (2) Percentage points 4
Seven consecutive quarters of material improvement in NPEs 4,0 bn drop since Dec-2014; 867 mn drop in 4Q2016 NPEs ( bn) 62,9% 63,0% NPE ratio 61,9% 62,2% 61,8% NPEs with forbearance measures no impairments, no arrears 1,9 61,0% 59,3% 57,8% 15,0 15,2 14,8 14,2 14,0 13,3 12,5 11,9 11,0 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 2,2 4,0 bn or ( 26%) drop since Dec 14 2,4 2,3 867 mn or (7%) drop qoq 2,0 54,8% Forborne NPEs with no impairments or arrears 1 ( bn) in pipeline to exit NPEs subject to meeting all exit criteria 2 1,5 0,5 0,3 0,7 0,3 0,2 0,1 0,0 0,1 0,1 0,2 2017 2018 2019+ Corporate SME Retail NPEs reduced by 2,9 bn or 21% in FY2016 NPEs % of total assets NPEs ( bn) NPE ratio Provision coverage ratio 60,0% 49,8% 13,97 11,03 FY2015 FY2016 61,8% 54,8% 39,0% 41,0% NPEs reduction FY2016: 17% of Cyprus GDP 85% of total reduction in Cyprus NPEs reduced for 7 consecutive quarters For a second consecutive quarter reduction of NPEs exceeds reduction of 90+ DPD (1) Analysis provided on account basis. Accounts will not exit NPE status if not all exit criteria are met (2) Curing period of the NPEs with forbearance measures, but no impairments and no arrears, assuming no re-default (3) Percentage points 5
Dec-15 Dec-16 Dec-15 Dec-16 Dec-15 Dec-16 Dec-15 Dec 16 Dec-15 Dec-16 68% 61% 73% 67% 49% 48% 79% 78% 69% 63% 57% 59% 51% 60% 39% 48% 31% 35% 46% 53% 119% 121% 112% 115% 110% 113% 106% 107% 115% 116% 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 90+ DPD provision coverage ratio at 54%; Total Coverage (Cy) at 116% 16 p.p. 1 coverage ratio increase; 1,7 bn additional provisions since Sep-14 Cost of risk 3 : PPI 4 directed to de-risk balance sheet Quarterly Provisions for impairment of customer loans² ( mn) 90+ DPD coverage ratio Cost of Risk - Cyprus Cost of Risk - Group 38% 39% 39% 38% 41% 42% 43% 41% 48% 49% 630 53% 54% 54% 3,6% 4,3% 4,0% 229 122 169 109 219 110 123 96 62 96 109 103 2,4% 2,1% 2,2% 2,1% 1,5% 1,7% 1,6% 1,1% 1,4% 1,6% 1,7% 1,3% 1,5% 1,6% FY2014 1Q2015 1H2015 9M2015 FY2015 1Q2016 1H2016 9M2016 FY2016 90+ DPD fully covered by Provisions and Tangible Collateral (Cyprus Operations) Total Tangible Coverage Corporate 3,4 bn Total-LLR SME 2,3 bn 90+ DPD Retail-Housing Retail-Other Total BoC Cyprus 1,1 bn 1,0 bn 7,8 bn (1) p.p. = percentage points (2) Provisions for impairment of customer loans and gains/(losses) on derecognition of loans and changes in expected cash flows on acquired loans over 90+ DPD (3) Provisions for impairment of customer loans and gains/(losses) on derecognition of loans and changes in expected cash flows on acquired loans over average gross loans (4) Pre-provisioning income 6
Dec 15 Dec 16 Dec 15 Dec 16 Dec 15 Dec 16 Dec 15 Dec 16 Dec 15 Dec 16 71% 67% 76% 72% 53% 52% 85% 84% 73% 69% 44% 45% 33% 37% 17% 45% 47% 21% 37% 39% 115% 112% 109% 109% 102% 105% 98% 99% 110% 108% NPE provision coverage ratio at 41%; Total Coverage (Cy) at 108% 7 p.p. 1 coverage ratio increase; 1,7 bn additional provisions since Sep-14 Quarterly Provisions for impairment of customer loans² 39% 38% 39% 40% 41% 34% 34% 35% 36% 35% 630 219 109 110 123 96 62 96 109 103 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% NPEs provision coverage increases significantly when adjusted for NPEs with forbearance measures no impairments or arrears 2 Adequate NPE total coverage when collateral is included(cyprus operations) Total Tangible Coverage Total-LLR NPEs Corporate SME Retail-Housing Retail-Other Total BoC Cyprus 4,5 bn 3,0 bn 1,8 bn 1,2 bn 10,5 bn (1) p.p. = percentage points (2) Analysis provided on account basis. Accounts will not exit NPE status if not all exit criteria are met 7
90+ DPD and NPE outflows significantly exceed inflows 90+DPD inflows in Cyprus operations ( bn) arrested 0,68 0,60 0,34 0,36 Close monitoring to arrest deterioration of portfolio 0,22 0,11 0,13 0,14 0,14 0,14 Average: 0,29 Ramp up in restructuring efforts 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Significant increase in NPE outflows in 4Q2016 ( bn) Inflows Total outflows Cured restructured NPEs Outflows-other 1 0,27 0,17 0,19 0,22 (0,58) (0,68) (0,30) (0,26) (0,88) (0,94) (0,53) (0,45) (0,23) (0,58) (0,76) (1,03) 2 Strict monitoring of restructurings to arrest redefaults 1Q2016 2Q2016 3Q2016 4Q2016 (1) Comprises of collections, debt for asset swaps, debt for equity swaps, write-offs and non-contractual write-offs 8
1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 71% 65% 70% 76% 82% 75% 70% 88% 84% 85% 81% 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Total 6,2 bn of restructurings 1 in 2016 Quarterly evolution of restructuring activity ( bn) Restructured loans Write offs & non contractual write offs DFAS 2,2 0,3 0,4 1,3 Average 2 : c.1,0 0,8 0,8 0,7 1,33 1,50 0,84 0,81 0,69 3 4 2,0 0,4 0,3 1,26 FY2016 1 : 6,2 bn 1,1 0,9 0,2 0,2 0,2 0,2 0,68 0,53 81% of restructured loans 5 have no arrears 6 (Cyprus operations) % of restructured loans with no arrears Average: 81% 81% of restructured loans 5,6, have no arrears (1) Total restructured loans is equal to restructured loans plus write offs & non contractual write offs and debt for asset swaps for FY2016 (2) Average restructured loans excluding write offs & non contractual write offs and DFAS (3) Loans together with the associated provisions are written off when there is no realistic prospect of future recovery. Partial write-offs, including non-contractual write-offs, may occur when it is considered that there is no realistic prospect for the recovery of the contractual cash flows. In addition, write-offs may reflect restructuring activity with customers and are part of the terms of the agreement and subject to satisfactory performance. (4) Debt for asset swaps (5) Restructured loans post 31 December 2013 excluding write offs & non contractual write offs and debt for asset swaps (6) The performance of loans restructured during 4Q2016 is not presented in this graph as it is too early to assess 9
1Q-15 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 4Q-16 25% 23% 26% 41% 37% 45% 45% 55% 1Q-15 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 4Q-16 10% 17% 15% 14% 13% 15% 19% 27% 1Q-15 2Q-15 3Q-15 4Q-15 1Q-16 2Q-16 3Q-16 4Q-16 28% 37% 32% 28% 49% 61% 62% 59% Good progress across all segments (Cy operations) Corporate NPEs ( bn) 6,6 Recoveries Corporate 2,4 Corporate 4,2 4,5 Recoveries Corporate 1,9 Corporate 2,6 6,6 NPE ratio Net drop ( 2,1 bn) 0,4 (2,5) 4,5 Dec-15 Inflows Exits Dec-16 57,1% Restructurings as % of total restructurings 2 Average 45% Restructuring of corporate clients materially progressed 544 mn of portfolio transferred back to Corporate 93% of restructured loans have no arrears 1 Dec-15 Dec-16 Provision Coverage ratio 44,7% Product range enhanced, e.g. split & freeze, DFAs and DFEs Total Coverage 112,1% SMEs 3,4 Recoveries SMEs 1,5 SMEs 1,9 Dec-15 3,0 Recoveries SMEs 1,5 SMEs 1,5 Dec-16 0,1 (0,5) 3,4 3,0 Dec-15 Inflows Exits Dec-16 NPE ratio Provision Coverage ratio Total Coverage Net drop ( 0,4 bn) 72,2% 37,2% 108,6% 16% Restructuring pace increased qoq Re-defaults confined to small amounts Product range enhanced e.g. split & freeze Implement process for monitoring client and transfers to/from RRD Underlying economic macro improvements supportive Retail 3,3 Recoveries Retail 1,3 Retail 2,0 Dec-15 3,0 Recoveries Retail 1,4 Retail 1,6 Dec-16 Net drop ( 0,3 bn) 0,4 (0,7) 3,3 3,0 Dec-15 Inflows Exits Dec-16 NPE ratio Provision Coverage ratio Total Coverage 48,3% 32,1% 102,3% 21,3% 47,3% 37% Focus area for 2017 Increase pace of restructuring qoq Create a clear strategy to ensure early and continuous engagement with clients Flexible products to manage specific segments Sustainable solutions (1) Restructured loans post 31 December 2013. The performance of loans restructured during 4Q2016 is not taken into account as it is too early to assess (2) Excluding debt for assets swaps (DFAs), write offs and non-contractual write offs 10
Good progress across all segments (Cy operations) Recoveries From inefficient legacy operations Rigid legal framework with very long execution timelines Inefficient processes with significant time wasted To improved operating model... Client negotiation and client management teams Tools to support negotiations and decision making Training for all bankers on new tools and restructurings Introduce new teams to specialize on receivership and foreclosure International specialists added to teams across recoveries Results being delivered, but ongoing focus area 823 mn of NPEs deleverage in FY2016 Refreshed approach in corporate contributed to 17% of NPE reduction for FY2016 (Cy operations) Retail/ SME showing slower but improving progress, next quarters important in keeping momentum Foreclosure auctions important to building and maintaining pace Foreclosures Private foreclosures commenced in late June 2016 23 auction events conducted relating to 76 assets 13 assets have been sold in total with total proceeds of 2,4 mn Foreclosure teams are up and running, aiming to boost foreclosure volumes Actions have been taken to improve awareness of auction events (flyers and mailing distribution lists) Servicing either completed or in progress for over 400 assets TIMEFRAME Foreclosure Decision Service time of Notices Servicing Time + 40 days Valuations 30-115 1 days Service Announcement 3-5 days + Servicing Time + 30 days Auction Property transfer & Distribution of proceeds 1-50 days immediately after auction TOTAL TIME UP TO AUCTION: ~ 8 MONTHS (1) Additional valuations required if the valuations are not timely prepared or if values differ by >25% 11
2016 movement in 90+ DPD 3x that of 2015 as momentum builds Introducing additional tools to resolve long outstanding loan portfolios (90+ DPD Cyprus operations) FY2015 Net reduction : c. 0,9 bn FY 2016 Net reduction: c. 2,8 bn 0,2 (0.9 ) (0.1 ) (0.0) 0,6 (1.5 ) (1.1) 11,5 11,5 10,6 (0.8) 7,8 Jun 2015 Inflows Restructurings / Collections Write-offs Consensual foreclosures1 Dec 2015 Inflows Restructurings / Collections Write-offs Consensual 1 foreclosures Dec 2016 Reduction of 90+ DPD in FY2016 involved application of more complex solutions, as focus shifts towards tackling the recoveries portfolio (1) Value of on-boarded assets is set at a conservative 25%-30% discount from open market valuations, by two independent sources 12
Peer 1 Peer 2 Peer 3 BoC Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 BoC Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 BoC Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 1 Peer 2 Peer 3 BoC Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 BoC compares favourably vs. peer 1 Highest reduction of NPE as % of nominal GDP vs peer Strong progress on NPE coverage Change in NPE as % of nominal GDP since 2014 2 (22,2%) NPE coverage progress since 2014 2,3 11% 9% 9% (1,6%) (0,8%) (0,7%) (0,4%) (0,3%) (0,1%) (0,0%) 0,2% 0,4% 7% 7% 6% 4% 4% 4% Average: 5,48% 2% 2% 1% 1,5% 2,0% Good collateral coverage NPE Total coverage 2,4 (latest available) BoC valuation against peers Valuation benchmarks: On a P/B basis 5 Provision coverage Tangible coverage 121% 113% 112% 108% 100% 99% 94% 92% 89% 84% 83% 1,00x 0,98x 0,92x 0,83x 0,82x 48% 73% 59% 54% 38% 74% 69% 50% 59% 47% 43% 53% 37% 31% 39% 50% 40% 47% 49% 36% 47% 52% 0,60x 0,41x 0,38x 0,28x 0,28x Average: 0,57x 0,21x 0,18x Source: Company reports (1) The charts are not adjusted for market share (2) Based on the Group financial results as at and for the year ended 31 December 2016 for BOC and on latest available for peers (3) For NBG NPE cash coverage for 2014 is for Greece operations only (4) Calculated using NPE provisions coverage (latest available) and collateral coverage amount (as reported by EBA Transparency Exercise with reference date 30 June 2016) (5) Share price as at 23 March 2017 13
Cyprus NPL framework proving effective Robust foreclosure legal framework adopted in Cyprus in April 2015 Enables the enforcement of mortgages as security rights against debtors through foreclosure Minimises the involvement of the Land Registry Office and procedure is driven by the secured creditors in order to expedite property foreclosures Ability to initiate foreclosure proceedings once the loan is terminated / repayments & instalments are overdue for over 120 days Access to purchase the mortgaged property after 12 months since the for-sale process begins Cross country comparison of NPL supervisory framework Cyprus Italy Spain Greece Ireland Portugal NPL governance / workout Guidance on NPL workout practices / arrears management Guidance requiring banks to have NPL strategies / action plans Guidance requiring a dedicated arrears / NPL unit Guidance requiring banks to have NPL operational targets Debt enforcement / foreclosures Legal techniques to enable out-of-court enforcement of collateral Bilateral sales of repossessed assets permitted Blanket bans (moratoria) on sales/auctions/foreclosures Household insolvency and restructuring framework Out-of-court mechanism Bankruptcy regime for consumers/households Insolvency/bankruptcy discharge period (years) 3 1 5 3 1 5 Collateral valuation Guidance of specific rules on valuation methods Guidance on valuation frequency for NPL collateral Requirements for appraisers Requirements for data collection on collateral Source: European Central Bank Stocktake of national supervisory practices and legal framework related to NPLs, September 2016 14
REMU: 170 mn sales agreed; 155 mn executed on average at 104% of Book value (Cy) 1 Property stock (31 Dec 2016) 2 Stock movement (Group) ( mn) Group: 1,4 bn 2,3% 10,7% 87,0% Cyprus Greece Others Cyprus: 1,2 bn 0,2% 3,8% 26,3% 24,1% 34,8% 10,8% Nicosia Larnaca Limassol Paphos Famagusta Other 3 Sales (Cyprus) ( mn) 4 155 # Sale price % Book Value 6 Total assets 160% 5 104% 101% 99% 117% 110% 90 65,5 39,5 22,5 Total Sales FY2016 Hotels Commercial Residential Land 26 17 22 140% 120% 100% 80% 60% 40% 20% 0% #79 36 23 16 4 542 Stock as at 01 Jan 16¹ 1.086 (166) (35) 1.427 Additions Sales¹ Impairment loss Stock as at 31 Dec 2016² Sales dynamics (Cyprus) for FY2016 197 mn 4 69 25 37 Residential Commercial Land Hotel/Touristic 2 mn 9 5 24 mn 13 4 7 15 mn 11 5 Total sale agreements 170 mn 2 155 mn Offers accepted Under negotiation SPA in preparation SPA signed Sold 4 36 16 23 5 Assets stock split (carrying value, Dec 2016 mn) Cyprus: 1.242 mn 516 224 337 90 75 185 #739 #2 #149 #227 #7 Greece & Romania Total 1.427 #1.124 5 Land & plots Golf Commercial buildings³ Residential buildings Hotels Other⁴ # Assets 5 (1) Includes Kermia Hotels Limited where disposal completed in June 2016 (2) Total Stock as at 31 December 2016 excludes investment properties and investment properties held for sale (3) Includes manufacturing, industrial and under construction (4) Relates to Greece and Romania (5) Number of assets shown for Cyprus only (6) Carrying value prior to the sale of property and before any tax charge 15
Deposit growth of 16% in FY2016 Deposits up by 867 mn in 4Q2016 and by 2,3 bn in FY2016; L/D ratio improved to 95% 16,5 13,6 13,6 13,3 13,6 13,2 0,61 0,61 0,80 0,56 1,4 1,3 1,3 1,4 1,4 11,2 11,3 11,6 11,6 12,2 14,2 14,1 1,5 1,4 12,7 12,7 15,6 14,8 0,01 1,4 0,011,4 14,2 13,3 1,5 15,0 148% 124% 125% 125% 123% 121% 122% 121% 141% 138% 136% 132% 121% 119% 110% 120% 102% 95% Sep 14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Cyprus UK Other Loans to deposits 1 EU average Loans to deposits ratio Increasing market share in resident and non-resident deposits 35,2% 32,2% 30,8% 31,1% 32,9% 34,1% 34,6% 35,8% 34,9% 25,6% 25,5% 28,4% 24,6% 24,3% 27,5% 26,7% 26,9% 26,7% 25,3% 23,7% 24,1% 24,6% 27,5% 26,1% 27,0% 26,5% 27,2% 28,8% 29,5% 29,4% Sep 2013 Dec 2013 Mar 2014 Jun 2014 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Jan 2017 Residents Non-residents (1) Based on EBA Risk Dashboard Report, Data as at 30 September 2016 (2) Percentage Points 16
Adequately capitalised relative to risk profile CET1 ratio (transitional) of 14,5% compares favorably with EU average of 14,1% 13,4% 13,4% 14,4% 15,1% 13,1% 13,5% 13,6% 13,8% 13,9% 14,0% 13,9% 14,9% 15,6% 14,0% 14,3% 14,4% 14,6% 14,5% 1 12,5% 12,4% 12,8% 13,0% 13,5% 13,4% 13,6% 14,1% Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 CET1 ratio (transitional) Average EU CET1 ratio (transitional) 2 CET1 ratio (fully loaded) Evolution for CET1 ratio (transitional) during 4Q2016 CET1 ratio vs SREP 5 minimum requirement 14,6% 0,8% (0,5%) P&L impact of 0,3% (0,3%) (0,1%) 14,5% (0,6%) 13,9% 14,5% 1,25% 3,75% 9,50% Minimum CET1 Requirement 6 CCB 3 (phased-in) Pillar 2R 4 4,50% Pillar 1 CET1 ratio 30.09.16 (transitional) Profit before provisions Provisions Other RWAs Change CET1 ratio 31.12.16 1 (transitional) 7 DTA CET1 ratio 31.12.16 (fully loaded) CET1 transitional 1 31.12.2016 SREP CET1 requirement (1) Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the DTA phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016 that resulted in a final CET 1 ratio as at 31 December 2016 of 14,5% (compared to 14,7% previously reported in the Preliminary Group Financial Results). (2) Based on EBA Risk Dashboard Report, Data as at 30 September 2016 (3) In accordance with the legislation in Cyprus which has been set for all credit institutions through the requirements of Capital Requirement Directive (CRR)/CRD IV. The applicable rate of the CCB is 1,875% for 2018 and 2,5% for 2019 (fully phased-in). (4) Pillar 2 requirement in the form of CET1 (5) Since 2015, the Bank has been designated as an Other Systemically Important Institution (O-SII). The Central Bank of Cyprus set the O-SII buffer for the Group at 2%. This buffer will be phased-in gradually, starting from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022 (6) Minimum CET1 Requirement reduced from 10,75% to 9,50% following amendments in the Cypriot Banking Law on 3 February 2017 allowing the gradual phase-in of the Capital Conservation Buffer (CCB) (7) The DTA adjustments relate to Deferred Tax Assets totalling 450 mn and recognised on tax losses totalling 3,6 bn and can be set off against future profits of the Bank until 2028 at a tax rate of 12,5%. Furthermore, there are tax losses of c. 8,5 bn for which no deferred tax asset has been recognised. The recognition of deferred tax assets is supported by the Bank s business forecasts and takes into account the recoverability of the deferred tax assets within their expiry period. 17
Total Capital position 15,7% (pro forma) Total Capital Adequacy Ratios Total Capital ratio vs SREP 7 minimum requirement 15,5% 14,2% 14,1% 15,0% 15,7% 14,1% 14,4% 14,5% 14,7% 14,6% Issuance of Tier 2 Notes 15,7% 15,7% 1,25% 3,75% 13,00% Overall Total Capital 8 Requirement CCB 3 (CET1) Pillar 2R 4 11,3% 10,8% Total Pillar 1 of 8% 2,00% 1,50% 4,50% T2 capital 5 AT1 capital 6 Pillar 1 (CET1) Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Dec-16 pro forma 1,2 1 Pro forma Total Capital 1,2 Ratio 31.12.2016 SREP total capital requirement Clean Fully Loaded CET1 ratio 9,10 Leverage ratio 11,12 25% 20% 'Clean' Fully Loaded CET1 ratio (LHS) RWA % Total Assets (RHS) BOC CET1 FL 13,9% RWA intensity 85% Average 'Clean' Fully Loaded CET1 ratio Average (RWA % Total Assets) 100% 80% 20% 15% BOC Leverage ratio 13,2% Tangible Total Equity % Total Assets Average 15% 10% 5% 13,5% 42% 60% 40% 20% 10% 5% 6,6% 0% 0% 0% (1) Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the DTA phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016 that resulted in and a final Total capital ratio of 14,6% (compared to 14,8% previously reported in the Preliminary Group Financial Results), adjusted to 15,7% (pro forma) (compared to c.16% previously reported in the Preliminary Group Financial Results) (2) The pro forma is based on the Group financial results as at and for the year ended 31 December 2016. 3) In accordance with the legislation in Cyprus which has been set for all credit institutions through the requirements of Capital Requirement Directive (CRR)/CRD IV. The applicable rate of the CCB is 1,875% for 2018 and 2,5% for 2019 (fully phased-in). (4) Pillar 2 requirement in the form of CET1 (5 )Tier 2 capital (6) Additional Tier 1 capital (7) Since 2015, the Bank has been designated as an Other Systemically Important Institution (O-SII). The Central Bank of Cyprus set the O-SII buffer for the Group at 2%. This buffer will be phased-in gradually, starting from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022 (8) The Group s overall Total Capital Requirement for 2017 has been reduced to 13,00% from 14,25% following amendments in the Cypriot Banking Law on 3 February 2017 allowing the gradual phase-in of the Capital Conservation Buffer (9) As per SNL Financial Database, Clean Fully Loaded CET1 ratio as 31 December 2016, excludes Deferred Tax Credits, AFS and Danish Compromise Estimated Impact (10) The data used is based on FY2016 financial results for 34 out of 38 EU Banks, including Bank of Cyprus, the data for the rest of the banks is based on 9M2016 financial results (11) Leverage ratio is defined as Tangible Total Equity over Total Assets (12) The data used is based on FY2016 financial results for 36 out of 41 EU Banks, including Bank of Cyprus, the data for the rest of the banks are based on 9M2016 financial results 18
Modest profitability of 64 mn for FY2016 mn FY2016 FY2015 yoy % 4Q2016 3Q2016 qoq % Total income 963 1.040-7% 246 235 5% Total expenses (397) (408) -3% (98) (97) 1% Profit before provisions and impairments 1 566 632-10% 148 138 8% Provisions for impairment of customer loans net of gains/(losses) on loan derecognition and changes in expected cash flows Impairments of other financial and non financial assets (370) (959) -61% (103) (109) -5% (47) (62) -23% (13) (12) 12% Provision for litigation and regulatory matters (18) (8) 135% (18) - - Share of profit from associates and joint ventures 8 6 38% 5 1 216% Profit/(loss) before tax, restructuring costs, discontinued operations and net profit on disposal of non-core asset 139 (391) - 19 18 3% Tax (16) (9) 84% (1) (4) -87% (Loss)/profit attributable to non-controlling interests (4) 6 - - 2 - Profit/(loss) after tax and before restructuring costs, discontinued operations and net profit on disposal of non-core asset 119 (394) - 18 16 11% Advisory, VEP and other restructuring costs 2 (114) (43) 165% (16) (11) 47% Loss from disposal groups held for sale/discontinued operations - (38) - - - - Net gain on disposal of non-core assets 59 37 62% - - - Profit/(loss) after tax 64 (438) - 2 5-61% Net interest margin 3,47% 3,79% -32 bps 3,37% 3,35% +2 p.p. Return on tangible equity (annualised) 2,2% -15,0% 17,2 p.p. 0,3% 0,7% -0,4 p.p. Key Highlights QoQ change NII at 162 mn for 4Q2016, compared to 164 mn for 3Q2016, reflecting the reduction in customer loan balance primarily as a result of the elevated loan restructuring activity, including debt for property swaps (DFAs) and the low interest rate environment Net Interest Margin (NIM) was marginally reduced to 3,47% for FY2016 compared to 3,51% for 9M2016 Total Income up by 5% qoq due to increase by 43% of fee and commission income, favourably affected by both new and increased charges, as well as with non-recurring fees of c. 7 mn. Strong operating profitability of 148 mn for 4Q2016, up by 8% qoq, a net increase in non interest income Provision for litigation and regulatory matters for 4Q2016 were 18 mn primarily affected by legal and regulatory one off redress charges for UK operations Modest Profit after tax of 2 mn for 4Q2016 and 64 mn for FY2016 Return on Average Assets (annualised) 0,3% -1,7% +2 p.p. 0,0% 0,1% -0,1 p.p. Cost-to-Income ratio 41% 39% +2 p.p. 40% 41% -1 p.p. (1) Profit before provisions and impairments, gains/(losses) on derecognition and changes on expected cash flows, restructuring costs and discontinued operations. (2) Advisory, VEP and other restructuring costs comprise mainly: 1) fees of external advisors in relation to: (i) disposal of operations (ii) customer loan restructuring activities which are not part of the effective interest rate and (iii) the listing on the London stock exchange and 2) voluntary exit plan cost. (3) Debt for Asset swaps 19
Stable NIM despite negative interest rate environment Net Interest Income and Net Interest Margin 394 227 25 Interest income from Republic of Cyprus bond ( mn) Net interest income ( mn) NIM (bps) 379 370 369 363 355 FY2015: NIM 379 bps 212 205 198 22 9 bn Interest bearing assets 1 23,9 22,8 21,8 20,8 20,1 19,7 19,3 18,9 335 337 FY2016: NIM 347 bps 185 175 164 162 Net Interest Income (NII) at 162 mn for 4Q2016, compared to 164 mn for 3Q2016, reflecting the reduction in customer loan balance primarily as a result of the elevated loan restructuring activity, including debt for property swaps (DFAs) and the low interest rate environment Net Interest Margin (NIM) was marginally reduced to 3,47% for FY2016 compared to 3,51% for 9M2016 Interest bearing assets of 18,9 bn as at 31 December 2016 202 190 196 191 185 175 164 162 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Yield on Loans and Cost of Deposits in Cyprus 2 (bps) Yield on Loans Cost of Deposits Customer spread 573 537 536 527 530 527 503 508 434 418 432 427 435 436 414 421 139 119 104 100 95 91 89 87 Customer spread increased to 421 bps in 4Q2016 mainly due to the repricing of deposits at lower deposits rates in 4Q2016 New lending of over 1 bn, since the beginning of the year, to promising sectors of the domestic economy. 43% of new lending in Cyprus relates to corporate loans, 33% to retail loans and 15% to SME loans 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 (1) Interest bearing assets include placements with banks and central banks, reverse repurchase agreements and net loans and advances to customers and investments excluding equity and mutual funds. (2) Includes all currencies 20
Increased Non Interest Income as % of Total Income Analysis of Non Interest Income ( mn) Quarterly 1 Net fee and commission income Insurance income net of insurance claims Other 14% 15% 46 12 48 15% 16% 16% 20% 71 63 59 55 23 1 9 14 16 50 54 14 11 49 10 36 38 36 38 38 48 77 20 9 48 2 57 2 % Net fee and commission income % Total income x Non interest income ( mn) x Recurring non- interest income ( mn) -2 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Fee & commission income 2 in Cyprus by business line International Banking Services Consumer SME Corporate RRD Wealth and Management Other 6% 7% 33% 8% 1% 3% 41% One third of IBS fee & commission income is driven by Payment Transactions Payment Transactions are increasing Average Number of Payment Transactions per month (thousands) 41 53 2013 - pre-bailin Incoming Payment Orders 35 20 21 2013 - post-bailin Outgoing Payment Orders 29 30 26 35 2014 2015 2016 37 (1) Comprising (a) Net FX gains / (losses) & Net gains/(losses) on other financial instruments, (b) Losses from revaluation and disposal of investment properties and (c ) other income. (2) Excluding non-recurring fees of approximately 7 mn 21
Costs under control Total expenses ( mn) Staff costs Special levy on deposits Operating expenses 113 102 102 101 101 90 97 98 39 51 39 27 38 37 38 40 4 4 4 5 5 5 5 5 59 59 59 57 58 59 54 53 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Total expenses for 4Q2016 were 98 mn, in line with the previous quarter Staff costs for 4Q2016 were 53 mn, down by 2% qoq mainly due to the VEP completed in 2Q2016 Special levy on deposits of credit institutions in Cyprus was 5 mn and accounted for 5% of the total expenses, driven by the increased stock of deposits in Cyprus Operating expenses were 40 mn broadly in line with the previous quarter Cost to Income Ratio 61% Group 59% 60% EU average 66% 63% 1 63% 63% Cost to income ratio at 41% for FY2016 42% 42% 40% 40% 41% 37% 38% 36% 1Q2015 1H2015 9M2015 FY2015 1Q2016 1H2016 9M2016 FY2016 Actions for focused, targeted cost containment: Tangible savings through a targeted cost reduction program for operating expenses Introduction of appropriate technology/ processes to enhance product distribution channels and reduce operating costs Introduction of HR policies aimed at enhancing productivity (1) Based on EBA Risk Dashboard Report, Data as at 30 September 2016 22
Profitable Core Cypriot business 4Q2016 Cyprus Vs Group performance ( mn) 153 94% 94% 88% 98% 245% % 162 232 246 146 148 % contribution of Cyprus operations 9 14-12 -98 Net interest income Total income Total expenses Profit before provisions and impairments, restructuring costs and discontinued operations 1-86 2 44-26 18 Profit after tax and before one off items Cyprus operations Rest of operations Group Stable NIM in Cyprus operations (bps) 386 369 367 366 359 349 FY15: 373 332 335 FY16: 344 Healthy Cost to Income ratio for Cyprus operations 35% 35% 35% 38% 40% 41% 40% 39% Improving fee income as a % of revenues % of total income 4% 16% Net interest income Fee and commission income Other income 10% 13% 11% 8% 8% 14% 12% 13% 14% 15% 15% 17% 16% 20% 80% 77% 73% 74% 77% 75% 70% 68% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q15 1H15 9M15 FY15 1Q16 1H16 9M16 FY16 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 2 (1) Profit before provisions and impairments, gains/(losses) on loan derecognition and changes on expected cash flows, restructuring costs and discontinued operations. (2) Excluding non-recurring fees of approximately 7 mn. 23
Expansion of BOC UK operations Gross loans and customer deposits Loans by sector as at 31 December 2016 Gross loans ( bn) 0,67 0,74 0,78 0,83 0,88 0,93 1,01 1,09 17% 81% 1% 1% Corporate SMEs Consumer credit Housing Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Customer deposits ( bn) 1,26 1,19 1,13 1,00 1,04 1,08 0,92 0,93 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Core operating profitability is rising Operating profit ( mn) Profit/(loss) after tax ( mn) 3,6 6,0 (9,0) 3,9 FY2015 FY2016 FY2015 FY2016 Profit after tax negatively affected by legal and regulatory one off redress provision charges Gross loans and customer deposits in the UK increased by 32% and 21% yoy to 1,09 bn and to 1,26 bn, respectively New lending of 370 mn during 2016 Core operating profitability is rising, 54% increase yoy Loss after tax of 9,0 mn for the FY2016 primarily driven by legal and regulatory one off redress provision charges 24
Significant Progress made on Group KPIs Well on track to meet targets set in 2016 A clear plan of action to achieve new Medium Term Targets Category Key performance indicators Dec- 2015 Dec- 2016 Medium Term Targets set in 2016 New Medium Term Targets 90+ DPD ratio 50% 41% <30% <20% 1. Significantly reduce problem loans Key Pillars & Plan of action Sustain momentum in restructuring Focus on recoveries portfolio accelerated consensual foreclosures Real estate management via REMU Asset quality NPEs ratio 62% 55% <30% NPEs coverage 39% 41% >50% Provisioning charge 4,3% 1,7% <1,0% <1,0% 1 2. Further improveme nt funding structure; Continue expansion of deposit franchise Increase loan pool for the Additional Credit Claim framework of ECB Further diversify funding sources Funding Net Loans % Deposits 121% 95% 100%-120% 90%-110% Capital Total Capital ratio 14,1% 14,6% 3 >15% 3. Focus on core markets Targeted lending in Cyprus into promising sectors to fund recovery New loan origination, while maintaining lending yields Revenue diversification via fee income from international business, wealth, and insurance Carefully expand UK franchise by leveraging the UK subsidiary Margins and efficiency Net interest margin 3,8% 3,5% ~3,00% ~3,00% Fee and commission income/total income 15% 17% 4 >20% >20% 4. Achieve a lean operating model Tangible savings through a targeted reduction program Introduce technology/processes to improve distribution channels and reduce costs HR policies aimed at enhancing productivity Cost to income ratio 39% 41% 40%-45% 40%-45% Balance Sheet Total assets 23,3 bn 22,2 bn > 25 bn > 25 bn 5. Deliver returns Deliver appropriate medium-term risk-adjusted returns (1) Post IFRS 9 impact (2) That is Provisions for impairment of customer loans and gains /(losses) on derecognition of loans and changes in expected cash flows on acquired loans over average gross loans (3) Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the DTA phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016 that resulted in and a final Total capital ratio of 14,6% (compared to 14,8% previously reported in the Preliminary Group Financial Results) (4) Excluding non-recurring fees of approximately 7 mn 25
Key Takeaways Key Milestones Achieved in January 2017; Listing on LSE and CSE, ELA fully repaid, successful issuance of 250 mn Tier 2 Notes Satisfactory results this quarter reflecting our strategy of continued de-risking Leading position in a recovering economy 90+ DPD down by 459 mn or 5% qoq; down by 3,0 bn or 27% in FY2016 Further NPE reduction of 867 mn or 7% qoq; 2,9 bn or 21% reduction during FY2016; Reduction in NPEs in 4Q2016 quarter of 867 mn was nearly double the in-quarter reduction of 459 mn in 90+ DPD Strong restructuring momentum continues with 6,2 bn 1 of restructurings in FY2016 Loans to Deposits ratio (L/D) at 95%; Customer deposits increased by 867 mn or 6% qoq and 16% yoy Pro forma Total Capital Ratio at 15,7% 2,3 Strong operating profitability of 148 mn for 4Q2016 directed at increased provisions and impairment charges to faster de-risk balance sheet Modest profitability of 64 mn for FY2016; 2 mn for 4Q2016 (1) Including debt for asset swaps, write offs & non-contractual write offs (2) Adjusted for the issuance of 250 mn Tier 2 Notes in January 2017 based on the Group financial results as at and for the year ended 31 December 2016 (3) Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the DTA phase-in period reduced from 10 to 5 years, with effect as from the reporting of 31 December 2016 that resulted in a final Total capital ratio of 15,7% when including the Bank s Tier 2 Capital Notes issued in January 2017 (compared to c.16% previously reported in the Preliminary Group Financial Results) 26
Key Information and Contact Details Credit Ratings: Fitch Ratings: Long-term Issuer Default Rating: upgraded to B-" on 25 April 2016 (stable outlook) Short-term Issuer Default Rating: upgraded to B" on 25 April 2016 Viability Rating: upgraded to b- on 25 April 2016 Moody s Investors Service: Baseline Credit Assessment: Upgraded to caa2 on 14 December 2016 (positive outlook) Short-term deposit rating: Affirmed at "Not Prime" on 14 December 2016 Long-term deposit rating: Upgraded to Caa2 on 14 December 2016 (positive outlook) Counterparty Risk Assessment: Assigned at B2(cr) / Not-Prime (cr) on 14 December 2016 Listing: LSE BOCH, CSE BOCH/ΤΡΚΗ, ISIN IE00BD5B1Y92 Contacts Investor Relations Tel: +35722122239, Email: investors@bankofcyprus.com Annita Pavlou, Investor Relations Manager, Tel: +357 22 122740, Email: annita.pavlou@bankofcyprus.com Elena Hadjikyriacou, (elena.hadjikyriacou@bankofcyprus.com) Marina Ioannou, (marina.ioannou@bankofcyprus.com) Styliani Nicolaou, (styliani.nicolaou@bankofcyprus.com) Andri Rousou, (andri.rousou@bankofcyprus.com) Finance Director Eliza Livadiotou, Tel: +35722122344, Email: eliza.livadiotou@bankofcyprus.com Visit our website at: www.bankofcyprus.com 27
Appendix Macroeconomic overview 28
01.01.15 11.02.15 24.03.15 04.05.15 12.06.15 23.07.15 02.09.15 13.10.15 23.11.15 01.01.16 11/02/16 23/03/16 03/05/16 13/06/16 22/07/16 01/09/16 12/10/16 22/11/16 02/01/17 10/02/17 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016-5,1% -6,5% -6,9% -5,8% -4,6% 1-3,2% -3,1% -0,6% -0,4% -1,3% -2,8% -1,5% -1,3% -0,6% -0,1% 1,4% 1,6% 2,2% 3,0% 2,8% 2,8% 2,9% 2,9% Growth accelerated with broad sector participation Real GDP (SA) continued to expand in 2016 registering a yearly growth of 2,8% (1,7% in 2015)... with broad sector participation particularly from trade, tourism, and professional services, whilst.... on the expenditure side growth came from dom. demand with net exports contributing negatively Contribution to growth in percentage points 1,2 Contribution to growth by category of expenditure in percent points 0,3 1,5 3,6 0,2 0,2 0,0 0,4 0,4-0,1 0,2 0,5 0,6 0,3 0,2 0,0-0,5 Agriculture Construction Professional & Financial business 2015 (growth 1,7%) 2016 (growth 2,8%) 0,4 0,1 0,1 0,3 Other 4,7 1,1 3,9 2,2 1,2 1,1 1,7-0,1-1,3-1,0-1,5-2,8-1,3-5,4-1,0-1,6-4,1-2,1-2,7-2,3-0,1 2011 2012 2013 2014 2015 2016 Consumption Fixed Investment Inventories Net Exports Improved rating and credit outlook, demonstrated by benchmark sovereign bond yields The gov t budget has been essentially balanced since 2014 following significant consolidation On an annual basis public debt peaked in 2015 and started to decline in 2016 relative to GDP 6,0 5,0 4,0 3,0 2,0 1,0 Yields on Cyprus government bonds 3,30 2,72 1,59 4 2 0-2 -4-6 In % of GDP, excl. recapitalisation costs 2,6 2,7 2,6 0,1-0,2-0,1 120 100 80 60 40 20 8,5 107,5 107,1 19,0 19,0 23 21 19 17 15 13 11 9 CY Feb 20 CY May 22 CY Nov 25-8 2008 2009 2010 2011 2012 2013 2014 2015 2016 Gov't budget Primary balance (RHS) 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Gross debt in billion euro (RHS) in % of GDP 7 SOURCE: Statistical Service of Republic of Cyprus; Bloomberg; European Commission Winter Forecasts 2017; Calculations by BOC Economic Research 29
03.09 06.09 09.09 12.09 03.10 06.10 09.10 12.10 03.11 06.11 09.11 12.11 03.12 06.12 09.12 12.12 03.13 06.13 09.13 12.13 03.14 06.14 09.14 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 Key economic sectors are performing well The unemployment rate peaked in 2013Q4 at 16,6% SA and dropped to 12,8% in 2016Q2 rising to 14,1% in 2016Q4 In construction the main frequency indices have turned up in 2016 18,0 16,0 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0,0 100,0 16,6 16,5 102,0 14,1 100,0 13,1 96,2 98,0 10,3 12,8 96,0 94,0 6,6 91,7 90,3 92,0 90,0 88,0 86,0 84,0 Index 100=2008Q3 of 4Q moving averages/sums 120,0 99,0 100,0 80,0 60,0 40,8 40,0 29,9 20,0 27,7 0,0 Employment Index 4Q averages SA 2011Q2=100 (RHS) Unemployment rate SA % Industrial production bottomed in February 2014 on a 12 month basis, from a peak in 2008, and has been rising since... Production Index Local sales of cement Volume of building permits... were the rebound has been relatively uniform across sectors with the total industry index up by 8,7% in 2016 after rising by 3,4% the year before 15 10 5 0-5 -10-15 -20-25 -30 Total Industrial production 130 8,3 120 110 94,9 100 90 73,7 80 70 60 65,0 50 40 30 100=Oct 2008 of 12 m. Av. (RHS) % change y-o-y 12 month averages Industrial production by sector: % change year-on-year 23,4 12,3 8,7 7,5 7,6 3,4 3,6 4,0 1,0-0,1-1,2-2,0-4,2-10,1-10,3-9,2-13,4-15,2-14,1-12,9 2012 2013 2014 2015 2016 Total Industry Manufacturing Electricity Water SOURCES: Statistical Service of Republic of Cyprus, Eurostat; Calculations by BOC Economic Research 30
Q3.08 Q4.08 Q1.09 Q2.09 Q3.09 Q4.09 Q1.10 Q2.10 Q3.10 Q4.10 Q1.11 Q2.11 Q3.11 Q4.11 Q1.12 Q2.12 Q3.12 Q4.12 Q1.13 Q2.13 Q3.13 Q4.13 Q1.14 Q2.14 Q3.14 Q4.14 Q1.15 Q2.15 Q3.15 Q4.15 Q1.16 Q2.16 Q3.16 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 Tourism is expanding & Residential Property Index is stabilising Tourist activity increased sharply in 2016 and continued into 2017 up in Jan- Feb by 26% y-o-y driven by arrivals from Germany and Russia Arrivals: % change year-on-year -2,4-3,0-7,1 28,3-31,5 29,9 19,5 8,0 1,50,2 4,6 8,9 7,2 4,4-2,2-2,8-12,7-17,6 48,9 19,4 26,4 28,5 19,8 11,9 11,2 10,5 12,6-13,3 141,1 2013 2014 2015 2016 2017(Jan-Feb) Total Arrivals Europe UK Russia Germany Receipts The distribution of tourist arrivals has been shifting over time and appears shifting again with UK arrivals dropping and rising from Germany and Russia 5,3 7,8 9,2 9,6 21,2 4,8 4,6 5,6 58,5 22,8 22,4 20,6 4,1 5,2 5,0 26,1 19,7 24,5 3,5 35,7 39,2 36,3 2003 2014 2015 2016 UK Germany Russia Greece Other Europe Non-Europe 4,2 3,9 Residential property prices declined by a cumulative 32% from their peak in 3Q2008 and started to stabilise from the second half of 2015 Residential property prices have started to rise year-on-year in some index series 20 15 10 5 0-5 -10-15 CBC Residential Property Price Index (Rebased to 3Q2008) 100,0-1,3-1,8-1,7 68,0 68,0 110,0 105,0 100,0 95,0 90,0 85,0 80,0 75,0 70,0 65,0 60,0 25,0 20,0 15,0 10,0 5,0 0,0-5,0-10,0-15,0-20,0 Residential property prices: RPPI (CBC); HPI (Eurostat); RICS RPPI HPI RICS-Apartments RICS-Houses 1,1 0,5-1,3-3,3 100=2008Q4 of 4Q moving averages (RHS) RPPI % change y-o-y SOURCES: Statistical Service of Republic of Cyprus; Central Bank of Cyprus; Eurostat; RICS-Cyprus; Calculations by BOC Economic Research 31
Consumer prices continued to drop in 2016 while on the demand side of the economy, retail trade volumes continued to increase 04.12 06.12 08.12 10.12 12.12 02.13 04.13 06.13 08.13 10.13 12.13 02.14 04.14 06.14 08.14 10.14 12.14 02.15 04.15 06.15 08.15 10.15 12.15 02.16 04.16 06.16 08.16 10.16 12.16 Following three consecutive years of decline, consumer prices dropped 1,4% in 2016 and rose by 1,1% in January-February 2017 4,0 3,0 Consumer Price Index: % changes year-on-year 3,3 2,4 2,4 2,0 1,0 1,1 0,0-1,0-2,0-3,0-0,4-1,4-1,4-2,1 2010 2011 2012 2013 2014 2015 2016 2017 Jan-Feb -10-15 -20 The volume index of retail trade peaked in Oct. 2008 on a 12 month basis and dropped by about 15% by the first half of 2014 and has been rising since 15 10 5 0-5 Volume of retail trade 78,2 3,2 7,6 3,6 130 120 110 100 89,0 89,3 90 80 70 60 Regarding vehicle registration, after a 73% drop from their peak in late 2008 to early 2014, they started to rebound in 2015-2016 continuing into 2017 60,0 40,0 20,0 0,0-20,0-40,0-60,0-80,0 Registration of motor vehicles 27,2 42,6 47,4 45,6 22,9 24,6 60 52,1 70 50 40 30 20 100=2008M10 of 12 month moving averages (RHS) % change y-o-y SOURCES: Statistical Service of Republic of Cyprus; Calculations by BOC Economic Research 100=2008M10 of 12 month moving averages (RHS) % changes y-o-y 32