Interim Financial Report 2019

RNS Number : 2368K

Bank of Cyprus Holdings PLC

27 August 2019

BANK OF CYPRUS HOLDINGS GROUP

Interim Financial Report

Six months ended 30 June 2019

Contents	Page
Board of Directors and Executives	1
Forward Looking Statements and Notes	2
Interim Management Report	3
Consolidated Condensed Interim Financial statements
Interim Consolidated Income Statement	25
Interim Consolidated Statement of Comprehensive Income	26
Interim Consolidated Balance Sheet	27
Interim Consolidated Statement of Changes in Equity	28
Interim Consolidated Statement of Cash Flows	30
Notes to the Consolidated Condensed Interim Financial Statements
1. Corporate information	32
2. Unaudited financial statements	32
3. Summary of significant accounting policies	32
4. Going concern	37
5. Operating environment	38
6. Significant and other judgements, estimates and assumptions	39
7. Segmental analysis	45
8. Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	53
9. Staff costs and other operating expenses	53
10. Credit losses of financial instruments and impairment of non‑financial instruments
11. Income tax	55
12. Earnings per share	58
13. Investments	58
14. Derivative financial instruments	60
15. Fair value measurement	61
16. Loans and advances to customers	68
17. Stock of property	68
18. Prepayments, accrued income and other assets	69
19. Non‑current assets and disposal groups held for sale	70
20. Funding from central banks	71
21. Customer deposits	72
22. Subordinated loan stock	73
23. Accruals, deferred income, other liabilities and other provisions	73
24. Share capital	73
25. Pending litigation, claims, regulatory and other matters	75
26. Contingent liabilities	79
27. Cash and cash equivalents	80
28. Analysis of assets and liabilities by expected maturity	81
29. Risk management ‑ Credit risk	82
30. Risk management ‑ Market risk	118
31. Risk management ‑ Liquidity risk and funding	118
32. Capital management	122
33. Related party transactions	122
34. Group companies	125
35. Acquisitions and disposals of subsidiaries	128
36. Investments in associates and joint venture	129
37. Events after the reporting period	131
Independent Review Report to the Bank of Cyprus Holdings Public Limited Company	132
Additional Risk and Capital Management Disclosures including Pillar 3 semi‑annual disclosures	134
Definitions and explanations of Alternative Performance Measures Disclosures	173

BANK OF CYPRUS HOLDINGS GROUP

Board of Directors and Executives

as at 26 August 2019

Board of Directors of Bank of Cyprus Holdings Public Limited Company	Efstratios‑Georgios Arapoglou CHAIRMAN Maksim Goldman VICE CHAIRMAN Arne Berggren Lyn Grobler Dr. Michael Heger John Patrick Hourican Dr. Christodoulos Patsalides Ioannis Zographakis Anat Bar‑Gera Maria Philippou Paula Hadjisotiriou
Executive Committee	John Patrick Hourican OUTGOING CHIEF EXECUTIVE OFFICER Panicos Nicolaou DIRECTOR CORPORATE BANKING/CHIEF EXECUTIVE OFFICER DESIGNATE Dr. Christodoulos Patsalides DEPUTY CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER Michalis Athanasiou CHIEF RISK OFFICER Eliza Livadiotou FINANCE DIRECTOR Louis Pochanis DIRECTOR INTERNATIONAL BANKING, WEALTH AND MARKETS Dr. Charis Pouangare DIRECTOR CONSUMER AND SME BANKING Nicolas Scott Smith DIRECTOR RESTRUCTURING AND RECOVERIES DIVISION Anna Sofroniou DIRECTOR REAL ESTATE MANAGEMENT UNIT Aristos Stylianou EXECUTIVE CHAIRMAN, INSURANCE BUSINESSES
Company Secretary	Katia Santis
Legal Advisers as to matters of Irish Law	Arthur Cox
Legal Advisers as to matters of English and US Law	Sidley Austin LLP
Legal Advisers as to matters of Cypriot Law	Chryssafinis & Polyviou
Statutory Auditors	PricewaterhouseCoopers, One Spencer Dock, North Wall Quay, Dublin 1, Ireland, I.D.E. Box No. 137
Registered Office	Arthur Cox 10 Earlsfort Terrace Dublin 2 D02 T380 Ireland

BANK OF CYPRUS HOLDINGS GROUP

Forward Looking Statements and Notes

This document contains certain forward‑looking statements which can usually be identified by terms used such as 'expect', 'should be', 'will be' and similar expressions or variations thereof or their negative variations, but their absence does not mean that a statement is not forward looking. Examples of forward‑looking statements include, but are not limited to, statements relating to the Bank of Cyprus Holdings Public Limited Company Group (the Group) near term and longer term future capital requirements and ratios, intentions, beliefs or current expectations and projections about the Group's future results of operations, financial condition, expected impairment charges, the level of the Group's assets, liquidity, performance, prospects, anticipated growth, provisions, impairments, business strategies and opportunities. By their nature, forward‑looking statements involve risk and uncertainty because they relate to events, and depend upon circumstances, that will or may occur in the future. Factors that could cause actual business, strategy and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward‑looking statements made by the Group include, but are not limited to: general economic and political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign exchange fluctuations, legislative, fiscal and regulatory developments and information technology, litigation and other operational risks. Should any one or more of these or other factors materialise, or should any underlying assumptions prove to be incorrect, the actual results or events could differ materially from those currently being anticipated as reflected in such forward‑looking statements. The forward‑looking statements made in this document are only applicable as from the date of publication of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward‑looking statement contained in this document to reflect any change in the Group's expectations or any change in events, conditions or circumstances on which any statement is based.

Non‑IFRS performance measures

Bank of Cyprus Holdings Public Limited Company (the 'Company') management believes that the non‑IFRS performance measures included in this document provide valuable information to the readers of the Interim Financial Report as they enable the readers to identify a more consistent basis for comparing the Group's performance between financial periods and provide more detail concerning the elements of performance which management is most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which the operating targets are defined and performance is monitored by the Group's management. However, any non‑IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as the key measures of the 30 June position. Refer to 'Definitions and explanations on Alternative Performance Measures Disclosures' on pages 173 to 182 of the Interim Financial Report for the six months ended 30 June 2019 for further information, reconciliations with Consolidated Condensed Interim Financial Statements and calculations of non‑IFRS performance measures included throughout this document and the most directly comparable IFRS measures.

The Interim Financial Report for the six months ended 30 June 2019 is available on the Group's website www.bankofcyprus.com (Investor Relations/Financial Results).

BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY

Interim Management Report

Financial results

Commentary on underlying basis

The financial information presented below provides an overview of the Group financial results for the six months ended 30 June 2019 on the 'underlying basis' which the management believes it best fits the measurement of the performance and position of the Group. Reconciliations are included in the below sections and in 'Definitions and explanations on Alternative Performance Measures Disclosures' to allow for the comparability of the underlying basis to statutory information.

The main financial highlights for 2019 are set out below:

Consolidated Condensed Interim Income Statement underlying basis


€ million	30 June 2019	30 June 2018 (represented)
Net interest income	170	166
Net fee and commission income	75	80
Net foreign exchange gains and net gains on financial instruments transactions and disposal/dissolution of subsidiaries and associates	26	42
Insurance income net of insurance claims and commissions	30	25
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	16	21
Other income	16	11
Total income	333	345
Staff costs	(112)	(102)
Other operating expenses	(84)	(80)
Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund (SRF)	(12)	(12)
Total expenses	(208)	(194)
Operating profit	125	151
Loan credit losses	(87)	(85)
Impairments of other financial and non‑financial instruments	(10)	(13)
Reversal of provisions for litigation, regulatory and other matters	3	6
Total loan credit losses, impairments and provisions	(94)	(92)
Profit before tax and non‑recurring items	31	59
Tax	-	(4)
(Profit)/loss attributable to non‑controlling interests	(2)	2
Profit after tax and before non‑recurring items	29	57
Advisory and other restructuring costs excluding discontinued operations and NPE sale (Helix)	(12)	(15)
Profit after tax ‑ organic	17	42
Profit from discontinued operations (UK)	-	4
Profit/(loss) relating to NPE Sale (Helix)	-	(105)
Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates	(21)	5
Reversal of impairment of deferred tax assets and impairment of other tax receivables	101	-
Profit/(loss) after tax (attributable to the owners of the Company)	97	(54)

Reclassifications to comparative information were made as follows:

· Unrecognised interest on previously credit impaired loans which have cured during the period amounting to €14,918 thousand was reclassified from 'Net interest income' to 'Credit losses to cover credit risk on loans and advances to customers' in line with an IFRIC discussion, which has taken place in November 2018 (Presentation of unrecognised interest following the curing of a credit impaired financial asset (IFRS 9)). The corresponding amount for the six months ended 30 June 2019 stood at €7,781 thousand.

· The results of the discontinued operations in the UK (Bank of Cyprus UK Ltd and its subsidiary, Bank of Cyprus Financial Services Ltd) were represented as discontinued operations (profit after tax for the six months ended 30 June 2018: €4,010 thousand).

The changes in presentation did not have a material impact on the profit/(loss) after tax of the Group for the period. However the net interest margin, the cost to income and the cost of risk ratios were recalculated to account for these reclassifications.

Key Performance Ratios	30 June 2019*	30 June 2018**
Net interest margin	1.88%	1.86%
Cost to income ratio	63%	56%
Cost to income ratio excluding special levy and contribution to Single Resolution Fund	59%	53%
Operating profit return on average assets	1.2%	1.4%
Basic earnings/(losses) per share attributable to the owners of the Company (€ cent)	21.84	(12.12)

*The interest income, non‑interest income, staff costs, other operating expenses and loan credit losses related to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis.

**Additionally to the above, amounts are represented for the disposal of the UK subsidiary and including the impact from IFRIC presentation of unrecognised interest following the curring of a credit‑impaired financial asset (IFRS 9). This resulted to a reclassification between net interest income and loan credit losses, with no impact on overall profitability.

Consolidated Condensed Interim Balance Sheet underlying basis

€ million	30 June 2019	31 December 2018 (restated)
Cash and balances with central banks	5,262	4,610
Loans and advances to banks	403	473
Debt securities, treasury bills and equity investments	1,881	1,515
Net loans and advances to customers	10,949	10,922
Stock of property	1,430	1,427
Investment property	142	127
Non‑current assets and disposal groups classified as held for sale	198	1,470
Other assets	1,622	1,531
Total assets	21,887	22,075
Deposits by banks	532	432
Funding from central banks	830	830
Repurchase agreements	248	249
Customer deposits	16,377	16,844
Subordinated loan stock	261	271
Other liabilities	1,169	1,082
Total liabilities	19,417	19,708
Shareholders' equity	2,222	2,121
Other equity instruments (AT1)	220	220
Total equity excluding non‑controlling interests	2,442	2,341
Non‑controlling interests	28	26
Total equity	2,470	2,367
Total liabilities and equity	21,887	22,075
Comparative information was restated following the change in the classification of properties which are leased out under operating leases as investment properties.

Key Balance Sheet figures and ratios	30 June 2019¹	30 June 2019	31 December 2018
Gross loans and advances to customers (€ million)		13,072	13,148
Allowance for expected credit losses (€ million)		2,145	2,254
Customer deposits (€ million)		16,377	16,844
Loans to deposits ratio (net)		67%	65%
NPE ratio		33%	36%
Expected credit losses coverage ratio for NPEs		50%	47%
Leverage ratio		10.5%	10.0%
Capital ratios and risk weighted assets
Common Equity Tier 1 capital ratio (CET 1) (transitional for IFRS 9)	15.2%	14.9%	11.9%
Total capital ratio	18.1%	17.8%	14.9%
Risk weighted assets (€ million)	13,724	13,962	15,373
¹As at 30 June 2019, BOC PCL signed an agreement for the disposal of its entire holding of 49.9% in CNP Cyprus Insurance Holdings Ltd (CNP). Prior to the classification as held for sale, the investment was remeasured and a loss of €25.9 million was recognised in the consolidated income statement. The above 30 June 2019 figures and calculations have been calculated on the basis that the sale of CNP had been completed.

Reconciliation of the Income Statement for the six months ended 30 June 2019 between statutory and underlying basis

€ million	Underlying basis	Helix portfolio	Investment in associate classified as HFS	Tax related items	Other	Statutory basis
Net interest income	170	34	-	-	-	204
Net fee and commission income	75	6	-	(6)	-	75
Net foreign exchange gains and net gains on other financial instruments transactions and disposal/ dissolution of subsidiaries and associates	26	-	-	-	0	26
Insurance income net of insurance claims and commissions	30	-	-	-	-	30
Net gains from revaluation and disposal of investment properties and on disposal of stock of properties	16	-	-	-	-	16
Other income	16	-	-	-	-	16
Total income	333	40	-	(6)	0	367
Total expenses	(208)	(23)	-	-	(9)	(240)
Operating profit	125	17	-	(6)	(9)	127
Loan credit losses	(87)	(17)	-	-	0	(104)
Impairments of other financial and non‑financial assets	(10)	-	-	(8)	-	(18)
Reversal of provisions for litigation, regulatory and other matters	3	-	-	-	(3)	-
Remeasurement of investment in associate classified as held for sale	-	-	(26)	-	-	(26)
Share of profit from associate	-	-	5	-	-	5
Profit/(loss) before tax and non‑recurring items	31	-	(21)	(14)	(12)	(16)
Tax	0	-	-	115	-	115
(Profit) attributable to non‑controlling interests	(2)	-	-	-	-	(2)
Profit after tax and before non‑recurring items	29	-	(21)	101	(12)	97
Advisory and other restructuring costs excluding discontinued operations and NPE sale (Helix)	(12)	-	-	-	12	-
Profit after tax ‑ organic*	17	-	(21)	101	-	97
Profit/(loss) relating to NPE sale (Helix)	0	(0)	-	-	-	-
Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates	(21)	-	21	-	-	-
Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables	101	-	-	(101)	-	-
Profit after tax (attributable to the owners of the Company)	97	-	-	-	-	97

*This is the profit after tax, before the loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates and the reversal of impairment of DTA and impairment of other tax receivables.

This measure best represents the true performance of the Group for management.

The reclassification differences between the statutory basis and underlying basis mainly relate to the impact from 'non‑recurring items' and are explained as follow:

Helix portfolio

· Net interest income of €34 million and fee and commission income of €6 million relating to the NPE sale (Helix) is disclosed under non‑recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis.

· Total expenses include staff costs of €3 million, operating expenses of €12 million and restructuring costs of €8 million relating to NPE sale (Helix), and are presented within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis.

· Net loan credit losses of €17 million, is disclosed under non‑recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis.

Investment in associate classified as HFS

· Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit form associate of €21 million comprises the share of profit for associate of €5 million which is reported in the 'Share of profits from associates' under the statutory basis and the loss on remeasurement of €26 million which is classified as 'Remeasurement of investment in associate classified as held for sale' under the statutory basis.

Tax related items

· Reversal of impairment of the deferred tax asset amounting to €115 million included within 'Tax' under the statutory basis is classified as a non‑recurring item and disclosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis. 'Fee and commission expense' relating to the revised income tax legislation of €6 million, which has been disclosed within 'Reversal of impairment of deferred tax asset and impairment of other tax receivables' under the underlying basis, is disclosed within the 'Net fee and commission income' under the statutory basis.

· Impairment of other financial assets of €8 million, which are included in 'Credit losses of other financial instruments' under the statutory basis, relate to the impairment of Greek tax receivables and are classified as a non‑recurring item and dislcosed within 'Reversal of impairment of DTA and impairment of other tax receivables' under the underlying basis.

Other reclassifications

· Advisory and other restructuring costs of approximately €12 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis.

· Reversal of provisions for litigation, regulatory and other matters amounting to €3 million included in 'Other operating expenses' under the statutory basis, are separately presented under the underlying basis.

Balance Sheet Analysis

Capital Base

Total equity (excluding non‑controlling interests) totalled €2,442 million at 30 June 2019, compared to €2,341 million at 31 December 2018. Shareholders' equity totalled €2,222 million at 30 June 2019, compared to €2,121 million at 31 December 2018.

The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.9% at 30 June 2019 (and 15.2% pro forma for the sale of investment in CNP Cyprus Insurance Holdings Ltd ('CNP')), compared to 11.9% at 31 December 2018 (adjusted to take into account the DTAs which were fully phased in as of 1 January 2019). During the six months ended 30 June 2019 the Project Helix was completed, positively impacting CET1 ratio by c.140 bps. The CET1 ratio was positively affected by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits (DTC) and includes reviewed profits for the six months ended 30 June 2019.

The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased‑in gradually. The amount added each year decreases based on a weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of the five years. The impact on the capital ratios for the year 2018 was 5% of the impact on the impairment amounts from the initial application of IFRS 9, increasing to 15% (cumulative) for the year 2019. The CET1 ratio on a fully‑loaded basis amounts to 13.3% at 30 June 2019 and 13.5% pro forma for the sale of investment in CNP, compared to 10.1% at 31 December 2018 (and 13.5% pro forma for DTC and Helix). On a transitional basis and on a fully phased‑in basis after the five year period of transition is complete, the impact of IFRS 9 is expected to be manageable and within the Group's capital plans.

As at 30 June 2019, the Total Capital ratio (TCR) stood at 17.8% (and 18.1% pro forma for the sale of investment in CNP), compared to 14.9% at 31 December 2018.

The Group's capital ratios are above the minimum CET1 regulatory capital ratio of 10.5% (comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%) and the overall Total Capital requirement of 14.0%, comprising an 8.0% Pillar I requirement (of which up to 1.5% can be in the form of Additional Tier 1 capital and up to 2.0% in the form of Tier 2 capital), a 3.0% Pillar II requirement (in the form of CET1), the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The ECB has also provided non‑public guidance for an additional Pillar II CET1 buffer.

Pillar II add‑on capital requirements derive from the context of the Supervisory Review and Evaluation Process (SREP) process, which is a point in time assessment and are therefore subject to change over time.

In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the Central Bank of Cyprus (CBC) is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O‑SIIs) and for the setting of the O‑SII buffer requirement for these systemically important banks. The Group has been designated as an O‑SII and the O‑SII buffer currently set by the CBC for the Group is 2%. This buffer is being phased‑in gradually having started 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.

Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition for equity dividend distribution and therefore no dividends were declared or paid during years 2018 and 2017. Following the 2018 SREP decision, the Company and BOC PCL are still under equity dividend distribution prohibition. This prohibition does not apply if the distribution is made via the issuance of new ordinary shares to the shareholders which are eligible as CET1 capital. No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company and the BOC PCL.

The EBA final guidelines on SREP and supervisory stress testing in July 2018 and the Single Supervisory Mechanism's (SSM) 2018 SREP methodology provide that CET1 held for the purposes of Pillar II add‑on capital requirements cannot be used to meet any other capital requirements (Pillar 1, P2R or the combined buffer requirements), and therefore cannot be used twice. Such restrictions are, however, only expected to apply with effect from the 2019 SREP cycle.

Project Helix

In June 2019, the Group completed the sale of a portfolio of loans with a gross book value of €2.8 billion (of which €2.7 billion related to non‑performing loans) (the 'Portfolio') secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28 August 2018 (Project Helix). Cash consideration of c.€1.2 billion was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018.

Overall, the transaction is capital accretive, with a net positive impact on the Group capital ratios of c.60 bps. The impact from the completion of Project Helix on the CET1 ratio and Total Capital ratio at 30 June 2019 is an increase of c.140 bps.

The participation of the Bank of Cyprus Public Company Limited (BOC PCL) in the senior debt in relation to financing the Transaction has been syndicated down from the initial level of €450 million to c.€45 million, representing c.4% of the total acquisition funding.

Agreement for the sale of investment in CNP Cyprus Insurance Holdings Ltd

In June 2019, the Group signed an agreement to sell its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings Limited ('CNP') that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013 for a cash consideration of €97.5 million. The sale is expected to be completed in the second half of 2019, subject to regulatory approvals. On completion, the sale is expected to have a positive impact of c.30 bps on both the Group's CET1 ratio and Total Capital ratio (based on the Financial results as at 30 June 2019) resulting mainly from the release of risk weighted assets.

Additional Tier 1 (AT1)

In December 2018, the Company proceeded with the issuance of €220 million of Additional Tier 1 Capital Securities (AT1). AT1 constitues an unsecured and subordinated obligation of the Company. The coupon is at 12.50% and is payable semi‑annually. The first coupon payment to AT1 holders was made in June 2019 and was recognised in retained earnings.

Legislative amendments for the conversion of deferred tax asset (DTA) to deferred tax credit (DTC)

Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC) were adopted by the Cyprus Parliament on 1 March 2019 and published on the Official Gazette of the Republic on 15 March 2019. The law amendments cover the income tax losses transferred from Laiki Bank to BOC PCL in March 2013. The introduction of CRD IV in January 2014 and its subsequent phasing‑in led to a more capital intensive treatment of this DTA for the Company. The law amendments have resulted in improved regulatory capital treatment of the DTA, under Capital Requirements Regulation (EU) No. 575/2013 ('CRR'), amounting to c.€285 million or a CET1 uplift of c.190 bps.

Pro forma capital ratios

With the completion of the sale of investment in CNP, expected in the second half of 2019, the CET1 ratio (IFRS 9 transitional basis) of 14.9% as at 30 June 2019 improves to 15.2% pro forma for CNP. The Total Capital ratio of 17.8% as at 30 June 2019 improves to 18.1% pro forma for CNP.

Share premium reduction of BOC PCL

BOC PCL will proceed (subject to approvals mainly by the Court of Cyprus and the ECB) with a capital reduction process which will result in the reclassification of approximate €551 million of BOC PCL share premium account balance as distributable reserves which shall be available for distribution to the shareholders of BOC PCL, resulting in total net distributable reserves of c.€1 billion on a pro forma basis (31 December 2018). The reduction of capital will not have any impact on regulatory capital or the total equity position of BOC PCL or the Group.

The distributable reserves provide the basis for the calculation of distributable items under the CRR, which provides that coupons on AT1 capital instruments may only be funded from distributable items.

Funding

Funding from Central Banks

At 30 June 2019, BOC PCL's funding from central banks amounted to €830 million, which relates to ECB funding, (at the same level as at 31 December 2018), comprising solely of funding through the Targeted Longer‑Term Refinancing Operations (TLTRO II).

Deposits

Customer deposits totalled €16,377 million at 30 June 2019 compared to €16,844 million at 31 December 2018, down by 3%.

BOC PCL's deposit market share in Cyprus reached 34.7% as at 30 June 2019, compared to 36.0% at 31 December 2018. Customer deposits accounted for 75% of total assets at 30 June 2019.

Upon completion of the project Helix, the Loan to Deposit ratio (L/D) was reduced by 5 p.p. to 67%, compared to 72% to 31 December 2018 when ignoring the classification of the Helix portfolio as a disposal group held for sale and compared to a pick of 151% at 31 March 2014.

Subordinated Loan Stock

At 30 June 2019 BOC PCL's subordinated loan stock (including accrued interest) amounted to €261 million (compared to €271 million as at 31 December 2018) and relates to unsecured subordinated Tier 2 Capital Notes of nominal value €250 million, issued by BOC PCL in January 2017.

Liquidity

At 30 June 2019 the Group Liquidity Coverage Ratio (LCR) stood at 253% (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100%. The liquidity surplus at 30 June 2019 increased to €3.8 billion, reflecting a €1.2 billion increase of liquidity on Helix completion.

The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will become a regulatory indicator when Capital Requirement Regulation 2 (CRR2) is enforced, currently expected in 2021, with the limit set at 100%. At 30 June 2019, the Group's NSFR, on the basis of Basel ΙΙΙ standards, stood at 128% (compared to 119% at 31 December 2018).

Loans

Group gross loans totalled €13,072 million at 30 June 2019 compared to €15,900 million at 31 December 2018. Gross loans in Cyprus totalled €12,945 million at 30 June 2019. The reduction in gross loans by 17% is attributed mainly to the completion of Project Helix (sale of €2.8 billion of gross loans of which €2.7 billion related to non‑performing loans) and to a lesser extent to the completion of Project Velocity (sale of €30 million gross loans, of which the whole amount related to non‑performing loans) in the second quarter of 2019.

New loans granted in Cyprus reached €1,111 million for the six months ended 30 June 2019, exceeding new lending in the six months ended 30 June 2018.

At 30 June 2019, the Group net loans and advances to customers totalled €10,949 million (compared to €10,922 million at 31 December 2018 excluding Project Helix loans).

BOC PCL is the single largest credit provider in Cyprus with a market share of 41.3% at 30 June 2019 compared to 45.4% at 31 December 2018 with the reduction reflecting the derecognition of the Helix portfolio on completion of project Helix.

Loan portfolio quality

Tackling the Group's loan portfolio quality remains the top priority for management. The Group continues to make steady progress across all asset quality metrics and the loan restructuring activity continues. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio.

Non‑performing exposures (NPEs) as defined by the European Banking Authority (EBA) were reduced to €4,312 million at 30 June 2019, accounting for 33% of gross loans compared to 47% at 31 December 2018 (including the Helix and Velocity portfolios).

The provisioning coverage ratio of NPEs improved to 50% at 30 June 2019 compared to 47% at 31 December 2018 on the same basis. Ignoring the classification of the Helix (and Velocity) Portfolios as disposal groups held for sale, the NPE Provision coverage as at 31 December 2018 stood at 52%.

When taking into account tangible collateral at fair value, NPEs are fully covered.

	30 June 2019		31 December 2018
	€ million	% of gross loans	€ million	% of gross loans
NPEs as per EBA definition	4,312	33.0%	7,419	46.7%
Of which: ‑ NPEs with forbearance measures, no arrears	657	5.0%	1,211	7.6%
Overall, the Group has recorded organic NPE reductions for seventeen consecutive quarters and expects the organic reduction of NPEs to continue during the coming quarters.
Project Helix
In June 2019, the Group announced the completion of Project Helix, that refers to the sale of a portfolio of loans with a gross book value of €2.8 billion (of which €2.7 billion related to non‑performing loans) (the 'Portfolio') secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28 August 2018.
Following the completion of Project Helix, the Group's gross NPEs are c.70% lower than its peak in 2014. Project Helix reduced the NPE ratio by c.11 p.p. to 33% as at 30 June 2019.

Cash consideration of c.€1.2 billion was received on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018.

The participation of BOC PCL in the senior debt in relation to financing the Transaction has been syndicated down from the initial level of €450 million to c.€45 million, representing c.4% of the total acquisition funding.

The Group remains focused on continuing to improve its asset quality position and to seek solutions, both organic and inorganic, to make BOC PCL a stronger and safer institution, capable of supporting the local economy.

ESTIA

In July 2018, the Government announced a scheme aimed at addressing NPEs backed by primary residence, known as ESTIA (the 'Scheme'). This Scheme is expected to impact approximately €0.84 billion of retail core NPEs, subject to eligibility criteria and participation rate. The ESTIA eligible portfolio refers to the potentially eligible portfolio following on‑going detailed assesment based on the BOC PCL's available data on Open Market Value (OMV) and NPE status. Eligibility criteria relate primarily to the OMV of the residence, total income and net wealth of the household. These will act as a clear definition of socially protected borrowers, acting as an enabler against strategic defaulters. In accordance with the Scheme, the eligible loans are to be restructured to the lower of the contractual balance and OMV. The Government will subsidise one third of the instalment. In July 2019, the Memorandum of the Understanding was signed by the banks and the Government for participation in the Scheme, which is underway for official launch in September 2019. According to the timeline provided by the Government, the application submissions will occur from September to mid‑November 2019, with evaluation by the banks running concurrently until the end of November 2019. During the fourth quarter of 2019, participating banks will offer restructuring solutions to the applicants and simultaneously the applications will be reviewed and approved by the Government, with the process expected to finish by March 2020. The first payment of the state subsidy installment is expected to occur between December 2019 and April 2020.

Project Velocity

In June 2019, BOC PCL completed the sale of an NPE portfolio of primarily retail unsecured exposures, with a contractual balance of €245 million and a gross book value of €30 million as at the date of disposal (known as 'Project Velocity' or the 'Sale') to APS Delta s.r.o. This portfolio comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 small‑to‑medium‑sized enterprises. The Sale was broadly neutral to both, the income statement and to capital.

The Group continues to assess the potential to accelerate the decrease in NPEs on its balance sheet through an additional sale of NPEs. To that extent the Group has, during the second half of 2019, embarked on a preparation phase to review the feasibility of NPE reduction structures with the aim of identifying the option that best meets the Group's strategic objectives. The preparation phase involves defining the relevant NPE portfolio, evaluation of real estate collaterals, data remediation and enhancement of data tapes, borrower information memorandums, legal due diligence and transaction structuring options. For the purposes of completing the workstreams outlined above and in order to conclude on the best possible structure, the Group has engaged international advisors, and is proceeding to engage in high level discussions via the signing of confidentiality agreements with various third parties, including financial investors and investment banks, that may be interested in pursuing a possible collaboration with the Group. A range of potential outcomes of this preparation phase is possible, including an outright sale (including BOC PCL retaining a portion of the related financing). Any potential transaction is expected to involve a portfolio of NPEs in excess of €2 billion by gross book value. The Group is not committed to any outcome arising from this preparation phase, which is currently expected to be finalised in the first half of 2020.

Real Estate Management Unit (REMU)

The Real Estate Management Unit (REMU) on‑boarded €126 million of assets during the six months ended 30 June 2019, via the execution of debt for asset swaps and repossessed properties. The focus for REMU is increasingly shifting from on‑boarding of assets resulting from debt for asset swaps towards the disposal of these assets. The Group completed organic disposals of €92 million during the six months ended 30 June 2019 (compared to €126 million for the same period last year), resulting in a profit on disposal of €16 million for the six months ended 30 June 2019. During the six months ended 30 June 2019, the Group executed sale‑purchase agreements (SPAs) with contract value of €110 million (258 properties), excluding the sale of Cyreit. In addition, the Group signed SPAs for disposals of assets with contract value of €89 million.

In November 2018, BOC PCL signed an agreement for the disposal of its entire holding in the investment shares of the Cyreit Variable Capital Investment Company PLC (Cyreit). During the first half of 2019, the Group completed the sale of the Cyreit (21 properties) recognising a loss on disposal of approximate €1 million. The total proceeds, since November 2018, from the disposal of Cyreit were €160 million.

With the completion of Project Helix, properties with carrying value of €109 million, which were included in the portfolio for the NPE sale (Helix), were derecognised as at 30 June 2019.

The Group has decided to classify the leased properties acquired in exchange of debt and leased out under operating leases as 'Investment Properties' instead of 'Inventories'. This change has been applied retrospectively resulting in the restatement of comparatives.

As a result of the above change in classification, properties with carrying value of €118 million were reclassified from the stock of properties (measured at the lower of cost and net realisable value under IAS 2) to investment properties (measured at fair value under IAS 40) as at 30 June 2019 (compared to €103 million at 31 December 2018). These properties continue to be managed by REMU.

This change in classification had no material impact on the Group's comparative retained earnings and a cumulative impact of €1 million gain has been recognised under 'Net gains from revaluation and disposal of investment properties and on disposal of stock of properties' in the income statement of first half of 2019.

Overseas exposure

At 30 June 2019 there were overseas exposures of €311 million in Greece relating to both loans and properties (compared to €144 million as at 31 December 2018), not identified as non‑core exposures, since they are considered by management as exposures arising in the normal course of business. The increase is mainly driven by new lending to Greek entities investing in Cyprus, granted by BOC PCL in the normal course of business.

During the six months ended 30 June 2019, the Group signed a binding agreement for the disposal of the overseas exposure in Serbia, comprising loans and properties, amounting to €8 million. As at 30 June 2019 the exposure was classified as held for sale.

The Group continues its efforts for further deleveraging and disposal of non‑essential assets and operations.

Income Statement Analysis

Total income

Net interest income (NII) and net interest margin (NIM) for the six months ended 30 June 2019 amounted to €170 million and 1.88% respectively on the underlying basis. NII was up by 3% compared to €166 million a year earlier. The NIM remained broadly flat when compared to previous year, negatively affected by the continued pressure on lending rates and positively affected by the reduction of cost of deposits.

Average interest earning assets for the six months ended 30 June 2019 amounted to €18,270 million, up by 1% a year earlier.

Non‑interest income for the six months ended 30 June 2019 amounted to €163 million, mainly comprising net fee and commission income of €75 million, net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries of €26 million, net insurance income of €30 million, net gains from revaluation and disposal of investment properties and on disposal of stock of properties of €16 million and other income of €16 million.

Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries of €26 million for the six months ended 30 June 2019, comprising mainly net foreign exchange gains of €14 million and net gains on revaluation of financial instruments of €12 million, decreased by 37% compared to same period last year mainly due to one‑off gain on disposal of bonds during the six months ended 30 June 2018 amounting to €19 million.

Net insurance income amounted to €30 million for the six months ended 30 June 2019, compared to €25 million for the same period last year, up by 20%, reflecting increased income and positive investment returns.

Net gains from revaluation and disposal of investment properties and on disposal of stock of properties for the six months ended 30 June 2019 amounted to €16 million, of which net profit from the disposal of stock properties of €17 million (REMU gains), and a valuation loss of €1 million, compared to net gains of €21 million for the same period last year which related mainly to the net profit from the disposal of stock of properties (REMU gains).

Total income for the six months ended 30 June 2019 amounted to €333 million, compared to €345 million for the same period last year (down by 4%).

Total expenses

Total expenses for the first half of 2019 were €208 million compared to €194 million for the same period last year), 54% of which related to staff costs (€112 million), 40% to other operating expenses (€84 million) and 6% (€12 million) to special levy and contribution to Single Resolution Fund (SRF).

Total operating expenses for the first half of 2019 were €196 million compared to €182 million in the corresponding period last year, up by 8%.

Staff costs of €112 million for the first half of 2019 increased by 9% compared to €102 million in the first six months of 2018 mainly driven by the increase in employer's social insurance contributions from the beginning of the year and the additional contributions to the new general healthcare system which commenced in March 2019.

The number of persons employed by the Group as at 30 June 2019 was 4,155 and includes 108 persons relating to the Helix transaction, where the full migration and transfer to the buyer is expected to conclude by the end of the year (31 December 2018: 4,146 and 30 June 2018: 4,158 represented).

Other operating expenses were €84 million, increased by 6% from the same period last year, mainly due to higher property related costs and higher depreciation and amortisation resulting from increased capital expenditure following the Digital Transformation Programme.

Cost management, including containment of staff costs, remains a key focus for this year and going forward.

Profit before tax and non‑recurring items

Profit before tax and non‑recurring items for the six months ended 30 June 2019 was €125 million, compared to €151 million for the six months ended 30 June 2018, down by 17%, mainly due to the lower volume on loans and pressure on lending rates.

The loan credit losses for the six months ended 30 June 2019 totalled €87 million, compared to €85 million for the same period last year, reflecting further balance sheet de‑risking.

The annualised loan credit losses charge (cost of risk) for the first half of 2019, following the completion of NPE sales which led to the reduction of gross loans by €2.8 billion, accounted for 1.3% of gross loans, compared to an annualised loan credit losses charge of 1.22% for the same period last year, on the same basis.

At 30 June 2019, the allowance for expected loan credit losses, including fair value adjustment on initial recognition and provisions for off‑balance sheet exposures totalled €2,145 million (compared to €2,254 million at 31 December 2018 pro forma for Helix) and accounted for 16.4% of gross loans on the same basis.

Impairments of other financial and non‑financial instruments for the six months ended 30 June 2019 amounted to €10 million compared to €13 million for the six months ended 30 June 2018, mainly driven by the de‑risking of the legacy REMU properties.

Reversal of provisions for litigation, regulatory and other matters relates to reversal of provisions of previously provided cases with a favourable outcome.

Profit/(loss) after tax

The tax credit for the six months ended 30 June 2019 is minimal, positively affected by overprovisions relating to prior years, compared to a tax charge of €4 million for the six months ended 30 June 2018.

Profit after tax and before non‑recurring items for the six months ended 30 June 2019 was €29 million, compared to a profit of €57 million for the same period last year, down by 51%.

Advisory and other restructuring costs‑excluding discontinued operations and NPE sale (Helix) amounted to €12 million, compared to €15 million for the first half of 2018, down by 22%.

Profit after tax arising from the organic operations of the Group for the first half of 2019 amounted to €17 million, compared to €42 million for the corresponding period last year, down by 61%.

The net result relating to NPE sale (Helix) comprising the interest income, non‑interest income, staff costs, other operating expenses and loan credit losses related to Project Helix, for the first six months of 2019 was nil compared to a net loss of €105 million for the six months ended 30 June 2018.

The loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates totalled €21 million for the six months ended 30 June 2019, comprising a loss on remeasurement of investment in associate classified as held for sale of €26 million and a share of profit from investment in associate of €5 million (compared to a share of profit from associates of €5 million in the period ended 30 June 2018). During 2019 the Group announced a binding agreement to sell its entire shareholding of 49.9% in its associate CNP Cyprus Insurance Holdings Limited (CNP) that had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013, for a cash consideration of €97.5 million.

The reversal of impairment of DTA and impairment of other tax receivables totalled €101 million for the first half of 2019, comprising the positive impact of €109 million following amendments to the Income Tax legislation in Cyprus adopted in March 2019, and an impairment of €8 million relating to Greek tax receivables adversely impacted from legislative changes.

Profit after tax attributable to the owners of the Company for the six months ended 30 June 2019 was €97 million, compared to a loss of €54 million for the six months ended 30 June 2018.

Operating environment

Economic expansion continued into 2019 with real Gross Domestic Product (GDP) increasing by 3.4% in the first quarter and by 3.2% in the second quarter seasonally adjusted, after rising by 3.9% in 2018, and by 4.5% and 4.8% respectively in 2017 and 2016 (Cyprus Statistical Service). The deceleration was driven by slowing activity in the traditional sectors including tourism and construction. From the demand side the slowdown was driven by a deteriorating external balance. Excluding ships registrations, net exports have been contributing negatively to real GDP growth in 2018 and in the first quarter of 2019. Exports and imports of goods and services excluding ships, declined in the first quarter. Regarding exports, both the goods and services components declined, the latter reflecting a poorer tourism performance at the start of the year. Government consumption surged in the quarter. Other than transport equipment which fluctuates with ship registrations, fixed investment was driven by construction related activities.

Total employment increased by 6% in the first quarter (Cyprus Statistical Service) driven by full‑time hirings, and the unemployment rate dropped to 7.3% when seasonally adjusted (Eurostat). Consumer inflation remained tamed in the first seven months of the year rising by 0.8% compared with 1.4% for 2018 due in part to low energy prices in world markets, but also limited pricing power in most categories of goods and services with the exception of housing. Tourist arrivals dropped marginally by 0.9% in the first half of the year with the drop of Russian tourists more pronounced at 4.4%, whilst arrivals from the UK were up marginally by 0.4%. In the construction sector, building permits remained strong in the first quarter, particularly for dwellings, with some deceleration in terms of volume. Building permits increased sharply in April 2019 in terms of volume, driven by the hotel sector. On the demand side, the volume of retail sales decelerated sharply in the first quarter of the year, rising by 1.9%, compared to a 5.4% overall yearly increase in 2018.

Looking into the medium term, the economy is expected to continue to grow but at a slowing pace, according to forecasts by the IMF and the European Commission. Employment conditions are expected to continue to improve and the unemployment rate is expected to drop further. Price inflation is expected to rise in later years as capacity utilisation will be tightening. The economy will continue to wrestle with legacy problems to some degree, but the real challenge will be the transformation of the economy towards higher value added activities that will support higher productivity growth and improved competitiveness.

The primary challenges therefore will be, to further de‑risk the economy by reducing public debt and the remaining stock of non‑performing loans; to safeguard fiscal space so as to be able to respond to unforeseen circumstances; and to pursue additional structural reforms especially in the judiciary and public administration domains that will improve the investment environment and in the process induce productivity boosting investments.

Fiscal performance has been strengthening driven by rising public revenues and constrained expenditures. The general government budget surplus rose to 3.5% of GDP in 2018 and remained sizable in the first half of 2019. Public debt remains high and rose further in 2018 to €21.3 billion or 102.5% of GDP, as a result of the fiscal burden associated with the resolution of the Cyprus Cooperative Bank (Eurostat). However, a combination of budget surplus, rising expected inflation and low debt service costs, will be supporting an accelerated decline in the public debt to GDP ratio in the medium term.

In the banking sector, funding conditions remained favourable and the stock of NPEs continued to decline. Specifically, the stock of NPEs declined from €20.9 billion at the end of December 2017 to €10.4 billion at the end of December 2018 after Bank of Cyprus' loans sale and the resolution of the Cyprus Cooperative Bank. The stock of NPEs was €10.3 billion at the end of March 2019 and the ratio to gross loans was 30.9%, marginally higher than 30.5% at the end of December 2018, reflecting a further drop in loans outstanding.

Going forward, downside risks derive from the external environment and the structure of the domestic economy which is characterised by a large foreign balance relative to the GDP. The slowing of global trade, uncertainties over Brexit and fragilities in the EU are having an impact. Brexit presents downside risks to the Cyprus economy given close trade and investment links. Economic growth is expected to remain positive, but to soften. Growth in 2019 and 2020 according to the European Commission is expected to be at 2.9% and 2.6%, respectively. Employment is expected to continue to rise, but at a slower pace than in recent years, and the unemployment rate is expected to continue to drop. Investment is expected to be strengthening, but high imports are expected to limit the contribution to growth from the external sector. Exports growth is expected to decelerate relative to 2014‑2018 against a less favourable international environment.

The sovereign risk ratings of the Cyprus Government improved considerably in the recent period reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. In November 2018 Fitch Ratings upgraded its Long‑Term Issuer Default ratings for Cyprus to investment grade (BBB‑), affirming in April 2019. In September 2018, S&P Global Ratings also upgraded Cyprus to investment grade (BBB‑). In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3, affirmed in April 2019. All maintain stable outlook.

Business Overview

As the Cypriot operations account for 99% of gross loans and 100% of customer deposits, after the disposal of the UK operations in 2018, the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and is expected to consequently benefit from the country's recovery. Most recently, at the end of July 2019, Standard and Poor's affirmed their long‑term issuer credit rating on the Bank to 'B+' (stable outlook). In March 2019, Fitch Ratings affirmed their long‑term issuer default rating of B‑ (positive outlook). In January 2019, Moody's Investors Service upgraded the Bank's long‑term deposit rating to B3 from Caa1, with a positive outlook. The positive outlook reflects expectations of further improvements in the BOC PCL's financial fundamentals, mainly asset quality over the next 12‑18 months, in the context of an improved operating environment in Cyprus. The key drivers for the rating actions were the improvement in the BOC PCL's financial fundamentals, mainly in asset quality, and its funding position.

Tackling the BOC PCL's loan portfolio quality is of utmost importance for the Group. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio, and expects the organic reduction of residual NPEs to continue, with a target of c. €800 million for 2019, as portfolio size and business line mix has changed radically upon completion of the Project Helix. In parallel, the Group continues to actively explore strategies to further accelerate de‑risking including further portfolio sales.

The July 2018 foreclosure law amendments have expedited the process and removed options to frustrate execution. Recently, the Cyprus Parliament voted through certain changes to the 2018 law which, in the most part, seek to (a) provide additional checks and balances where banks are seeking to foreclose small loans (<€350 thousand) secured by a principal private residence, and (b) extend the foreclosure timetable by extending various notice periods. These amendments have not yet passed into law, as the President of the Republic has referred these to the Supreme Court, based on legal advice from the Attorney General that elements thereof are unconstitutional. Discussions are on‑going, including, inter alia, with the Ministry of Finance, the CBC and the Financial Ombudsman, aiming to introduce amendments to the foreclosure and loan restructuring framework that are acceptable to all stakeholders.

The strategic focus of the Group is to reshape its business model to grow in the core Cypriot market through prudent new lending. As at 30 June 2019, the Bank's capital position remains good and is strengthened pro forma for the disposal of investment in CNP. The Group expects to continue to be able to support the recovery of the Cyprus economy through the provision of new lending. Growth in new lending in Cyprus is focused on selected industries that are more in line with the Bank's target risk profile, such as tourism, trade, real estate, professional services, information/communication technologies, energy, education and green projects.

Aiming at supporting investments by SMEs and mid‑caps to boost the Cypriot economy, and create new jobs for young people, the Bank continues to provide joint financed schemes. To this end, the Bank continues its partnership with the European Investment Bank (EIB), the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD) and the Cyprus Government.

Management is also placing emphasis on diversifying income streams by optimising fee income from international transaction services, wealth management and insurance. The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus Ltd operating in the sectors of life and general insurance respectively, are leading players in the insurance business in Cyprus, with such businesses providing a recurring income, further diversifying the Group's income streams. The insurance income net of insurance claims for the six months ended 30 June 2019 amounted to €30 million, up by 20% compared to same period last year, contributing to 18% of non‑interest income.

In order to further optimise its funding structure, the Bank continues to focus on the shape and cost of deposit franchise, taking advantage of the increased customer confidence towards the Bank, as well as improving macroeconomic conditions. The cost of deposit was reduced by 52 bps to 24 bps over the last 18 months.

In common with other European banks, the changed interest rate environment presents a challenge to the Group's profitability. A key focus for management this year and going forward is the active management of funding costs and on‑going running expenses, including the containment of staff cost. The Digital Transformation Programme that started in 2017 is beginning to deliver an improved customer experience (see section below) and the branch network is half the size it was in 2013.

Digital Transformation

As part of its vision to be the leading financial hub in Cyprus, BOC PCL continues its Digital Transformation Programme in collaboration with IBM, the BOC PCL's Strategic Digital Transformation Partner, which focuses on three strategic pillars: developing digital services and products that enhance the customer experience, streamlining internal processes and introducing new ways of working to improve the workplace environment. In the last few months, various new features were introduced on the new mobile app, such as the ability to apply for e‑products, transfer amounts over €150 through QuickPay, log‑in through biometrics, and view own accounts with UK banks. Also, financial management tools have been introduced that allow our clients to use the 1Bank service to better manage their finances. In addition, Apple Pay was launched that allows Bank of Cyprus Visa cardholders to make secure and fast payments through iOS mobile devices. This has had very positive feedback from customers and rapid adoption. Payments via Android devices are made through the BoC Wallet app. Moreover, the introduction of the 1Bank B2B (business to business) APIs (Application Programming Interfaces) is gaining traction.

These are interfaces that enable businesses to enjoy access to 1Bank functionality directly through their own systems without the need to access the 1Bank website. In addition, the IBU Gateway was introduced that provides 24/7 access to Professional Associates and IBU/Wealth customers to apply for products or services and get a ready‑to‑sign application form.

BOC PCL has led the way in Cyprus in establishing an open banking ecosystem, by being the first bank in Cyprus to launch its PSD2 APIs (Payment Service Directive2, Application Programming Interfaces) and also by integrating with nine UK banks allowing customers to view their account balances and transactions from the integrated banks together with their Bank of Cyprus accounts through 1Bank. Building on the success of the integration of the UK banks BOC PCL is working on integrating Cypriot banks. Furthermore, several other initiatives are in progress, including enhancing digital channels to improve customer experience, providing online services using digital signatures, automating internal end to end processes using a BPM (Business Process Management) platform and introducing collaboration and knowledge sharing tools across the organisation.

The adoption of digital products and services continues to grow and gain momentum, compared to two years ago, when the digital transformation program began. Today, 75% of transactions involving deposits, cash withdrawals and internal/external transfers, are performed through digital channels (with the corresponding rate two years before reaching 65%). Regarding the use of mobile banking, the number of active users increased by 54% from June 2017, while the average monthly number of log‑ins per customer also increased by 44% during the same period. BOC PCL also monitors the Digital Adoption Rate, which is a composite indicator that demonstrates the digital engagement of customers with BOC PCL and the overall digital economy. This indicator is currently 66% and moving steadily upwards (compared to 59% two years ago).

Outlook

The Group remains on track for implementing its strategic objectives aiming to become a stronger, safer and a more focused institution capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term.

The key pillars of the Group's strategy are to:

· Materially reduce the level of delinquent loans

· Further optimise the funding structure

· Maintain an appropriate capital position by internally generating capital

· Focus on the core Cyprus market

· Achieve a lean operating model

· Deliver value to shareholders and other stakeholders

KEY PILLARS	PLAN OF ACTION
1. Materially reduce the level of delinquent loans	· Sustain momentum in restructuring and continue reduction of NPEs · Focus on terminated portfolios (in Recovery Unit) - "accelerated consensual foreclosures" · Real estate management via REMU · Continue to explore alternative accelerating NPE reduction measures such as NPE sales, securitisations etc.
2. Further optimise the funding structure	· Focus on shape and cost of deposit franchise
3. Maintain an appropriate capital position	· Internally generating capital
4. Focus on core Cyprus market	· Targeted lending in Cyprus into promising sectors to fund recovery · New loan origination, while maintaining lending yields · Revenue diversification via fee income from international banking, wealth, and insurance
5. Achieve a lean operating model	· Implementation of digital transformation program underway, aimed at enhancing productivity through alternative distribution channels and reducing operating costs over time, including containment of staff costs · Post the execution of further NPE reduction, BOC PCL is focusing on the need to manage costs
6. Deliver value	· Deliver appropriate medium term risk‑adjusted returns
Going concern
The Directors have made an assessment of the Group's ability to continue as a going concern for a period of 12 months from the date of approval of these Financial Statements. The Directors believe that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.
In making this assessment, the Directors considered the significant transactions during 2018 and the six months ended 30 June 2019, which had a positive impact on the capital position of the Group, including the sale of non performing loans (the Helix transaction), the disposal of Bank of Cyprus UK Ltd and the issuance of €220 million Additional Tier 1 Capital Securities. The Directors have also considered the legislative amendments on the Income Tax Law Amendment 28 (I) of 2019, enacted on 1 March 2019, which allow for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC), the Group's Financial and Capital Plan and the developments in the operating environment in Cyprus.
The Group has developed a Financial and Capital Plan (the 'Plan'), which has been approved by the Board in February 2019. One of the most important objectives of the Plan was to ensure that the Group has sufficient resources and capital in order to continue the balance sheet de‑risking and further deal with the residual NPEs. The IFRS 9 impact on a fully phased‑in basis has been considered within the Group's Plan.

Despite the implementation risk associated with the outcome of future events outlined in the Plan at the reporting date, the Directors believe that there is sufficient capital throughout the period of assessment to meet regulatory capital requirements. The Group will continue its de‑risking strategy and remains focused to implement the actions contemplated in the Plan.

The Directors, in making their assessment, have given particular attention to the regulatory requirements relating to capital and liquidity as follows:

Non‑Performing Exposures

· The Group completed the Helix transaction in June 2019 which along with the organic reduction led to a significant decrease of NPEs during the six months ended 30 June 2019; and

· The reduction of NPEs has been a regulatory focus for a number of years and will continue to be so. The Group has prepared an updated NPE strategy plan for the years 2019‑2021 which was submitted to the ECB in June 2019. The Directors believe that the reduction of NPEs is a significant factor with regards to the future viability of the Group as a pillar bank in Cyprus.

Capital

The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30 June 2019 are higher than the minimum required ratios (Note 5.1 of these Consolidated Condensed Interim Financial Statements).

Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group's minimum phased in CET1 ratio and Total Capital ratio remain unchanged, when ignoring the phasing‑in of the Capital Conservations Buffer and the Other Systemically Important Institution Buffer. The final 2018 SREP decision was applied from 1 April 2019.

The projected capital ratios of the Group indicate that there will be sufficient capital throughout the period of assessment when considered in conjunction with the following items:

· The phase‑in of IFRS 9. The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the total impact on adoption of IFRS 9 of €308,511 thousand, on 1 January 2018 and any subsequent increase allowed by the regulation for phasing‑in (i.e. increase in Stage 1 and Stage 2 allowance), will impact the capital ratios over a period of five years. The impact on the regulatory capital is being phased‑in based on a weighting factor until it is fully absorbed at the end of the five years. The initial impact of IFRS 9 was phased in by 5% on 1 January 2018 and increased to 15% (cumulative) on 1 January 2019.

· The regulatory capital position of the Group has strengthened further, upon the completion of the Helix transaction. On completion, the derecognition of the Helix portfolio had a positive impact on the Group's capital ratios resulting from the release of risk weighted assets.

· The Group's capital position is sufficient, allowing acceleration of risk reduction and recalibration of the cost base. The Group remains focused to implement the actions contemplated in the Plan submitted to the ECB.

· The agreement for the sale of investment in CNP Cyprus Insurance Holdings Ltd will further enhance the capital position of the Group.

· As the Cypriot operations account for 99% of gross loans and 100% of customer deposits (after the disposal of the UK operations in 2018), the Group's financial performance is highly correlated to the economic and operating conditions in Cyprus and is expected to consequently benefit from the country's recovery. The sovereign risk ratings of the Cyprus government improved considerably in the recent period reflecting expectations of a sustained decline in public debt as a ratio to GDP, expected further declines in non‑performing exposures and a more stable price environment following a protracted period of deflation and low inflation. In November 2018, Fitch Ratings upgraded its Long‑Term Issuer Default ratings for Cyprus to investment grade (BBB‑), affirming in April 2019. In September 2018, S&P Global Ratings also upgraded Cyprus to investment grade (BBB‑). In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to Ba2 from Ba3, affirmed in April 2019. All maintain stable outlook.

· Most recently, at the end of July 2019, Standard and Poor's affirmed their long‑term issuer credit rating on the BOC PCL's of 'B+' (stable outlook). In March 2019, Fitch Ratings affirmed their long‑term issuer default rating of B‑ (positive outlook). In January 2019, Moody's Investors Service upgraded the Bank's long‑term deposit rating to B3 from Caa1, with a positive outlook. The positive outlook reflects expectations of further improvements in the BOC PCL's financial fundamentals, mainly asset quality over the next 12‑18 months, in the context of an improved operating environment in Cyprus. The key drivers for the ratings were the improvement in the BOC PCL's financial fundamentals, mainly in asset quality, and its funding position.

Funding and liquidity

· The Group is monitoring its liquidity position and is considering ways to reduce the deposits cost; and

· The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the minimum requirements (Note 31 of these Consolidated Condensed Interim Financial Stetaments).

Based on the projections of the management, it is expected that the Group will maintain compliance with these liquidity requirements for the period of the going concern assessment.

Principal risks and uncertainties ‑ Risk management and mitigation

Like other financial organisations, the Group is exposed to risks, the most significant of which are credit risk, liquidity risk, market risk (arising from adverse movements in exchange rates, interest rates and security prices) and insurance risk. The Group monitors, manages and mitigates these risks through various control mechanisms. Detailed information relating to Group risk management is set out in Note 29 to 31 of these Consolidated Condensed Interim Financial Statements and in the Additional Risk and Capital Management Disclosures including Pillar 3 Semi‑annual disclosures which form part of the Interim Financial Report for the six months ended 30 June 2019.

The Group is also exposed to litigation risk, arising from claims, investigations, regulatory and other matters. Further information is disclosed in Note 25 to these Consolidated Condensed Interim Financial Statements.

Additionally, the Group is exposed to the risk on changes in the fair value of property which is held either for own use or as stock of property or as investment property. Stock of property is predominately acquired in exchange of debt and is intended to be disposed of in line with the Group's strategy. Further information is disclosed in Note 17 to these Consolidated Condensed Interim Financial Statements.

The Group activities are mainly in Cyprus therefore the Group performance is impacted by changes in the Cyprus operating environment as described in the 'Operating environment' section of this Interim Management Report.

In addition, details of the significant judgements, estimates and assumptions which may have a material impact on the Group's financial performance and position are set out in Note 6 of these Consolidated Condensed Interim Financial statements.

Details of the financial instruments and hedging activities of the Group are set out in Note 14 of these Consolidated Condensed Interim Financial Statements.

Events after the reporting date

ESTIA Memorandum of Understanding

In July 2019 the Memorandum of Understanding was signed by BOC PCL and the Government for the implementation of ESTIA scheme, which is underway for official launch in September 2019. ESTIA is a scheme aimed at addressing NPEs backed by primary residence, announced by the Government in July 2018. According to the timeline provided by the Government, the application submissions will occur from September 2019 to mid‑November 2019. During the forth quarter of 2019 BOC PCL, will offer restructuring solutions to the applicants and simultaneously the applications will be reviewed and approved by the Government. The first payment of the state subsidy installment is expected to occur between December 2019 and April 2020.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Interim Financial Report in accordance with International Accounting Standard 34 on Interim Financial Reporting (IAS 34) as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Each of the Directors, whose names and functions are listed on page 1, confirms that to the best of each person's knowledge and belief:

· the Consolidated Condensed Interim Financial Statements, prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the Group at 30 June 2019, and its profit for the period then ended; and

· that as required by the Transparency (Directive 2004/109/EC) Regulations 2007, the Interim Financial Report includes a fair review of:

(a) important events that have occurred during the first six months of the year, and their impact on the Consolidated Condensed Interim Financial Statements;

(b) a description of the principal risks and uncertainties for the next six months of the financial year; and

(c) details of any related party transactions that have materially affected the Group's financial position or performance in the six months ended 30 June 2019, and material changes to related party transactions described in the Annual Report for the year ended 31 December 2018.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Efstratios‑Georgios Arapoglou

Chairman

John Patrick Hourican

Chief Executive Officer

26 August 2019

Consolidated Condensed Interim Financial Statements for the six months ended

30 June 2019

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Income Statement

		Six months ended 30 June
		2019	2018 (represented)*
	Notes	€000	€000
Continuing operations
Turnover	3	487,145	521,469
Interest income		251,805	286,581
Income similar to interest income		26,683	26,296
Interest expense		(50,415)	(78,016)
Expense similar to interest expense		(23,964)	(22,777)
Net interest income		204,109	212,084
Fee and commission income		87,467	85,282
Fee and commission expense		(12,955)	(4,946)
Net foreign exchange gains		14,117	18,039
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	8	12,155	37,378
Insurance income net of claims and commissions		30,036	25,094
Net (losses)/gains from revaluation and disposal of investment properties		(1,349)	1,165
Net gains on disposal of stock of property		17,747	20,266
Other income		15,679	11,276
		367,006	405,638
Staff costs	9	(114,244)	(104,670)
Special levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund		(12,477)	(12,073)
Other operating expenses	9	(112,967)	(102,292)
		127,318	186,603
Net gains on derecognition of financial assets measured at amortised cost		5,429	19,381
Credit losses to cover credit risk on loans and advances to customers	10	(108,911)	(252,953)
Credit losses of other financial instruments	10	(7,367)	(3,331)
Impairment of non‑financial instruments	10	(11,585)	(10,117)
Profit/(loss) before share of profit from associates and remeasurement		4,884	(60,417)
Remeasurement of investment in associate classified as held for sale	19	(25,943)	-
Share of profit from associates	36	5,312	4,520
Loss before tax from continuing operations		(15,747)	(55,897)
Income tax	11	115,144	(3,890)
Profit/(loss) after tax from continuing operations		99,397	(59,787)

Discontinued operations
Profit after tax from discontinued operations	7	-	4,010
Profit/(loss) for the period		99,397	(55,777)
Attributable to:
Owners of the Company‑continuing operations profit/(loss)		97,398	(58,058)
Owners of the Company‑discontinued operations profit		-	4,010
Total profit/(loss) attributable to the owners of the Company		97,398	(54,048)
Non‑controlling interests‑continuing operations profit/(loss)		1,999	(1,729)
Total profit/(loss) attributable to non‑controlling interests		1,999	(1,729)
Profit/(loss) for the period		99,397	(55,777)

Basic and diluted profits/(losses) per share attributable to the owners of the Company (€ cent)‑continuing operations	12	21.8	(13.0)
Basic and diluted profits/(losses) per share attributable to the owners of the Company (€ cent)	12	21.8	(12.1)
* For comparative represented information refer to Note 3.1.

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Comprehensive Income

		Six months ended 30 June
		2019	2018 (represented)
	Notes	€000	€000
Profit/(loss) for the period		99,397	(55,777)
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (debt instruments)
Net gains/(losses) on investments in debt instruments measured at fair value through OCI (FVOCI)		14,426	(10,455)
Transfer to the consolidated income statement on disposal		-	(19,787)
		14,426	(30,242)
Foreign currency translation reserve
(Loss)/profit on translation of net investments in foreign branches and subsidiaries		(7,200)	4,017
Profit/(loss) on hedging of net investments in foreign branches and subsidiaries	14	8,279	(3,859)
Transfer to the consolidated income statement on dissolution/disposal of foreign branches and subsidiaries		(426)	(48)
		653	110
Total OCI that may be reclassified in the consolidated income statement in subsequent periods		15,079	(30,132)
OCI not to be reclassified in the consolidated income statement in subsequent periods
Fair value reserve (equity instruments)
Share of net gains/(losses) from fair value changes of associates		4,199	(1,935)
Net gains on investments in equity instruments designated at FVOCI		236	2,857
		4,435	922
Property revaluation
Deferred tax	11	29	17
Actuarial (losses)/gains on the defined benefit plans
Remeasurement (losses)/gains on defined benefit plans		(2,149)	2,784
Total OCI not to be reclassified in the consolidated income statement in subsequent periods		2,315	3,723
Other comprehensive income/(loss) for the period net of taxation		17,394	(26,409)
Total comprehensive income/(loss) for the period		116,791	(82,186)

Attributable to:
Owners of the Company		114,770	(80,453)
Non‑controlling interests		2,021	(1,733)
Total comprehensive income/(loss) for the period		116,791	(82,186)

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Balance Sheet

				30 June 2019		31 December 2018 (restated)
Assets			Notes	€000		€000
Cash and balances with central banks			27	5,261,896		4,610,491
Loans and advances to banks			27	403,041		472,532
Derivative financial assets			14	13,651		24,754
Investments			13	1,588,582		777,104
Investments pledged as collateral			13	292,317		737,587
Loans and advances to customers			16	10,949,002		10,921,786
Life insurance business assets attributable to policyholders				438,560		402,565
Prepayments, accrued income and other assets			18	323,253		256,002
Stock of property			17	1,430,441		1,426,857
Deferred tax assets			11	379,126		301,778
Investment properties				141,864		128,006
Property and equipment				292,133		260,723
Intangible assets				173,608		170,411
Investments in associates and joint venture			36	2,191		114,637
Non‑current assets and disposal groups held for sale			19	197,521		1,470,038
Total assets				21,887,186		22,075,271
Liabilities
Deposits by banks				532,023		431,942
Funding from central banks			20	830,000		830,000
Repurchase agreements				247,813		248,945
Derivative financial liabilities			14	56,702		38,983
Customer deposits			21	16,376,686		16,843,558
Insurance liabilities				626,512		591,057
Accruals, deferred income, other liabilities and other provisions			23	331,408		285,483
Pending litigation, claims, regulatory and other matters			25	102,375		116,951
Subordinated loan stock			22	261,417		270,930
Deferred tax liabilities			11	44,818		44,282
Non‑current liabilities and disposal group held for sale			19	6,760		5,812
Total liabilities				19,416,514		19,707,943
Equity
Share capital			24	44,620		44,620
Share premium			24	1,294,358		1,294,358
Revaluation and other reserves				213,532		190,411
Retained earnings				670,143		591,941
Equity attributable to the owners of the Company				2,222,653		2,121,330
Other equity instruments			24	220,000		220,000
Total equity excluding non‑controlling interests				2,442,653		2,341,330
Non‑controlling interests				28,019		25,998
Total equity				2,470,672		2,367,328
Total liabilities and equity				21,887,186		22,075,271
Mr. E.G. Arapoglou	Chairman	Mr. J. P. Hourican			Chief Executive Officer
Mr. I. Zographakis	Director	Mrs. E. Livadiotou			Finance Director

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Changes in Equity

	Attributable to shareholders of the Company
	Share capital (Note 24)	Share premium (Note 24)	Treasury shares (Note 24)	Retained earnings	Property revaluation reserve	Financial instruments fair value reserve	Life insurance in‑force business reserve	Foreign currency translation reserve	Total	Other equity instruments	Non‑ controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2019	44,620	1,294,358	(21,463)	591,941	79,433	15,289	101,001	16,151	2,121,330	220,000	25,998	2,367,328
Profit for the period	-	-	-	97,398	-	-	-	-	97,398	-	1,999	99,397
Other comprehensive (loss)/income after tax for the period	-	-	-	(2,149)	22	18,846	-	653	17,372	-	22	17,394
Total comprehensive income after tax for the period	-	-	-	95,249	22	18,846	-	653	114,770	-	2,021	116,791
Increase in value of in‑force life insurance business	-	-	-	(4,114)	-	-	4,114	-	-	-	-	-
Tax on decrease in value of in‑force life insurance business	-	-	-	514	-	-	(514)	-	-	-	-	-
Payment of coupon to AT1 holders (Note 24)	-	-	-	(13,447)	-	-	-	-	(13,447)	-	-	(13,447)
30 June 2019	44,620	1,294,358	(21,463)	670,143	79,455	34,135	104,601	16,804	2,222,653	220,000	28,019	2,470,672

	Attributable to shareholders of the Company
	Share capital (Note 24)	Share premium (Note 24)	Treasury shares (Note 24)	Accumulated losses	Property revaluation reserve	Financial instruments fair value reserve	Other reserves	Life insurance in‑force business reserve	Foreign currency translation reserve	Total	Non‑ controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2018	44,620	2,794,358	(21,463)	(527,128)	92,878	54,485	6,059	105,651	36,098	2,585,558	31,150	2,616,708
Impact of adopting IFRS 9 at 1 January 2018	-	-	-	(299,150)	-	(8,470)	-	-	-	(307,620)	-	(307,620)
Restated balance at 1 January 2018	44,620	2,794,358	(21,463)	(826,278)	92,878	46,015	6,059	105,651	36,098	2,277,938	31,150	2,309,088
Loss for the period	-	-	-	(54,048)	-	-	-	-	-	(54,048)	(1,729)	(55,777)
Other comprehensive income/(loss) after tax for the period	-	-	-	2,784	17	(29,316)	-	-	110	(26,405)	(4)	(26,409)
Total comprehensive (loss)/income for the period	-	-	-	(51,264)	17	(29,316)	-	-	110	(80,453)	(1,733)	(82,186)
Increase in value of in‑force life insurance business	-	-	-	(515)	-	-	-	515	-	-	-	-
Tax on increase in value of in‑force life insurance business	-	-	-	65	-	-	-	(65)	-	-	-	-
Transfer of realised profits on disposal of properties	-	-	-	3,361	(3,361)	-	-	-	-	-	-	-
Transfer of property revaluation reserve and other reserve of subsidiary to retained earnings	-	-	-	14,014	(7,955)	-	(6,059)	-	-	-	-	-
Decrease in share capital of subsidiary	-	-	-	(554)	-	-	-	-	-	(554)	(395)	(949)
Transfer of loss on disposal of FVOCI equity investments to accumulated losses	-	-	-	(67)	-	67	-	-	-	-	-	-
Increase in non‑controlling interests due to change in shareholding of subsidiary	-	-	-	705	-	-	-	-	-	705	16,596	17,301
30 June 2018	44,620	2,794,358	(21,463)	(860,533)	81,579	16,766	-	106,101	36,208	2,197,636	45,618	2,243,254

BANK OF CYPRUS HOLDINGS GROUP

Interim Consolidated Statement of Cash Flows

		Six months ended 30 June
		2019	2018 (represented)
Net cash flow from operating activities	Note	€000	€000
Loss before tax from continuing operations		(15,747)	(55,897)
Profit before tax from discontinued operations	7	-	4,934
Share of profit from associates	36	(5,312)	(4,520)
Credit losses to cover credit risk on loans and advances to customers and net gains on derecognition of financial assets measured at amortised cost		103,482	233,572
Depreciation of property and equipment and amortisation of intangible assets		17,462	12,013
Change in value of in‑force life insurance business		(4,114)	(515)
Credit losses of other financial instruments	10	7,367	3,331
Amortisation of discounts/premiums, catch‑up adjustment on debt securities and interest on debt securities		(15,546)	(11,883)
Dividend income		(139)	(143)
Net gains on disposal of investments at FVOCI and amortised cost		-	(19,787)
(Profit)/loss from revaluation of debt securities designated as fair value hedges		(13,416)	94
Interest on funding from central banks		-	3
Interest on subordinated loan stock		11,567	11,567
Impairment of stock of property	10	11,585	10,106
Remeasurement of investment in associate classified as held for sale	19	25,943	-
Loss on disposal/dissolution of subsidiaries/associates		-	145
Net gains on disposal of stock of property		(17,747)	(20,266)
Net losses/(gains) from revaluation of investment properties and investment properties held for sale		44	(1,238)
		105,429	161,516
Net increase in loans and advances to customers and other accounts		(239,065)	(268,760)
Net (decrease)/increase in customer deposits and other accounts		(272,430)	590,977
		(406,066)	483,733
Tax paid		(912)	(1,470)
Net cash (used in)/from operating activities		(406,978)	482,263
Cash flows from investing activities
Purchases of debt securities and equity securities		(277,244)	(226,103)
Proceeds on disposal/redemption of investments:
‑ debt securities		9,523	235,062
‑ equity securities		-	5,030
Interest received from debt securities		9,726	7,441
Dividend income from equity securities		139	143
Proceeds on disposal of subsidiaries and associates		139,760	2,083
Proceeds on disposal of the Helix portfolio		1,140,231	-
Purchases of property and equipment		(3,889)	(5,476)
Purchases of intangible assets		(6,878)	(9,738)
Proceeds on disposals of property and equipment and intangible assets		252	1,778
Proceeds on disposals of investment properties and investment properties held for sale		11,945	6,500
Net cash from investing activities		1,023,565	16,720
Cash flow from financing activities
Payment of AT1 coupon	24	(13,447)	-
Net repayment of funding from central banks		-	(100,000)
Interest on subordinated loan stock		(21,080)	(22,258)
Interest on funding from central banks		-	(3)
Principle elements of lease payments		(4,682)	-
Net proceeds from increase in non‑controlling interests due to change in the shareholding of subsidiary		-	17,596
Net cash used in financing activities		(39,209)	(104,665)
Net increase in cash and cash equivalents		577,378	394,318
Cash and cash equivalents
1 January		4,804,844	4,280,231
Foreign exchange adjustments		(2,385)	2,857
Net increase in cash and cash equivalents		577,378	394,318
30 June	27	5,379,837	4,677,406

Non cash transactions

Repossession of collaterals

During the six months ended 30 June 2019, the Group acquired properties by taking possession of collaterals held as security for loans and advances to customers of €126,480 thousand (six months ended 30 June 2018: €210,241 thousand) (Note 17).

Disposal of Project Helix

Upon the disposal of Project Helix, the Group participated in a senior debt in relation to the financing of the Project Helix amounting to €45 million.

Acquisition of equity investments

During the six months ended 30 June 2019 the Group acquired equity investments amounting to €6,529 thousand as a result of its loan restructuring activities. The Group elected to classify this equity participation at FVOCI.

BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Condensed Interim Financial Statements

1. Corporate information

Bank of Cyprus Holdings Public Limited Company (the Company) was incorporated in the Republic of Ireland on 11 July 2016, as a public limited company under company number 595903 in accordance with the provisions of the Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland.

The Company is the holding company of the Bank of Cyprus Public Company Limited (BOC PCL). The Bank of Cyprus Holdings Group (the Group) comprises the Company, its subsidiary BOC PCL and the subsidiaries of BOC PCL.

The Company is tax resident in Cyprus. The principal activities of BOC PCL and its subsidiary companies (the BOC Group) involve the provision of banking, financial services, insurance services and management and disposal of property predominately acquired in exchange of debt.

The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock Exchange (CSE).

The Consolidated Financial Statements are available at the registered office of Bank of Cyprus Holdings Public Limited Company and on the Group's website www.bankofcyprus.com (Investor Relations).

Consolidated Condensed Interim Financial Statements

The Consolidated Condensed Interim Financial Statements of the Company for the six months ended 30 June 2019 (the Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 26 August 2019.

The Consolidated Financial Statements have been prepared in both the English and the Greek language. In case of a difference or inconsistency between the two, the English version prevails.

2. Unaudited financial statements

The appointment of the Group external auditors, PricewaterhouseCoopers (PwC), is effective for accounting periods commencing on 1 January 2019 and was approved by the Board of Directors of the Company, following the recommendation from the Audit Committee.

The Financial Statements have not been audited by the Group's external auditors.

The Group's external auditors 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'.

3. Summary of significant accounting policies

3.1 Basis of preparation

The Consolidated Financial Statements have been prepared on a historical cost basis, except for properties held for own use and investment properties, investments at fair value through other comprehensive income, financial assets (including loans and advances to customers and investments) at fair value through profit or loss and derivative financial assets and derivative financial liabilities that have been measured at fair value, non‑current assets held for sale measured at fair value less costs to sell and stock of property measured at net realisable value where this is lower than cost. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.

The Group elected as a policy choice permitted under IFRS 9 to continue to apply hedge accounting in accordance with IAS 39.

Presentation of the Consolidated Financial Statements

The Consolidated Financial Statements are presented in Euro (€) and all amounts are rounded to the nearest thousand, except where otherwise indicated. A comma is used to separate thousands and a dot is used to separate decimals.

The Group presents its balance sheet broadly in order of liquidity. An analysis regarding expected recovery or settlement of the assets and liabilities within twelve months after the balance sheet date and more than twelve months after the balance sheet date is presented in Note 28.

Group turnover as presented in the interim consolidated income statement is as defined in the 'Definitions and Explanations on Alternative Performance Measures Disclosures'.

Comparative information

Comparative information was restated following the change in the classification of properties which are leased out under operating leases as investment properties as disclosed in Note 3.3.1. Reclassifications to comparative information were also made as follows:

· The results of the discontinued operations in the UK (Bank of Cyprus UK Ltd and its subsidiary, Bank of Cyprus Financial Services Ltd) were represented as discontinued operations (Note 7).

The changes in presentation did not have a material impact on the financial performance of the Group for the period.

3.2 Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with the International Accounting Standard (IAS) applicable to interim financial reporting as adopted by the European Union (EU) (IAS 34), the Transparency (Directive 2004/109/EC) Regulations 2007 and the related Transparency Rules of the Central Bank of Ireland.

The Consolidated Financial Statements do not comprise statutory financial statements for the purposes of the Companies Act 2014 of Ireland. The Company's statutory financial statements for the purposes of Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the year ended 31 December 2018, upon which the previous auditors have expressed an unqualified opinion, were published on 28 March 2019 and are expected to be delivered to the Registrar of Companies of Ireland within 28 days from 30 September 2019.

The Consolidated Financial Statements do not include all the information and disclosures required for the annual financial statements and should be read in conjunction with the Annual Consolidated Financial Statements of Bank of Cyprus Holdings Group for the year ended 31 December 2018, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, which are available at the Group's website (www.bankofcyprus.com).

3.3 Changes in accounting policies, presentation and disclosures

The accounting policies adopted are consistent with those followed for the preparation of the Annual Consolidated Financial Statements for the year ended 31 December 2018, except from the adoption of new and amended standards and interpretations as explained in Note 3.3.2 and the accounting of deferred tax credits arising from deferred tax assets as explained in Note 11. In addition, there were changes in the classification of properties which are leased out under operating leases as investment properties as explained in Note 3.3.1.

3.3.1 Change in classification of properties which are leased out under operating leases

The Group has decided to classify the leased properties which are acquired in exchange of debt and are leased out under operating leases as 'Investment Properties' instead of 'Inventories'. The Group previously classified these properties as inventory under IAS 2 and measured them upon on‑boarding at cost and subsequently at the lower of cost and net realisable value.

The aforementioned change in classification has been applied retrospectively in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', resulting in the restatement of financial information for prior periods.

There was no material impact on the Group's retained earnings as of 1 January 2018 and 31 December 2018 as a result of the above described change in classification. The cumulative impact amounted to €1,189 thousand (gain) and has been recognised in the Interim Consolidated Income Statement of the Group for the six months ended 30 June 2019. The earnings per share increased by €0.30 for the six months ended 30 June 2019.

As a result of the change in classification, the following adjustments were made on the consolidated balance sheet as indicated below:

	31 December 2018	1 January 2018
	€000	€000
Consolidated balance sheet
Stock of property
Before the change in classification	1,530,388	1,641,422
Impact of the recognition of leased out property as investment properties	(103,531)	(154,443)
After the change in classification	1,426,857	1,486,979
Investment properties
Before the change in classification	24,475	19,646
Impact of the recognition of leased out property as investment properties	103,531	154,443
After the change in classification	128,006	174,089

3.3.2 New and amended standards and interpretations

The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The Group has adopted the new standards, amendments and interpretations to the extent as they were relevant for the Group. The relevant and significant new standards for the Group are:

· IFRS 16 Leases

· IFRS 9 Prepayment features with negative compensation (amendment)

· IAS 28 Long term Interests in Associates and Joint Ventures (amendments)

· IFRIC Interpretation 23 Uncertainty over Income Tax Treatments

· IAS 19: Plan Amendment, Curtailment or Settlement (amendments)

· Annual Improvements to IFRSs 2015‑2017 Cycle

The impact of adoption of IFRS 16 Leases is described below. The amendments to IFRS 9, IAS 19 and IAS 28 and IFRIC 23 did not have any material impact on the Consolidated Financial Statements. New or amended interim disclosures have been provided for the current period, where applicable, and comparative period disclosures are consistent with those made in the prior year.

IFRS 16: Leases

The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Agreement contains a Lease, SIC‑15 Operating Leases‑Incentives and SIC‑27 Evaluating the Substance of Transactions Involving the Legal From of a Lease.

IFRS 16 requires lessees to recognise most leases on their financial statements. Lessees will have a single accounting model for all leases (with certain exemptions) and there is no distinction between operating and finance leases.

A lessee recognises a right‑of‑use asset representing its right to use the underlying asset measured at the amount equal to the lease liabilities and the provision for restoration costs, adjusted for any related prepaid or accrued lease payments previously recognised. Lease liability is recognised based on the present value of remaining lease payments, discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, an incremental borrowing rate ('IBR') is used.

The IBR used as of 1 January 2019 was based on the Cyprus Government yield curve, with no further adjustment, as a fair proxy for the Group's secured borrowing cost, for a time horizon in accordance to the lease term. The determination of an IBR term structure inherently involves significant judgments and uncertainties. A sensitivity analysis on the yield curve was performed concluding that the value of lease liability and corresponding right of use assets is not materially sensitive to changes in the IBR.

Subsequent to initial recognition, the lessee measures the right of use asset by applying the cost model and depreciation is computed on a straight line basis up to the end of the lease term. The lease liability increases with the accrual of interest throughout the life of the lease and is reduced when payments are made.

Lessor accounting remains similar to IAS 17 Leases - i.e. lessors continue to classify leases as finance or operating leases.

The Group adopted IFRS 16 on a retrospective basis, but took advantage of the option not to restate comparative periods (and the cumulative effect of initially applying the standard was recognised at the date of initial application), by applying the modified retrospective approach. The IFRS 16 implementation project was led by Finance with representations from the impacted departments. The Group established accounting policies and applied the following transition options available under the modified retrospective approach:

· Application of a single discount rate to each portfolio of leases with reasonably similar characteristics (such as leases with similar remaining lease term for similar class of underlying assets in a similar economic environment).

· Calculation of the right of use asset equal to the lease liability and restoration provision, adjusted for prepaid or accrued payments.

· Application of the accounting for short‑term leases with a term not exceeding 12 months of the date of initial application. Hence, right of use assets and lease liabilities do not include the impact of such short term leases.

· Use of hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

· Exclusion of the initial direct costs from the measurement of the right of use asset.

· Election to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application of 1 January 2019.

The Group also elected to use the recognition exemption for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short‑term leases'), and lease contracts for which the underlying asset is of low value ('low‑value assets'). The Group has exercised judgement in determining the threshold of low value assets which was set at €5,000. Payments associated with short term leases and leases of low value assets are recognised on a straight line basis as an expense in the consolidated income statement.

The Group holds lease contracts mainly for commercial properties such as office buildings and branches. The implementation of IFRS 16 led to the recognition of the right of use assets at an equal amount as lease liabilities and restoration liability with no effect on equity or retained earnings of the Group as at 1 January 2019.

The table below shows the impact on initial implementation of IFRS 16:

	1 January 2019
	€000
Assets
Right of use assets (disclosed within 'Property, plant and equipment')	37,474
Liabilities
Lease liabilities (disclosed separately within 'Accruals, deferred income and other liabilities)	36,164
Restoration liabilities (disclosed within other liabilities within 'Accruals, deferred income and other liabilities')	1,310
	37,474
The lease liabilities as at 1 January 2019 are reconciled to the operating lease commitments as disclosed in the consolidated financial statements for the year ended 31 December 2018 as follows:

	1 January 2019
	€000
Operating lease commitments as at 31 December 2018 (non‑cancellable)	4,453
Weighted average incremental borrowing rate as at 1 January 2019	1.05%
Discounted operating lease commitment as at 1 January 2019	4,226
Add:
Payments in optional extension periods not recognised as at 31 December 2018	31,938
Lease liabilities as at 1 January 2019	36,164
The effect of the adoption of IFRS 16 remains subject to change until the Group finalises its financial statements for the year ended 31 December 2019, the year of initial application.

4. Going concern

The Directors have made an assessment of the Group's ability to continue as a going concern for a period of 12 months from the date of approval of these Financial Statements. The Directors believe that the Group is taking all necessary measures to maintain its viability and the development of its business in the current economic environment.

In making this assessment, the Directors considered the significant transactions during 2018 and the six months ended 30 June 2019, which had a positive impact on the capital position of the Group, including the sale of non performing loans (the Helix transaction), the disposal of Bank of Cyprus UK Ltd and the issuance of €220 million Additional Tier 1 Capital Securities. The Directors have also considered the legislative amendments on the Income Tax Law Amendment 28 (I) of 2019, enacted on 1 March 2019, which allow for the conversion of specific deferred tax assets (DTA) into deferred tax credits (DTC), the Group's Financial and Capital Plan and the developments in the operating environment in Cyprus.

The Group has developed a Financial and Capital Plan (the 'Plan'), which has been approved by the Board in February 2019. One of the most important objectives of the Plan was to ensure that the Group has sufficient resources and capital in order to continue the balance sheet de‑risking and further deal with the residual Non‑Performing Exposures (NPEs). The IFRS 9 impact on a fully phased‑in basis has been considered within the Group's Plan. Despite the implementation risk associated with the outcome of future events outlined in the Plan at the reporting date, the Directors believe that there is sufficient capital throughout the period of assessment to meet regulatory capital requirements. The Group will continue its de‑risking strategy and remains focused to implement the actions contemplated in the Plan.

The Directors, in making their assessment, have given particular attention to the regulatory requirements relating to capital and liquidity as follows:

Non‑Performing Exposures

· The Group completed the Helix transaction in June 2019 which along with the organic reduction led to a significant decrease of NPEs during the six months ended 30 June 2019; and

· The reduction of NPEs has been a regulatory focus for a number of years and will continue to be so. The Group has prepared an updated NPE strategy plan for the years 2019‑2021 which was submitted to the European Central Bank (ECB) in June 2019. The Directors believe that the reduction of NPEs is a significant factor with regards to the future viability of the Group as a pillar bank in Cyprus.

Capital

The Common Equity Tier 1 (CET1) ratio and the Total Capital ratio on a transitional basis at 30 June 2019 are higher than the minimum required ratios (Note 5.1).

The projected capital ratios of the Group indicate that there will be sufficient capital throughout the period of assessment when considered in conjunction with the following items:

· The agreement for the sale of investment in CNP Cyprus Insurance Holdings Ltd will further enhance the capital position of the Group.

Funding and liquidity

· The Group is monitoring its liquidity position and is considering ways to reduce the deposits cost; and

· The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the minimum requirements (Note 31).

Based on the projections of the management, it is expected that the Group will maintain compliance with these liquidity requirements for the period of the going concern assessment.

5. Operating environment

5.1 Regulatory capital ratios

The minimum Pillar I total capital ratio requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% of Additional Tier 1 capital and with up to 2.0% of Tier 2 capital. The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add‑ons).

The Group's minimum phased‑in CET1 capital ratio requirement is 10.5% (2018: 9.375%), comprising of a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% (2018: 1.875%) and the Other Systemically Important Institution Buffer of 0.5% (2018: Nil). The ECB has also provided non‑public guidance for an additional Pillar II CET1 buffer.

The Group's Total capital ratio requirement is 14.0% (2018: 12.875%), comprising of a 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% (2018: 1.875%) and the Other Systemically Important Institution Buffer of 0.5% (2018: Nil).

The above minimum ratios apply for both, BOC PCL and the Group. BOC PCL is 100% subsidiary of the Company and its principal activities are the provision of banking, financial services and management and disposal of property predominately acquired in exchange of debt.

The capital position of the Group and BOC PCL at 30 June 2019 exceeds both their Pillar I and their Pillar II add‑on capital requirements. However, the Pillar II add‑on capital requirements are a point‑in‑time assessment and therefore are subject to change over time.

The Group has developed a Plan, which has been approved by the Board in February 2019 (Note 4).

5.2 Asset quality

The Group addresses the asset quality challenge through the operation of the Restructuring and Recoveries Division which is actively seeking to find innovative solutions to manage distressed exposures. The Group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio.

The Group has prepared an updated NPE strategy plan for the years 2019‑2021 which was submitted to the ECB in June 2019.

5.3 Liquidity

Group customer deposits totalled €16,377 million at 30 June 2019, compared to €16,844 million at 31 December 2018. At 30 June 2019 and 31 December 2018 all deposits were in Cyprus. Group customer deposits accounted for 75% of total assets as at 30 June 2019 (31 December 2018: 76% and a low of 48% at 31 March 2014).

As at 30 June 2019 and 31 December 2018, the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2019 the LCR stood at 253% for the Group (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100% applicable as from 1 January 2018.

5.4 Pending litigation, claims, regulatory and other matters

The management has considered the potential impact of pending litigation and claims, investigations, regulatory and other matters against the Group which include the bail‑in of depositors and the absorption of losses by the holders of equity and debt instrument of BOC PCL. The Group has obtained legal advice in respect of these claims.

Despite the novelty of many of the said claims based on the information available at present and on the basis of the law as it currently stands, management considers that the said claims are considered unlikely to have a material adverse impact on the financial position and capital adequacy of the Group. Additional information on pending litigation, claims, regulatory and other matters is provided in Note 25.

6. Significant and other judgements, estimates and assumptions

The preparation of the Consolidated Financial Statements requires the Company's Board of Directors and management to make judgements, estimates and assumptions that can have a material impact on the amounts recognised in the Consolidated Financial Statements and the accompanying disclosures, as well as the disclosures of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The key assumptions concerning the future and other key sources of estimation of uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The Group based its assumptions and estimates on parameters available when the Consolidated Financial Statements were prepared. Existing circumstances and assumptions about future developments may, however, change due to market changes or circumstances beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

The most significant judgements, estimates and assumptions relate to classification of financial instruments and calculation of expected credit losses (ECL), tax, estimation of the net realisable value of stock of property and provisions which are presented in Notes 6.1 to 6.5 below. Other judgements, estimates and assumptions are disclosed in Notes 5.6 to 5.12 of the Annual Consolidated Financial Statements for the year ended 31 December 2018.

6.1 Classification of financial assets

The Group exercises judgement upon determining the classification of its financial assets, which relate to business models and future cash flows.

Judgement is also required to determine the appropriate level at which the assessment of business models needs to be performed. In general, the assessment for the classification of financial assets into the business models is performed at the level of each business line. Further, the Group exercises judgement in determining the effect of sales of financial instruments on its business model assessment.

The Group also applies judgement upon considering whether contractual features including interest rate could significantly affect future cash flows. Furthermore, judgment is required when assessing whether compensation paid or received on early termination of lending arrangements results in cash flows that are not SPPI.

6.2 Calculation of expected credit losses

The calculation of ECL requires management to apply significant judgement and make estimates and assumptions, involving significant uncertainty at the time these are made. Changes to these estimates and assumptions can result in significant changes to the timing and amount of ECL to be recognised. The Group's calculations are outputs of models, of underlying assumptions on the choice of variable inputs and their interdependencies.

Elements of ECL models that are considered accounting judgements and estimates include:

Assessment of significant increase of credit risk

IFRS 9 does not include a definition of significant increase in credit risk. The Group assesses whether significant increase in credit risk has occurred since initial recognition using predominantly quantitative and in certain cases qualitative information. The determination of the relevant thresholds to determine whether the significant increase in credit risk has occurred, involves management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the Risk Management division and endorsed by the Group Provisions Committee.

Determining the probability of default (PD) at initial recognition requires management estimates. In the case of exposures existing prior to the adoption of IFRS 9, a retrospective calculation of the PD is made in order to quantify the risk of each exposure at the time of the initial recognition. In certain cases estimates about the date of initial recognition might be required.

For the retail portfolio, the Group uses a PD at origination driven by behavioural information (score cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. In determining the relevant PDs, management estimates are required with respect to the life‑time of revolving facilities. For revolving facilities, the origination date is the date when a credit review has taken place instead of the contractual date.

Scenarios and macroeconomic factors

The Group determines the ECL, which is a probability‑weighted amount by evaluating a range of possible outcomes. Management uses forward‑looking scenarios and assesses the suitability of weights used. These are based on management's assumptions taking into account macroeconomic, market and other factors. Changes in these assumptions and in the external factors could significantly impact ECL. Macroeconomic inputs and weights per scenario are monitored by the Economic Research Unit and are based on external market data supplemented by expert judgement.

Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or overlays made as at the reporting date relate to the positive future property value cap to 0% for all scenarios.

Economic and credit conditions within geographical areas are influenced by many factors with a high degree of interdependency so that there is no one single factor to which the Group's ECL as a whole are particularly sensitive. Different factors are applied in each country to reflect the local economic conditions, laws and regulations and the assumptions underlying this judgement are highly subjective.

The Group uses three different economic scenarios.

The table below indicates the most significant macroeconomic variables as well as the scenarios used by the Group as at 30 June 2019 and 31 December 2018 respectively. The Group has used the 30‑50‑20 probability structure for the adverse, base and favourable scenarios respectively compared to the 20‑60‑20 structure derived using the method described in Note 2.19.5 of the Consolidated Financial Statements for the year ended 31 December 2018. This is due to the fact that, the data set used to calculate scenario weights (GDP growth over 1980‑2018) is heterogeneous, involving significant breaks deriving from the changing nature of the Cyprus economy and responses to shocks. Additionally, the economy continues to face high public and private indebtedness and a high level of NPEs that together raise the degree of vulnerability of the economy and limit its reaction space thus sustaining conditions; which can lead to deeper recession in response to shocks than under normal times. Furthermore, the economy presents a structure risk given a very large external sector, making it especially vulnerable to the external environment. The heightened uncertainties in 2019 and beyond relating to Brexit, trade disputes between the US and the China and between the US and the EU, and economic fragility in southern Europe, entail a higher risk of a global recession and financial instability. These factors display a relatively high volatility, which the management considered that may not be fully captured in the weights as calculated using the method described in Note 2.19.5 of the Consolidated Financial Statements for the year ended 31 December 2018 and hence the management has decided to increase the weight of the adverse scenario to 30%, and correspondingly reduce the weight of the base scenario to 50%.

30 June 2019

Year	Scenario	Weight %	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average % change)	RICS House Price Index (average % change)
2020	Adverse	30.0	‑2.8	11.0	‑0.8	‑1.0
	Baseline	50.0	2.7	6.3	1.6	3.2
	Favourable	20.0	4.8	5.8	2.7	4.8
2021	Adverse	30.0	‑0.9	11.3	1.7	0.3
	Baseline	50.0	2.5	5.8	2.0	3.6
	Favourable	20.0	3.2	5.3	2.4	4.3
2022	Adverse	30.0	2.1	10.7	2.6	3.1
	Baseline	50.0	2.4	5.6	2.3	4.1
	Favourable	20.0	2.4	5.1	2.3	4.2
2023	Adverse	30.0	3.6	9.6	2.8	4.6
	Baseline	50.0	2.3	5.5	2.4	4.1
	Favourable	20.0	2.3	5.0	2.4	4.2
2024	Adverse	30.0	4.3	8.8	2.8	5.5
	Baseline	50.0	2.3	5.4	2.4	4.2
	Favourable	20.0	2.3	4.9	2.4	4.4
31 December 2018

Year	Scenario	Weight %	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average % change)	RICS House Price Index (average % change)
2019	Adverse	30.0	‑1.3	10.0	‑0.2	1.4
	Baseline	50.0	3.1	7.6	1.7	4.4
	Favourable	20.0	4.3	7.2	2.5	5.5
2020	Adverse	30.0	‑1.3	12.2	0.3	‑1.7
	Baseline	50.0	2.6	7.3	1.7	2.7
	Favourable	20.0	3.4	6.8	2.6	4.1
2021	Adverse	30.0	3.0	12.4	2.1	0.7
	Baseline	50.0	2.4	6.9	2.0	2.9
	Favourable	20.0	2.6	6.5	2.4	3.6
2022	Adverse	30.0	4.1	11.1	2.4	3.1
	Baseline	50.0	2.5	6.5	2.0	3.1
	Favourable	20.0	2.6	6.1	2.6	3.7
2023	Adverse	30.0	3.9	10.0	2.5	4.7
	Baseline	50.0	2.3	6.3	2.1	3.8
	Favourable	20.0	2.3	5.8	2.6	4.0
The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been adjusted to and the economy starts to expand from a lower base. Thus in the adverse scenario GDP will follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property prices are primarily determined by GDP growth but with a lag. Thus property prices will initially adjust less steeply than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After this point, property prices will accelerate and will match and surpass the pace in the baseline scenario, before finally converging.

Since 1 January 2018, the Group has reassessed the key economic indicators used in the ECL models and using actual performance ratios of the economy as revised by the Cyprus statistical service for 2016 and 2017 and the forecast upgrades by the International Monetary Fund (IMF) and the European Commission.

The RICS indices, which are considered for the purposes of determining the real estate collateral value on realisation date are capped at the reporting date value, in case of any projected increase, whereas any projected decrease is taken into account. As a result the indexed value for all collaterals is less or equal to their corresponding open market value as of the reporting date.

For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional scenarios for either better or worse cases. Under the adverse scenario operational cash flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that may result from the realisation of collateral) reflect current and expected future economic conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.

For collectively assessed customers the calculation is the weighted average of three scenarios: base, adverse and favourable.

Expected lifetime of revolving facilities

Judgement is exercised on the measurement period of expected lifetime for revolving facilities. The determination of the expected life for the revolving portfolio is sensitive to changes in contractual maturities resulting from business decisions. The Group exercises judgement in determining the period over which ECL should be computed.

Assessment of loss given default

A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount from repossession or realisation of collaterals which mainly comprise real estate assets.

Assumptions have been made about the future changes in property values, as well as the timing for the realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as well as any other applicable haircuts. Indexation has been used to estimate updated market values of properties, while assumptions were made on the basis of a macroeconomic scenario for future changes in property values.

At 30 June 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provisions calculation for loans and advances to customers excluding those classified as held for sale is c.32% under the baseline scenario (31 December 2018: c.32%).

The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (31 December 2018: seven years).

For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the haircuts used are based on the specific facts and circumstances of each case. Judgement may also be exercised over staging during the individual assessment.

Any positive cumulative average future change in property values forecasted was capped to zero for the six months ended 30 June 2019 and the year ended 31 December 2018. This applies to all scenarios.

The above assumptions are also influenced by the ongoing regulatory dialogue the Group maintains with its lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and industry bodies such as the ECB and the European Banking Authority (EBA), which provide guidance and expectations as to relevant definitions and the treatment/classification of certain parameters/assumptions used in the estimation of provisions.

Any changes in these assumptions or difference between assumptions made and actual results could result in significant changes in the amount of required credit losses of loans and advances.

Modelling adjustments

Forward looking models have been developed for ECL parameters (PD), Exposure at default (EAD), Loss Given Default (LGD) for all portfolios and segments sharing similar characteristics. Model validation is performed by the independent validation unit within the Risk Management Division on an annual basis and involves several statistical tests that assess the stability and performance of the models. In certain cases, judgment may be exercised in the form of management overlay by applying adjustments on the modelled parameters. Governance of these models lies with the Risk Management Division. Any management overlays are approved by the Risk Management Division and endorsed by the Provisions Committee.

ECL allowances also include off‑balance sheet credit exposures represented by guarantees given and by irrevocable commitments to disburse funds. Off‑balance sheet credit exposures of the individually assessed assets require assumptions on the probability, timing and amount of cash outflows. For the collectively assessed off‑balance sheet credit exposures, the allowance for provisions is calculated using the Credit Conversion Factor (CCF) model.

Portfolio segmentation

The individual assessment is performed not only for individually significant assets but also for other exposures meeting specific criteria determined by management. The selection criteria for the individually assessed exposures are based on management judgement and are reviewed on a quarterly basis by the Risk Management Division and are adjusted or enhanced, if deemed necessary.

In addition to individually assessed assets the Group also assesses assets collectively. The collectively assessed portfolio includes all loans which are not individually assessed. The Group categorises the exposures into sufficiently granular portfolios segments with shared risk characteristics. The granularity for the IFRS 9 segments is aligned with the Internal Rating Based (IRB) segmentation. Further details on impairment allowances and related credit information are set out in Note 29.

6.3 Tax

The Group has run down operations and is therefore subject to tax on those countries. Estimates are required in determining the provision for taxes at the reporting date. The Group recognises income tax liabilities for transactions and assessments whose tax treatment is uncertain. Where the final tax is different from the amounts initially recognised in the consolidated income statement, such differences will impact the income 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

In the absence of a specific accounting standard dedicated to the accounting of the asset that arose upon the reversal of deferred tax asset impairment recognised in previous years (Note 11), BOC PCL has exercised judgment in applying the guidance of IAS 12 in accounting for this asset item as the most relevant available standard. On the basis of this guidance, BOC PCL has determined that this asset should be accounted for on the basis of IAS 12 principles relating to deferred tax assets.

For changes during the six months ended 30 June 2019 relating to the deferred tax credit legislation refer to Note 11.

6.4 Stock of property ‑ estimation of net realisable value

Stock of property is measured at the lower of cost and net realisable value. The net realisable value is determined through valuation techniques, requiring significant judgement, which take into account all available reference points such as, expert valuation reports, current market conditions, the holding period of the asset applying an appropriate illiquidity discount and any other relevant parameters. Selling expenses are always considered and deducted from the realisable value. Depending on the value of the underlying asset and available market information, the determination of costs to sell may require professional judgement which involves a large degree of uncertainty due to the relatively low level of market activity.

More details on the stock of property are presented in Note 17.

6.5 Provisions

The accounting policy for provisions is described in Note 2.39 of the Annual Consolidated Financial Statements for the year ended 31 December 2018. Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. Provisions for pending litigations, claims, regulatory and other matters usually require a higher degree of judgement than other types of provisions. It is expected that the Group will continue to have a material exposure to litigation and regulatory proceedings and investigations relating to legacy issues in the medium term. The matters for which the Group determines that the probability of a future loss is more than remote will change from time to time, as will the matters as to which a reliable estimate can be made and the estimated possible loss for such matters. Actual results may prove to be significantly higher or lower than the estimate of possible loss in those matters, where an estimate was made. In addition, loss may be incurred in matters with respect to which the Group believed the probability of loss was remote.

For a detailed description of the nature of uncertainties and assumptions and the effect on the amount and timing of pending litigation, claims, regulatory and other matters refer to Note 25.

7. Segmental analysis

Following the sale in 2018 of its 100% subsidiaries, Bank of Cyprus UK Limited and Bank of Cyprus Financial Services Ltd, the Group's activities are mainly concentrated in Cyprus. Cyprus operations are organised into operating segments based on the line of business. The operating segments are analysed below:

The Corporate, Small and medium‑sized enterprises and Retail business lines are managing loans and advances to customers as detailed in 'Credit risk concentration of loans and advances to customers' (Note 29).

Restructuring and recoveries is the specialised unit which was set up to tackle the Group's loan portfolio quality and manages exposures to borrowers in distress situation through innovative solutions.

International banking services specialises in the offering of banking services to the international corporate and non‑resident individuals, particularly international business companies whose ownership and business activities lie outside Cyprus.

Wealth management oversees the provision of institutional wealth private banking, global markets, brokerage, asset management, investment banking and depository services.

The Real Estate Management Unit manages properties acquired through debt‑for‑property swaps and properties acquired through the acquisition of certain operations of Laiki Bank in 2013, and executes exit strategies in order to monetise these assets.

Treasury is responsible for liquidity management and for overseeing operations to ensure compliance with internal and regulatory liquidity policies and provide direction as to the actions to be taken regarding liquidity availability.

The Insurance business line is involved in both life and general insurance business.

The business line 'Other' includes head office functions such as finance, risk management, compliance, legal, corporate affairs and human resources. Head office functions provide services to the operating segments.

Overseas activities include Greece, Romania and Russia which are separate operating segments for which information is provided to management but, due to their size, have been grouped for disclosure purposes into one segment, namely 'Overseas'.

Comparatives are represented for discontinued operations, regarding the results of the UK operations, disposed of during 2018.

Management monitors the operating results of each business segment separately for the purposes of performance assessment and resource allocation. Segment performance is evaluated based on profit after tax and non‑controlling interests. Inter‑segment transactions and balances are eliminated on consolidation and are made on an arm's length basis.

Operating segment disclosures are provided as presented to the Group Executive Committee.

Income and expenses directly associated with each business line are included in determining the line's performance. Transfer pricing methodologies are applied between the business lines to present their results on an arm's length basis. Total other operating income, staff costs and other operating expenses incurred directly by the business lines are allocated to the business lines as incurred. Indirect other operating income and indirect other operating expenses are re‑allocated from the head office function to the business lines. Management monitors the profit/(loss) before tax of each business line. Additionally, for the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited on profit or loss before tax of each business line.

The loans and advances to customers, the customer deposits and the related income and expense are generally included in the segment where the business is originated, instead of the segment where the transaction is recorded. Loans and advances to customers which are originated in countries where the Group does not have operating entities are included in the country where they are managed.

Analysis by business line

Continuing operations

	Corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total Cyprus	Overseas	Total
Six months ended 30 June 2019	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	60,029	20,327	80,099	32,218	17,962	3,643	(7,403)	29	(941)	2,015	207,978	(3,869)	204,109
Net fee and commission income/(expense)	8,591	4,676	21,583	11,241	26,050	1,024	-	(3,106)	1,063	3,283	74,405	107	74,512
Net foreign exchange gains/(losses)	425	328	1,308	96	3,660	1,630	-	-	9,451	(1,751)	15,147	(1,030)	14,117
Net gains/(losses) on financial instrument transactions and on disposal/dissolution of subsidiaries and associates	-	-	-	-	-	12	-	1,070	4,930	6,009	12,021	134	12,155
Insurance income net of claims and commissions	-	-	-	-	-	-	-	28,824	-	-	28,824	1,212	30,036
Net gains/(losses) from revaluation and disposal of investment properties	-	-	-	-	-	-	630	-	-	(748)	(118)	(1,231)	(1,349)
Net gains on disposal of stock of property	-	-	-	-	-	-	17,497	-	-	59	17,556	191	17,747
Total other income/(expense)	4	6	47	23	1	1	1,128	9	-	13,349	14,568	1,111	15,679
	69,049	25,337	103,037	43,578	47,673	6,310	11,852	26,826	14,503	22,216	370,381	(3,375)	367,006
Staff costs	(4,395)	(2,854)	(37,848)	(12,677)	(8,184)	(2,078)	(1,331)	(5,087)	(844)	(38,539)	(113,837)	(407)	(114,244)
Other operating (expenses)/income (excluding advisory and other restructuring costs)	(12,492)	(8,603)	(49,532)	(18,457)	(12,350)	(2,117)	(2,636)	(4,576)	(3,906)	24,624	(90,045)	(3,879)	(93,924)
Special levy on deposits on credit institutions and contribution to Single Resolution Fund	-	-	-	-	-	-	-	-	-	(12,477)	(12,477)	-	(12,477)
Other operating expenses ‑ advisory and other restructuring costs	(187)	(108)	(781)	(15,442)	(207)	(42)	(2,237)	-	(39)	-	(19,043)	-	(19,043)
	51,975	13,772	14,876	(2,998)	26,932	2,073	5,648	17,163	9,714	(4,176)	134,979	(7,661)	127,318
Net gains/(losses) on derecognition of financial assets measured at amortised cost	3,933	162	171	(844)	294	18	-	-	-	1,682	5,416	13	5,429
Credit gains/(losses) to cover credit risk on loans and advances to customers	3,306	5,395	(15,607)	(103,965)	332	397	-	-	-	632	(109,510)	599	(108,911)
Credit (losses)/gains of other financial instruments	-	-	-	-	-	-	-	(86)	797	(15)	696	(8,063)	(7,367)
Impairment of non‑financial instruments	-	-	-	-	-	-	(9,942)	-	-	-	(9,942)	(1,643)	(11,585)
Remeasurement of investment in associate classified as held for sale	-	-	-	-	-	-	-	-	-	(25,943)	(25,943)	-	(25,943)
Share of profit from associates	-	-	-	-	-	-	-	-	-	5,312	5,312	-	5,312
Profit/(loss) before tax	59,214	19,329	(560)	(107,807)	27,558	2,488	(4,294)	17,077	10,511	(22,508)	1,008	(16,755)	(15,747)
Income tax	-	-	-	-	-	-	-	(1,853)	-	117,199	115,346	(202)	115,144
Profit/(loss) after tax	59,214	19,329	(560)	(107,807)	27,558	2,488	(4,294)	15,224	10,511	94,691	116,354	(16,957)	99,397
Non‑controlling interests‑profit	-	-	-	-	-	-	-	-	-	(1,999)	(1,999)	-	(1,999)
Profit/(loss) after tax attributable to the owners of the Company	59,214	19,329	(560)	(107,807)	27,558	2,488	(4,294)	15,224	10,511	92,692	114,355	(16,957)	97,398

	Corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total Cyprus	Overseas	Total continuing operations
Six months ended 30 June 2018 (represented)	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	48,675	19,770	92,489	31,311	26,585	3,856	(7,994)	92	6,964	(4,739)	217,009	(4,925)	212,084
Net fee and commission income/(expense)	7,864	5,047	22,896	4,791	31,795	1,153	-	(2,853)	956	8,559	80,208	128	80,336
Net foreign exchange gains	388	317	1,891	149	3,743	1,543	-	-	8,710	716	17,457	582	18,039
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates	-	-	-	-	-	65	-	60	22,211	15,017	37,353	25	37,378
Insurance income net of claims and commissions	-	-	-	-	-	-	-	23,971	-	-	23,971	1,123	25,094
Net gains/(losses) from revaluation and disposal of investment properties	-	-	-	-	-	-	743	-	-	1,405	2,148	(983)	1,165
Net gains/(losses) on disposal of stock of property	-	-	-	-	-	-	24,040	-	-	(3,833)	20,207	59	20,266
Other income/(expenses)	269	6	50	13,677	3	-	-	226	-	(4,245)	9,986	1,290	11,276
	57,196	25,140	117,326	49,928	62,126	6,617	16,789	21,496	38,841	12,880	408,339	(2,701)	405,638
Staff costs	(3,860)	(2,778)	(33,993)	(11,543)	(7,071)	(1,811)	(978)	(4,725)	(1,000)	(36,303)	(104,062)	(608)	(104,670)
Special levy on deposits on credit institutions and contribution to Single Resolution Fund	-	-	-	-	-	-	-	-	-	(12,073)	(12,073)	-	(12,073)
Other operating (expenses)/income (excluding advisory and other restructuring costs)	(9,979)	(6,757)	(55,727)	(19,037)	(15,119)	(1,991)	(2,821)	(3,895)	(4,273)	49,156	(70,443)	(4,519)	(74,962)
Other operating expenses ‑ advisory and other restructuring costs	(17)	(3)	(40)	(21,331)	(8)	(6)	(2,641)	-	-	(3,169)	(27,215)	(115)	(27,330)
	43,340	15,602	27,566	(1,983)	39,928	2,809	10,349	12,876	33,568	10,491	194,546	(7,943)	186,603
Net gains on derecognition of financial assets measured at amortised cost	5,377	1,289	6,804	5,052	796	25	-	-	-	-	19,343	38	19,381
Credit (losses)/gains to cover credit risk on loans and advances to customers	(18,062)	(10,112)	(21,128)	(205,972)	(7,173)	(3,334)	-	-	-	(1,476)	(267,257)	14,304	(252,953)
Credit (losses)/gains of other financial instruments	-	-	-	-	-	-	-	-	(670)	(2,664)	(3,334)	3	(3,331)
Impairment of non‑financial instruments	-	-	-	-	-	-	(7,898)	-	-	(11)	(7,909)	(2,208)	(10,117)
Share of profit from associates	-	-	-	-	-	-	-	-	-	4,520	4,520	-	4,520
Profit/(loss) before tax	30,655	6,779	13,242	(202,903)	33,551	(500)	2,451	12,876	32,898	10,860	(60,091)	4,194	(55,897)
Income tax	(3,832)	(847)	(1,655)	19,738	(4,194)	63	(306)	(1,390)	(4,028)	(7,046)	(3,497)	(393)	(3,890)
Profit/(loss) after tax	26,823	5,932	11,587	(183,165)	29,357	(437)	2,145	11,486	28,870	3,814	(63,588)	3,801	(59,787)
Non‑controlling interests‑loss	-	-	-	-	-	-	-	-	-	1,729	1,729	-	1,729
Profit/(loss) after tax attributable to the owners of the Company	26,823	5,932	11,587	(183,165)	29,357	(437)	2,145	11,486	28,870	5,543	(61,859)	3,801	(58,058)

Discontinued operations

	Six months ended 30 June 2018
	€000
Net interest income	22,397
Net fee and commission income	3,077
Net foreign exchange gains	163
	25,637
Staff costs	(11,714)
Other operating expenses	(9,136)
	4,787
Credit gains to cover credit risk on loans and advances to customers	147
Profit before tax	4,934
Income tax	(924)
Profit after tax	4,010
The above information on discontinued operations relates to the disposal of the Group's subsidiary bank in the UK, Bank of Cyprus UK Limited and its subsidiary Bank of Cyprus Financial Services Limited, details of which are disclosed in Note 53.2.1 in the Group's Consolidated Financial Statements for the year ended 31 December 2018.

Analysis of total revenue

Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains on financial instrument transactions, insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains/(losses) on disposal of stock of property and other income.

Continuing operations

	Corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total Cyprus	Overseas	Total
Six months ended 30 June 2019	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Total revenue from third parties	71,888	24,657	62,857	98,100	29,511	4,508	19,255	29,302	6,126	26,682	372,886	(5,880)	367,006
Inter‑segment (expense)/revenue	(2,839)	680	40,180	(54,522)	18,162	1,802	(7,403)	(2,476)	8,377	(1,961)	-	-	-
Revenue between Cyprus and other countries	-	-	-	-	-	-	-	-	-	5,170	5,170	(5,170)	-
Total revenue	69,049	25,337	103,037	43,578	47,673	6,310	11,852	26,826	14,503	29,891	378,056	(11,050)	367,006

Six months ended 30 June 2018 (represented)
Total revenue from third parties	65,094	26,761	53,809	131,205	34,256	761	24,783	24,126	32,063	10,837	403,695	1,943	405,638
Inter‑segment (expense)/revenue	(7,898)	(1,621)	63,517	(81,277)	27,870	5,856	(7,994)	(2,630)	6,778	(2,601)	-	-	-
Revenue between Cyprus and other countries	-	-	-	-	-	-	-	-	-	4,644	4,644	(4,644)	-
Total revenue	57,196	25,140	117,326	49,928	62,126	6,617	16,789	21,496	38,841	12,880	408,339	(2,701)	405,638
The revenue from 'Overseas segment' mainly relates to banking and financial services for the six months ended 30 June 2019 and 2018.

Analysis of assets and liabilities

	Corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total Cyprus	Overseas	Total
30 June 2019	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Assets
Assets	3,791,863	1,123,484	3,674,938	2,054,056	158,581	115,936	1,420,405	835,435	7,333,112	1,590,735	22,098,545	315,585	22,414,130
Inter‑segment assets	-	-	-	-	-	-	-	(33,303)	-	(61,978)	(95,281)	-	(95,281)
	3,791,863	1,123,484	3,674,938	2,054,056	158,581	115,936	1,420,405	802,132	7,333,112	1,528,757	22,003,264	315,585	22,318,849
Assets between Cyprus and overseas operations													(431,663)
Total assets													21,887,186

31 December 2018
Assets
Assets	3,524,412	1,150,640	3,699,397	2,229,146	178,627	98,851	1,658,982	816,336	6,396,620	2,581,386	22,334,397	254,988	22,589,385
Inter‑segment assets	-	-	-	-	-	-	-	(39,642)	-	(59,133)	(98,775)	-	(98,775)
	3,524,412	1,150,640	3,699,397	2,229,146	178,627	98,851	1,658,982	776,694	6,396,620	2,522,253	22,235,622	254,988	22,490,610
Assets between Cyprus and overseas operations													(415,339)
Total assets													22,075,271

	Corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	Insurance	Treasury	Other	Total Cyprus	Overseas	Total
30 June 2019	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Liabilities
Liabilities	1,872,614	738,515	9,806,679	114,579	3,459,828	384,471	676,089	1,852,509	582,611	19,487,895	452,659	19,940,554
Inter‑segment liabilities	-	-	-	-	-	-	-	(95,281)	-	(95,281)	-	(95,281)
	1,872,614	738,515	9,806,679	114,579	3,459,828	384,471	676,089	1,757,228	582,611	19,392,614	452,659	19,845,273
Liabilities between Cyprus and overseas operations												(428,759)
Total liabilities												19,416,514

31 December 2018
Liabilities
Liabilities	1,750,517	800,671	10,032,047	121,744	3,707,713	430,866	632,308	1,877,549	452,708	19,806,123	417,159	20,223,282
Inter‑segment liabilities	-	-	-	-	-	-	-	(98,775)	-	(98,775)	-	(98,775)
	1,750,517	800,671	10,032,047	121,744	3,707,713	430,866	632,308	1,778,774	452,708	19,707,348	417,159	20,124,507
Liabilities between Cyprus and overseas operations												(416,564)
Total liabilities												19,707,943
Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 21 and 29.2 and 29.7, respectively.

8. Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates

	Six months ended 30 June
	2019	2018 (represented)
Trading portfolio:	€000	€000
‑ derivative financial instruments	1,506	177
Other investments at FVPL:
‑ debt securities	9,181	1,973
‑ equity securities	1,556	662
Net gains on disposal of FVOCI debt securities	-	19,787
Net gains on loans and advances to customers at FVPL	17	13,867
Revaluation of financial instruments designated as fair value hedges:
‑ hedging instruments	(11,092)	10,673
‑ hedged items	11,400	(9,616)
Net loss on financial liabilities at FVPL	(413)	-
Loss on disposal/dissolution of subsidiaries and associates	-	(145)
	12,155	37,378

9. Staff costs and other operating expenses

Staff costs

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
Salaries	93,989	86,650
Employer's contributions to state social insurance	13,045	11,170
Retirement benefit plan costs	7,210	6,850
	114,244	104,670
The number of persons employed by the Group as at 30 June 2019 was 4,155 and includes 108 persons relating to the Helix transaction, where the full migration and transfer to the buyer is expected to conclude by the end of the year (31 December 2018: 4,146 and 30 June 2018: 4,158 represented).

Other operating expenses

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
Repairs and maintenance of property and equipment	15,262	13,337
Other property‑related costs	9,290	6,535
Operating lease rentals for property and equipment	-	4,783
Consultancy and other professional services fees	8,494	10,959
Insurance	3,454	3,660
Advertising and marketing	6,819	8,494
Depreciation of property and equipment	9,862	5,465
Amortisation of intangible assets	7,600	5,711
Communication expenses	4,047	4,548
Provisions and settlements of litigations, claims and provisions for regulatory matters (Note 25.3)	8,961	(5,813)
Printing and stationery	1,433	1,120
Local cash transfer expenses	1,397	1,478
Other operating expenses	17,305	14,685
	93,924	74,962
Advisory and other restructuring costs	19,043	27,330
	112,967	102,292
Advisory and other restructuring costs comprise mainly fees of external advisors in relation to: (i) customer loan restructuring activities which are not part of the effective interest rate and (ii) disposal of operations and non‑core assets.
Following the adoption of IFRS 16 as of 1 January 2019, the Group during the six months ended 30 June 2019, recognised within 'Other property‑related costs' rent expense for short term leases amounting to €235 thousand and 'Depreciation of property and equipment' includes €4,405 thousand relating to the depreciation of right of use assets (Note 3.3.2). Furthermore, as a result of the adoption of IFRS 16 the line item 'Operating lease rentals for property and equipment' is nil for the current period.

10. Credit losses of financial instruments and impairment of non‑financial instruments

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
Credit losses to cover credit risk on loans and advances to customers
Impairment loss net of reversals on loans and advances to customers	129,424	410,090
Recoveries of loans and advances to customers previously written off	(14,739)	(124,880)
Changes in expected cash flows	(240)	(26,735)
Financial guarantees and commitments	(5,534)	(5,522)
	108,911	252,953

Credit losses of other financial instruments
Amortised cost treasury bills	40	-
Amortised cost debt securities	(162)	(1,201)
FVOCI debt securities	9	(462)
Loans and advances to banks	1,304	518
Balances with central banks	-	2,396
Other financial assets (Note 18)	6,176	2,080
	7,367	3,331

Impairment of non‑financial instruments
Stock of property (Note 17)	11,585	10,106
Equipment	-	11
	11,585	10,117

11. Income tax

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
Current tax:
‑ Cyprus	2,570	2,719
‑ Overseas	223	281
Cyprus special defence contribution	148	139
Deferred tax (credit)/charge	(114,692)	1,663
Prior years' tax adjustments	(3,422)	1,376
Other tax charges/(credits)	29	(2,288)
	(115,144)	3,890
The Group's share of income tax from associates for the six months ended 30 June 2019 amounts to €703 thousand (30 June 2018: €647 thousand).

The net deferred tax assets comprise of:

	30 June 2019	31 December 2018
	€000	€000
Deferred tax assets	379,126	301,778
Deferred tax liabilities	(44,818)	(44,282)
Net deferred tax assets	334,308	257,496
The deferred tax assets relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:

	30 June 2019	31 December 2018
	€000	€000
1 January	257,496	337,385
Deferred tax recognised in the consolidated income statement ‑ continuing operations	114,692	(81,436)
Deferred tax recognised in the consolidated statement of comprehensive income	29	579
Disposal of subsidiary	-	967
Transfer to current tax receivables	(37,909)	-
Foreign exchange adjustments	-	1
30 June/31 December	334,308	257,496
Income Tax Law Amendment 28 (I) of 2019
On 1 March 2019 the Cyprus Parliament adopted legislative amendments on Income Tax Law (the 'Law') published on the Official Gazette of the Republic on 15 March 2019 ('the amendments').
The main provisions of the legislation are set out below:
· The amendments allow for the conversion of specific tax losses into tax credits.
· The Law applies only to tax losses transferred following resolution of a credit institution within the framework of 'The Resolution of Credit and Other Institutions Law'.
· The losses are capped to the amount of Deferred Tax Assets (DTA) recognised on the balance sheet of the audited financial statements of the acquiring credit institution in the year of acquisition. The tax losses in excess of the capped amount can only be utilised in cases involving transfers of tax losses in relation to tax reorganisations, which will be completed before 1 October 2019. Post 1 October 2019, any excess tax losses expire.
· Acquired tax losses are converted into 15 equal annual instalments for credit institutions that will enter into resolution in the future or into 11 equal annual instalments for credit institutions which were in resolution pre 31 December 2017.
· Each annual instalment can be claimed as a deductible expense in the determination of the taxable income for the relevant year. Annual instalments are capped and cannot create additional losses for the credit institution.
· Any amount of annual instalment not utilised as a deductible expense is converted into a tax credit at the year end (with reference to the applicable tax rate enacted at the time of the conversion) and it can be utilised as a tax credit in the tax year following the tax year to which this tax credit relates to.
· The tax credit can be used against a tax liability (Corporate Income Tax Law, VAT Law or Bank levy Law) of the credit institution or any other eligible subsidiary for group relief. Any unutilised tax credits in the relevant year are converted into a receivable from the Cyprus Government.

· In financial years a credit institution has accounting losses the amount of the annual instalment is recalculated. Upon recalculation, the mechanics outlined above remain unchanged.

· In case a credit institution in scope goes into liquidation the total amount of unused annual instalments are converted to tax credits and immediately become a receivable from the Government.

· A guarantee fee of 1,5% on annual tax credit is payable annually by the credit institution to the Government.

BOC PCL has DTA that meets the requirements of the Law relating to income tax losses transferred to BOC PCL as a result of the acquisition of certain operations of Laiki Bank, on 29 March 2013, under 'The Resolution of Credit and Other Institutions Law'. The DTA recognised following the acquisition of certain operations of Laiki in 2013 amounted to €417 million for which BOC PCL paid a consideration as part of the respective acquisition. Under the Law, BOC PCL can convert up to an amount of €3.3 billion tax losses to tax credits (which led to the creation of DTA amounting to €417 million), with the conversion being based on the tax rate applicable at the time of conversion. Upon the adoption of the Law a reversal of previously recognised DTA impairment of €115 million was recognised in the current period. Following the amendment of the Law, the period of utilisation of the tax losses which may be converted into tax credits remains unchanged (i.e. by end of 2028).

During the six months ended 30 June 2019, an amount of €37,909 thousand has been reclassified from the DTA to current tax receivables, being the first annual tax credit receivable.

The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13 of the annual consolidated financial statements for the year ended 31 December 2018.

Accumulated income tax losses

The accumulated income tax losses are presented in the table below:

	Total income tax losses	Income tax losses for which a deferred tax asset was recognised	Income tax losses for which no deferred tax asset was recognised
30 June 2019	€000	€000	€000
Expiring within 5 years	72,171	-	72,171
Utilisation in annual instalments up to 2028	3,032,728	3,032,728	-
	3,104,899	3,032,728	72,171

31 December 2018
Expiring within 5 years	950,084	-	950,084
Expiring by the end of 2028	7,378,801	2,414,176	4,964,625
	8,328,885	2,414,176	5,914,709
In relation to the tax losses that were transferred to BOC PCL in 2013, the income tax authorities in Cyprus issued their tax assessments in March and April 2019. On the basis of these assessments the quantum of Laiki Bank tax losses were c.€5 billion and lower than the initial amount of €7.4 billion estimated in 2013.
The tax losses in excess of the €3.3 billion transferred from Laiki Bank to BOC PCL in March 2013 cannot be utilised by BOC PCL, in line with the March 2019 Law amendments, except in cases where there are transfers arising due to reorganisations made prior to 1 October 2019.

12. Earnings per share

	Six months ended 30 June
Basic and diluted earnings/(losses) per share attributable to the owners of the Company	2019	2018 (represented)
Profit/(loss) for the period attributable to the owners of the Company (€ thousand)	97,398	(54,048)
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,058	446,058
Basic and diluted earnings/(losses) per share (€ cent)	21.8	(12.1)

Basic and diluted earnings/(losses) per share attributable to the owners of the Company‑continuing operations
Profit/(loss) for the period attributable to the owners of the Company‑continuing operations (€ thousand)	97,398	(58,058)
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,058	446,058
Basic and diluted earnings/(losses) per share‑continuing operations (€ cent)	21.8	(13.0)

Basic and diluted earnings per share attributable to the owners of the Company‑discontinued operations
Profit for the period attributable to the owners of the Company‑discontinued operations (€ thousand)	-	4,010
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,058	446,058
Basic and diluted earnings per share‑discontinued operations (€ cent)	-	0.9

13. Investments

Investments	30 June 2019 €000	31 December 2018 €000
Investments mandatorily measured at FVPL	166,480	152,473
Investments at FVOCI	644,038	231,548
Investments at amortised cost	778,064	393,083
	1,588,582	777,104
During the six months ended 30 June 2019, the Group has proceeded to invest in debt securities, as part of its investing strategy.

The amounts pledged as collateral are shown below:

Investments pledged as collateral	30 June 2019 €000	31 December 2018 €000
Investments at FVOCI	282,257	600,291
Investments at amortised cost	10,060	137,296
	292,317	737,587
The decrease in investments pledged as collateral during the six months ended 30 June 2019 related to the change in the type of collateral pledged by the Group. Encumbered assets are disclosed in Note 31.
All investments pledged as collateral under repurchase agreements can be sold or repledged by the counterparty.
The maximum exposure to credit risk for debt securities is disclosed in Note 29.1.
Investments in equity securities and mutual funds as at 30 June 2019, included above, amount to €19,287 thousand and €141,381thousand respectively (31 December 2018: €15,309 thousand and €134,639 thousand respectively).
There were no reclassifications of investments during the six months ended 30 June 2019.
The debt securities which are measured at FVPL are classified as such because they failed to meet the SPPI criteria.
At 1 January 2018 the Group irrevocably made the election to classify its equity investments previously classified as available‑for‑sale as equity investments at FVOCI on the basis that these are not held for trading. Their carrying value included in the table above amounts to €9,579 thousand at 30 June 2019 and is equal to their fair value. Dividend income amounting to €113 thousand has been received and recognised for the six months ended 30 June 2019 (corresponding period of 2018: €122 thousand).
During the six months ended 30 June 2019 no equity investments measured at FVOCI have been disposed of (year 2018: €5,458 thousand). The cumulative gain transferred to retained earnings during the year 2018 amounted to €173 thousand. There were no other transfers from OCI to retained earnings during the period.
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS 9, amounts to €15,683 thousand at 30 June 2019 (31 December 2018: €14,940 thousand). The fair value gain that would have been recognised in the consolidated income statement if these financial assets had not been reclassified as part of the transition to IFRS 9, amounts to €834 thousand (year 2018: €359 thousand). The effective interest rate of these instruments is 1.6%‑5.0% per annum and the respective interest income during the six months ended 30 June 2019 amounts to €197 thousand.

14. Derivative financial instruments

The contract amount and fair value of the derivative financial instruments is set out below:

	30 June 2019			31 December 2018
		Fair value			Fair value
	Contract amount	Assets	Liabilities	Contract amount	Assets	Liabilities
	€000	€000	€000	€000	€000	€000
Trading derivatives
Forward exchange rate contracts	23,985	212	118	17,114	240	192
Currency swaps	1,476,053	820	6,092	1,219,749	3,405	6,342
Interest rate swaps	53,664	359	267	57,652	471	422
Currency options	1,160	1	265	12,704	8	382
Interest rate caps/floors	1,650,000	1,944	-	1,650,000	462	-
	3,204,862	3,336	6,742	2,957,219	4,586	7,338
Derivatives qualifying for hedge accounting
Fair value hedges ‑ interest rate swaps	1,093,827	8,653	49,884	1,016,083	20,137	29,029
Net investments ‑ forward exchange rate contracts and currency swaps	88,119	1,662	76	74,973	31	2,616
	1,181,946	10,315	49,960	1,091,056	20,168	31,645
Total	4,386,808	13,651	56,702	4,048,275	24,754	38,983

Hedge accounting

The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in accordance with IAS 39. The Group implements the amended IFRS 7 hedge disclosure requirements.

The Group applies fair value hedge accounting using derivatives when the required criteria for hedge accounting are met. The Group also uses derivatives for economic hedging (hedging the changes in interest rates, exchange rates or other risks) which do not meet the criteria for hedge accounting. As a result, these derivatives are accounted for as trading derivatives and the gains or losses arising from revaluation are recognised in the consolidated income statement.

Changes in the fair value of derivatives designated as fair value hedges and the fair value of the item in relation to the risk being hedged are recognised in the consolidated income statement.

Fair value hedges

The Group uses interest rate swaps to hedge the interest rate risk arising as a result of the possible adverse movement in the fair value of fixed rate debt securities measured at FVOCI and fixed rate customer loans and deposits.

Hedges of net investments

The Group's consolidated balance sheet is affected by foreign exchange differences between the Euro and all non‑Euro functional currencies of overseas subsidiaries and other foreign operations. The Group hedges its structural currency risk when it considers that the cost of such hedging is within an acceptable range (in relation to the underlying risk). This hedging is effected by financing with borrowings in the same currency as the functional currency of the overseas subsidiaries and forward exchange rate contracts.

As at 30 June 2019, deposits, and forward and swap exchange rate contracts amounting to €9,883 thousand and €88,119 thousand respectively (31 December 2018: €9,843 thousand and €74,973 thousand respectively) have been designated as hedging instruments and have given rise to a gain of €8,279 thousand (corresponding period of 2018: loss of €3,859 thousand) which was recognised in the 'Foreign currency translation reserve' in the consolidated statement of comprehensive income, against the profit or loss from the retranslation of the net assets of the overseas subsidiaries and other foreign operations.

15. Fair value measurement

The following table presents the carrying value and fair value of the Group's financial assets and liabilities.

	30 June 2019		31 December 2018
	Carrying value	Fair value	Carrying value	Fair value
Financial assets	€000	€000	€000	€000
Cash and balances with central banks	5,261,896	5,261,896	4,610,491	4,610,491
Loans and advances to banks	403,041	401,701	472,532	467,026
Investments mandatorily measured at FVPL	166,480	166,480	152,473	152,473
Investments at FVOCI	926,295	926,295	831,839	831,839
Investments at amortised cost	788,124	808,196	530,379	538,631
Derivative financial assets	13,651	13,651	24,754	24,754
Loans and advances to customers	10,949,002	10,947,534	10,921,786	10,788,446
Life insurance business assets attributable to policyholders	426,800	426,800	388,745	388,745
Financial assets classified as held for sale	8,318	8,318	1,154,108	1,154,108
Other financial assets	189,929	189,929	144,381	144,381
	19,133,536	19,150,800	19,231,488	19,100,894
Financial liabilities
Obligations to central banks and deposits by banks	1,362,023	1,362,023	1,261,942	1,261,942
Repurchase agreements	247,813	252,749	248,945	263,511
Derivative financial liabilities	56,702	56,702	38,983	38,983
Customer deposits	16,376,686	16,383,990	16,843,558	16,849,222
Subordinated loan stock	261,417	275,592	270,930	276,527
Other financial liabilities	173,975	173,975	188,512	188,512
	18,478,616	18,505,031	18,852,870	18,878,697
The fair value of financial assets and liabilities in the above table is as at the reporting date and does not represent any expectations about their future value.
The Group uses the following hierarchy for determining and disclosing fair value:
Level 1: investments valued using quoted prices in active markets.

Level 2: investments valued using models for which all inputs that have a significant effect on fair value are market observable.

Level 3: investments valued using models for which inputs that have a significant effect on fair value are not based on observable market data.

For assets and liabilities that are recognised in the Financial Statements at fair value, the Group determines whether transfers have occurred between levels in the hierarchy by re‑assessing categorisation at the end of each reporting period.

The following is a description of the determination of fair value for financial instruments which are recorded at fair value on a recurring and on a non‑recurring basis and for financial instruments which are not measured at fair value but for which fair value is disclosed, using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.

Derivative financial instruments

Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps, currency rate options, forward foreign exchange rate contracts, equity options and interest rate collars. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.

Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)

The CVA and DVA are incorporated into derivative valuations to reflect the impact on fair value of counterparty risk and BOC PCL's own credit quality respectively.

The Group calculates the CVA by applying the PD of the counterparty, conditional on the non‑default of the Group, to the Group's expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, the Group calculates the DVA by applying its own PD, conditional on the non‑default of the counterparty, to the expected positive exposure of the counterparty to Group and multiplying the result by the loss expected in the event of default. Both calculations are performed over the life of the potential exposure.

The expected exposure of derivatives is calculated as per the CRR and takes into account the netting agreements where they exist. A standard LGD assumption in line with industry norms is adopted. Alternative LGD assumptions may be adopted when both the nature of the exposure and the available data support this.

The Group does not hold any significant derivative instruments which are valued using a valuation technique with significant non‑market observable inputs.

Investments at FVPL, investments at FVOCI and investments at amortised cost

Investments which are valued using a valuation technique or pricing models, primarily consist of unquoted equity securities and debt securities. These assets are valued using valuation models which sometimes only incorporate market observable data and at other times use both observable and non‑observable data. The rest of the investments are valued using quoted prices in active markets.

Loans and advances to customers

The fair value of loans and advances to customers is based on the present value of expected future cash flows. Future cash flows have been based on the future expected loss rate per loan portfolio, taking into account expectations for the credit quality of the borrowers. The discount rate includes components that capture the risk free rate per currency, funding cost, servicing cost and the cost of capital, considering the risk weight of each loan.

Customer deposits

The fair value of customer deposits is determined by calculating the present value of future cash flows. The discount rate takes into account current market rates and the credit profile of BOC PCL. The fair value of deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are approximated by their carrying values.

Repurchase agreements

Repurchase agreements are collateralised bank takings. Given that the collateral provided by the Group is greater than the amount borrowed, the fair value calculation of these repurchase agreements takes into account the time value of money.

Loans and advances to banks

Loans and advances to banks with maturity over one year are discounted using an appropriate risk free rate plus the credit spread of each counterparty. For short‑term lending, the fair value is approximated by the carrying value.

Deposits by banks

Since almost all deposits by banks are very short‑term, the fair value is an approximation of the carrying value.

Subordinated loan stock

The current issue of BOC PCL is liquid with quoted prices in an active market.

Model inputs for valuation

Observable inputs to the models for the valuation of unquoted equity and debt securities include, where applicable, current and expected market interest rates, market expected default rates, market implied country and counterparty credit risk and market liquidity discounts.

The following table presents the fair value measurement hierarchy of the Group's financial assets and liabilities recorded at fair value or for which fair value is disclosed, by level of the fair value hierarchy:

	Level 1	Level 2	Level 3	Total
30 June 2019	€000	€000	€000	€000
Financial assets
Loans and advances to customers measured at FVPL	-	-	393,981	393,981
Trading derivatives
Forward exchange rate contracts	-	212	-	212
Currency swaps	-	820	-	820
Interest rate swaps	-	359	-	359
Currency options	-	1	-	1
Interest rate caps/floors	-	1,944	-	1,944
	-	3,336	-	3,336
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	8,653	-	8,653
Net investments‑forward exchange rate contracts and currency swaps	-	1,662	-	1,662
	-	10,315	-	10,315
Investments mandatorily measured at FVPL	142,306	1,794	22,380	166,480
Investments at FVOCI	910,469	1,087	14,739	926,295
	1,052,775	16,532	431,100	1,500,407
Other financial assets not measured at fair value
Loans and advances to banks	-	401,701	-	401,701
Investments at amortised cost	687,785	75,378	45,033	808,196
Loans and advances to customers	-	-	10,553,553	10,553,553
	687,785	477,079	10,598,586	11,763,450
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount factor by 10% would result in a decrease of €10,206 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €6,129 thousand in their fair value.
For one investment included in debt securities mandatorily measured at fair value through profit and loss as a result of the SPPI assessment and categorised as Level 3 (Note 13) with a carrying amount of €21,403 thousand as of 30 June 2019, for which a change in the conversion factor by 10% would result in a change in the value of the debt securities by €2,140 thousand.

	Level 1	Level 2	Level 3	Total
30 June 2019	€000	€000	€000	€000
Financial liabilities
Trading derivatives
Forward exchange rate contracts	-	118	-	118
Currency swaps	-	6,092	-	6,092
Interest rate swaps	-	267	-	267
Currency options	-	265	-	265
	-	6,742	-	6,742
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	49,884	-	49,884
Net investments‑forward exchange rate contracts	-	76	-	76
	-	49,960	-	49,960
	-	56,702	-	56,702
Other financial liabilities not measured at fair value
Deposits by banks	-	532,023	-	532,023
Repurchase agreements	-	252,749	-	252,749
Customer deposits	-	-	16,383,990	16,383,990
Subordinated loan stock	275,592	-	-	275,592
	275,592	784,772	16,383,990	17,444,354

	Level 1	Level 2	Level 3	Total
31 December 2018	€000	€000	€000	€000
Financial assets
Loans and advances to customers measured at FVPL	-	-	395,572	395,572
Trading derivatives
Forward exchange rate contracts	-	240	-	240
Currency swaps	-	3,405	-	3,405
Interest rate swaps	-	471	-	471
Currency options	-	8	-	8
Interest rate caps/floors	-	462	-	462
	-	4,586	-	4,586
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	20,137	-	20,137
Net investments‑forward exchange rate contracts	-	31	-	31
	-	20,168	-	20,168
Investments mandatorily measured at FVPL	137,093	394	14,986	152,473
Investments at FVOCI	822,628	1,051	8,160	831,839
	959,721	26,199	418,718	1,404,638
Other financial assets not measured at fair value
Loans and advances to banks	-	467,026	-	467,026
Investments at amortised cost	484,417	54,214	-	538,631
Loans and advances to customers	-	-	10,392,874	10,392,874
	484,417	521,240	10,392,874	11,398,531
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount factor by 10% would result in a decrease of €12,134 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €5,263 thousand in their fair value.
For one investment included in debt securites mandatorily measured at fair value through profit and loss as a result of the SPPI assessment and categorised as Level 3 (Note 13) with a carrying amount of €13,569 thousand as at 31 December 2018, for which a change in the conversion factor by 10% would result in a change in the value of the debt securities by €1,357 thousand.

	Level 1	Level 2	Level 3	Total
31 December 2018	€000	€000	€000	€000
Financial liabilities
Trading derivatives
Forward exchange rate contracts	-	192	-	192
Currency swaps	-	6,342	-	6,342
Interest rate swaps	-	422	-	422
Currency options	-	382	-	382
	-	7,338	-	7,338
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	29,029	-	29,029
Net investments‑forward exchange rate contracts	-	2,616	-	2,616
	-	31,645	-	31,645
	-	38,983	-	38,983
Other financial liabilities not measured at fair value
Deposits by banks	-	431,942	-	431,942
Repurchase agreements	-	263,511	-	263,511
Customer deposits	-	-	16,849,222	16,849,222
Subordinated loan stock	276,527	-	-	276,527
	276,527	695,453	16,849,222	17,821,202
The cash and balances with central banks and the funding from central banks are financial instruments whose carrying value is a reasonable approximation of fair value, because they are mostly short‑term in nature or are repriced to current market rates frequently.
During the six months ended 30 June 2019 and the year 2018 there were no significant transfers between Level 1 and Level 2.

The movement in Level 3 financial assets which are measured at fair value is presented below:

	30 June 2019			31 December 2018
	Loans and advances to customers	Financial instruments	Total	Loans and advances to customers	Financial instruments	Total
	€000	€000	€000	€000	€000	€000
1 January	395,572	23,146	418,718	389,862	22,621	412,483
Additions	-	6,529	6,529	35,601	-	35,601
Disposals	-	(465)	(465)	-	-	-
Net gains from fair value changes recognised in the consolidated statement of other comprehensive income	-	7,909	7,909	-	525	525
Net gains on loans and advances to customers measured at FVPL	17	-	17	16,125	-	16,125
Repayments of loans	(9,792)	-	(9,792)	(62,809)	-	(62,809)
Interest on loans	8,184	-	8,184	16,793	-	16,793
30 June/31 December	393,981	37,119	431,100	395,572	23,146	418,718

16. Loans and advances to customers

	30 June 2019	31 December 2018
	€000	€000
Gross loans and advances to customers at amortised cost	12,388,100	12,430,367
Allowance for ECL for impairment of loans and advances to customers (Note 29)	(1,833,079)	(1,904,153)
Loans and advances to customers measured at amortised cost	10,555,021	10,526,214
Loans and advances to customers measured at FVPL	393,981	395,572
	10,949,002	10,921,786
Loans and advances to customers pledged as collateral are disclosed in Note 31.
Additional analysis and information regarding credit risk and analysis of the allowance for ECL of loans and advances to customers are set out in Note 29.

17. Stock of property

The carrying value of stock is determined as the lower of cost and net realisable value. Impairment is recognised if the net realisable value is below the cost of the stock of property. During the six months ended 30 June 2019 an impairment loss of €11,585 thousand (30 June 2018: €10,106 thousand) was recognised in 'Impairment of non‑financial instruments' in the consolidated income statement. At 30 June 2019, stock of €353,958 thousand (31 December 2018: €387,085 thousand) is carried at net realisable value which is approximately the fair value less costs to sell.

The stock of property includes residential properties, offices and other commercial properties, manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction. There is no stock of property pledged as collateral for central bank funding facilities under Eurosystem monetary policy operations.

During the six months ended 30 June 2019, the Group changed the classification for properties which are leased out under operating leases as detailed in Note 3.3.1. The comparative note below is restated in accordance with the new classificaton policy.

The carrying value of the stock of property is analysed in the tables below:

	2019	2018 (restated)
	€000	€000
Net book value at 1 January	1,426,857	1,486,979
Additions	102,307	300,626
Disposals	(80,723)	(184,818)
Tranfers of stock of property to serbian entities to non‑current assets held for sale	(2,427)	-
Transfers to own use properties	-	(84,744)
Transfers to disposal groups (Note 19)	(3,816)	(73,899)
Impairment (Note 10)	(11,585)	(17,270)
Foreign exchange adjustments	(172)	(17)
Net book value at 30 June/31 December	1,430,441	1,426,857
Additions during the year 2018 include costs of construction of €31,860 thousand. There were no costs of construction during the six months ended 30 June 2019 (corresponding period 2018: €10,095 thousand).

Analysis by type and country	Cyprus	Greece	Romania	Total
30 June 2019	€000	€000	€000	€000
Residential properties	154,330	22,437	117	176,884
Offices and other commercial properties	171,670	34,406	9,686	215,762
Manufacturing and industrial properties	53,334	28,213	490	82,037
Hotels	26,339	489	-	26,828
Land (fields and plots)	916,479	7,435	3,427	927,341
Properties under construction	1,589	-	-	1,589
Total	1,323,741	92,980	13,720	1,430,441

31 December 2018 (restated)
Residential properties	150,106	20,855	313	171,274
Offices and other commercial properties	179,822	33,283	7,401	220,506
Manufacturing and industrial properties	54,188	36,212	498	90,898
Hotels	34,840	484	-	35,324
Land (fields and plots)	897,020	7,546	3,611	908,177
Properties under construction	678	-	-	678
Total	1,316,654	98,380	11,823	1,426,857

18. Prepayments, accrued income and other assets

	30 June 2019	31 December 2018
	€000	€000
Financial assets
Receivables relating to disposal of operations, loan portfolios and other assets	130,716	85,606
Debtors	42,599	30,671
Receivable relating to tax	4,692	12,329
Other assets	11,922	15,775
	189,929	144,381
Non financial assets
Reinsurers' share of insurance contract liabilities	51,481	48,348
Current tax receivable	24,698	2,307
Prepaid expenses	7,199	8,658
Other assets	49,946	52,308
	133,324	111,621
	323,253	256,002
As at 30 June 2019, the receivable relating to the disposal of operations in the UK amounts to €56,064 thousand (31 December 2018: €54,760 thousand). Half of the consideration was received upon completion of the transaction and the remaining half is deferred up to November 2020, without any performance conditions attached. The receivable relating to the disposal of the Ukrainian operations in 2014, amounted to €28,023 thousand (31 December 2018: €30,846 thousand) and the deferred consideration is due to be paid to BOC PCL under a repayment programme which has been extended from June 2019 to December 2022. The receivable is fully secured.

During the six months ended 30 June 2019, credit losses of €6,176 thousand were recognised in relation to prepayments, accrued income and other assets. This includes ECL losses of €7,764 thousand and net reversal of impairments amounting to €1,588 thousand. During the six months ended 30 June 2018 credit losses amounted to €2,080 thousand, which includes reversal of ECL of €59 thousand and €2,139 thousand write‑offs (Note 10).

19. Non‑current assets and disposal groups held for sale

Non‑current assets and disposal groups held for sale

The following non‑current assets and disposal groups were classified as held for sale as at 30 June 2019 and 31 December 2018:

	30 June 2019	31 December 2018
	€000	€000
Gross loans and advances to customers at amortised cost (Note 29.7)	-	2,711,960
Allowance for ECL	-	(1,557,852)
	-	1,154,108
Stock of property (Note 17)	-	73,899
Disposal group 1	-	1,228,007
Disposal group 2	-	151,248
Disposal group 3	91,701	89,683
Investment in associate	97,502	-
Lending and other exposures to serbian entities	8,318	-
Investment properties held for sale	-	1,100
	197,521	1,470,038

Non‑current liabilities and disposal group held for sale


Liabilities relating to disposal group 3	6,760	5,812
Disposal group 1
Disposal group 1 comprised of a portfolio of loans and advances to customers (the Portfolio) and stock of property (known as 'Project Helix' or the 'Transaction') and a portfolio of loans and advances to customers known as 'Velocity'. During the six months ended 30 June 2019, the Group disposed of the Portfolio through the transfer of the Portfolio by BOC PCL to a licensed Cypriot Credit Acquiring Company (the 'CyCAC'). The shares of the CyCAC were subsequently acquired by certain funds affiliated with Apollo Global Management LLC (together with its consolidated subsidiaries 'Apollo', the purchaser of the Portfolio). Funds managed by Apollo provided equity capital in relation to the financing of the purchase of the Portfolio. In addition, during the six months ended 30 June 2019 the Group disposed of the portfolio of project 'Velocity'.
BOC PCL received consideration of c.€1,186 million on completion, reflecting adjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018, of which €45 million concern the BOC PCL participation in the senior debt issued to finance the transaction. As at the date of the completion of the sale, the Portfolio included loans and advances to customers of gross book value amounting to €2,631 million (net book value €1,054 million) and stock of properties with carrying value amounting to €109 million. As at 30 June 2019 the Group has derecognised the disposed portfolio relating to Project Helix.
The portfolio of project Velocity comprised of gross loans and advances to customers amounting to €30 million with net book value of €4 million and the net proceeds amounted to €4 million. The Group has derecognised the disposed portfolio relating to Project Velocity as of 30 June 2019.

As at 31 December 2018, the portfolios of Project Helix and Project Velocity were classified as a disposal group held for sale as management was committed to sell and had proceeded with an active programme to complete this plan.

Disposal group 2

In June 2019 BOC PCL disposed of its entire holding of 88.2% in the investment shares of Cyreit. Cyreit is the holding company of a group of companies which holds and manages investment properties. As at 31 December 2018, the subsidiary was classified as a disposal group.

The investment properties held within the disposal group were measured at fair value up to the date of disposal. The results of the fair value changes and the impact on disposal are presented within 'Net losses from revaluation and disposal of investment properties' in the consolidated income statement and are within the Cyprus operating segment since the investment properties are in Cyprus. Further information is presented in Note 35.2.1.

Disposal group 3

As at 30 June 2019 and 31 December 2018, the disposal group 3 relates to the subsidiary Nicosia Mall Holdings (NMH) Limited and its subsidiaries (NMH group) which are involved in the construction and management of the Nicosia Mall. Management is committed to sell NMH group and has proceeded with an active programme to complete this plan. The disposal is expected to be completed within the next 12 months from the classification date. Disposal group 3 includes stock of property amounting to €91,031 thousand and other assets of €670 thousand.

Investment in the associate company CNP Cyprus Insurance Holdings Ltd (CNP)

As at 30 June 2019, BOC PCL signed an agreement for the disposal of its entire holding of 49.9% in CNP. CNP is the parent company of a group of insurance companies in Cyprus and Greece. The completion of the disposal is subject to regulatory approvals and is expected in the second half of 2019. Prior to the classification as held for sale, the investment was remeasured at fair value less cost to sell and a loss of €25,943 thousand was recognised in the consolidated income statement. The Group up to the date of disposal will continue to account for the share of profit from associate using equity accounting.

Lending and other exposures to serbian entities

In May 2019, BOC PCL signed an agreement for the disposal of a loan portfolio amounting to €5,891 thousand and a properties portfolio amounting to €2,427 thousand. The portfolio relates to serbian entity loans or with collaterals in Serbia. The disposal is subject to regulatory approvals and is expected to take place within the third quarter of 2019.

Investment properties

The investment properties classified as held for sale as at 31 December 2018 were properties which management was committed to sell and had proceeded with an active programme to complete this plan. The disposals were completed during the six months ended 30 June 2019. Investment properties classified as held for sale were measured at fair value. The results of the fair value changes were presented within 'Net losses from revaluation and disposal of investment properties' in the consolidated income statement and were within the Cyprus operating segment since these investment properties were in Cyprus.

20. Funding from central banks

Funding from central banks comprises funding from the ECB under Eurosystem monetary policy operations as set out in the table below:

	30 June 2019	31 December 2018
	€000	€000
Targeted Longer‑Term Refinancing Operations (TLTRO II)	830,000	830,000
As at 30 June 2019 and 31 December 2018, ECB funding was at €830 million that was borrowed from the 4‑year TLTRO II.

The interest rate applied to TLTRO II will be fixed for each operation at the rate applied in the MRO prevailing at the time of allotment and is subject to a lower rate for counterparties whose eligible net lending in the pre‑specified period exceeds their benchmark. The interest rate applicable to the amount borrowed by BOC PCL under the TLTRO II transactions will be 0% as eligible net lending in the pre‑specified period did not exceed the benchmark.

Details on encumbered assets related to the above funding facilities are disclosed in Note 31.

21. Customer deposits

	30 June 2019	31 December 2018
	€000	€000
By type of deposit
Demand	6,818,036	6,708,852
Savings	1,419,200	1,352,452
Time or notice	8,139,450	8,782,254
	16,376,686	16,843,558
By geographical area
Cyprus	16,376,686	16,843,558

By currency
Euro	14,686,817	14,961,025
US Dollar	1,301,014	1,482,867
British Pound	274,532	292,640
Russian Rouble	31,589	25,529
Swiss Franc	7,713	7,994
Other currencies	75,021	73,503
	16,376,686	16,843,558

By customer sector
Corporate	1,872,614	1,750,517
SMEs	738,515	800,671
Retail	9,806,679	10,032,047
Restructuring
- Corporate	54,670	69,180
- SMEs	24,702	29,299
- Retail other	16,597	16,773
Recoveries
- Corporate	18,610	6,492
International banking services	3,459,828	3,707,713
Wealth management	384,471	430,866
	16,376,686	16,843,558
Deposits by geographical area are based on the originator country of the deposit.

22. Subordinated loan stock

		30 June 2019	31 December 2018
	Contractual interest rate	€000	€000
Subordinated Tier 2 Capital Note with nominal value of €250 million	9.25% up to 19 January 2022	261,417	270,930
BOC PCL maintains a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal amount up to €4,000 million.
In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (the Note) under BOC PCL's EMTN Programme. The Note was priced at par with a coupon of 9.25% per annum payable annually up to 19 January 2022 and then a rate at the then prevailing 5‑year swap rate plus a margin of 9.176% per annum up to 19 January 2027, payable annually. The Note matures on 19 January 2027. BOC PCL has the option to redeem the Note early on 19 January 2022, subject to applicable regulatory consents. The Note is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market. The fair value as at 30 June 2019 is disclosed in Note 15.

23. Accruals, deferred income, other liabilities and other provisions

	30 June 2019	31 December 2018
	€000	€000
Income tax payable and related provisions	5,022	14,568
Special defence contribution payable	1,052	4,270
Retirement benefit plans liabilities	9,327	8,777
Provisions for financial guarantees and commitments	22,151	27,685
Liabilities for investment‑linked contracts under administration	3,844	2,971
Accrued expenses and other provisions	63,013	72,702
Deferred income	21,213	18,869
Items in the course of settlement	69,769	47,958
Lease liabilities	31,760	-
Other liabilities	104,257	87,683
	331,408	285,483

24. Share capital

	30 June 2019		31 December 2018
	Number of shares (thousand)	€000	Number of shares (thousand)	€000
Authorised
Ordinary shares of €0.10 each	10,000,000	1,000,000	10,000,000	1,000,000
Issued
1 January	446,200	44,620	446,200	44,620
30 June 2019/31 December 2018	446,200	44,620	446,200	44,620

Authorised and issued share capital

All issued ordinary shares carry the same rights.

There were no changes to the authorised or issued share capital during the six months ended 30 June 2019, nor during the year ended 31 December 2018.

Share premium reserve

2019

There were no changes to the share premium reserve during the six months ended 30 June 2019.

2018

The Annual General Meeting of the shareholders of the Company held in August 2018 approved a reduction of up to €1.5 billion of the Company's share premium to eliminate the Company's accumulated losses and create distributable reserves (retained earnings). This was approved by the Irish High Court pursuant to sections 85(1) of the Companies Act on 13 December 2018.

Treasury shares of the Company

Shares of the Company held by entities controlled by the Group are deducted from equity on the purchase, sale, issue or cancellation of such shares. No gain or loss is recognised in the consolidated income statement. Following the restructuring of the Group and the introduction of the Company as the new holding company of the Group, the shares held by the life insurance subsidiary were cancelled and New Shares of the Company were issued.

The life insurance subsidiary of the Group, as at 30 June 2019, held a total of 142 thousand ordinary shares of the Company (31 December 2018: 142 thousand ordinary shares), as part of its financial assets which are invested for the benefit of insurance policyholders. The cost of acquisition of these shares was €21,463 thousand (31 December 2018: €21,463 thousand).

Share‑based payments ‑ share options

Following the incorporation of the Company and its introduction as the new holding company of the Group in January 2017, the Long Term Incentive Plan was replaced by the Share Option Plan which operates at the level of the Company. The Share Option Plan is identical to the Long Term Incentive Plan except that the number of shares in the Company to be issued pursuant to an exercise of options under the Share Option Plan should not exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price was set at €5.00 per share. The term of the options was also extended to between 4‑10 years after the grant date.

No share options were granted since the date of replacement of the Long Term Incentive Plan by the Share Option Plan at the level of the Company and the Share Option Plan remains frozen. Any shares related to the Share Option Plan carry rights with regards to control of the company that are only exercisable directly by the employee.

Other equity instruments

	30 June 2019	31 December 2018
	€000	€000
Reset Perpetual Additional Tier 1 Capital Securities	220,000	220,000
In December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company. The coupon is at 12.50% and is payable semi‑annually. The first coupon payment to AT1 holders was made in June 2019 and has been recognised in retained earnings. The Company may elect to cancel any interest payment for an unlimited period, on a non‑cumulative basis, whereas it mandatorily cancels interest payment under certain circumstances. AT1 is perpetual and has no fixed date for redemption but can be redeemed (in whole but not in part) at the Company's option on the fifth anniversary of the issue date and each subsequent fifth anniversary subject to the prior approval of the regulator. AT1 is listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.

The transaction costs during 2018, directly attributable to the issuance, amounted to €2,458 thousand and have been recognised in retained earnings.

25. Pending litigation, claims, regulatory and other matters

The Group, in the ordinary course of business is subject to enquiries and examinations, requests for information, audits, investigations and legal and other proceedings by regulators, governmental and other public bodies, actual and threatened, relating to the suitability and adequacy of advice given to clients or the absence of advice, lending and pricing practices, selling and disclosure requirements, record keeping, filings and a variety of other matters. In addition, as a result of the deterioration of the Cypriot economy and banking sector in 2012 and the subsequent Restructuring of BOC PCL in 2013 as a result of the bail‑in Decrees, BOC PCL is subject to a large number of proceedings and investigations that either precede, or result from the events that occurred during the period of the bail‑in Decrees. Most ongoing investigations and proceedings of significance relate to matters arising during the period prior to the issue of the bail‑in Decrees.

Apart from what is described below, the Group considers that none of these matters is material, either individually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on its contingent liabilities arising from these matters where it is not practicable to do so because it is too early or the outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct of the matters. Provisions have been recognised for those cases where the Group is able to estimate probable losses. Where an individual provision is material, the fact that a provision has been made is stated. Any provision recognised does not constitute an admission of wrongdoing or legal liability. While the outcome of these matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of legal proceedings and regulatory matters as at 30 June 2019 and hence it is not believed that such matters, when concluded, will have a material impact upon the financial position of the Group.

25.1 Pending litigation and claims

Investigations and litigation relating to securities issued by BOC PCL

A number of institutional and retail customers have filed various separate actions against BOC PCL alleging that BOC PCL is guilty of misselling in relation to securities issued by BOC PCL between 2007 and 2011. Remedies sought include the return of the money investors paid for these securities. Claims are currently pending before the courts in Cyprus and in Greece, as well as the decisions and fines imposed upon BOC PCL in related matters by Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital Market Commission (HCMC).

The bonds and capital securities in respect of which claims have been brought are the following: 2007 Capital Securities, 2008 Convertible Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible Enhanced Capital Securities (CECS).

BOC PCL is defending these claims, particularly with respect to institutional investors and retail purchasers who received investment advice from independent investment advisors. In the case of retail investors, if it can be documented that the relevant BOC PCL officers 'persuaded' them to proceed with the purchase and/or purported to offer 'investment advice', BOC PCL may face significant difficulties. To date, a number of cases have been tried in Greece. BOC PCL has appealed against any such cases which were not ruled in its favour. The resolution of the claims brought in the courts of Greece is expected to take a number of years. Also a small number of cases are being heard in Cyprus. Provision has been made based on management's best estimate of probable outflows and based on advice of legal counsel.

In July 2019 the first capital securities case to reach the Areios Pagos (Supreme Court of Greece) has been adjudged in favour of BOC PCL, ruling in effect that BOC PCL can rely on the defence of Frustration (ie intervening event out of the control of BOC PCL in this case BOC PCL's resolution and recapitalisation through the bail‑in of deposits) to show that the risks associated with the sale of the capital securities because of the consequences of the bail‑in were unforeseeable.

The case will be retried by the Lamia District Court as per the direction of the Supreme Court, however the ruling of the Supreme Court on this point is final and binding on lower courts and BOC PCL's position therefore is that BOC PCL will, most probably, win the case at the Lamia District Court.

In July 2018 the Nicosia District Court ruled in favour of BOC PCL in an action against BOC PCL by a capital securities holder and rejected the claim to reimburse the plaintiff for alleged damages sustained from investing in the capital securities of BOC PCL. In September 2018 judgement was issued by the District Court of Larnaca against BOC PCL with respect to a capital securities case. The plaintiffs were seeking compensation against BOC PCL (and others) for negligence/fraud/breach of statutory duty in selling to the plaintiffs contingent convertible bonds. The court found in favour of the plaintiffs and against BOC PCL, awarding damages plus interest and legal fees. BOC PCL has filed an appeal against this judgement.

In May 2019 and June 2019 the District Court of Nicosia issued the second and third judgments in favour of BOC PCL relating to capital securities cases. The plaintiffs in the second judgment have filed an appeal.

Bail‑in related litigation

Depositors

A number of the BOC PCL's depositors, who allege that they were adversely affected by the bail in, filed claims against BOC PCL and other parties (such as the CBC and the Ministry of Finance of Cyprus) including against BOC PCL as the alleged successor of Laiki Bank on the grounds that, inter alia, the 'Resolution Law of 2013' and the Bail‑in Decrees were in conflict with the Constitution of the Republic of Cyprus and the European Convention on Human Rights. They are seeking damages for their alleged losses resulting from the bail in of their deposits. BOC PCL is defending these actions.

Shareholders

Numerous claims were filed by shareholders in 2013 against the Government and the CBC before the Supreme Court in relation to the dilution of their shareholding as a result of the recapitalisation pursuant to the Resolution Law and the Bail‑in Decrees issued thereunder. These proceedings sought the cancellation and setting aside of the Bail‑in Decrees as unconstitutional and/or unlawful and/or irregular. BOC PCL appeared in these proceedings as an interested party to support the position that the cases should be adjudicated upon in the context of private law. The Supreme Court ruled in these cases in October 2014 that the proceedings fall within private and public law and thus fall within the jurisdiction of the District Courts.

As at the present date, both the Resolution Law and the Bail‑in Decrees have not been annulled by a court of law and thus remain legally valid and in effect. A number of actions for damages have been filed and are still being filed with the District Courts of Cyprus.

Claims based on set‑off

Certain claims have been filed by customers against BOC PCL alleging that the implementation of the bail‑in under the Bail‑in Decrees was not carried out correctly in relation to them and, in particular, that their rights of set‑off were not properly respected. BOC PCL intends to contest such claims.

Implementation of Decrees

Occasionally, other claims are brought against BOC PCL in respect of the implementation of the Decrees issued following the adoption of the Resolution Law (as regards the way and methodology whereby such Decrees have been implemented).

Legal position of the Group

All above claims are being vigorously disputed by the Group, in close consultation with the appropriate state and governmental authorities. The position of the Group is that the Resolution Law and the Decrees take precedence over all other laws. As matters now stand, both the Resolution Law and the Decrees issued thereunder are constitutional and lawful, in that they were properly enacted and have not so far been annulled by any court.

Provident fund case

In December 2015, the Bank of Cyprus Employees Provident Fund (the Provident Fund) filed an action against BOC PCL claiming €70 million allegedly owed as part of BOC PCL's contribution by virtue of an agreement with the union dated 31 December 2011. Based on facts currently known, it is not practicable at this time for BOC PCL to predict the resolution of this matter, including the timing or any possible impact on BOC PCL, however at this stage the Group does not expect a material impact on its financial position.

Employment litigation

Former senior officers of BOC PCL have instituted one claim for unfair dismissal and one claim for Provident Fund entitlements against BOC PCL and Trustees of the Provident Fund. As at the present date one case had been dismissed as filed out of time, but the plaintiff has subsequently filed a civil action in the District Court on the same grounds as the previous case which was filed in the Labour Disputes Court. The Group does not consider that these cases will have a material impact on its financial position.

Swiss Francs loans litigation in Cyprus and UK

A number of actions have been instituted against BOC PCL by borrowers who obtained loans in foreign currencies (mainly Swiss Francs). The central allegation in these cases is that BOC PCL misled these borrowers and/or misrepresented matters, in violation of applicable law. BOC PCL intends to contest such proceedings. The Group does not expect that these actions will have a material impact on its financial position.

UK property lending claims

BOC PCL is the defendant in certain proceedings alleging that BOC PCL is legally responsible for allegedly, inter alia, advancing and misselling loans for the purchase by UK nationals of property in Cyprus. The proceedings in the United Kingdom are currently stayed in order for the parties to have time to negotiate possible settlements.

Banking business cases

There are a number of banking business cases where the amounts claimed are significant. Management has assessed the probability of loss as possible and does not expect any future outflows with respect to these cases to have a material impact on the financial position of the Group. These cases primarily concern allegations as to BOC PCL's standard policies and procedures allegedly resulting to damages and other losses for the claimants.

General criminal investigations and proceedings

The Attorney General and the Cypriot Police (the Police) are conducting various investigations and inquiries following and relating to the financial crisis which culminated in March 2013. BOC PCL is cooperating fully with the Attorney General and the Police and is providing all information requested of it. Based on the currently available information, the Group is of the view that any further investigations or claims resulting from these investigations will not have a material impact on its financial position.

In January 2017 the Attorney General has filed a criminal case against a number of current and former officers of BOC PCL relating to the reclassification of Greek Government Bonds in April 2010. No charges were instituted against BOC PCL in this case. Two of the former officers accused, have already been acquitted on the basis of preliminary objections raised by them. The Attorney General has filed an appeal against the acquittals. The Supreme Court dismissed the Attorney General's appeal. Meanwhile the hearing of this case has not yet commenced.

25.2 Regulatory matters

The Hellenic Capital Market Commission (HCMC) Investigation

The HCMC is currently in the process of investigating matters concerning the Group's investment in Greek Government Bonds from 2009 to 2011, including, inter‑alia, related non‑disclosure of material information in BOC PCL's CCS and CECS and rights issue prospectus (tracking the investigation carried out by CySEC in 2013), Greek government bonds' reclassification, ELA disclosures and allegations by some Greek Government Bond investors regarding BOC PCL's non‑compliance with Markets in Financial Instruments Directive (MiFID) in respect of investors' direct investments in Greek Government Bonds.

A specific estimate of the outcome of the investigations or of the amount of possible fines cannot be given at this stage, though it is not expected that any resulting liability or damages will have a material impact on the financial position of the Group.

The Cyprus Securities and Exchange Commission (CySEC) Investigations

As at 30 June 2019, the only pending CySEC investigation against BOC PCL concerns possible price manipulation attributable to BOC PCL for the period from 1 November 2009 to 30 June 2010 post the investment in Banca Transylvania. In July 2019 the CySEC has submitted their report and the investigation was closed with no findings against BOC PCL.

Commission for the Protection of Competition Investigation

In April 2014, following an investigation which began in 2010, the Cypriot Commission for the Protection of Competition (the CPC) issued a statement of objections, alleging violations of Cypriot and EU competition law relating to the activities and/or omissions in respect of card payment transactions by, among others, BOC PCL and JCC Payment Systems Ltd (JCC), a card‑processing business currently 75% owned by BOC PCL.

There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable law for the protection of competition. In May 2017 the CPC imposed a fine of €18 million upon BOC PCL and BOC PCL filed a recourse against the decision and the fine. The payment of the fine has been stayed pending the final outcome of the recourse. In June 2018 the Administrative court accepted BOC PCL's position and cancelled the decision as well as the fine imposed upon BOC PCL. The Attorney General has filed an appeal before the Supreme court with respect to such decision.

UK regulatory matters

The provision outstanding as at 30 June 2019 is €2,808 thousand (31 December 2018: €15,795 thousand). As part of the agreement for the sale of Bank of Cyprus UK Ltd, liability in regards to UK regulatory matters remains an obligation for settlement by the Group. The level of the provision represents the best estimate of all probable outflows arising from customer redress based on information available to management. Management continues to reassess the adequacy of the provision, as well as the assumptions underlying the calculations based upon experience and other relevant factors prevailing at the time.

25.3 Provisions for pending litigation, claims, regulatory and other matters

	Pending litigation or claims (Note 25.1)	Regulatory matters (Note 25.2)	Other matters (Note 25.4)	Total
2019	€000	€000	€000	€000
1 January	74,372	29,569	13,010	116,951
Increase of provisions including unwinding of discount (Note 9)	195	390	11,644	12,229
Utilisation of provisions	(8,234)	(13,325)	(1,926)	(23,485)
Release of provisions (Note 9)	(1,788)	(1,480)	-	(3,268)
Foreign exchange adjustments	-	(52)	-	(52)
30 June	64,545	15,102	22,728	102,375

2018
1 January	62,646	70,672	5,057	138,375
Increase of provisions including unwinding of discount ‑ continuing operations (Note 9)	3,187	-	-	3,187
Utilisation of provisions	(2,945)	(16,095)	-	(19,040)
Release of provisions ‑ continuing operations (Note 9)	-	(9,000)	-	(9,000)
Foreign exchange adjustments	-	194	-	194
30 June	62,888	45,771	5,057	113,716
The decrease of accumulated provisions for regulatory matters during the six months ended 30 June 2019 mainly relates to utilisation of provisions on UK regulatory matters as detailed in Note 25.2. The decrease of provisions for pending litigation and claims during the six months ended 30 June 2019 mainly relates to utilisation of provision recognised on investigations and litigations relating to securities issued by BOC PCL as detailed in Note 25.1.

25.4 Οther matters

Other matters include other provisions for various open examination requests by governmental and other public bodies or provisions for warranties related to the disposal process of certain operations of the Group (Note 26). The provisions for pending litigation, claims, regulatory and other matters do not include insurance claims arising in the ordinary course of business of the Group's insurance subsidiaries as these are included in 'Insurance liabilities'.

Some information required by the IAS 37 (Provision, Contingent Liabilities and Contingent Assets) is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation.

26. Contingent liabilities

The Group, as part of its disposal process of certain of its operations, has provided various representations, warranties and indemnities to the buyers. These relate to, among other things, the ownership of the loans, the validity of the liens, tax exposures and other matters agreed with the buyers. As a result, the Group may be obliged to compensate the buyers in the event of a valid claim by the buyers with respect to the above representations, warranties and indemnities.

A provision has been made, based on management's best estimate of probable outflows, where it was assessed that such an outflow is probable.

27. Cash and cash equivalents

Cash and cash equivalents comprise:

	30 June 2019	30 June 2018
	€000	€000
Cash and non‑obligatory balances with central bank	5,104,501	4,001,987
Loans and advances to banks with original maturity less than three months	275,336	675,419
	5,379,837	4,677,406

Analysis of cash and balances with central banks and loans and advances to banks

	30 June 2019	31 December 2018
	€000	€000
Cash and non‑obligatory balances with central bank	5,104,501	4,447,816
Obligatory balances with central banks	157,395	162,675
Total cash and balances with central banks	5,261,896	4,610,491

Loans and advances to banks with original maturity less than three months	275,336	357,028
Restricted loans and advances to banks	125,704	115,504
Other loans and advances to banks	2,001	-
Total loans and advances to banks	403,041	472,532
Restricted loans and advances to banks include collaterals under derivative transactions of €64,344 thousand (31 December 2018: €42,631 thousand) which are not immediately available for use by the Group, but are released once the transactions are terminated.

28. Analysis of assets and liabilities by expected maturity

	30 June 2019			31 December 2018 (restated)
	Less than one year	Over one year	Total	Less than one year	Over one year	Total
Assets	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	5,104,501	157,395	5,261,896	4,447,816	162,675	4,610,491
Loans and advances to banks	280,184	122,857	403,041	364,655	107,877	472,532
Derivative financial assets	4,656	8,995	13,651	4,148	20,606	24,754
Investments including investments pledged as collateral	379,373	1,501,526	1,880,899	135,679	1,379,012	1,514,691
Loans and advances to customers	1,451,413	9,497,589	10,949,002	1,525,865	9,395,921	10,921,786
Life insurance business assets attributable to policyholders	8,069	430,491	438,560	498	402,067	402,565
Prepayments, accrued income and other assets	184,067	139,186	323,253	82,214	173,788	256,002
Stock of property	520,033	910,408	1,430,441	542,419	884,438	1,426,857
Deferred tax assets	37,909	341,217	379,126	-	301,778	301,778
Property, equipment and intangible assets	-	465,741	465,741	6	431,128	431,134
Investment properties	-	141,864	141,864	-	128,006	128,006
Investment in associates and joint venture	-	2,191	2,191	-	114,637	114,637
Non‑current assets and disposal groups held for sale	197,521	-	197,521	1,470,038	-	1,470,038
	8,167,726	13,719,460	21,887,186	8,573,338	13,501,933	22,075,271
Liabilities
Deposits by banks	277,059	254,964	532,023	168,740	263,202	431,942
Funding from central banks	-	830,000	830,000	-	830,000	830,000
Repurchase agreements	124,586	123,227	247,813	80,692	168,253	248,945
Derivative financial liabilities	11,086	45,616	56,702	12,459	26,524	38,983
Customer deposits	2,812,842	13,563,844	16,376,686	2,946,714	13,896,844	16,843,558
Insurance liabilities	85,978	540,534	626,512	90,464	500,593	591,057
Accruals, deferred income and other liabilities and pending litigation, claims, regulatory and other matters	376,280	57,503	433,783	300,765	101,669	402,434
Subordinated loan stock	-	261,417	261,417	-	270,930	270,930
Deferred tax liabilities	-	44,818	44,818	-	44,282	44,282
Non‑current liabilities and disposal group classified as held for sale	6,760	-	6,760	5,812	-	5,812
	3,694,591	15,721,923	19,416,514	3,605,646	16,102,297	19,707,943
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
The investments are classified in the relevant time band based on expectations as to their realisation. In most cases this is the maturity date, unless there is an indication that the maturity will be prolonged or there is an intention to sell, roll or replace the security with a similar one. The latter would be the case where there is secured borrowing, requiring the pledging of bonds and these bonds mature before the maturity of the secured borrowing. The maturity of bonds is then extended to cover the period of the secured borrowing. Investments in equity securities are classified in the 'less than one year' time band.

Performing loans and advances to customers in Cyprus are classified based on the contractual repayment schedule. Overdraft accounts are classified in the 'over one year' time band. The Stage 3 Loans are classified in the 'over one year' time band except from expected receipts which are included within time bands, according to historic amounts of receipts in the last months.

Stock of property is classified in the relevant time band based on expectations as to its realisation.

A percentage of customer deposits in Cyprus maturing within one year is classified in the 'over one year' time band, based on the observed behavioural analysis.

The expected maturity of all prepayments, accrued income and other assets and accruals, deferred income and other liabilities is the same as their contractual maturity. If they don't have a contractual maturity, the expected maturity is based on the timing the asset is expected to be realised and the liability is expected to be settled.

29. Risk management ‑ Credit risk

In the ordinary course of its business the Group is exposed to credit risk which is monitored through various control mechanisms across all Group entities in order to prevent undue risk concentrations and to price credit facilities and products on a risk‑adjusted basis.

Credit risk is the risk that arises from the possible failure of one or more customers to discharge their obligations towards the Group.

The Credit Risk Management department sets the Group's credit disbursement policies and monitors compliance with credit risk policy applicable to each business line and the quality of the Group's loans and advances portfolio through the timely assessment of problematic customers. The credit exposures from related accounts are aggregated and monitored on a consolidated basis.

Credit Risk Management department, safeguards the effective management of credit risk at all stages of the credit cycle, monitors the quality of decisions and processes and ensures that credit sanctioning function is being properly managed.

The credit policies are combined with the methods used for the assessment of the customers' creditworthiness (credit rating and credit scoring systems).

The loan portfolio is analysed on the basis of assessments about the customers' creditworthiness, their economic sector of activity and the country in which they operate.

The credit risk exposure of the Group is diversified across the various sectors of the economy. The Credit Risk Management department determines the prohibitive/dangerous sectors of the economy and sets out stricter policy rules for these sectors, according to their degree of riskiness.

The Group's significant judgements, estimates and assumptions regarding the determination of the level of provisions for impairment are described in Note 6 'Significant and other judgements, estimates and assumptions' of these Consolidated Financial Statements.

The Market Risk department assesses the credit risk relating to investments in liquid assets (mainly loans and advances to banks and debt securities) and submits its recommendation for limits to be set to the Assets and Liabilities Committee (ALCO) for approval.

29.1 Maximum exposure to credit risk and collateral and other credit enhancements

The Group's maximum exposure to credit risk is analysed by geographic area as follows:

	30 June 2019	31 December 2018
On‑balance sheet	€000	€000
Cyprus	18,414,125	18,504,113
Other countries	45,209	83,307
	18,459,334	18,587,420

Off‑balance sheet
Cyprus	2,634,615	2,781,943
Other countries	58,538	60,592
	2,693,153	2,842,535

Total on and off‑balance sheet
Cyprus	21,048,740	21,286,056
Other countries	103,747	143,899
	21,152,487	21,429,955
The Group offers guarantee facilities to its customers under which the Group may be required to make payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs.
Letters of credit and guarantee (including standby letters of credit) commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Group to risks similar to those of loans and advances and are therefore monitored by the same policies and control processes.
Loans and advances to customers
The Credit Risk department determines the amount and type of collateral and other credit enhancements required for the granting of new loans to customers.
The main types of collateral obtained by the Group are mortgages on real estate, cash collateral/blocked deposits, bank guarantees, government guarantees, pledges of equity securities and debt instruments of public companies, fixed and floating charges over corporate assets, assignment of life insurance policies, assignment of rights on certain contracts and personal and corporate guarantees.
The Group's management regularly monitors the changes in the market value of the collateral and, where necessary, requests the pledging of additional collateral in accordance with the relevant agreement.
Other financial instruments
Collateral held as security for financial assets other than loans and advances is determined by the nature of the financial instrument. Debt securities and other eligible bills are generally unsecured with the exception of asset‑backed securities and similar instruments, which are secured by pools of financial assets. In addition, some debt securities are government‑guaranteed.
The Group has chosen the ISDA Master Agreement for documenting its derivatives activity. It provides the contractual framework within which dealing activity across a full range of over‑the‑counter (OTC) products is conducted and contractually binds both parties to apply close‑out netting across all outstanding transactions covered by an agreement, if either party defaults. In most cases the parties execute a Credit Support Annex (CSA) in conjunction with the ISDA Master Agreement. Under a CSA, the collateral is passed between the parties in order to mitigate the market contingent counterparty risk inherent in their open positions.

Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a corresponding receipt in securities or cash. The Group sets daily settlement limits for each counterparty. Settlement risk is mitigated when transactions are effected via established payment systems or on a delivery upon payment basis.

The table below presents the maximum exposure to credit risk, before taking into account the tangible and measurable collateral and other credit enhancements held.

	30 June 2019	31 December 2018
	€000	€000
Balances with central banks	5,126,108	4,456,768
Loans and advances to banks	403,041	472,532
FVPL debt securities	22,513	14,616
Debt securities classified at amortised cost and FVOCI	1,697,718	1,350,127
Derivative financial instruments (Note 14)	13,651	24,754
Loans and advances to customers (Note 16)	10,949,002	10,921,786
Loans and advances to customers classified as held for sale (Note 19)	5,891	1,154,108
Receivables relating to disposal of operations, loan portfolios and other assets (Note 18)	130,716	85,606
Debtors (Note 18)	42,599	30,671
Reinsurers' share of insurance contract liabilities (Note 18)	51,481	48,348
Other assets (Note 18)	16,614	28,104
On‑balance sheet total	18,459,334	18,587,420
Contingent liabilities
Acceptances and endorsements	7,705	5,561
Guarantees	719,012	748,705
Commitments
Documentary credits	14,511	24,297
Undrawn formal stand‑by facilities, credit lines and other commitments to lend	1,951,925	2,063,972
Off‑balance sheet total	2,693,153	2,842,535
	21,152,487	21,429,955

29.2 Credit risk concentration of loans and advances to customers

There are restrictions on loan concentrations which are imposed by the Banking Law in Cyprus, the relevant CBC Directives and CRR. According to these restrictions, banks are prohibited from lending more than 25% of their capital base to a single customer group. The Group's risk appetite statement imposes stricter concentration limits and the Group is taking actions to run down those exposures which are in excess of these internal limits over time.

BOC PCL categorises its loans using the following customer sectors:

· Retail - all personal customers and small businesses with facilities from BOC PCL of up to €260 thousand, excluding professional property loans.

· SME - any company or group of companies (including personal and housing loans to the directors or shareholders of a company) with facilities with BOC PCL in the range of €260 thousand to €6 million and a maximum annual credit turnover of €10 million.

· Corporate - any company or group of companies (including personal and housing loans to the directors or shareholders of a company) with available credit lines with BOC PCL in excess of an aggregate principal amount of €6 million or having a minimum annual credit turnover of €10 million.

Fair value adjustment on initial recognition

The fair value adjustment on initial recognition related to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS 3, this adjustment decreased the gross balance of loans and advances to customers. However, for IFRS 7 disclosure purposes as well as for credit risk monitoring, the residual of the fair value adjustment on initial recognition as at each balance sheet date is not presented within the gross balances of loans and advances.

Industry concentrations and geographical analysis of Group loans and advances to customers are presented in the table below. The loans in Romania, Russia, Greece and the remaining portfolio in UK are disclosed within 'Other countries'.

30 June 2019	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans at amortised cost after residual fair value adjustment on initial recognition
By economic activity	€000	€000	€000	€000	€000
Trade	1,424,245	34,981	1,459,226	(22,323)	1,436,903
Manufacturing	441,324	9,738	451,062	(5,284)	445,778
Hotels and catering	933,195	3,419	936,614	(18,225)	918,389
Construction	890,295	5,802	896,097	(12,138)	883,959
Real estate	1,090,903	23,604	1,114,507	(17,025)	1,097,482
Private individuals	6,116,364	1,019	6,117,383	(120,479)	5,996,904
Professional and other services	877,347	47,653	925,000	(28,387)	896,613
Other sectors	716,833	789	717,622	(5,550)	712,072
	12,490,506	127,005	12,617,511	(229,411)	12,388,100

30 June 2019	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans at amortised cost after residual fair value adjustment on initial recognition
By business line	€000	€000	€000	€000	€000
Corporate	3,611,937	115,247	3,727,184	(39,594)	3,687,590
SMEs	1,153,766	10,927	1,164,693	(16,400)	1,148,293
Retail
‑ housing	2,860,064	-	2,860,064	(43,199)	2,816,865
‑ consumer, credit cards and other	927,404	831	928,235	3,047	931,282
Restructuring
‑ corporate	416,325	-	416,325	(7,284)	409,041
‑ SMEs	413,240	-	413,240	(7,520)	405,720
‑ retail housing	433,694	-	433,694	(2,930)	430,764
‑ retail other	237,948	-	237,948	(4,736)	233,212
Recoveries
‑ corporate	119,487	-	119,487	(3,651)	115,836
‑ SMEs	570,762	-	570,762	(22,726)	548,036
‑ retail housing	776,744	-	776,744	(38,533)	738,211
‑ retail other	685,211	-	685,211	(42,001)	643,210
International banking services	163,902	-	163,902	(1,261)	162,641
Wealth management	120,022	-	120,022	(2,623)	117,399
	12,490,506	127,005	12,617,511	(229,411)	12,388,100

31 December 2018	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans after residual fair value adjustment on initial recognition
By economic activity	€000	€000	€000	€000	€000
Trade	1,447,623	39,682	1,487,305	(24,096)	1,463,209
Manufacturing	437,030	7,572	444,602	(6,439)	438,163
Hotels and catering	877,501	3,806	881,307	(20,354)	860,953
Construction	991,122	2,552	993,674	(14,661)	979,013
Real estate	980,152	21,644	1,001,796	(16,231)	985,565
Private individuals	6,234,765	11,536	6,246,301	(135,603)	6,110,698
Professional and other services	866,093	45,758	911,851	(36,551)	875,300
Other sectors	720,876	4,704	725,580	(8,114)	717,466
	12,555,162	137,254	12,692,416	(262,049)	12,430,367

31 December 2018	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans after residual fair value adjustment on initial recognition
By business line	€000	€000	€000	€000	€000
Corporate	3,363,298	125,138	3,488,436	(49,982)	3,438,454
SMEs	1,188,456	11,188	1,199,644	(16,537)	1,183,107
Retail
‑ housing	2,871,294	-	2,871,294	(45,016)	2,826,278
‑ consumer, credit cards and other	940,388	904	941,292	2,965	944,257
Restructuring
‑ corporate	531,462	24	531,486	(7,907)	523,579
‑ SMEs	560,806	-	560,806	(11,637)	549,169
‑ retail housing	498,601	-	498,601	(4,481)	494,120
‑ retail other	328,952	-	328,952	(8,588)	320,364
Recoveries
‑ corporate	164,821	-	164,821	(7,439)	157,382
‑ SMEs	630,968	-	630,968	(26,178)	604,790
‑ retail housing	697,212	-	697,212	(40,577)	656,635
‑ retail other	480,733	-	480,733	(39,923)	440,810
International banking services	192,646	-	192,646	(2,158)	190,488
Wealth management	105,525	-	105,525	(4,591)	100,934
	12,555,162	137,254	12,692,416	(262,049)	12,430,367
The residual fair value adjustment on initial recognition for loans and advances to customers included in the Cyprus geographical area amounts to €229,236 thousand (31 December 2018: €261,862 thousand).
The loans and advances to customers in Cyprus include lending exposures to greek entities granted by BOC PCL in Cyprus in its normal course of business with a carrying value of €231,542 thousand (31 December 2018: €67,930 thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying value of €79,363 thousand (31 December 2018: €76,303 thousand).

29.3 Credit risk concentration of loans and advances to customers classified as held for sale

Loans and advances to customers classified as held for sale as at 30 June 2019 relate to lending exposures to serbian SMEs entities or with collaterals in Serbia with a carrying value of €5,891 thousand. The economic activity of these SMEs relate to hotels and catering, construction and other sectors (mainly agriculture).

Industry and business lines concentrations and geographical analysis of Group loans and advances to customers at amortised cost classified as held for sale as at 31 December 2018 are presented in the table below.

31 December 2018	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans at amortised cost after residual fair value adjustment on initial recognition
By economic activity	€000	€000	€000	€000	€000
Trade	373,351	-	373,351	(12,213)	361,138
Manufacturing	202,193	-	202,193	(7,216)	194,977
Hotels and catering	258,529	-	258,529	(11,960)	246,569
Construction	995,430	-	995,430	(74,233)	921,197
Real estate	409,632	55,225	464,857	(11,765)	453,092
Private individuals	218,531	-	218,531	(9,098)	209,433
Professional and other services	140,748	-	140,748	(5,941)	134,807
Other sectors	191,463	6,011	197,474	(6,727)	190,747
	2,789,877	61,236	2,851,113	(139,153)	2,711,960

31 December 2018	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans at amortised cost after residual fair value adjustment on initial recognition
By business line	€000	€000	€000	€000	€000
Corporate	15,249	-	15,249	(584)	14,665
SMEs	2,841	-	2,841	-	2,841
Retail
‑ consumer, credit cards and other	128	-	128	(1)	127
Restructuring
‑ corporate	859,214	-	859,214	(24,379)	834,835
‑ SMEs	216,866	-	216,866	(4,858)	212,008
‑ retail housing	272	-	272	-	272
‑ retail other	5,773	-	5,773	(210)	5,563
Recoveries
‑ corporate	1,274,835	61,236	1,336,071	(86,644)	1,249,427
‑ SMEs	374,336	-	374,336	(17,991)	356,345
‑ retail housing	635	-	635	(115)	520
‑ retail other	39,720	-	39,720	(4,371)	35,349
International banking services	8	-	8	-	8
	2,789,877	61,236	2,851,113	(139,153)	2,711,960

29.4 Currency concentration of loans and advances to customers

	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans at amortised cost after residual fair value adjustment on initial recognition
30 June 2019	€000	€000	€000	€000	€000
Euro	11,894,047	62,651	11,956,698	(225,340)	11,731,358
US Dollar	310,914	23,983	334,897	(273)	334,624
British Pound	46,061	1,026	47,087	(283)	46,804
Russian Rouble	3	38,699	38,702	-	38,702
Romanian Lei	1	646	647	-	647
Swiss Franc	221,709	-	221,709	(2,967)	218,742
Other currencies	17,771	-	17,771	(548)	17,223
	12,490,506	127,005	12,617,511	(229,411)	12,388,100

31 December 2018
Euro	11,992,100	60,006	12,052,106	(256,720)	11,795,386
US Dollar	300,718	28,523	329,241	(276)	328,965
British Pound	37,955	11,735	49,690	(248)	49,442
Russian Rouble	81	36,058	36,139	-	36,139
Romanian Lei	-	932	932	-	932
Swiss Franc	203,026	-	203,026	(3,242)	199,784
Other currencies	21,282	-	21,282	(1,563)	19,719
	12,555,162	137,254	12,692,416	(262,049)	12,430,367

29.5 Currency concentration of loans and advances to customers classified as held for sale

The loans and advances to customers classified as held for sale as at 30 June 2019 amounting to €5,891 thousand are denominated in Euro.

The following tables present the currency concentration of the Group's loans and advances at amortised cost classified as held for sale as at 31 December 2018.

	Cyprus	Other countries	Total	Residual fair value adjustment on initial recognition	Gross loans at amortised cost after residual fair value adjustment on initial recognition
31 December 2018	€000	€000	€000	€000	€000
Euro	2,638,647	61,236	2,699,883	(129,898)	2,569,985
US Dollar	20,593	-	20,593	(123)	20,470
British Pound	2,469	-	2,469	(18)	2,451
Swiss Franc	90,951	-	90,951	(8,239)	82,712
Other currencies	37,217	-	37,217	(875)	36,342
	2,789,877	61,236	2,851,113	(139,153)	2,711,960

29.6 Analysis of loans and advances to customers by staging

The following tables present the Group's loans and advances to customers at amortised cost by staging and by business line concentration.

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2019	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	5,870,781	2,479,903	3,556,499	710,328	12,617,511
Residual fair value adjustment on initial recognition	(62,590)	(33,674)	(27,864)	(105,283)	(229,411)
Gross loans at amortised cost after residual fair value adjustment on initial recognition	5,808,191	2,446,229	3,528,635	605,045	12,388,100

Gross loans at amortised cost before residual fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2019	€000	€000	€000	€000	€000
By business line
Corporate	2,320,917	1,034,710	287,224	84,333	3,727,184
SMEs	728,747	353,560	71,461	10,925	1,164,693
Retail
‑ housing	2,014,816	583,298	251,121	10,829	2,860,064
‑ consumer, credit cards and other	592,266	207,700	108,129	20,140	928,235
Restructuring
‑ corporate	35,095	102,800	237,769	40,661	416,325
‑ SMEs	39,851	65,042	279,481	28,866	413,240
‑ retail housing	6,355	6,242	407,785	13,312	433,694
‑ retail other	2,435	1,094	221,433	12,986	237,948
Recoveries
‑ corporate	-	-	93,057	26,430	119,487
‑ SMEs	-	-	465,876	104,886	570,762
‑ retail housing	-	-	600,966	175,778	776,744
‑ retail other	86	-	505,676	179,449	685,211
International banking services	65,696	78,175	19,288	743	163,902
Wealth management	64,517	47,282	7,233	990	120,022
	5,870,781	2,479,903	3,556,499	710,328	12,617,511

Residual fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2019	€000	€000	€000	€000	€000
By business line
Corporate	(20,216)	(15,179)	(3,399)	(800)	(39,594)
SMEs	(9,801)	(5,437)	(547)	(615)	(16,400)
Retail
‑ housing	(33,912)	(8,765)	(79)	(443)	(43,199)
‑ consumer, credit cards and other	2,835	305	63	(156)	3,047
Restructuring
‑ corporate	(288)	(1,883)	(4,115)	(998)	(7,284)
‑ SMEs	68	(1,141)	(2,253)	(4,194)	(7,520)
‑ retail housing	(47)	(31)	(1,541)	(1,311)	(2,930)
‑ retail other	22	(13)	(2,051)	(2,694)	(4,736)
Recoveries
‑ corporate	-	-	(408)	(3,243)	(3,651)
‑ SMEs	-	-	(1,869)	(20,857)	(22,726)
‑ retail housing	-	-	(3,641)	(34,892)	(38,533)
‑ retail other	-	-	(6,928)	(35,073)	(42,001)
International banking services	(255)	(961)	(38)	(7)	(1,261)
Wealth management	(996)	(569)	(1,058)	-	(2,623)
	(62,590)	(33,674)	(27,864)	(105,283)	(229,411)

Gross loans at amortised cost after residual fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2019	€000	€000	€000	€000	€000
By business line
Corporate	2,300,701	1,019,531	283,825	83,533	3,687,590
SMEs	718,946	348,123	70,914	10,310	1,148,293
Retail
‑ housing	1,980,904	574,533	251,042	10,386	2,816,865
‑ consumer, credit cards and other	595,101	208,005	108,192	19,984	931,282
Restructuring
‑ corporate	34,807	100,917	233,654	39,663	409,041
‑ SMEs	39,919	63,901	277,228	24,672	405,720
‑ retail housing	6,308	6,211	406,244	12,001	430,764
‑ retail other	2,457	1,081	219,382	10,292	233,212
Recoveries
‑ corporate	-	-	92,649	23,187	115,836
‑ SMEs	-	-	464,007	84,029	548,036
‑ retail housing	-	-	597,325	140,886	738,211
‑ retail other	86	-	498,748	144,376	643,210
International banking services	65,441	77,214	19,250	736	162,641
Wealth management	63,521	46,713	6,175	990	117,399
	5,808,191	2,446,229	3,528,635	605,045	12,388,100

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	6,035,781	1,921,255	3,915,591	819,789	12,692,416
Residual fair value adjustment on initial recognition	(77,738)	(20,673)	(40,432)	(123,206)	(262,049)
Gross loans at amortised cost after residual fair value adjustment on initial recognition	5,958,043	1,900,582	3,875,159	696,583	12,430,367

Gross loans at amortised cost before residual fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
By business line
Corporate	2,215,264	793,249	387,093	92,830	3,488,436
SMEs	739,166	346,148	103,384	10,946	1,199,644
Retail
‑ housing	2,259,976	300,101	300,584	10,633	2,871,294
‑ consumer, credit cards and other	591,242	199,099	130,816	20,135	941,292
Restructuring
‑ corporate	48,943	92,537	303,955	86,051	531,486
‑ SMEs	55,295	52,573	406,369	46,569	560,806
‑ retail housing	6,883	3,745	473,444	14,529	498,601
‑ retail other	5,140	1,226	304,076	18,510	328,952
Recoveries
‑ corporate	-	-	120,234	44,587	164,821
‑ SMEs	-	-	515,542	115,426	630,968
‑ retail housing	-	-	512,175	185,037	697,212
‑ retail other	89	-	313,529	167,115	480,733
International banking services	69,620	78,109	41,352	3,565	192,646
Wealth management	44,163	54,468	3,038	3,856	105,525
	6,035,781	1,921,255	3,915,591	819,789	12,692,416

Residual fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
By business line
Corporate	(25,159)	(11,564)	(12,282)	(977)	(49,982)
SMEs	(10,652)	(4,150)	(1,113)	(622)	(16,537)
Retail
‑ housing	(43,528)	(97)	(1,246)	(145)	(45,016)
‑ consumer, credit cards and other	3,248	352	(375)	(260)	2,965
Restructuring
‑ corporate	(199)	(1,988)	(2,687)	(3,033)	(7,907)
‑ SMEs	28	(580)	(3,931)	(7,154)	(11,637)
‑ retail housing	(119)	(3)	(2,796)	(1,563)	(4,481)
‑ retail other	34	(40)	(3,971)	(4,611)	(8,588)
Recoveries
‑ corporate	-	-	(1,654)	(5,785)	(7,439)
‑ SMEs	-	-	(2,073)	(24,105)	(26,178)
‑ retail housing	-	-	(3,200)	(37,377)	(40,577)
‑ retail other	-	-	(4,695)	(35,228)	(39,923)
International banking services	(303)	(1,164)	(195)	(496)	(2,158)
Wealth management	(1,088)	(1,439)	(214)	(1,850)	(4,591)
	(77,738)	(20,673)	(40,432)	(123,206)	(262,049)

Gross loans at amortised cost after residual fair value adjustment on initial recognition	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
By business line
Corporate	2,190,105	781,685	374,811	91,853	3,438,454
SMEs	728,514	341,998	102,271	10,324	1,183,107
Retail
‑ housing	2,216,448	300,004	299,338	10,488	2,826,278
‑ consumer, credit cards and other	594,490	199,451	130,441	19,875	944,257
Restructuring
‑ corporate	48,744	90,549	301,268	83,018	523,579
‑ SMEs	55,323	51,993	402,438	39,415	549,169
‑ retail housing	6,764	3,742	470,648	12,966	494,120
‑ retail other	5,174	1,186	300,105	13,899	320,364
Recoveries
‑ corporate	-	-	118,580	38,802	157,382
‑ SMEs	-	-	513,469	91,321	604,790
‑ retail housing	-	-	508,975	147,660	656,635
‑ retail other	89	-	308,834	131,887	440,810
International banking services	69,317	76,945	41,157	3,069	190,488
Wealth management	43,075	53,029	2,824	2,006	100,934
	5,958,043	1,900,582	3,875,159	696,583	12,430,367
The movement of the gross loans at amortised cost after residual fair value adjustment on initial recognition by staging including the loans and advances to customers classified as held for sale is presented in the table below. Details on the loans and advances to customers classified as held for sale are disclosed in Note 29.7.

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2019	€000	€000	€000	€000	€000
1 January	5,964,996	1,991,921	6,073,519	1,111,891	15,142,327
Transfers to stage 1	342,837	(261,697)	(81,140)	-	-
Transfers to stage 2	(840,515)	974,154	(133,639)	-	-
Transfers to stage 3	(80,086)	(95,068)	175,154	-	-
Foreign exchange and other adjustments	9	-	7,064	-	7,073
Write offs	(2,300)	(4,303)	(196,235)	(42,342)	(245,180)
Interest accrued and other adjustments	107,253	25,058	162,995	38,340	333,646
New loans originated or purchased and drawdowns of existing facilities	895,900	73,161	36,519	2,643	1,008,223
Assets derecognised or repaid (excluding write offs)	(570,940)	(209,254)	(314,563)	(97,583)	(1,192,340)
Changes to contractual cash flows due to modifications resulting in derecognition	1,950	(2,667)	3,090	(659)	1,714
Disposal of Helix and Velocity portfolios	(10,913)	(45,076)	(2,198,238)	(407,245)	(2,661,472)
30 June	5,808,191	2,446,229	3,534,526	605,045	12,393,991

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
1 January	5,100,964	4,418,226	6,838,643	1,308,500	17,666,333
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	5,068	6,594	1,350,043	327,792	1,689,497
Restated balance at 1 January 2018	5,106,032	4,424,820	8,188,686	1,636,292	19,355,830
Transfers to stage 1	2,180,460	(1,952,997)	(227,463)	-	-
Transfers to stage 2	(269,513)	462,775	(193,262)	-	-
Transfers to stage 3	(171,920)	(441,097)	613,017	-	-
Write offs	(12,256)	(21,814)	(2,028,137)	(556,097)	(2,618,304)
Interest accrued and other adjustments	97,860	38,850	516,425	109,977	763,112
New loans originated or purchased and drawdowns of existing facilities	1,752,138	193,416	111,124	33,044	2,089,722
Assets derecognised or repaid (excluding write offs)	(1,021,693)	(603,701)	(879,866)	(112,836)	(2,618,096)
Changes to contractual cash flows due to modifications resulting in derecognition	(22)	(65)	(654)	1,511	770
Disposal of subsidiary	(1,696,090)	(108,266)	(26,351)	-	(1,830,707)
31 December	5,964,996	1,991,921	6,073,519	1,111,891	15,142,327

For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding write‑offs is reported in 'New assets originated' and if negative change is reported as 'Assets derecognised or repaid'.

Significant increase in credit risk

IFRS 9 requires that in the event of a significant increase in credit risk since initial recognition, the calculation basis of the loss allowance would change from 12 month ECLs to lifetime ECLs.

The 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 since initial recognition.

Significant credit risk increase for loans and advances to customers

Primarily, the Group uses the lifetime PDs as the quantitative metric in order to assess transition from Stage 1 to Stage 2 for all portfolios, by considering whether the lifetime PD at the reporting date exceeds the lifetime PD at origination by using an established relative threshold. The Group considers an exposure to have significant increase in credit risk (SICR) by comparing the lifetime PD at the reporting date with the remaining lifetime PD at initial recognition to compute the increase in regards to the corresponding threshold. The threshold has been determined by using statistical analysis on historic information of credit migration exposures on the basis of days past due, for the different segments. The Group applies appropriate thresholds at a point in time to each portfolio/segment, based on the following characteristics: customer type, product type and rating at origination. The threshold is then assigned to each facility according to the facilities portfolio/segment.

For Retail and SME portfolios, the threshold applied varies depending on the original credit quality of the borrower. For instruments with lower default probabilities at inception due to good credit quality of the counterparty, the SICR threshold is set at a higher level than for instruments with higher default probabilities at inception.

The SICR trigger, is activated based on the comparison of the ratio of Current remaining Lifetime PD to the remaining Lifetime PD at origination to the pre‑established threshold. If the resulting ratio is higher than the pre‑established threshold then deterioration is assumed to have occurred and the exposure is transferred to Stage 2. The thresholds are calibrated annually following the calibration of the PD models.

For exposures which are subject to individual impairment assessment, the following qualitative factors in addition to the ones incorporated in the PD calculation, are considered:

· significant change in collateral value or guarantee or financial support provided by shareholders/directors,

· significant adverse changes in business, financial and/or economic conditions in which the borrower operates.

The Group also considers, as a backstop criterion, that a significant increase in the credit risk occurs when contractual payments are more than 30 days past due (past due materiality is applied). Loans that meet this condition are classified in Stage 2. In cases where certain exposures are past due for more than 30 days if certain materiality limits are not met (such as arrears equal to €100 and funded balances equal to 1% in the case of retail exposures and arrears equal to €500 and funded balances equal to 1% on all exposures other than retail), then the transfer to Stage 2 does not take place. The materiality levels are set in accordance with the ECB Regulation (EU) 2018/1845.

The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has transferred to Stage 2, if its credit risk is no longer considered to have significantly increased relative to its initial recognition, the financial asset will move back to Stage 1.

Significant credit risk increase for financial instruments other than loans and advances to customers

Low credit risk simplification is adopted for debt security instruments, loans and advances to banks and balances with central banks with external credit ratings that are rated as investment grade. The assessment of low credit risk is based on both the external credit rating and the internal scoring (which considers latest available information on the instrument and issuer). The combination of the two provides an adjusted credit rating. An adjusted rating which remains investment grade is considered as having low credit risk.

For debt securities, loans and advances to banks and balances with central banks which are below investment grade, the low credit risk exemption does not apply and therefore an assessment of significant credit deterioration takes place, by comparing their credit rating at origination with the credit rating on the reporting date. Significant deterioration in credit risk is considered to have occurred when the adjusted rating of the exposures drops to such an extent that the new rating relates to a riskier category (i.e. from a non‑investments grade to speculative and then to highly speculative).

Geographical concentration

The following table presents the staging of the Group's loans and advances to customers at amortised cost before residual fair value adjustment on initial recognition by geographical concentration:

30 June 2019	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
Cyprus	5,869,438	2,479,903	3,430,837	710,328	12,490,506
Other countries	1,343	-	125,662	-	127,005
	5,870,781	2,479,903	3,556,499	710,328	12,617,511

31 December 2018	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
Cyprus	6,023,870	1,921,234	3,790,269	819,789	12,555,162
Other countries	11,911	21	125,322	-	137,254
	6,035,781	1,921,255	3,915,591	819,789	12,692,416

29.7 Analysis of loans and advances to customers classified as held for sale

The loans and advances to customers classified as held for sale as at 30 June 2019 are categorised as stage 3 and their gross value before residual fair value adjustment on initial recognition is €12,422 thousand. Their residual fair value adjustment on initial recognition amounted to €6,531 thousand at 30 June 2019, and their gross value after residual fair value adjustment on initial recognition amounted to €5,891 thousand.

The following tables present the staging of the Group's loans and advances at amortised cost classified as held for sale as at 31 December 2018 by business line concentration.

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	7,148	94,600	2,222,931	526,434	2,851,113
Residual fair value adjustment on initial recognition	(195)	(3,261)	(24,571)	(111,126)	(139,153)
Gross loans at amortised cost after residual fair value adjustment on initial recognition	6,953	91,339	2,198,360	415,308	2,711,960

31 December 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Gross loans at amortised cost before residual fair value adjustment on initial recognition	€000	€000	€000	€000	€000
Corporate	165	-	14,343	741	15,249
SMEs	2,835	-	6	-	2,841
Retail
‑ consumer, credit cards and other	-	-	125	3	128
Restructuring
‑ corporate	2,110	85,783	722,631	48,690	859,214
‑ SMEs	2,038	8,817	187,831	18,180	216,866
‑ retail housing	-	-	231	41	272
‑ retail other	-	-	5,575	198	5,773
Recoveries
‑ corporate	-	-	967,761	368,310	1,336,071
‑ SMEs	-	-	300,509	73,827	374,336
‑ retail housing	-	-	484	151	635
‑ retail other	-	-	23,427	16,293	39,720
International banking services	-	-	8	-	8
	7,148	94,600	2,222,931	526,434	2,851,113

31 December 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Residual fair value adjustment on initial recognition	€000	€000	€000	€000	€000
Corporate	-	-	(584)	-	(584)
Retail
‑ consumer, credit cards and other	-	-	-	(1)	(1)
Restructuring
‑ corporate	-	(2,722)	(13,730)	(7,927)	(24,379)
‑ SMEs	(195)	(539)	(1,470)	(2,654)	(4,858)
‑ retail other	-	-	(132)	(78)	(210)
Recoveries
‑ corporate	-	-	(4,900)	(81,744)	(86,644)
‑ SMEs	-	-	(3,473)	(14,518)	(17,991)
‑ retail housing	-	-	-	(115)	(115)
‑ retail other	-	-	(282)	(4,089)	(4,371)
	(195)	(3,261)	(24,571)	(111,126)	(139,153)

31 December 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Gross loans at amortised cost after residual fair value adjustment on initial recognition	€000	€000	€000	€000	€000
Corporate	165	-	13,759	741	14,665
SMEs	2,835	-	6	-	2,841
Retail
‑ consumer, credit cards and other	-	-	125	2	127
Restructuring
‑ corporate	2,110	83,061	708,901	40,763	834,835
‑ SMEs	1,843	8,278	186,361	15,526	212,008
‑ retail housing	-	-	231	41	272
‑ retail other	-	-	5,443	120	5,563
Recoveries
‑ corporate	-	-	962,861	286,566	1,249,427
‑ SMEs	-	-	297,036	59,309	356,345
‑ retail housing	-	-	484	36	520
‑ retail other	-	-	23,145	12,204	35,349
International banking services	-	-	8	-	8
	6,953	91,339	2,198,360	415,308	2,711,960
The following table presents the staging of the Group's gross loans and advances before residual fair value adjustment on initial recognition at amortised cost classified as held for sale as at 31 December 2018 by geographical concentration.

31 December 2018	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
Cyprus	7,148	94,600	2,161,695	526,434	2,789,877
Other countries	-	-	61,236	-	61,236
	7,148	94,600	2,222,931	526,434	2,851,113

29.8 Credit losses of loans and advances to customers, including loans and advances to customers held for sale

The movement in ECL of loans and advances, including the loans and advances to customers held for sale, is as follows:

30 June 2019	Stage 1	Stage 2	Stage 3	POCI	Total
Cyprus	€000	€000	€000	€000	€000
1 January	26,233	73,870	2,783,232	431,924	3,315,259
Transfers to stage 1	14,659	(8,355)	(6,304)	-	-
Transfers to stage 2	(4,532)	17,601	(13,069)	-	-
Transfers to stage 3	(1,068)	(17,395)	18,463	-	-
Impact on transfer between stages during the period*	(9,227)	10,713	10,369	(1,049)	10,806
Foreign exchange and other adjustments	-	-	3,568	331	3,899
Write offs	(2,426)	(2,339)	(195,808)	(43,538)	(244,111)
Contractual interest (provided) not recognised in the income statement	-	-	70,257	9,132	79,389
New loans originated or purchased*	5,074	-	-	-	5,074
Assets derecognised or repaid (excluding write offs)*	(446)	(3,239)	(55,917)	(7,188)	(66,790)
Write offs*	996	1,075	24,347	4,138	30,556
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	(3,453)	218	127,947	25,952	150,664
Changes to contractual cash flows due to modifications not resulting in derecognition*	(74)	429	(369)	(275)	(289)
Disposal of Helix and Velocity portfolios	(7,778)	(22,248)	(1,313,522)	(204,512)	(1,548,060)
30 June	17,958	50,330	1,453,194	214,915	1,736,397
Individually assessed	6,859	22,983	131,054	14,769	175,665
Collectively assessed	11,099	27,347	1,322,140	200,146	1,560,732
	17,958	50,330	1,453,194	214,915	1,736,397
* Individual components of the 'Impairment loss net of reversals of loans and advances to customers'

30 June 2019	Stage 1	Stage 2	Stage 3	POCI	Total
Other countries	€000	€000	€000	€000	€000
1 January	135	-	146,611	-	146,746
Impact on transfer between stages during the period*	-	-	70	-	70
Foreign exchange and other adjustments	-	2	3,332	-	3,334
Write offs	-	-	(2,550)	-	(2,550)
Contractual interest (provided) not recognised in the income statement	-	-	4,514	-	4,514
Assets derecognised or repaid (excluding write offs)*	(132)	-	(187)	-	(319)
Write offs*	-	-	17	-	17
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	-	-	(365)	-	(365)
Disposal of Helix portfolio	-	-	(54,765)	-	(54,765)
30 June	3	2	96,677	-	96,682
Individually assessed	-	-	90,937	-	90,937
Collectively assessed	3	2	5,740	-	5,745
	3	2	96,677	-	96,682
*Individual components of the 'Impairment loss net of reversals of loans and advances to customers'

30 June 2019	Stage 1	Stage 2	Stage 3	POCI	Total
Total	€000	€000	€000	€000	€000
1 January	26,368	73,870	2,929,843	431,924	3,462,005
Transfers to stage 1	14,659	(8,355)	(6,304)	-	-
Transfers to stage 2	(4,532)	17,601	(13,069)	-	-
Transfers to stage 3	(1,068)	(17,395)	18,463	-	-
Impact on transfer between stages during the period*	(9,227)	10,713	10,439	(1,049)	10,876
Foreign exchange and other adjustments	-	2	6,900	331	7,233
Write offs	(2,426)	(2,339)	(198,358)	(43,538)	(246,661)
Contractual interest (provided) not recognised in the income statement	-	-	74,771	9,132	83,903
New loans originated or purchased*	5,074	-	-	-	5,074
Assets derecognised or repaid (excluding write offs)*	(578)	(3,239)	(56,104)	(7,188)	(67,109)
Write offs*	996	1,075	24,364	4,138	30,573
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	(3,453)	218	127,582	25,952	150,299
Changes to contractual cash flows due to modifications not resulting in derecognition*	(74)	429	(369)	(275)	(289)
Disposal of Helix and Velocity portfolios	(7,778)	(22,248)	(1,368,287)	(204,512)	(1,602,825)
30 June	17,961	50,332	1,549,871	214,915	1,833,079
Individually assessed	6,859	22,983	221,991	14,769	266,602
Collectively assessed	11,102	27,349	1,327,880	200,146	1,566,477
	17,961	50,332	1,549,871	214,915	1,833,079
*Individual components of the 'Impairment loss net of reversals of loans and advances to customers'

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Cyprus	€000	€000	€000	€000	€000
1 January	20,840	29,510	2,654,800	500,027	3,205,177
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	5,068	6,561	1,294,541	326,152	1,632,322
Impact of adopting IFRS 9 at 1 January 2018	(6,660)	32,744	235,471	52,373	313,928
Restated balance at 1 January	19,248	68,815	4,184,812	878,552	5,151,427
Transfer from Romania branch ('Other countries' table)	-	-	-	19,258	19,258
Transfers to stage 1	35,649	(20,882)	(14,767)	-	-
Transfers to stage 2	(731)	25,830	(25,099)	-	-
Transfers to stage 3	(1,049)	(3,857)	34,097	(29,191)	-
Impact on transfer between stages during the period*	(29,348)	(10,590)	43,015	236	3,313
Foreign exchange and other adjustments	-	-	923	168	1,091
Write offs	(15,000)	(26,361)	(1,709,431)	(473,023)	(2,223,815)
Contractual interest (provided) not recognised in the income statement	-	-	68,475	9,501	77,976
New loans originated or purchased*	5,759	-	-	13	5,772
Assets derecognised or repaid (excluding write offs)*	588	(2,015)	(61,691)	-	(63,118)
Write offs*	735	2,345	43,025	801	46,906
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	15,530	54,757	325,908	38,230	434,425
Changes to contractual cash flows due to modifications not resulting in derecognition*	-	-	394	-	394
30 June	31,381	88,042	2,889,661	444,545	3,453,629
Individually assessed	9,018	28,680	750,596	68,719	857,013
Collectively assessed	22,363	59,362	2,139,065	375,826	2,596,616
	31,381	88,042	2,889,661	444,545	3,453,629
*Individual components of the 'Impairment loss net of reversals of loans and advances to customers'

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Other countries	€000	€000	€000	€000	€000
1 January	1,344	365	222,389	23,575	247,673
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	-	33	55,502	1,640	57,175
Impact of adopting IFRS 9 at 1 January 2018	(7)	4,215	933	33	5,174
Restated balance at 1 January	1,337	4,613	278,824	25,248	310,022
Transfer to Cyprus operations ('Cyprus' table)	-	-	-	(19,258)	(19,258)
Transfers to stage 2	-	25	(25)	-	-
Impact on transfer between stages during the period*	62	(41)	1,155	(2,742)	(1,566)
Foreign exchange and other adjustments	(2)	1	(557)	1	(557)
Write offs	-	-	(62,325)	(4)	(62,329)
Contractual interest (provided) not recognised in the income statement	-	-	1,996	-	1,996
Assets derecognised or repaid (excluding write offs)*	-	-	(45)	-	(45)
Write offs*	-	-	(274)	-	(274)
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	21	(1,314)	(13,995)	(429)	(15,717)
Discontinued operations	27	(109)	(65)	-	(147)
30 June	1,445	3,175	204,689	2,816	212,125
Individually assessed	793	3,150	195,711	-	199,654
Collectively assessed	652	25	8,978	2,816	12,471
	1,445	3,175	204,689	2,816	212,125
*Individual components of the 'Impairment loss net of reversals of loans and advances to customers'.

30 June 2018	Stage 1	Stage 2	Stage 3	POCI	Total
Total	€000	€000	€000	€000	€000
1 January	22,184	29,875	2,877,189	523,602	3,452,850
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	5,068	6,594	1,350,043	327,792	1,689,497
Impact of adopting IFRS 9 at 1 January 2018	(6,667)	36,959	236,404	52,406	319,102
Restated balance at 1 January	20,585	73,428	4,463,636	903,800	5,461,449
Transfers to stage 1	35,649	(20,882)	(14,767)	-	-
Transfers to stage 2	(731)	25,855	(25,124)	-	-
Transfers to stage 3	(1,049)	(3,857)	34,097	(29,191)	-
Impact on transfer between stages during the period*	(29,286)	(10,631)	44,170	(2,506)	1,747
Foreign exchange and other adjustments	(2)	1	366	169	534
Write offs	(15,000)	(26,361)	(1,771,756)	(473,027)	(2,286,144)
Contractual interest (provided) not recognised in the income statement	-	-	70,471	9,501	79,972
New assets originated or purchased*	5,759	-	-	13	5,772
Assets derecognised or repaid (excluding write offs)*	588	(2,015)	(61,736)	-	(63,163)
Write offs*	735	2,345	42,751	801	46,632
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	15,551	53,443	311,913	37,801	418,708
Discontinued operations	27	(109)	(65)	-	(147)
Changes to contractual cash flows due to modifications not resulting in derecognition*	-	-	394	-	394
30 June	32,826	91,217	3,094,350	447,361	3,665,754
Individually assessed	9,811	31,830	946,307	68,719	1,056,667
Collectively assessed	23,015	59,387	2,148,043	378,642	2,609,087
	32,826	91,217	3,094,350	447,361	3,665,754
* Individual components of the 'Impairment loss net of reversals of loans and advances to customers'.
The above tables do not include the residual fair value adjustments on initial recognition of loans acquired from Laiki Bank and ECL on financial guarantees which are part of other liabilities on the balance sheet.
Loans and advances to customers classified as held for sale as at 30 June 2019 do not carry any credit losses.

The movement of credit losses of loans and advances to customers for the six months ended 30 June 2018 includes credit losses relating to loans and advances to customers classified as held for sale. Their balance at 30 June 2018 by staging and geographical area is presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2018	€000	€000	€000	€000	€000
Cyprus	6,473	40,896	1,265,223	178,720	1,491,312
Other countries	-	-	45,495	-	45,495
Total	6,473	40,896	1,310,718	178,720	1,536,807
Individually assessed	-	8,320	639,680	43,920	691,920
Collectively assessed	6,473	32,576	671,038	134,800	844,887
	6,473	40,896	1,310,718	178,720	1,536,807

The credit losses of loans and advances as at 30 June 2019 and 31 December 2018 (including the loans and advances to customers held for sale applicable as at 31 December 2018), by business line is presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2019	€000	€000	€000	€000	€000
Corporate	9,168	27,441	132,111	4,629	173,349
SMEs	1,778	3,717	17,061	253	22,809
Retail
‑ housing	3,449	6,570	28,664	361	39,044
‑ consumer, credit cards and other	2,220	4,068	26,406	1,241	33,935
Restructuring
‑ corporate	367	5,423	63,015	5,764	74,569
‑ SMEs	859	1,777	92,463	8,632	103,731
‑ retail housing	38	204	121,981	3,657	125,880
‑ retail other	31	53	110,112	6,653	116,849
Recoveries
‑ corporate	-	-	54,491	14,835	69,326
‑ SMEs	-	-	302,275	43,971	346,246
‑ retail housing	-	-	274,494	56,201	330,695
‑ retail other	-	-	322,985	68,138	391,123
International banking services	46	1,073	2,799	142	4,060
Wealth management	5	6	1,014	438	1,463
	17,961	50,332	1,549,871	214,915	1,833,079

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2018	€000	€000	€000	€000	€000
Corporate	8,322	16,008	165,706	5,143	195,179
SMEs	5,621	3,333	22,574	320	31,848
Retail
‑ housing	4,052	1,028	28,109	301	33,490
‑ consumer, credit cards and other	4,848	4,655	26,152	1,878	37,533
Restructuring
‑ corporate	1,803	42,745	402,181	21,621	468,350
‑ SMEs	1,507	5,469	253,504	24,325	284,805
‑ retail housing	23	102	138,799	4,309	143,233
‑ retail other	127	53	171,882	9,479	181,541
Recoveries
‑ corporate	-	-	696,310	147,552	843,862
‑ SMEs	-	-	538,148	83,209	621,357
‑ retail housing	-	-	248,429	59,651	308,080
‑ retail other	-	-	226,379	72,396	298,775
International banking services	52	462	10,180	1,175	11,869
Wealth management	13	15	1,490	565	2,083
	26,368	73,870	2,929,843	431,924	3,462,005
As from 1 January 2018, to comply with the requirements of IFRS 9, relating to the measurement and presentation of the gross carrying amount and accumulated allowance for impairment as impacted from interest income on impaired loans, the gross carrying amounts of the loans have been increased by an amount of €1,689,497 thousand and an equivalent adjustment was effected on the accumulated allowance for impairment. There was no impact on the net carrying amount of the customer loans and advances from this change in the presentation.
During the six months ended 30 June 2019 the total non‑contractual write‑offs recorded by the Group amounted to €145,112 thousand (six months ended 30 June 2018: €2,119 million).
Assumptions have been made about the future changes in property values, as well as the timing for the realisation of the collateral, taxes and expenses on the repossession and subsequent sale of the collateral as well as any other applicable haircuts. Indexation has been used to estimate updated market values of properties, while assumptions were made on the basis of a macroeconomic scenario for future changes in property values.
At 30 June 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provision calculation for loans and advances to customers other than those classified as held for sale is c.32% under the baseline scenario (31 December 2018: c.32%).
The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers other than those classified as held for sale has been estimated to be on average seven years under the baseline scenario (31 December 2018: average of seven years).
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the haircuts used are based on the specific facts and circumstances of each case.

For Stage 3 customers, the calculation of individually assessed ECL is the weighted average of three scenarios; base, adverse and favourable. The base scenario focuses on the following variables, which are based on the specific facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive additional scenarios for either better or worse cases. Under the adverse scenario operational cash flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased by 1 year with reference to the baseline scenario. Under the favourable scenario, applied haircuts are decreased by 5%, with no change in the recovery period with reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including cash flows that may result from the realisation of collateral) reflect current and expected future economic conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures. In the case of loans held for sale the Group has taken into consideration the timing of expected sale and the estimated sale proceeds in determining the ECL. Amounts previously written off which are expected to be recovered through sale are presented in 'Recoveries of loans and advances to customers previously written off' in (Note 10).

For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively.

Any positive cumulative average future change in forecasted property values was capped to zero for the six months ended 30 June 2019 and year 2018. This applies to all scenarios.

The above assumptions are also influenced by the ongoing regulatory dialogue BOC PCL maintains with its lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant definitions and the treatment/classification of certain parameters/assumptions used in the estimation of provisions.

Any changes in these assumptions or difference between assumptions made and actual results could result in significant changes in the estimated amount of expected credit losses of loans and advances.

Sensitivity analysis

The Group has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents 99% of the total loan portfolio of the Group (excluding the loans and advances to customers classified as held for sale) with reference date 30 June 2019.

The Group uses three different economic scenarios in the ECL calculation: a base, an adverse and a favourable scenario with weights 50%, 30% and 20% respectively. The same scenarios determined at 30 June 2019 were used for the scenarios determined on 31 December 2018.

The Group has altered for the purpose of sensitivity analysis the weights of the economic scenarios and changed the collateral realisation periods and the impact on the ECL, for both individually and collectively assessed ECL calculations, as presented in the table below:

	Increase/(decrease) on ECL for loans and advances to customers at amortised cost
	30 June 2019	31 December 2018
	€000	€000
Increase the adverse weight by 5% and decrease the favourable weight by 5%	4,025	4,963
Decrease the adverse weight by 5% and increase the favourable weight by 5%	(4,025)	(4,956)
Increase the expected recovery period by 1 year	49,398	50,898
Decrease the expected recovery period by 1 year	(48,822)	(49,821)
Increase the collateral realisation haircut by 5%	90,690	89,682
Decrease the collateral realisation haircut by 5%	(82,558)	(81,862)
Increase in the PDs of stages 1 and 2 by 20%	10,824	12,733
Decrease in the PDs of stages 1 and 2 by 20%	(12,344)	(11,126)

A bundle of sensitivity runs were carried out as at 30 June 2019 in order to stress the imposed lifetime on revolving facilities. The imposed lifetime for all Stage 2 facilities was extended for three, five, seven and nine years and the carrying value was not materially sensitive to the stress on the imposed lifetime.

29.9 Forbearance

Forbearance measures occur in situations in which the borrower is considered to be unable to meet the terms and conditions of the contract due to financial difficulties. Taking into consideration these difficulties, the Group decides to modify the terms and conditions of the contract to provide the borrower with the ability to service the debt or refinance the contract, either partially or fully.

The practice of extending forbearance measures constitutes a grant of a concession whether temporarily or permanently to that borrower. A concession may involve restructuring the contractual terms of a debt or payment in some form other than cash, such as an arrangement whereby the borrower transfers collateral pledged to the Group.

The loans forborne continue to be classified as Stage 3 in the case they are performing forborne exposures under probation for which additional forbearance measures are extended, or performing forborne exposures under probation that present more than 30 days past due within the probation period.

Modifications of loans and advances that do not affect payment arrangements, such as restructuring of collateral or security arrangements, are not regarded as sufficient to categorise the facility as credit impaired, as by themselves they do not necessarily indicate credit distress affecting payment ability such that would require the facility to be classified as NPE.

Rescheduled loans and advances are those facilities for which the Group has modified the repayment programme (provision of a grace period, suspension of the obligation to repay one or more instalments, reduction in the instalment amount and/or elimination of overdue instalments relating to capital or interest) and current accounts/overdrafts for which the credit limit has been increased with the sole purpose of covering an excess.

For an account to qualify for rescheduling it must meet certain criteria including that the client's business must be considered to be viable. The extent to which the Group reschedules accounts that are eligible under its existing policies may vary depending on its view of the prevailing economic conditions and other factors which may change from year to year. In addition, exceptions to policies and practices may be made in specific situations in response to legal or regulatory agreements or orders.

The forbearance characteristic contributes in two specific ways for the calculation of lifetime ECL for each individual facility. Specifically, it is taken into consideration in the scorecard development where if this characteristic is identified as statistically significant it affects negatively the rating of each facility. The second contribution of the forbearance flag is in the construction of the through the cycle probability of default curve, where when feasible a specific curve for the forborne products is calculated and assigned accordingly.

Forbearance activities may include measures that restructure the borrower's business (operational restructuring) and/or measures that restructure the borrower's financing (financial restructuring).

Restructuring options may be of a short or long‑term nature or combination thereof. The Group has developed and deployed restructuring solutions, which are suitable for the borrower and acceptable for the Group.

Short‑term restructuring solutions are defined as restructured repayment solutions of duration of less than two years. In the case of loans for the construction of commercial property and project finance, a short‑term solution may not exceed one year.

Short‑term restructuring solutions can include the following:

· Interest only: during a defined short‑term period, only interest is paid on credit facilities and no principal repayment is made.

· Reduced payments: decrease of the amount of repayment instalments over a defined short‑term period in order to accommodate the borrower's new cash flow position.

· Arrears and/or interest capitalisation: the capitalisation of arrears and/or of accrued interest arrears; that is forbearance of the arrears and capitalisation of any unpaid interest to the outstanding principal balance for repayment under a rescheduled program.

· Grace period: an agreement allowing the borrower a defined delay in fulfilling the repayment obligations usually with regard to the principal.

Long‑term restructuring solutions can include the following:

· Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a fair and sustainable rate.

· Extension of maturity: extension of the maturity of the loan which allows a reduction in instalment amounts by spreading the repayments over a longer period.

· Additional security: when additional liens on unencumbered assets are obtained as additional security from the borrower in order to compensate for the higher risk exposure and as part of the restructuring process.

· Forbearance of penalties in loan agreements: waiver, temporary or permanent, of violations of covenants in the loan agreements.

· Rescheduling of payments: the existing contractual repayment schedule is adjusted to a new sustainable repayment program based on a realistic, current and forecasted, assessment of the cash flow generation of the borrower.

· Strengthening of the existing collateral: a restructuring solution may entail the pledge of additional security for instance, in order to compensate for the reduction in interest rates or to balance the advantages the borrower receives from the restructuring.

· New loan facilities: new loan facilities may be granted during a restructuring agreement, which may entail the pledge of additional security and in the case of inter‑creditor arrangements the introduction of covenants in order to compensate for the additional risk incurred by the Group in providing a new financing to a distressed borrower.

· Debt consolidation: the combination of multiple exposures into a single loan or limited number of loans.

· Debt/equity swaps: partial set‑off of the debt and obtaining of an equivalent amount of equity by the Group, with the remaining debt right‑sized to the cash flows of the borrower to allow repayment to the Group from repayment on the re‑sized debt and from the eventual sale of the equity stake in the business. This solution is used only in exceptional cases and only where all other efforts for restructuring are exhausted and after ensuring compliance with the banking law.

· Debt/asset swaps: agreement between the Group and the borrower to voluntarily dispose of the secured asset to partially or fully repay the debt. The asset may be acquired by the Group and any residual debt may be restructured within an appropriate repayment schedule in line with the borrower's reassessed repayment ability.

· Debt write‑off: cancellation of part or the whole of the amount of debt outstanding by the borrower. The Group applies the debt forgiveness solution only as a last resort and in remote cases having taken into consideration the ability of the borrower to repay the remaining debt in the agreed timeframe and the moral hazard.

· Split and freeze: the customer's debt is split into sustainable and unsustainable parts. The sustainable part is restructured and continues to operate. The unsustainable part is 'frozen' for the restructured duration of the sustainable part. At the maturity of the restructuring, the frozen part is either forgiven pro‑rata (based on the actual repayment of the sustainable part) or restructured.

29.10 Rescheduled loans and advances to customers

The below table presents the movement of the Group's rescheduled loans and advances to customers measured at amortised cost including those classified as held for sale (by geography). There were no rescheduled loans related to loans and advances classified as held for sale as at 30 June 2019 (31 December 2018: €1,412,802 thousand, 30 June 2018: €1,479,578 thousand).

	Cyprus	Other countries	Total
2019	€000	€000	€000
1 January	4,566,470	48,806	4,615,276
New loans and advances rescheduled in the period	101,057	-	101,057
Assets no longer classified as rescheduled (including repayments)	(439,401)	(713)	(440,114)
Applied in writing off rescheduled loans and advances	(76,914)	-	(76,914)
Interest accrued on rescheduled loans and advances	57,936	122	58,058
Foreign exchange adjustments	2,247	4,784	7,031
Disposal of Helix and Velocity portfolios	(1,370,825)	-	(1,370,825)
30 June	2,840,570	52,999	2,893,569

	Cyprus	Other countries	Total
2018	€000	€000	€000
1 January	6,272,946	99,068	6,372,014
Rescheduled loans measured at FVPL on adoption of IFRS 9	(341,765)	-	(341,765)
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	416,093	3,678	419,771
Restated balance at 1 January	6,347,274	102,746	6,450,020
Transfer between geographical areas	4,465	(4,465)	-
New loans and advances rescheduled in the period	147,624	522	148,146
Assets no longer classified as rescheduled (including repayments)	(703,140)	(2,738)	(705,878)
Applied in writing off rescheduled loans and advances	(599,686)	(504)	(600,190)
Interest accrued on rescheduled loans and advances	88,378	21	88,399
Foreign exchange adjustments	2,313	(3,556)	(1,243)
30 June	5,287,228	92,026	5,379,254
The classification as rescheduled loans is discontinued when all EBA criteria for the discontinuation of the classification as forborne exposure are met. These are set out in EBA Final draft Implementing Technical Standards (ITS) on supervisory reporting and non‑performing exposures.
The below tables present the Group's rescheduled loans and advances to customers by staging, industry sector, geography and business line classification excluding those classified as held for sale, as well as ECL allowances and tangible collateral held for rescheduled loans.

	Cyprus	Other countries	Total
30 June 2019	€000	€000	€000
Stage 1	285,953	114	286,067
Stage 2	531,221	-	531,221
Stage 3	1,804,397	52,885	1,857,282
POCI	218,999	-	218,999
	2,840,570	52,999	2,893,569

	Cyprus	Other countries	Total
31 December 2018	€000	€000	€000
Stage 1	508,664	120	508,784
Stage 2	376,794	24	376,818
Stage 3	2,001,947	48,662	2,050,609
POCI	266,263	-	266,263
	3,153,668	48,806	3,202,474

Fair value of collateral

	Cyprus	Other countries	Total
30 June 2019	€000	€000	€000
Stage 1	269,814	101	269,915
Stage 2	470,732	-	470,732
Stage 3	1,460,076	17,695	1,477,771
POCI	202,477	-	202,477
	2,403,099	17,796	2,420,895

	Cyprus	Other countries	Total
31 December 2018	€000	€000	€000
Stage 1	480,611	101	480,712
Stage 2	327,142	21	327,163
Stage 3	1,631,012	11,204	1,642,216
POCI	248,691	-	248,691
	2,687,456	11,326	2,698,782

The fair value of collateral presented above has been computed based on the extent that the collateral mitigates credit risk.

Credit risk concentration

30 June 2019	Cyprus	Other countries	Total
By economic activity	€000	€000	€000
Trade	221,193	21,378	242,571
Manufacturing	76,744	5,414	82,158
Hotels and catering	123,332	-	123,332
Construction	349,476	579	350,055
Real estate	189,355	12,471	201,826
Private individuals	1,615,596	143	1,615,739
Professional and other services	194,123	13,011	207,134
Other sectors	70,751	3	70,754
	2,840,570	52,999	2,893,569

30 June 2019	Cyprus	Other countries	Total
By business line	€000	€000	€000
Corporate	314,139	49,031	363,170
SMEs	151,510	3,854	155,364
Retail
‑ housing	445,276	-	445,276
‑ consumer, credit cards and other	136,360	114	136,474
Restructuring
‑ corporate	277,854	-	277,854
‑ SMEs	270,470	-	270,470
‑ retail housing	331,639	-	331,639
‑ retail other	136,546	-	136,546
Recoveries
‑ corporate	51,792	-	51,792
‑ SMEs	126,588	-	126,588
‑ retail housing	313,518	-	313,518
‑ retail other	241,131	-	241,131
International banking services	40,344	-	40,344
Wealth management	3,403	-	3,403
	2,840,570	52,999	2,893,569

30 June 2019	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	82,084	197,384	80,973	2,729	363,170
SMEs	33,494	67,947	51,396	2,527	155,364
Retail
‑ housing	115,777	105,831	218,958	4,710	445,276
‑ consumer, credit cards and other	25,192	23,626	85,393	2,263	136,474
Restructuring
‑ corporate	167	69,520	183,964	24,203	277,854
‑ SMEs	21,114	37,752	195,972	15,632	270,470
‑ retail housing	4,123	3,123	317,216	7,177	331,639
‑ retail other	859	549	131,937	3,201	136,546
Recoveries
‑ corporate	-	-	40,014	11,778	51,792
‑ SMEs	-	-	89,540	37,048	126,588
‑ retail housing	-	-	255,187	58,331	313,518
‑ retail other	-	-	192,848	48,283	241,131
International banking services	2,741	25,489	11,946	168	40,344
Wealth management	516	-	1,938	949	3,403
	286,067	531,221	1,857,282	218,999	2,893,569

31 December 2018	Cyprus	Other countries	Total
By economic activity	€000	€000	€000
Trade	245,919	20,430	266,349
Manufacturing	84,267	2,729	86,996
Hotels and catering	123,596	1	123,597
Construction	373,539	532	374,071
Real estate	221,011	13,186	234,197
Private individuals	1,761,663	166	1,761,829
Professional and other services	249,607	11,761	261,368
Other sectors	94,066	1	94,067
	3,153,668	48,806	3,202,474

31 December 2018	Cyprus	Other countries	Total
By business line	€000	€000	€000
Corporate	337,316	45,192	382,508
SMEs	207,000	3,466	210,466
Retail
‑ housing	568,879	-	568,879
‑ consumer, credit cards and other	172,559	124	172,683
Restructuring
‑ corporate	353,210	24	353,234
‑ SMEs	363,465	-	363,465
‑ retail housing	382,478	-	382,478
‑ retail other	177,241	-	177,241
Recoveries
‑ corporate	64,698	-	64,698
‑ SMEs	139,309	-	139,309
‑ retail housing	222,244	-	222,244
‑ retail other	117,573	-	117,573
International banking services	43,698	-	43,698
Wealth management	3,998	-	3,998
	3,153,668	48,806	3,202,474

31 December 2018	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	98,485	154,531	126,186	3,306	382,508
SMEs	67,513	63,170	75,310	4,473	210,466
Retail
‑ housing	246,922	45,090	271,988	4,879	568,879
‑ consumer, credit cards and other	46,012	17,148	107,184	2,339	172,683
Restructuring
‑ corporate	7,903	44,505	236,389	64,437	353,234
‑ SMEs	31,579	27,729	281,415	22,742	363,465
‑ retail housing	3,800	871	369,482	8,325	382,478
‑ retail other	1,468	153	171,789	3,831	177,241
Recoveries
‑ corporate	-	-	49,759	14,939	64,698
‑ SMEs	-	-	102,355	36,954	139,309
‑ retail housing	-	-	165,738	56,506	222,244
‑ retail other	-	-	76,716	40,857	117,573
International banking services	4,174	23,621	14,185	1,718	43,698
Wealth management	928	-	2,113	957	3,998
	508,784	376,818	2,050,609	266,263	3,202,474

ECL allowances

	Cyprus	Other countries	Total
30 June 2019	€000	€000	€000
Stage 1	2,551	-	2,551
Stage 2	15,713	-	15,713
Stage 3	612,120	39,940	652,060
POCI	80,193	-	80,193
	710,577	39,940	750,517

	Cyprus	Other countries	Total
31 December 2018	€000	€000	€000
Stage 1	4,122	-	4,122
Stage 2	8,613	-	8,613
Stage 3	589,372	7,513	596,885
POCI	85,412	-	85,412
	687,519	7,513	695,032

30. Risk management ‑ Market risk

Market risk is the risk of loss from adverse changes in market prices namely from changes in interest rates, exchange rates, property and security prices. The Market Risk department is responsible for monitoring the risk resulting from such changes with the objective to minimise the impact on earnings and capital. The department also monitors liquidity risk and credit risk with counterparties and countries. It is also responsible for monitoring compliance with the various market risk policies and procedures.

The Group considers that the profile of its market risk has remained similar to the one prevailing at 31 December 2018 as presented in Note 47 of the Annual Consolidated Financial Statements of the Group for the year 2018.

Interest rate risk

Interest rate risk refers to the current or prospective risk to Group's capital and earnings arising from adverse movements in interest rates that affect the Group's banking book positions.

Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

Price risk

Equity securities price risk

The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in the prices of equity securities held by the Group as investments.

Debt securities price risk

Debt securities price risk is the risk of loss as a result of adverse changes in the prices of debt securities held by the Group. Debt security prices change as the credit risk of the issuer changes and/or as the interest rate changes for fixed rate securities. The Group invests a significant part of its liquid assets in debt securities issued mostly by governments. The average Moody's Investors Service rating of the debt securities portfolio of the Group as at 30 June 2019 was A2 (31 December 2018: A1). The average rating excluding the Cyprus Government bonds and bonds from the Helix transaction as at 30 June 2019 was Aa1 (31 December 2018: Aa1).

31. Risk management ‑ Liquidity risk and funding

Liquidity risk is the risk that the Group is unable to fully or promptly meet current and future payment obligations as and when they fall due. This risk includes the possibility that the Group may have to raise funding at high cost or sell assets at a discount to fully and promptly satisfy its obligations.

It reflects the potential mismatch between incoming and outgoing payments, taking into account unexpected delays in repayment or unexpectedly high payment outflows. Liquidity risk involves both the risk of unexpected increases in the cost of funding of the portfolio of assets and the risk of being unable to liquidate a position in a timely manner on reasonable terms.

In order to limit this risk, management aims to achieve diversified funding sources in addition to the Group's core deposit base, and has adopted a policy of managing assets with liquidity in mind and monitoring cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency plans for managing liquidity risk.

Management and structure

The Board of Directors sets the Group's Liquidity Risk Appetite being the level of risk at which the Group should operate.

The Board of Directors, through its Risk Committee, approves the Liquidity Policy Statement and reviews almost at every meeting the liquidity position of the Group.

The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity across the Group.

Group Treasury is responsible for liquidity management at Group level to ensure compliance with internal policies and regulatory liquidity requirements and provide direction as to the actions to be taken regarding liquidity needs. Group Treasury assesses on a continuous basis, and informs ALCO at regular time intervals, the adequacy of the liquid assets and takes the necessary actions to ensure a comfortable liquidity position.

Liquidity is also monitored daily by Market Risk, which is an independent department responsible for monitoring compliance with both internal policies and limits, and with the limits set by the regulatory authorities. Market Risk reports to ALCO the regulatory liquidity position of the Group, at least monthly. It also provides the results of various stress tests to ALCO at least quarterly.

Liquidity is monitored and managed on an ongoing basis through:

(i) Risk appetite: established Group Risk Appetite together with the appropriate limits for the management of all risks including liquidity risk.

(ii) Liquidity policy: sets the responsibilities for managing liquidity risk as well as the framework, limits and stress test assumptions.

(iii) Liquidity limits: a number of internal and regulatory limits are monitored on a daily, monthly and quarterly basis. Where applicable, a traffic light system (RAG) has been introduced for the ratios, in order to raise flags when the ratios deteriorate.

(iv) Early warning indicators: monitoring of a range of indicators for early signs of liquidity risk in the market or specific to the Group. These are designed to immediately identify the emergence of increased liquidity risk to maximise the time available to execute appropriate mitigating actions.

(v) Liquidity Contingency Plan: maintenance of a Liquidity Contingency Plan (LCP) which is designed to provide a framework where a liquidity stress could be effectively managed. The LCP provides a communication plan and includes management actions to respond to liquidity stresses.

(vi) Recovery Plan: the Group has developed a Recovery Plan (RP). The key objectives of the RP are to set key Recovery and Early Warning Indicators so as to monitor these consistently and to set in advance a range of recovery options to enable the Group to be adequately prepared to respond to stressed conditions and restore the Group's position.

Monitoring process

Daily

The daily monitoring of customer flows and the stock of highly liquid assets is important to safeguard and ensure the uninterrupted operations of the Group's activities. Market risk prepares a daily report analysing the internal liquidity buffer and comparing it to the previous day's buffer. This report is made available to Group Treasury and Group Finance. In addition, Group Treasury monitors daily and intraday the customer inflows and outflows in the main currencies used by the Group.

Market Risk also prepares daily stress testing for bank‑specific, market wide and combined scenarios. The requirement is to have sufficient liquidity buffer to enable BOC PCL to survive a three month stress period, including capacity to raise funding under all scenarios.

Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquidity buffer in immediately accessible form, to enable it to meet the stressed intraday payments.

The liquidity buffer is made up of: Banknotes, CBC balances (excluding the Minimum Reserve Requirements (MRR)), unpledged cash and nostro current accounts, as well as money market placements up to the stress horizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds. These bonds are High Quality Liquid Assets (HQLA) as per the LCR definitions and/or ECB Eligible bonds.

The designing of the stress tests followed guidance and was based on the liquidity risk drivers which are recognised internationally by both the Prudential Regulation Authority (PRA) and EBA SREP. The stress tests assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and approved by the Board. However, whenever it is considered appropriate to amend the assumptions during the year, approval is requested from ALCO and the Board Risk Committee. The main items shocked in the different scenarios are: deposit outflows, wholesale funding, loan repayments, off‑balance sheet commitments, marketable securities and cash collateral for derivatives and repos.

Weekly

Market Risk prepares a report indicating the level of Liquid Assets including Credit Institutions Money Market Placements as per LCR definitions.

Bi‑Weekly report

Market Risk prepares a liquidity report twice a month which is submitted to the ECB. The report includes information on the following: deposits breakdown, cash flow information, survival period, LCR ratio, rollover of funding, funding gap (through the Maturity ladder analysis), concentration of funding and collateral details. It concludes on the overall liquidity position of the Bank and describes the measures implemented and to be implemented in the short‑term to improve liquidity position.

Monthly

Market Risk prepares reports monitoring compliance with internal and regulatory liquidity ratios requirements and submits them to the ALCO, the Executive Committee and the Board Risk Committee. It also calculates the expected flows under a stress scenario and compares them with the projected available liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the percentage of IBU deposits over total deposits and the percentage of instant access deposits are also presented to the ALCO. The liquidity mismatch in the form of the Maturity Ladder report is also presented to ALCO and resulting mismatch between assets and liabilities is compared to previous month's mismatch.

Market Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM) to the CBC/ECB monthly.

Group Treasury prepares a liquidity report which is submitted to the ALCO on a monthly basis. The report indicates the liquidity position of BOC PCL, data on monthly customer flows, as well as other important developments related to liquidity.

Quarterly

The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee quarterly as part of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market Risk reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly as well as various other liquidity reports, included in the short term exercise of the SSM per their SREP guidelines.

Annually

The Group prepares on an annual basis its report on ILAAP.

As part of the Group's procedures for monitoring and managing liquidity risk, there is a Group Liquidity Contingency Plan (LCP) for handling liquidity difficulties. The LCP details the steps to be taken in the event that liquidity problems arise, which escalate to a special meeting of the extended ALCO. The LCP sets out the members of this Committee and a series of the possible actions that can be taken. The LCP, which forms a part of the Group's Liquidity Policy, is reviewed by ALCO at least annually, during the ILAAP review. The ALCO submits the updated Liquidity Policy with its recommendations to the Board through the Board Risk Committee for approval. The approved Liquidity Policy is notified to the SSM.

Liquidity ratios

The Group LCR presented in the table below, is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a minimum level of high‑quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days. As from 1 January 2018, the minimum requirement is 100%.

The Group's LCR ratio at 30 June 2019 was 253% (31 December 2018: 231%)

Main sources of funding

During the six months ended 30 June 2019 and the year ended 31 December 2018, the Group's main sources of funding were its deposit base and central bank funding, through the Eurosystem monetary policy operations.

As at 30 June 2019 and 31 December 2018, ECB funding was at €830 million in the form of 4‑Year TLTRO II.

Funding to subsidiaries

The funding provided by BOC PCL to its subsidiaries for liquidity purposes is repayable as per the terms of the respective agreements.

Any new funding to subsidiaries requires approval from the ECB and the CBC.

Collateral requirements

The carrying values of the Group's encumbered assets as at 30 June 2019 and 31 December 2018 are summarised below:

	30 June 2019	31 December 2018
	€000	€000
Cash and other liquid assets	128,743	118,627
Investments	292,317	737,587
Loans and advances	2,584,294	2,528,241
	3,005,354	3,384,455
Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond.
Investments are mainly used as collateral for repurchase transactions with commercial banks, supplementary assets for the covered bond and with the ECB.
Loans and advances indicated as encumbered as at 30 June 2019 and 31 December 2018 are mainly used as collateral for funding from ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount €1,005 million as at 30 June 2019 (31 December 2018: €1,009 million) in Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011 under its Covered Bond Programme. Furthermore as at 30 June 2019 housing loans of a nominal amount €1,570 million (31 December 2018: €1,543 million) in Cyprus are pledged as collateral for the funding from the ECB (Note 20).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus. On 6 June 2018, the terms of the covered bonds have been amended to extend the maturity date to 12 December 2021 and set the interest rate to 3 months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass‑Through structure. All the bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB.

32. Capital management

The primary objective of the Group's capital management is to ensure compliance with the relevant regulatory capital requirements and to maintain strong credit ratings and healthy capital adequacy ratios in order to support its business and maximise shareholders' value.

The Group follows the EU Regulations, primarily the CRR and CRD IV and any other decisions or circulars issued by the regulators, ECB and CBC with respect to the capital adequacy calculations.

The Group and BOC PCL have complied with the minimum capital requirements (Pillar I and Pillar II).

The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated investment firms of the Group comply with the regulatory capital requirements of the CySEC laws and regulations.

Additional information on regulatory capital is disclosed in the Additional Risk and Capital Management Disclosures, including Pillar 3 semi‑annual disclosures (unaudited), which are available on the Group's website www.bankofcyprus.com (Investor Relations).

33. Related party transactions

Related parties of the Group include associates and joint ventures, key management personnel, Board of Directors and their connected persons.

Fees and emoluments of members of the Board of Directors and other key management personnel

	Six months ended 30 June
	2019	2018
Director emoluments	€000	€000
Executives
Salaries and other short term benefits	1,248	1,225
Employer's contributions	62	49
Retirement benefit plan costs	109	108
	1,419	1,382
Non‑executives
Fees	499	452
Total directors' emoluments	1,918	1,834
Other key management personnel emoluments
Salaries and other short term benefits	1,425	1,606
Employer's contributions	76	104
Retirement benefit plan costs	63	65
Total other key management personnel emoluments	1,564	1,775
Total	3,482	3,609
Other key management personnel emoluments for the six months ended 30 June 2018 include an amount of €367 thousand which relates to emoluments of key management personnel of Bank of Cyprus UK Limited, which was disposed of in November 2018.
The fees of the non‑executive Directors include fees as members of the Board of Directors of the Company and its subsidiaries, as well as of committees of the Board of Directors.

Other key management personnel

The other key management personnel emoluments include the remuneration of the members of the Executive Committee since the date of their appointment to the Committee and other members of the management team who report directly to the Chief Executive Officer or to the Deputy Chief Executive Officer and Chief Operating Officer.

Aggregate amounts outstanding and additional transactions

The table below shows the loans and advances, deposits and other credit balances held by the directors and their connected persons, as at the balance sheet date:

	30 June 2019	31 December 2018
	€000	€000
Loans and advances
‑ members of the Board of Directors and other key management personnel	2,325	2,476
‑ connected persons	371	381
	2,696	2,857
Deposits
‑ members of the Board of Directors and other key management personnel	1,387	1,575
‑ connected persons	1,964	3,122
	3,351	4,697
Accruals and other liabilities
‑ balances with entity providing key management personnel services	5,061	5,108

The above table does not include period/year‑end balances for members of the Board of Directors and their connected persons who resigned during the period/year.

All transactions with members of the Board of Directors and their connected persons are made on normal business terms as for comparable transactions, including interest rates, with customers of a similar credit standing. A number of loans and advances have been extended to other key management personnel on the same terms as those applicable to the rest of the Group's employees and their connected persons on the same terms as those of customers.

Connected persons include spouses, minor children and companies in which directors/other key management personnel, hold directly or indirectly, at least 20% of the voting shares in a general meeting, or act as executive director or exercise control of the entities in any way.

Additional to members of the Board of Directors, related parties include entities providing key management personnel services to the Group.

	Six months ended 30 June
	2019	2018
	€000	€000
Interest income for the period	30	40
Interest expense on deposits for the period	3	26
Commission income for the period	1	7
Insurance premium income for the period	75	72
Subscriptions and insurance expenses for the period	611	-
Staff costs, consultancy and restructuring expenses with entity providing key management personnel services	6,617	10,481
Interest income and expense are disclosed for the period during which they were members of the Board of Directors or served as key management personnel.
In addition to loans and advances, there were contingent liabilities and commitments in respect of members of the Board of Directors and their connected persons, mainly in the form of documentary credits, guarantees and commitments to lend, amounting to €15 thousand (31 December 2018: €37 thousand).
There were also contingent liabilities and commitments to other key management personnel and their connected persons amounting to €424 thousand (31 December 2018: €402 thousand).
The total unsecured amount of the loans and advances and contingent liabilities and commitments to members of the Board of Directors, key management personnel and other connected persons (using forced‑sale values for tangible collaterals and assigning no value to other types of collaterals) at 30 June 2019 amounted to €502 thousand (31 December 2018: €532 thousand).
At 30 June 2019 the Group has a deposit of €4,201 thousand (31 December 2018: €4,086 thousand) with Piraeus Bank SA, in which Mr Arne Berggren is a non‑executive Director. The Group has also provided certain indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.
During the period ended 30 June 2019 premiums of €17 thousand (corresponding period of 2018: €19 thousand) and claims of €690 thousand (corresponding period 2018: €1 thousand) were paid between the members of the Board of Directors of the Company and their connected persons and the insurance subsidiaries of the Group.
There were no other transactions during the six months ended 30 June 2019 and the year ended 31 December 2018 with connected persons of the current members of the Board of Directors or with any members who resigned during the period/year.

34. Group companies

The main subsidiary companies and branches included in the consolidated financial statements of the Group, their country of incorporation, their activities and the percentage held by the Company (directly or indirectly) as at 30 June 2019 are:

Company	Country	Activities	Percentage holding (%)
Bank of Cyprus Holdings Public Limited Company	Ireland	Holding company	n/a
Bank of Cyprus Public Company Ltd	Cyprus	Commercial bank	100
The Cyprus Investment and Securities Corporation Ltd (CISCO)	Cyprus	Investment banking, asset management and brokerage	100
General Insurance of Cyprus Ltd	Cyprus	General insurance	100
EuroLife Ltd	Cyprus	Life insurance	100
Kermia Ltd	Cyprus	Property trading and development	100
Kermia Properties & Investments Ltd	Cyprus	Property trading and development	100
Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC (formerly Cytrustees Investment Public Company Ltd)	Cyprus	UCITS Fund	61
LCP Holdings and Investments Public Ltd	Cyprus	Holding company	67
JCC Payment Systems Ltd	Cyprus	Card processing transaction services	75
CLR Investment Fund Public Ltd	Cyprus	Investment company	20
Auction Yard Ltd	Cyprus	Auction company	100
BOC Secretarial Company Ltd	Cyprus	Secretarial services	100
S.Z. Eliades Leisure Ltd	Cyprus	Land development and operation of a golf resort	70
BOC Asset Management Ltd	Cyprus	Management administration and safekeeping of UCITS Units	100
Bank of Cyprus Public Company Ltd (branch of BOC PCL)	Greece	Administration of guarantees and holding of real estate properties	n/a
BOC Asset Management Romania S.A.	Romania	Collection of the existing portfolio of receivables, including third party collections	100
MC Investment Assets Management LLC	Russia	Problem asset management company	100
Fortuna Astrum Ltd	Serbia	Problem asset management company	100

In addition to the above companies, at 30 June 2019 BOC PCL had 100% shareholding in the companies listed below whose activity is the ownership and management of immovable property:

Cyprus: Belvesi Properties Ltd, Hamura Properties Ltd, Legamon Properties Ltd, Domilas Properties Ltd, Noleta Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Folimo Properties Ltd, Pelika Properties Ltd, Cobhan Properties Ltd, Bramwell Properties Ltd, Birkdale Properties Ltd, Innerwick Properties Ltd, Ramendi Properties Ltd, Ligisimo Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Tebane Properties Ltd, Cranmer Properties Ltd, Vieman Ltd, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra Estate Ltd, EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Steparco Ltd, Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Thryan Properties Ltd, Edoric Properties Ltd, Canosa Properties Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Koralmon Properties Ltd, Kedonian Properties Ltd, Lasteno Properties Ltd, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd, Linaland Properties Ltd, Andaz Properties Ltd, Unital Properties Ltd, Neraland Properties Ltd, Wingstreet Properties Ltd, Nolory Properties Ltd, Lynoco Properties Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties Ltd, Syniga Properties Ltd, Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco Properties Ltd, Hovita Properties Ltd, Badrul Properties Ltd, Astromeria Properties Ltd, Orzo Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd, Subworld Properties Ltd, Jongeling Properties Ltd, Introserve Properties Ltd, Cereas Properties Ltd, Fareland Properties Ltd, Sindelaco Properties Ltd, Barosca Properties Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties Ltd, Marisaco Properties Ltd, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Flona Properties Ltd, Toreva Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties Ltd, Gozala Properties Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Nasebia Properties Ltd, Garmozy Properties Ltd, Palmco Properties Ltd, Thermano Properties Ltd, Indene Properties Ltd, Ingane Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio Properties Ltd, Valioco Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd, Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia Properties Ltd, Coeval Properties Ltd, Comenal Properties Ltd, Finevo Properties Ltd, Ganina Properties Ltd, Intelamon Properties Ltd, Kenelyne Properties Ltd, Mazima Properties Ltd, Nesia Properties Ltd, Nigora Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd, Flymoon Properties Ltd, Meriaco Properties Ltd, Odolo Properties Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Nivamo Properties Ltd, Edilia Properties Ltd, Icazo Properties Ltd, Limoro Properties Ltd, Rofeno Properties Ltd, Samilo Properties Ltd, Jalimo Properties Ltd, Sendilo Properties Ltd and Prodino Properties Ltd.

Romania: Otherland Properties Dorobanti SRL, Battersee Real Estate SRL, Trecoda Real Estate SRL, Green Hills Properties SRL, Bocaland Properties SRL, Romaland Properties SRL, Imoreth Properties SRL, Inroda Properties SRL, Tantora Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.

Further, at 30 June 2019 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland Properties Ltd, Unoplan Properties Ltd and Gosman Properties Ltd.

Additionally, BOC PCL holds 64% in Nicosia Mall Management (NMM) Limited, Nicosia Mall Finance (NMF) Limited, Nicosia Mall Holdings (NMH) Limited and Nicosia Mall Property (NMP) Ltd.

The main activities of the above companies are the holding of shares and other investments and the provision of services except for Nicosia Mall Property (NMP) Ltd whose activity is the ownership and management of immovable property.

At 30 June 2019 BOC PCL had 100% shareholding in the companies listed below which are reserved to accept property:

Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd, Cramonco Properties Ltd, Monata Properties Ltd, Aktilo Properties Ltd, Alezia Properties Ltd, Aparno Properties Ltd, Enelo Properties Ltd, Mikosa Properties Ltd, Stormino Properties Ltd, Petrassimo Properties Ltd, Stevolo Properties Ltd, Baleland Properties Ltd, Lomenia Properties Ltd, Vemoto Properties Ltd, Vertilia Properties Ltd, Zenoplus Properties Ltd, Carilo Properties Limited, Gelimo Properties Limited, Rifelo Properties Limited, Avaleto Properties Limited, Midelox Properties Limited, Ameleto Properties Limited, Orilema Properties Limited, Montira Properties Limited, Larizemo Properties Limited and Olisto Properties Limited.

Romania: Selilar Properties SRL.

In addition, BOC PCL holds 100% of the following intermediate holding companies:

Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia Properties Ltd, Bocaland Properties Ltd, Commonland Properties Ltd, Romaland Properties Ltd, Fledgego Properties Ltd, Janoland Properties Ltd, Loneland Properties Ltd, Frozenport Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Melgred Properties Ltd, Tantora Properties Ltd, Zunimar Properties Ltd, Selilar Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius Ltd.

BOC PCL also holds 100% of the following companies which are inactive:

Cyprus: Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Paneuropean Ltd, Philiki Ltd, Cyprialife Ltd, Imperial Life Assurance Ltd, Philiki Management Services Ltd, Nelcon Transport Co. Ltd, Ilera Properties Ltd, Weinco Properties Ltd, Renalandia Properties Ltd, Crolandia Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, Fantasio Properties Ltd, Demoro Properties Ltd, Elosis Properties Ltd, Polkima Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd, Otoba Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, CYCMC II Ltd, CYCMC III Ltd and CYCMC IV Ltd.

Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus Ltd), Kyprou Commercial SA and Kyprou Properties SA.

All Group companies are accounted for as subsidiaries using the full consolidation method. All companies listed above, except from Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC which is a UCITS Fund, have share capital consisting of ordinary shares.

Control over CLR Investment Fund Public Ltd (CLR) and its subsidiaries without substantial shareholding

The Group considers that it exercises control over CLR and its subsidiaries (Europrofit Capital Investors Public Limited, Axxel Ventures Limited and CLR Private Equity Limited) through control of the members of the Board of Directors and is exposed to variable returns through its holding.

Dissolution and disposal of subsidiaries

As at 30 June 2019, the following subsidiaries were in the process of dissolution or in the process of being struck off: Bank of Cyprus (Channel Islands) Ltd, BC Romanoland Properties Ltd, Blindingqueen Properties Ltd, Buchuland Properties Ltd, Corner LLC, Diners Club (Cyprus) Ltd, Fairford Properties Ltd, Frozenport Properties SRL, Leasing Finance LLC, Loneland Properties SRL, Melgred Properties SRL, Mirodi Properties Ltd, Nallora Properties Ltd, Omiks Finance LLC, Salecom Ltd, Sylvesta Properties Ltd and Unknownplan Properties Ltd.

Bank of Cyprus Romania (Romanian branch), BOC Ventures Ltd, Lameland Properties Ltd, Calomland Properties Ltd, Pittsburg Properties Ltd and Kyprou Finance (NL) B.V. were dissolved during the six months ended 30 June 2019. Asendo Properties Ltd, Gylito Properties Ltd, Lamezoco Properties Ltd, Timeland Properties Ltd, Spaceglowing Properties Ltd, Pamaco Platres Complex Ltd, Racotino Properties Ltd, Rondemio Properties Ltd, Rylico Properties Ltd, Vatino Properties Ltd, Valecast Properties Ltd, Teresan Properties Ltd, Virevo Properties Ltd, Armozio Properties Ltd, Garveno Properties Ltd, Dorfilo Properties Ltd, Barway Properties Ltd, Bokeno Properties Ltd, Sailoma Properties Ltd, Fodilo Properties Ltd, Gordian Holdings Limited (formerly CYCMC I Ltd), Citlali Properties Ltd, Livena Properties Ltd and Volparo Properties Ltd were disposed of during the six months ended 30 June 2019.

During the six months ended 30 June 2019, the Group disposed of its entire shareholding in Cyreit, and subsequently its indirect holding in the following Cyreit's subsidiaries: Smooland Properties Ltd, Threefield Properties Ltd, Vameron Properties Ltd, Bascot Properties Ltd, Vanemar Properties Ltd, Consoly Properties Ltd, Alomnia Properties Ltd, Artozaco Properties Ltd, Elizano Properties Ltd, Letimo Properties Ltd, Allodica Properties Ltd, Wiceco Properties Ltd, Primaco Properties Ltd, Arleta Properties Ltd, Kuvena Properties Ltd, Nuca Properties Ltd, Orleania Properties Ltd, Ravenica Properties Ltd, Rouena Properties Ltd, Lancast Properties Ltd and Azemo Properties Ltd.

35. Acquisitions and disposals of subsidiaries

35.1 Acquisitions during 2019

There were no acquisitions during the six months ended 30 June 2019.

35.2 Disposals during 2019

35.2.1 Disposal of Cyreit

In June 2019, the Group completed the sale of its entire holding of 88.2% in Cyreit.

The carrying value of the BOC PCL's share of assets and liabilities disposed of as at the date of their disposal are presented below:

Assets	€000
Loans and advances to banks	7,980
Investment properties	133,401
	141,381
Liabilities
Other liabilities	(314)
Net identifiable assets sold	141,067
The purchase consideration amounts to €139,760 thousand. The disposal resulted in a loss of €1,307 thousand disclosed within 'Net losses from revaluation and disposal of investment properties'.

The net cash flows of Cyreit are as follows:

	30 June 2019	30 June 2018
	€000	€000
Net cash inflow for the period from operating activities	1,330	652
There were no cash equivalents as at the date of disposal.

35.3 Acquisitions during 2018

There were no acquisitions during the six months ended 30 June 2018.

35.4 Disposals during 2018

There were no disposals during the six months ended 30 June 2018.

36. Investments in associates and joint venture

Carrying value of the investments in associates and joint venture

	Percentage holdings	30 June 2019	31 December 2018
	(%)	€000	€000
CNP Cyprus Insurance Holdings Ltd (Note 19)	49.9	-	114,637
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc	31.6	2,191	-
Aris Capital Management LLC	30.0	-	-
Rosequeens Properties Limited	33.3	-	-
Rosequeens Properties SRL	33.3	-	-
Tsiros (Agios Tychon) Ltd	50.0	-	-
M.S. (Skyra) Vassas Ltd	15.0	-	-
D.J. Karapatakis & Sons Limited	7.5	-	-
Rodhagate Entertainment Ltd	7.5	-	-
Fairways Automotive Holdings Ltd	45.0	-	-
		2,191	114,637

Investments in associates

CNP Cyprus Insurance Holdings Ltd

The holding in CNP Cyprus Insurance Holdings Ltd of 49.9% had been acquired as part of the acquisition of certain operations of Laiki Bank in 2013. The share of profit from associate for the six months ended 30 June 2019 amounts to €5,312 thousand (corresponding period 2018: €4,589 thousand profit). In June 2019 BOC PCL signed a binding agreement to sell its entire shareholding to CNP Assurances S. A. who owns the remaining 50.1% and is the controlling party. The sale consideration of €97.5 million is payable in cash on completion and the accounting loss from the sale is estimated at c.€26 million.

The sale is subject to regulatory approvals and is expected to be completed in the second half of 2019. The investment in associate is classified as held for sale as at 30 June 2019 (Note 19).

Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)

The Group holds effectively 31.6% of the UCITS of Apollo due to gradual redemption of the other holders of Apollo. The Group considers that it exercises significant influence over Apollo even though no Board representation exists, because due to its UCITS holdings, it possesses the power to potentially appoint members of the Board of Directors.

Rosequeens Properties Limited and Rosequeens Properties SRL

The Group effectively owns 33.3% of the share capital of Rosequeens Properties SRL which is incorporated in Romania and owns a shopping mall in Romania. The shareholding was acquired after BOC PCL took part in a public auction for the settlement of customer loan balances amounting to approximately €21 million. The Group's share of net assets of the associate at 30 June 2019 and 31 December 2018 had nil accounting value as the net assets of the associate had a negative balance.

Aris Capital Management LLC

The Group's holding in Aris Capital Management LLC of 30.0% was transferred to the Group following the acquisition of certain operations of Laiki Bank. The investment is considered to be fully impaired and its value is restricted to zero.

M.S. (Skyra) Vassas Ltd

In the context of its loan restructuring activities, the Group acquired 15.0% interest in the share capital of M.S. (Skyra) Vassas Ltd. M.S. (Skyra) Vassas Ltd is the parent company of a group of companies (Skyra Vassas group) with operations in the production, processing and distribution of aggregates (crushed stone and sand) and provision of other construction materials, and services based on core products such as ready‑mix concrete, asphalt and packing of aggregates. The Group considers that it exercises significant influence over the Skyra Vassas group as the Group has the power to have representation to the Board of Directors and to vote for matters relating to the relevant activities of the business. The investment is considered to be fully impaired and its value is restricted to zero.

D.J. Karapatakis & Sons Limited and Rodhagate Entertainment Ltd

In the context of its loan restructuring activities, the Group acquired 7.5% interest in the share capital of D.J. Karapatakis & Sons Limited and Rodhagate Entertainment Ltd, operating in leisure, tourism, film and entertainment industries in Cyprus. The Group considers that it exercises significant influence over the two companies as the Group has the power to have representation to the Board of Directors and to vote for matters relating to the relevant activities of the business. The investments are considered to be fully impaired and their value is restricted to zero.

Fairways Automotive Holdings Ltd

In the context of its loan restructuring activities, the Group acquired 45.0% interest in the share capital of Fairways Automotive Holdings Ltd. Fairways Automotive Holdings Ltd is the parent company of Fairways Ltd operating in the import and trading of motor vehicles and spare parts. The Group considers that it exercises significant influence over the company. The investment is considered to be fully impaired and its value is restricted to zero.

Investment in joint venture

Tsiros (Agios Tychon) Ltd

The Group holds a 50.0% shareholding in Tsiros (Agios Tychon) Ltd. The shareholder agreement with the other shareholder of Tsiros (Agios Tychon) Ltd stipulates a number of matters which require consent by both shareholders, therefore the Group considers that it jointly controls the company. The carrying value of Tsiros (Ayios Tychon) Ltd is restricted to zero.

The percentage holdings are in ordinary shares or membership interests.

37. Events after the reporting period

37.1 ESTIA Memorandum of Understanding

In July 2019 the Memorandum of Understanding was signed by the banks and the Government for participation in the Estia scheme, which is underway for official launch in September 2019. ESTIA is a scheme aimed at addressing NPEs backed by primary residence, announced by the Government in July 2018. According to the timeline provided by the Government, the application submissions will occur from September to mid‑November 2019 with evaluation by the banks running concurrently until the end of November 2019. During the forth quarter of 2019, the participating banks will offer restructuring solutions to the applicants and simultaneously the applications will be reviewed and approved by the Government. The first payment of the state subsidy installment is expected to occur between December 2019 and April 2020.

Independent review report to Bank of Cyprus Holdings Public Limited Company

Report on the consolidated condensed interim financial statements

Our conclusion

We have reviewed Bank of Cyprus Holdings Public Limited Company's (the 'company') (together with its subsidiaries the 'group') consolidated condensed interim financial statements (the 'interim financial statements') in the interim financial report for the six month period ended 30 June 2019 ('interim financial report'). Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

What we have reviewed

The interim financial statements, comprising:

· the interim consolidated balance sheet as at 30 June 2019;

· the interim consolidated income statement and interim consolidated statement of comprehensive income for the period then ended;

· the interim consolidated statement of cash flows for the period then ended;

· the interim consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the interim financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

As disclosed in note 3.2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The interim financial report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Our responsibility is to express a conclusion on the interim financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers

Chartered Accountants

26 August 2019

PwC Ireland

Additional Risk and Capital Management Disclosures, including Pillar 3 semi-annual disclosures

30 June 2019

BANK OF CYPRUS HOLDINGS GROUP

Additional Risk and Capital Management Disclosures,

including Pillar 3 semi-annual disclosures (Unaudited)

This report includes additional risk and capital management disclosures.

In addition, this report includes information prepared in accordance with the Capital Requirements Regulation (CRR) and amended Capital Requirements Directive IV (CRD IV). The disclosures have been prepared in accordance with the European Banking Authority (EBA) Guidelines on materiality, proprietary and confidentiality and on disclosure frequency under Articles 432(1), 432(2) and 433 of Regulation (EU) No 575/2013 (EBA/2014/14) and EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013.

1. Credit risk

The Central Bank of Cyprus (CBC) issued to credit institutions the Loan Impairment and Provisioning Directives of 2014 and 2015 (Directive), which provides guidance to banks for loan impairment policy and procedures for provisions. The purpose of this Directive is to ensure that credit institutions have in place adequate provisioning policies and procedures for the identification of credit losses and prudent application of International Financial Reporting Standards (IFRSs) in the preparation of their financial statements.

The Directive requires certain disclosures in relation to the loan portfolio quality, provisioning policy and levels of provision. The disclosures required by the Directive, in addition to those presented in Note 2 of the Consolidated Financial Statements for the year ended 31 December 2018 and Note 29 of the Interim Consolidated Financial Statements are set out in the following tables. The tables disclose Non-Performing Exposures (NPEs) based on the definitions of the EBA standards.

According to the EBA standards and European Central Bank's (ECB) Guidance to Banks on Non-Performing loans (which was published in March 2017), Non-Performing Exposures (NPEs) are defined as those exposures that satisfy one of the following conditions:

(i) The debtor is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due.

(ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirements Regulation (CRR) (Article 178).

(iii) Material exposures (as defined below) which are more than 90 days past due.

(iv) Performing forborne exposures under probation for which additional forbearance measures are extended.

(v) Performing forborne exposures under probation that present more than 30 days past due within the probation period.

Exposures include all on and off balance sheet exposures, except those held for trading, and are categorised as such for their entire amount without taking into account the existence of collateral.

The following materiality criteria are applied:

· When the problematic exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the problematic part of the exposure is classified as non-performing.

· Material arrears/excesses are defined as follows:

- Retail exposures:

- Loans: Arrears amount greater than €500 or number of instalments in arrears is greater than one.

- Overdrafts: Excess amount is greater than €500 or greater than 10% of the approved limit.

- Exposures other than retail: Total customer arrears/excesses are greater than €1,000 or greater than 10% of the total customer funded balances.

NPEs may cease to be considered as non-performing only when all of the following conditions are met:

(i) The extension of forbearance measures does not lead to the recognition of impairment or default.

(ii) One year has passed since the forbearance measures were extended.

(iii) Following the forbearance measures and according to the post-forbearance conditions, there is no past due amount or concerns regarding the full repayment of the exposure.

(iv) No unlikely-to-pay criteria exist for the debtor.

(v) The debtor has made post-forbearance payments of a non-insignificant amount of capital (different capital thresholds exist according to the facility type).

1. Credit risk (continued)

The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.

30 June 2019	Gross loans and advances to customers				Provision for impairment and fair value adjustment on initial recognition
	Group gross customer loans and advances¹	Of which NPEs	Of which exposures with forbearance measures		Total provision for impairment and fair value adjustment on initial recognition	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances¹	Of which NPEs	Total exposures with forbearance measures	Of which NPEs		Of which NPEs	Total exposures with forbearance measures	Of which NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
Loans and advances to customers
General governments	65,343	1	1,253	-	3,527	-	459	-
Other financial corporations	140,273	14,577	6,232	2,546	8,058	4,069	807	730
Non-financial corporations	6,425,493	1,677,875	1,500,016	889,448	902,249	810,060	389,259	372,469
Of which: Small and Medium sized Enterprises²	4,797,119	1,269,815	990,569	652,230	730,839	651,615	277,047	264,776
Of which: Commercial real estate²	4,321,386	1,054,203	971,665	600,195	529,644	459,089	240,702	230,901
Non-financial corporations by sector
Construction	858,863	317,986			162,186
Wholesale and retail trade	1,402,677	455,738			238,273
Accommodation and food service activities	1,060,709	80,473			60,188
Real estate activities	1,257,258	341,831			168,354
Professional, scientific and technical activities	451,332	102,479			59,321
Other sectors	1,394,654	379,368			213,927
Households	6,450,041	2,619,068	1,778,289	1,397,764	1,218,314	1,150,098	502,173	487,784
Of which: Residential mortgage loans²	4,899,475	1,976,590	1,428,118	1,117,686	791,989	732,911	351,842	340,418
Of which: Credit for consumption²	865,993	372,801	214,603	185,650	213,969	212,628	84,485	83,012
	13,081,150	4,311,521	3,285,790	2,289,758	2,132,148	1,964,227	892,698	860,983
Loans and advances to customers classified as held for sale	12,422	12,422	-	-	6,531	6,531	-	-
Total on-balance sheet	13,093,572	4,323,943	3,285,790	2,289,758	2,138,679	1,970,758	892,698	860,983

1. Excluding loans and advances to central banks and credit institutions.

2. The analysis shown in lines 'non financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.

1. Credit risk (continued)

31 December 2018	Gross loans and advances to customers				Provision for impairment and fair value adjustment on initial recognition
	Group gross customer loans and advances³	Of which NPEs	Of which exposures with forbearance measures		Total provision for impairment and fair value adjustment on initial recognition	Of which NPEs	Of which exposures with forbearance measures
	Group gross customer loans and advances³	Of which NPEs	Total exposures with forbearance measures	Of which NPEs		Of which NPEs	Total exposures with forbearance measures	Of which NPEs
	€000	€000	€000	€000	€000	€000	€000	€000
Loans and advances to customers
General governments	70,638	3	1,595	-	3,681	-	468	-
Other financial corporations	167,910	21,338	28,028	5,621	13,378	8,471	3,374	2,076
Non-financial corporations	6,331,381	1,941,479	1,682,997	1,042,164	947,857	864,983	367,235	347,924
Of which: Small and Medium sized Enterprises⁴	4,573,824	1,488,289	1,108,153	793,579	759,484	692,343	280,675	266,736
Of which: Commercial real estate⁴	4,473,159	1,284,145	1,124,078	742,839	569,351	501,842	231,694	216,486
Non-financial corporations by sector
Construction	972,059	382,697			184,282
Wholesale and retail trade	1,431,706	522,151			254,823
Accommodation and food service activities	1,005,691	96,702			58,563
Real estate activities	1,140,596	406,226			174,269
Manufacturing	428,828	134,950			74,884
Other sectors	1,352,501	398,753			201,036
Households	6,588,202	2,805,496	1,924,928	1,486,583	1,271,429	1,208,624	481,701	471,184
Of which: Residential mortgage loans⁴	5,022,617	2,112,152	1,552,445	1,180,705	828,205	774,656	336,651	327,956
Of which: Credit for consumption⁴	891,964	397,747	234,572	195,422	225,505	221,996	79,417	77,930
	13,158,131	4,768,316	3,637,548	2,534,368	2,236,345	2,082,078	852,778	821,184
Loans and advances to customers classified as held for sale	2,851,113	2,749,301	1,492,083	1,437,851	1,697,005	1,646,091	825,977	797,692
Total on-balance sheet	16,009,244	7,517,617	5,129,631	3,972,219	3,933,350	3,728,169	1,678,755	1,618,876

3. Excluding loans and advances to central banks and credit institutions.

4. The analysis shown in lines 'non financial corporations' and 'households' is non-additive across categories as certain customers could be in both categories.

2. Liquidity risk and funding

2.1 Encumbered and unencumbered assets

Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations.

An asset is classified as encumbered if it has been pledged as collateral against secured funding and other collateralised obligations and, as a result, is no longer available to the Bank of Cyprus Holdings Group (the Group) for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to €3,005,354 thousand as at 30 June 2019 (31 December 2018: €3,384,455 thousand).

An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other collateralised obligations. Unencumbered assets are further analysed into those that are available and can be potentially pledged and those that are not readily available to be pledged. As at 30 June 2019, the Group held €14,317,652 thousand (31 December 2018: €12,518,132 thousand) of unencumbered assets that can be potentially pledged and can be used to support potential liquidity funding needs and €3,176,101 thousand (31 December 2018: €4,878,219 thousand) of unencumbered assets that are not readily available to be pledged for funding requirements in their current form.

Loans and advances indicated as encumbered as at June 2019 and 31 December 2018 are mainly used as collateral for funding from the ECB and the covered bond.

Loans and advances to customers include mortgage loans of a nominal amount €1,005 million as at 30 June 2019 (31 December 2018: €1,009 million) in Cyprus, pledged as collateral for the covered bond issued by Bank of Cyprus Public Company Ltd (BOC PCL) in 2011 under its Covered Bond Programme. Furthermore, as at 30 June 2019 housing loans of a nominal amount €1,570 million (31 December 2018: €1,543 million) in Cyprus are pledged as collateral for the funding from the ECB (Note 20 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019).

The table below presents an analysis of the Group's encumbered and unencumbered assets and the extent to which these assets are currently pledged for funding or other purposes. The carrying amount of such assets is disclosed below:

30 June 2019	Encumbered	Unencumbered		Total
	Pledged as collateral	Which can potentially be pledged	Which are not readily available to be pledged	Total
	€000	€000	€000	€000
Cash and bank placements	128,743	5,003,766	532,428	5,664,937
Investments	292,317	1,520,845	67,737	1,880,899
Loans and advances to customers	2,584,294	6,015,014	2,349,693	10,949,001
Non-current assets held for sale	-	-	197,521	197,521
Property	-	1,778,027	28,722	1,806,749
Total on-balance sheet	3,005,354	14,317,652	3,176,101	20,499,107

31 December 2018
Cash and bank placements	118,627	4,326,166	638,230	5,083,023
Investments	737,587	742,152	34,952	1,514,691
Loans and advances to customers	2,528,241	5,708,960	2,684,585	10,921,786
Non-current assets held for sale	-	-	1,470,038	1,470,038
Property	-	1,740,854	50,414	1,791,268
Total on-balance sheet	3,384,455	12,518,132	4,878,219	20,780,806

2. Liquidity risk and funding (continued)

2.1 Encumbered and unencumbered assets (continued)

Encumbered assets primarily consist of loans and advances to customers and investments in debt securities. These are mainly pledged for the funding facilities of the Central Banks (ECB and CBC) (Note 20 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019) and for the covered bond. Investments are mainly used as collateral for repurchase transactions with commercial banks as well as supplementary assets for the covered bond (Note 31 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019). Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA/GMRA agreements which are not immediately available for use by the Group but are released once the transactions are terminated. Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond and for other operational purposes.

BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus. On 6 June 2018, the terms of the covered bond have been amended to extend the maturity date to 12 December 2021, and set the interest rate to 3 months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB.

Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than 90 days past due and are expected to be eligible for ELA funding, as well as loans of overseas subsidiaries and branches which are available to be pledged. Customer loans of overseas subsidiaries and branches cannot be pledged with the CBC as collateral for ELA. Moreover, for some of the overseas subsidiaries and branches, these assets are only available to be pledged for other purposes for the needs of the particular subsidiary/branch and not to provide liquidity to any other entity of the Group. Balances with central banks are reported as unencumbered and can be pledged, to the extent that there is excess available over the minimum reserve requirement. The minimum reserve requirement is reported as unencumbered not readily available to be pledged.

Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which are prohibited by contract or law to be encumbered or which are over 90 days past due or for which there are pending litigations or other legal actions against the customer, a proportion of which would be suitable for use in secured funding structures but are conservatively classified as not readily available for collateral. Properties whose legal title has not been transferred in the name of the Company or the subsidiary are not considered to be readily available as collateral.

Insurance assets held by Group insurance subsidiaries are not included in the table below as they are primarily due to the insurance policyholders.

2. Liquidity risk and funding (continued)

2.1 Encumbered and unencumbered assets (continued)

The carrying and fair value of the encumbered and unencumbered investments of the Group as at 30 June 2019 and 31 December 2018 are as follows:

30 June 2019	Carrying value of encumbered investments	Fair value of encumbered investments	Carrying value of unencumbered investments	Fair value of unencumbered investments
30 June 2019	€000	€000	€000	€000
Equity securities	-	-	160,668	160,668
Debt securities	292,317	292,581	1,427,914	1,447,722
Total investments	292,317	292,581	1,588,582	1,608,390

31 December 2018
Equity securities	-	-	149,948	149,948
Debt securities	737,587	739,222	627,156	633,773
Total investments	737,587	739,222	777,104	783,721

2.2 Liquidity regulation

The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by the Commission Delegated Regulation (EU) No 2015/61 which prescribes the criteria for liquid assets and methods of calculation as from 1 October 2015 and the Commission Implementing Regulation (EU) No 2016/322 which prescribes supervisory reporting requirements and applied from 10 September 2016). It also monitors its position against the Net Stable Funding Ratio (NSFR) as proposed under Basel III. The LCR is designed to promote short-term resilience of a Group's liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to promote a sustainable maturity structure of assets and liabilities.

In October 2014, the Basel Committee on Banking Supervision proposed the methodology for calculating the NSFR. It is noted that the NSFR did not become effective on 1 January 2018 as opposed to what was expected. It will become a regulatory indicator when CRR2 is enforced with the limit set at 100%.

As at 30 June 2019 the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2019 the LCR stood at 253% for the Group (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100% applicable as from 1 January 2018. As at 30 June 2019 the Group's NSFR, on the basis of the Basel ΙΙΙ standards, was 128% (compared to 119% at 31 December 2018).

2. Liquidity risk and funding (continued)

2.3 Liquidity reserves

The below table sets out the Group's liquidity reserves:

Composition of the liquidity reserves	30 June 2019			31 December 2018
	Internal Liquidity reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible		Internal Liquidity reserves	Liquidity reserves as per LCR Delegated Reg (EU) 2015/61 LCR eligible
	Internal Liquidity reserves	Level 1	Level 2A	Internal Liquidity reserves	Level 1	Level 2A
	€000	€000	€000	€000	€000	€000
Cash and balances with central banks	5,104,296	5,104,296	-	4,447,511	4,447,511	-
Nostro and overnight placements with banks	61,344	-	-	281,383	-	-
Other placements with banks	138,050	-	-	-	-	-
Liquid investments	1,172,841	1,117,496	130,343	881,091	929,380	93,165
Available ECB Buffer	277,241	-	-	108,374	-	-
Total	6,753,772	6,221,792	130,343	5,718,359	5,376,891	93,165

Internal Liquidity Reserves show the total liquid assets as defined in the Bank's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation (EU) 2015/61 show the liquid assets as per the definition of the aforementioned regulation i.e. High Quality Liquid Assets (HQLA).

Under Liquidity reserves as per LCR, Nostro and placements with banks are not included, as they are not considered HQLA (they are part of the LCR Inflows).

Liquid investments under the Liquidity reserves as per LCR, are shown at market values reduced by standard weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity reserves, include all LCR and/or ECB eligible investments and are shown at market values net of haircut based on ECB haircuts and methodology.

Finally, available ECB buffer is not part of the Liquidity reserves as per LCR, since the collateralised assets in the ECB pool are not LCR eligible but only ECB eligible.

The Liquidity Reserves are managed by Group Treasury.

3. Minimum Required Own Funds for Credit, Market and Operational Risk

Group's approach to assessing the adequacy of its internal capital

The Group assesses its capital requirements taking into consideration its regulatory requirements, risk profile and appetite set by the Board of Directors. A Financial and Capital Plan (the Plan) is annually prepared revising the financial forecasts and capital projections over a three year horizon in light of recent developments and it is approved by the Board of Directors. The Plan takes into account the Group key strategic pillars and Risk Appetite Statement (RAS). The Plan is rolled forward on a quarterly basis after taking into account the actual results of each quarter.

The Group's capital projections are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group's risk profile, regulatory and business needs. These are frequently monitored against relevant internal target capital ratios to ensure they remain appropriate and consider risks to the plan, including possible future regulatory changes.

The main strategic and business risks are monitored regularly by the Executive Committee (ExCo), the Assets and Liabilities Committee (ALCO) and the Board Risk Committee (RC). These committees receive regular reports of risk and performance indicators, from relevant managers and make decisions to ensure adherence to the Group's strategic objective, while remaining within the Group RAS.

The key pillars of the Group's strategy are to:

· Materially reduce the level of delinquent loans

· Further improve the funding structure

· Maintain an appropriate capital position by internally generating capital

· Focus on the core Cyprus market

· Achieve a lean operating model

· Deliver value to shareholders and other stakeholders

The Risk Weighted Assets (RWA) that form the denominator of the risk-based capital ratio are presented below. Minimum capital requirements are calculated as 8% of the RWA. All rows that are not relevant to the Group's activities are not included.

As of 1 January 2018 the RWA are reported on an IFRS 9 transitional basis under article 473(a) of the CRR by which provisions amounts are decreased by an appropriate ratio hence creating higher exposures compared to the actual balance sheet values and as a result comparatively higher RWA and capital requirements. The IFRS 9 transitional basis effect will be phased out by 1 January 2023.

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

Overview of RWA

		RWA		Minimum capital requirements
		30 June 2019	31 March 2019	30 June 2019
		€000	€000	€000
1	Credit risk (excluding counterparty credit risk (CCR))	11,974,850	13,523,159	957,988
2	Of which the Standardised Approach	11,974,850	13,523,159	957,988
6	CCR	19,194	19,765	1,536
7	Of which mark to market	12,881	12,615	1,030
11	Of which risk exposure amount for contributions to the default fund of a CCP	-	-	-
12	Of which Credit Valuation Adjustment (CVA)	6,313	7,150	505
13	Settlement risk	-	-	-
14	Securitisation exposures in the banking book (after the cap)	52,504	-	4,200
18	Of which Standardised Approach	52,504	-	4,200
19	Market risk	61,712	-	4,937
20	Of which the Standardised Approach	61,712	-	4,937
22	Large exposures	-	-	-
23	Operational risk	1,538,588	1,538,588	123,087
25	Of which Standardised Approach	1,538,588	1,538,588	123,087
27	Amounts below the thresholds for deduction (subject to 250% risk weight)	315,220	309,743	25,218
29	Total	13,962,068	15,391,255	1,116,966

The overall decrease in total RWA was mainly driven from "Credit Risk (excluding counterparty credit risk)" observed in line 1 which at its majority was driven from the sale of a portfolio of loans (Projects Helix and Velocity) which at the same time created a new position in "Securitisation exposures in the banking book" observed in line 14 from BOC PCL's investment in a senior debt security issued. The newly created RWA and capital requirements amounts observed in line 19 relate to an open Foreign Currency position created by the Project Helix transaction. This open position closed in early July 2019 and the RWA and capital requirements have been reversed.

There were no large exposures for institutions that exceeded the relevant limits.

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

3.1 Credit Risk

The Standardised Approach has been applied to calculate the minimum capital requirement in accordance with the requirements laid down in Article 92 of the CRR as shown in the table below. Minimum capital requirements are calculated as 8% of the RWAs.

As of 1 January 2018 the RWA are reported on an IFRS 9 transitional basis under article 473(a) of the CRR by which provisions amounts are decreased by an appropriate ratio hence creating comparatively higher exposures compared to the actual balance sheet values and as a result higher RWA and capital requirements. The IFRS 9 transitional basis effect will be phased out by 1 January 2023.

Further analysis on the RWA intensity is available in Sections 8.13.1 and 8.13.2.

Exposure Portfolio	30 June 2019	31 December 2018
Exposure Portfolio	€000	€000
Central governments or central banks	30,608	26,659
Regional governments or local authorities	116	56
Public sector entities	1	1
Institutions	15,906	15,328
Corporates	261,208	241,352
Retail	83,089	78,985
Secured by mortgages on immovable property	86,590	86,172
Exposures in default	204,022	295,647
Items associated with particular high risk	106,850	162,587
Covered bonds	1,356	1,132
Collective Investments Undertakings (CIU)	24	14
Items representing securitisation positions	4,200	-
Equity	26,416	20,338
Other items	168,050	177,628
Total Capital Requirement for Credit Risk	988,436	1,105,899

The movement in capital requirements in exposure class "Central governments or central banks" derives from the law amendment of the Cyprus Parliament legislative on 1 March 2019 allowing for the conversion of deferred tax assets into deferred tax credits for regulatory capital purposes carrying a RW of 100% which were previously risk weighted at 250% or deducted from capital. The material decrease in capital requirements observed in exposure classes "Exposures in Default" and "Items associated with particular high risk" results mainly from the sale of a portfolio of loans (Projects Helix and Velocity). Additionally the decrease in these exposure classes was strengthened by the on-going deleveraging actions in the form of customer loan restructurings, increased provisioning and debt-for-asset swaps. New lending and curing increased the exposure values and respectively the capital requirements in exposure classes "Corporates", "Retail", and "Secured by mortgages on immovable property". "Other Items" show a decrease in the capital requirements at its majority from the disposal of properties held for sale from debt-for-asset swaps in the portfolio of loans in Project Helix. The newly created capital requirements in exposure class "Items representing securitisation positions" relates to the investment of BOC PCL in a senior debt security issued for the financing of Project Helix. The increase in "Equity" mainly results from the increase in the amount of the Financial Sector Entities (FSE) carrying a risk weight of 250%. All movements in all other exposure classes are in line with balance sheet movements.

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

3.2 EU MR1 Market risk under the standardised approach

All rows that are not relevant to the Group's activities are not included in the table below.

The minimum capital requirement calculated under the Standardised Approach in accordance with Title IV: Own funds requirements for Market Risk of the CRR are exclusively related to equity risk. The BOC PCL does not have any exposures in the trading book in "Interest rate risk", "Commodity Risk", "Options" or "Securitisation" positions.

Due to the small trading book, Article 94 of the CRR was applied in 2019 allowing the RWA for trading book positions to be calculated in accordance with Article 92 paragraph 3(a) of the CRR, hence the RWA and capital requirements are included in the Credit Risk tables.

The newly created RWA and capital requirements amounts observed in line 3 relate to an open Foreign Currency position created by the Project Helix transaction. This open position closed in early July 2019 and the RWA and capital requirements have been reversed.

		30 June 2019		31 December 2018
		RWAs	Capital requirements	RWAs	Capital requirements
		€000	€000	€000	€000
	Outright products
2	Equity risk (general and specific)	-	-	1,006	80
3	Foreign exchange risk	61,712	4,937	-	-
9	Total Capital Requirement for Market Risk	61,712	4,937	1,006	80

3.3 Operational Risk

The minimum capital requirement for operational risk is calculated in accordance with Title III: Own funds requirements for operational risk of the CRR.

The Group uses the Standardised Approach for the operational risk capital calculation.

As at 30 June 2019, the minimum capital requirement in relation to operational risk, calculated in accordance with the Standardised Approach, amounts to €123,087 thousand (31 December 2018: €123,087 thousand).

30 June 2019/31 December 2018	Standardised approach
30 June 2019/31 December 2018	€000
Corporate Finance (CF)	119
Trading and Sales (TS)	7,963
Retail Brokerage (RBr)	91
Commercial Banking (CB)	80,506
Retail Banking (RB)	21,239
Payment and Settlement (PS)	12,761
Agency Services (AS)	338
Asset Management (AM)	70
Total Capital Requirement for Operational Risk	123,087

3. Minimum Required Own Funds for Credit, Market and Operational Risk (continued)

3.4 Credit Valuation Adjustment (CVA) Risk

CVA captures the credit risk of derivative counterparties not already included in Counterparty Credit Risk. It calculates the potential loss on derivatives due to increase in the credit spread of the counterparty.

The Standardised Approach has been used to calculate the CVA charge for regulatory purposes in accordance with the requirements of the CRR (Standardised Approach: Articles 381, 382 and 384).

30 June

2019

31 December

2018

€000

CVA (Capital Requirement)

505

709

The decrease in the capital requirements relates to a decrease in derivative values.

3.5 EU INS1 Non-deducted participations in insurance undertakings

	Carrying amount
	30 June 2019	31 December 2018
	€000	€000
Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (before risk-weighting)	117,871	91,094
Total RWAs	294,678	227,734

4. Other risks

4.1 Operational risk

Operational risk is defined as the risk of a direct or indirect impact loss resulting from inadequate or failed internal processes, people and systems or external events. The Group includes in this definition compliance, legal and reputational risk.

The Group recognises that the control of operational risk is directly related to effective and efficient management practices and high standards of corporate governance. To that effect, the management of operational risk is geared towards maintaining a strong internal control governance framework and managing operational risk exposures through a consistent set of management processes that drive risk identification, assessment, control and monitoring.

The main objectives of operational risk management within the Group are: (i) the development of operational risk awareness and culture, (ii) the provision of adequate information to the Group's management at all levels in relation to the operational risk profile at a company, unit and activity level, so as to facilitate decision making for risk control activities, and (iii) the control of operational risk to ensure that operational losses do not cause material damage to the Group's franchise and that the impact on the Group's profitability and corporate objectives is contained.

Operational risks can arise from all business lines and from all activities carried out by the Group and are thus diverse in nature. To enable effective management of all material operational risks, the operational risk management framework adopted by the Group is based on the three lines of defence model, through which risk ownership is dispersed throughout the organisation. The first line of defence comprises of management and staff who have immediate responsibility of day-to-day operational risk management and own the risk. Each business unit owner is responsible for identifying and managing all the risks that arise from the unit's activities as an integral part of their first line responsibilities.

4. Other risks (continued)

4.1 Operational risk (continued)

The second line of defence comprises of the risk management function whose role is to provide operational risk oversight and independent and objective challenge to the first line of defence, supported by other specialist control and support functions such as the Group Compliance, Legal, Information Technology, Information Security and Health and Safety functions. The third line of defence comprises of the Internal Audit function, which provides independent assurance over the integrity and effectiveness of the risk management framework throughout the Group.

During the first half of 2019, ongoing activities/initiatives towards further enhancement of Operational Risk management involved inter alia the following: (i) successful implementation in production of additional monetary and non-monetary transactions and functionality to enhance customers' profiles of the fraud system (FRMS), (ii) testing the implementation of the interface between the operational loss database (RCMS) with the automated tool used by Legal Department for recording/monitoring of legal cases, with an aim to go live in September 2019, (iii) gradual incorporation of business units' plans into the Business Continuity Management software tool (namely Continuity 2), along with relevant training delivered, (iv) training offered to all staff in the form of e-learning on the basic concepts and management of operational risk, (v) on-going enhancements to the Risk Control Self-Assessment methodology.

Operational risk loss events are classified and recorded in the Group's internal loss database (a new improved system was launched in 2016 providing for the integration of all risk-control data under the same system) to enable risk identification, corrective action and statistical analysis. During the first half of the year 2019, 379 loss events with gross loss equal to or greater than €1,000 each were recorded including incidents of prior years (mostly legal cases) for which losses materialised in the first six months of 2019 (six months ended 30 June 2018: 162 loss events).

The Group strives to continuously enhance its risk control culture and increase awareness of its employees on operational risk issues through ongoing staff training (both classroom/workshop type of training and e-learning sessions).

The Group also maintains adequate insurance policies to cover for unexpected material operational losses.

Business resilience is treated as a priority and as such the Group places significant importance on continuously enhancing the continuity arrangements for all markets in which the Group operates, to ensure timely recovery in the case of events that may cause major disruptions to the business operations.

4.2 Political risk

External factors which are beyond the control of the Group, such as developments in the European and the global economy, as well as political and government actions in Cyprus can affect the operations of the Group, its strategy and prospects, either directly or indirectly through their possible impact on the domestic economy.

Cyprus is a small open economy with a large external sector. Exports of goods and services in real terms were about 63% of Gross Domestic Product (GDP) in 2017 and 2018. Imports formed 64% of GDP excluding ship registrations. As a result the Cyprus economy is exposed to developments outside its borders, particularly in Russia, the UK and Greece. Cyprus is also exposed to developments in the European Union and the Eurozone that might impact bond markets and interest rates as well as to developments in the global economy at large, including trade.

There is rising risk of a global recession. The world economy is facing slowing growth, the behaviour of great power rivalries, financial uncertainties and geopolitical risks. The International Monetary Fund in its July 2019 World Economic Outlook Update, lowered its global growth forecast to 3.2% in 2019 pointing to weaker-than-anticipated economic activity. Growth in the US is expected to slow to 2.6% in 2019 and to 1.3% in the Eurozone. In China growth is forecasted at 6.2% which is the lowest pace in more than two decades.

The major economies of the US, China and Germany appear to be heading towards a significant slowdown. China depends on exports, but during the financial crisis global demand decreased and economic growth has been slowing since.

4. Other risks (continued)

4.2 Political risk (continued)

According to Eurostat, Germany's real GDP increased by 0.8% year-on-year in the first quarter of 2019 and by 0% in the second quarter. German exports account for 50% of GDP making it especially vulnerable to a slow-down or recession in its export countries.

Economic growth in Italy remains one of the lowest in the Eurozone, and its debt the highest in absolute terms and the second highest in relation to GDP after Greece's. Financial markets are therefore especially sensitive to Italian political instability. The ten year yield spread against Germany rose to 240 basis points in early August 2019.

Regarding Brexit, the UK new government failed to convince the European Commission to re-open negotiations over the terms of UK's exit from the EU. The risk of a no deal Brexit has been rising as a result. However, opposition parties and a group of conservative members of parliament oppose a no-deal Brexit and are looking for ways to avoid it. Cyprus has close trade and investment links with the UK making its economy vulnerable to the impact of the exit of UK from the EU on the UK economy. Weaker demand in the UK and the depreciation of sterling against the euro following the referendum in 2016 affected the competitiveness of Cypriot exports to the UK. Exports of goods to the UK were about 8% of total exports of goods on average in the three years to 2016 and 5.7% in 2017. Tourist arrivals from the UK accounted for about 34% of total arrivals in 2017-2018. A decline in tourist arrivals from the UK and a drop in their spending will need to be mitigated by increasing arrivals and revenues from other countries.

Cyprus is less exposed to Greece than it was prior to the crisis in 2013. Greece's departure from the Eurozone is no longer a short-term risk. Although Greece still has a high unemployment rate, a heavy debt burden and a fragile banking sector, the outlook appears positive and the European Commission projects growth of 2.1% and 2.2% in 2019 and 2020 respectively (European Economic Forecast, Summer 2019, Interim).

The Russian economy extended by 1.6% in 2017 and by 2.3% in 2018 and expected to grow by 1.2% in 2019 and by 1.9% in 2020 according to the IMF (World Economic Outlook Update, July 2019). Russia is impacted negatively by persistent sanctions and by low oil prices. In this respect Russia expanded economic ties with non-western countries primarily with China. While this strategy has been successful in stabilising the macroeconomic environment, in the long term Russia continues to face significant challenges.

Developments in other non-EU countries with which Cyprus maintains significant economic links, the unresolved Cyprus problem, and political and social unrest or escalation of military conflict in neighboring countries and/or other overseas areas may adversely affect the Cyprus economy. Political risk remains at an elevated level due to the de facto division of the island and the potential for tension with Turkey over hydrocarbons explorations in Cyprus' Exclusive Economic Zone (EEZ).

Given the above, the Group recognises that unforeseen political events can have negative effects on the fulfilment of contractual relationships and obligations of its customers and other counterparties, which may have a significant impact on the Group's activities, operating results and position.

5. Capital management

With the exception of certain specified provisions, the CRR and Capital Requirements Directive IV (CRD IV) came into effect on 1 January 2014. The CRR and CRD IV transposed the new capital, liquidity and leverage standards of Basel III into the European Union's legal framework. CRR establishes the prudential requirements for capital, liquidity and leverage for credit institutions and investment firms. It is directly applicable in all EU member states. CRD IV governs access to deposit-taking activities and internal governance arrangements including remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV into national laws and it allowed national regulators to impose additional capital buffer requirements. CRR introduced significant changes in the prudential regulatory regime applicable to banks including amended minimum capital adequacy ratios, changes to the definition of capital and the calculation of risk weighted assets and the introduction of new measures relating to leverage, liquidity and funding. CRR permits a transitional period for certain of the enhanced capital requirements and certain other measures, which are largely fully effective in 2019.

5. Capital management (continued)

In addition, the Regulation (EU) 2016/445 of the ECB on the exercise of options and discretions available in Union law (ECB/2016/4) provides certain transitional arrangements which supersede the national discretions unless they are stricter than the EU Regulation 2016/445.

The CET1 ratio of the Group at 30 June 2019 stands at 14.9% and the total capital ratio at 17.8% on a transitional basis.

The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital.

The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons).

Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group's minimum phased-in CET1 capital ratio and Total capital ratio remain unchanged when ignoring the phasing-in of the Capital Conservation Buffer (CCB) and the Other Systemically Important Institution Buffer. The Group's phased-in CET1 capital ratio requirement is 10.5%, comprising of a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The Group's Total capital ratio requirement is 14.0%, comprising of a 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The final 2018 SREP decision applies from 1 April 2019. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

The Group's minimum phased-in CET1 capital ratio for 2018 was 9.375%, comprising of a 4.50% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875%. The ECB had also provided non-public guidance for an additional Pillar II CET1 buffer. The overall Total Capital Ratio Requirement for 2018 was 12.875% comprising of 8.00% Pillar I requirement (of which up to 1.50% could be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a 3.00% Pillar II requirement (in the form of CET1) and the CCB of 1.875% applicable for 2018.

The capital position of the Group and BOC PCL at 30 June 2019 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time.

Based on the provisions of the Macroprudential Oversight of Institutions Law of 2015 which came into force on 1 January 2016, the CBC is the designated Authority responsible for setting the macroprudential buffers that derive from the CRD IV.

In accordance with the provisions of the above law, the CBC sets, on a quarterly basis, the Countercyclical Capital Buffer (CCyB) level in accordance with the methodology described in this law. The CCyB is effective as from 1 January 2016 and is determined for all the countries in the European Economic Area (EEA) by their local competent authorities ahead of the beginning of each quarter. The CBC has set the level of the CCyB for Cyprus at 0% for the nine months up to September 2019 and the year of 2018.

In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. The Group has been designated as an O-SII and the CBC set the O-SII buffer for the Group at 2.0%. This buffer is being phased-in gradually, having started 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.

The Capital Conservation Buffer (CCB) was gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in 2018 and has been fully implemented on 1 January 2019 at 2.5%.

5. Capital management (continued)

The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states shall apply the BRRD's provisions requiring EU credit institutions and certain investment firms to maintain a minimum requirement for own funds and eligible liabilities (MREL), subject to the provisions of the Commission Delegated Regulation (EU) 2016/1450. Although the precise calibration and ultimate designation of the Group's MREL has not yet been finalised, BOC PCL is monitoring developments in this area very closely.

The capital position of the Group and the BOC PCL under CRD IV/CRR basis (after applying the transitional arrangements) is presented below:

Regulatory capital	Group		BOC PCL
	30 June 2019	31 December 2018⁵	30 June 2019	31 December 2018
	€000	€000	€000	€000
Transitional Common Equity Tier 1 (CET1)^6&7	2,080,059	1,864,000	2,093,135	1,861,098
Transitional Additional Tier 1 capital (AT1)	220,000	220,000	220,000	220,000
Tier 2 capital (T2)	191,909	212,000	250,000	250,000
Transitional total regulatory capital⁷	2,491,968	2,296,000	2,563,135	2,331,098
Risk weighted assets - credit risk⁸	12,361,768	13,832,589	12,370,997	13,820,385
Risk weighted assets - market risk	61,712	2,182	61,712	-
Risk weighted assets - operational risk	1,538,588	1,538,588	1,411,788	1,411,788
Total risk weighted assets	13,962,068	15,373,359	13,844,497	15,232,173

	%	%	%	%
Transitional Common Equity Tier 1 ratio	14.9	12.1	15.1	12.2
Transitional total capital ratio	17.8	14.9	18.5	15.3

Fully loaded	Group		BOC PCL
	30 June 2019*	31 December 2018**	30 June 2019*	31 December 2018**
	€000	€000	€000	€000
Common Equity Tier 1 ratio (%)	13.3	10.1	13.5	10.2
Total capital ratio (%)	16.4	13.2	17.0	13.4

* IFRS 9 fully loaded

** IFRS 9 & Deferred Tax Asset fully loaded

During the period ended 30 June 2019, the CET1 was negatively affected by the phasing-in of transitional adjustments, mainly the IFRS 9, and it was positively affected by the profit⁹ for the period of €110,930 thousand, in line with the prudential consolidation, primarily driven by legislative changes. Moreover on 1 March 2019 the Cyprus Parliament adopted legislative amendments allowing for the conversion of deferred tax assets into deferred tax credits for regulatory purposes, under the CRR. For more details refer to Note 11 of the Consolidated Condensed Interim Financial Statements for the period ended 30 June 2019.

5. As per the Annual Report 2018 and Pillar 3 Disclosures 2018

6. CET1 includes regulatory deductions, primarily comprising intangible assets amounting to €42,906 thousand as at 30 June 2019 (31 December 2018: €43,364 thousand). As at 31 December 2018 CET1 included regulatory deductions comprising deferred tax assets amounting to €163,082 thousand.

7. 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 deferred tax asset was phasing-in for 5 years, with effect as from the reporting of 31 December 2016, and fully phased-in on 1 January 2019.

8. Includes Credit Valuation Adjustments (CVA).

9. No permission has been requested by the ECB for the inclusion of interim profits in capital regulatory submissions.

5. Capital management (continued)

In accordance with the EU Regulation 2017/2395, BOC PCL can choose either a 'Static' or a 'Static and dynamic' approach. These are defined as follows:

1. A 'Static' approach: the transitional adjustment is calculated just once, at the effective date of the transition to ECL accounting.

2. A 'Static-dynamic' approach: allows for recalculation of the transitional adjustment periodically on Stage 1 and Stage 2 so as to reflect the increase of the ECL provisions within the transition period. The Stage 3 ECL remains static over the transition period as per the impact upon initial recognition.

The Group has elected the static-dynamic approach and it therefore applies paragraph 4 of Article 473(a) of the CRR.

A comparison of the Group's own funds and capital and leverage ratios with the application of transitional arrangements for IFRS 9 or analogous ECLs, is presented in the table below.

		30 June 2019*	31 March 2019*	31 December 2018**	30 September 2018**	30 June 2018**
		€000	€000	€000	€000	€000
1	Common Equity Tier 1 (CET1) capital	1,969,129	1,970,129	1,862,739	1,865,988	2,017,756
2	CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	1,706,673	1,707,673	1,557,946	1,544,249	1,696,017
3	Tier 1 capital	2,189,129	2,190,129	2,082,739	1,865,988	2,017,756
4	Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	1,926,673	1,927,673	1,777,946	1,544,249	1,696,017
5	Total capital	2,389,755	2,410,870	2,294,717	2,104,979	2,284,535
6	Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	2,146,888	2,148,414	1,989,924	1,783,240	1,962,796
	Risk-weighted assets
7	Total risk-weighted assets	13,962,068	15,390,159	15,371,777	15,712,638	17,193,734
8	Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	13,676,337	15,091,977	15,035,125	15,353,048	16,832,809

*As per the final capital regulatory submission, excluding interim profits.

** As per the final capital regulatory submission.

5. Capital management (continued)

		30 June 2019*	31 March 2019*	31 December 2018**	30 September 2018**	30 June 2018**
		€000	€000	€000	€000	€000
	Capital ratios
9	CET1 (as a percentage of risk exposure amount)	14.1%	12.8%	12.1%	11.9%	11.7%
10	CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	12.5%	11.3%	10.4%	10.1%	10.1%
11	Tier 1 (as a percentage of risk exposure amount)	15.7%	14.2%	13.5%	11.9%	11.7%
12	Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	14.1%	12.8%	11.8%	10.1%	10.1%
13	Total capital (as a percentage of risk exposure amount)	17.1%	15.7%	14.9%	13.4%	13.3%
14	Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	15.7%	14.2%	13.2%	11.6%	11.7%
	Leverage ratio
15	Leverage ratio total exposure measure	21,873,669	21,731,587	22,051,037	22,072,321	23,715,702
16	Leverage ratio	10.0%	10.1%	9.5%	8.5%	8.5%
17	Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied	8.9%	9.0%	8.0%	6.8%	7.0%

*As per the final capital regulatory submission, excluding interim profits.

** As per the final capital regulatory submission.

The main driver behind the overall decrease in the RWA during the period is the sale of a portfolio of loans (Projects Helix and Velocity).

The overall leverage ratio, which is well above the minimum ratio set at 3% by the amended CRR will be effective on 28 June 2021, has increased since 31 December 2018 mainly due to the increase in Tier 1 Capital. The increase in Tier 1 Capital is primarily driven by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits. The leverage ratio total exposure measure has decreased in line with the movements in the Group's balance sheet assets.

6. Leverage ratio

According to CRR Article 429, the leverage ratio, expressed as a percentage, is calculated as the capital measure divided by the total exposure measure of the Group.

The leverage ratio of the Group is presented below:

	30 June 2019	31 December 2018
Transitional basis	€000	€000
Capital measure (Tier1)	2,189,129	2,084,000
Total exposure measure	21,873,669	22,052,298
Leverage ratio (%)	10.01%	9.45%

IFRS 9 fully loaded
Capital measure (Tier1)	1,926,673	1,745,473
Total exposure measure	21,657,529	21,893,785
Leverage ratio (%)	8.90%	7.97%

The decrease in the 'Total exposure measure' follows the movements in the Group's balance sheet assets.

For the 'Capital measure' the increase in Tier1 is primarily driven by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits.

The leverage ratio, including the profit (prudential consolidation) of €110,930 thousand for the six month period ended 30 June 2019, is calculated at 10.52% on a transitional basis and 9.41% on IFRS 9 fully loaded basis.

7. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)

The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2018 were approved by the Board of Directors and submitted to the ECB on 25 April 2019.

The Group also undertakes a quarterly review of its ICAAP results (as at the end of June and as at the end of September) considering the latest actual and forecasted information. During the quarterly review, the Group's risk profile and risk management policies and processes are reviewed and any changes since the annual ICAAP exercise are taken into consideration. The ICAAP process demonstrates that the Group has sufficient capital under both the base case and stress scenarios under the Normative internal perspective. Under the Economic internal perspective there are shortfalls in the adverse scenario, which however can be largely neutralised by the available mitigants.

The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and RC. During the quarterly review, the liquidity risk drivers are assessed and, if needed, the stress test assumptions are amended accordingly. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate.

The ECB, as part of its supervisory role, has been conducting the SREP and onsite inspections on the Group. SREP is a holistic assessment of, amongst other things, the Group's business model, internal governance and institution-wide control arrangements, risks to capital and adequacy of capital to cover these risks and risks to liquidity and adequacy of liquidity resources to cover these risks. The objective of the SREP is for the ECB to form an up-to-date supervisory view of the Group's risks and viability and to form the basis for supervisory measures and dialogue with the Group. Additional capital and other requirements could be imposed on the Group as a result of these supervisory processes, including a revision of the level of Pillar II add-ons as the Pillar II add-ons capital requirements are a point-in-time assessment and therefore subject to change over time.

8. Other Pillar 3 disclosures

8.1 EU CR1-D Ageing of past-due exposures

	Gross carrying values
	< 30 days	>30 days < 60 days	>60 days < 90 days	>90 days < 180 days	>180 days < 1 year	> 1 year
30 June 2019	€000	€000	€000	€000	€000	€000
				(A)	(B)	(C)
Loans and advances to customers¹⁰	738,471	106,193	63,630	146,636	225,324	2,773,900
Loans and advances to customers classified as held for sale¹⁰	-	-	-	-	-	12,422
Debt securities	-	-	-	-	-	-
Total exposures	738,471	106,193	63,630	146,636	225,324	2,786,322

31 December 2018
Loans and advances to customers¹⁰	489,133	101,705	77,744	120,615	217,343	2,946,967
Loans and advances to customers classified as held for sale¹⁰	35,878	65,185	41,994	56,411	175,380	2,140,639
Debt securities	-	-	-	-	-	-
Total exposures	525,011	166,890	119,738	177,026	392,723	5,087,606

The loans and advances to customers in arrear for more than 90 days (i.e. columns A, B and C in the table above) were reduced by €2.5 billion (44%). The decrease is mainly due to the disposal of the Helix Portfolio.

8.2 Non-performing exposures

The tables below disclose NPEs based on the definitions of the EBA standards. The definition of credit impaired loans (Stage 3) is aligned to the EBA NPEs definition (Section 1 'Credit risk').

Additional details on the definition of NPEs are disclosed in Note 2.19.2 of the Consolidated Financial Statements for 2018.

The tables below are presented using figures per the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019 and the Consolidated Financial Statements for 2018 including loans and advances to customers at amortised cost classified as held for sale and loans and advances to customers measured at FVPL.

10. Amounts presented are before fair value adjustment on initial recognition. The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans. This adjustment has decreased the gross balance of loans and advances to customers.

8. Other Pillar 3 disclosures (continued)

8.2 Non-performing exposures (continued)

EU CR1-E Non-performing and forborne exposures

	Gross carrying amount of performing and non-performing exposures							Accumulated impairment, accumulated negative fair value and adjustments due to credit risk and provisions				Collaterals and financial guarantees received
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne	Of which non-performing				On performing exposures		On non-performing exposures		On non-performing exposures	On forborne exposures
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne		Of which defaulted	Of which impaired	Of which forborne		Of which forborne		Of which forborne	On non-performing exposures	On forborne exposures
30 June 2019	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Debt securities	1,721,535	-	-	-	-	-	-	1,304	-	-	-	-	-
Loans and advances
Central banks	5,126,108	-	-	-	-	-	-	-	-	-	-	-	-
Credit institutions	405,064	-	-	-	-	-	-	2,023	-	-	-	-	-
Loans and advances to customers¹¹	13,081,150	33,685	996,032	4,311,521	4,311,521	4,148,473	2,289,758	167,921	31,715	1,964,227	860,983	2,161,498	2,156,248
Loans and advances to customers classified as held for sale¹¹	12,422	-	-	12,422	12,422	12,422	-	-	-	6,531	-	-	-
Off-balance-sheet exposures	2,693,153	n/a¹²	7,039	252,727	252,727	n/a¹²	4,741	412	-	21,739	-	11,155	6,619

11. Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans.

12. Per EBA guidelines no disclosure is required.

8. Other Pillar 3 disclosures (continued)

8.2 Non-performing exposures (continued)

	Gross carrying amount of performing and non-performing exposures							Accumulated impairment, accumulated negative fair value adjustments due to credit risk and provisions				Collaterals and financial guarantees received
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne	Of which non-performing				On performing exposures		On non-performing exposures		On non-performing exposures	Of which forborne exposures
		Of which performing but past due > 30 days and <= 90 days	Of which performing forborne		Of which defaulted	Of which impaired	Of which forborne		Of which forborne		Of which forborne	On non-performing exposures	Of which forborne exposures
31 December 2018	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Debt securities	1,366,173	-	-	-	-	-	-	1,430	-	-	-	-	-
Loans and advances
Central banks	4,456,768	-	-	-	-	-	-	-	-	-	-	-	-
Credit institutions	473,263	-	-	-	-	-	-	731	-	-	-	-	-
Loans and advances to customers¹³	13,158,131	47,524	1,103,180	4,768,316	4,768,316	4,607,409	2,534,368	154,267	31,594	2,082,078	821,184	2,456,743	2,455,859
Loans and advances to customers classified as held for sale¹³	2,851,113	5,888	54,232	2,749,301	2,749,301	2,749,301	1,437,851	50,914	28,285	1,646,091	797,692	991,924	620,995
Off-balance-sheet	2,842,535	n/a¹⁴	11,555	326,155	326,155	n/a¹⁴	8,774	3,904	-	23,781	-	28,855	10,039

The decrease in non-performing exposures of €0.45 billion is mainly due to restructuring activity, write offs of €0.26 billion, debt for asset swap (€0.14 billion), curing and transfer to performing exposures and repayments (€0.25 billion) and inflows (€0.2 billion).

13. Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originates credit impaired loans. This adjustment has decreased the gross balance of loans and advances to customers.

14. Per EBA guidelines no disclosure is required.

8. Other Pillar 3 disclosures (continued)

8.3 Analysis of Counterparty Credit Risk (CCR) exposure by approach

The table below shows the analysis of CCR per approach. The approach followed by the Group is the mark to market method for derivatives and the financial collateral comprehensive method for securities financing transactions (SFTs). All rows and columns that are not relevant to the Group's activities or methods applied are not included.

		Replacement cost/current market value	Potential future credit exposure	Exposure at Default (EAD) post Credit Risk Mitigation (CRM)	RWA
	30 June 2019	€000	€000	€000	€000
1	Mark to market	1,857	11,236	1,299	731
9	Financial collateral comprehensive method (for SFTs)			24,300	12,150
11	Total				12,881

	31 December 2018
1	Mark to market	13,289	13,975	2,484	1,195
9	Financial collateral comprehensive method (for SFTs)			25,601	12,801
11	Total				13,996

The decrease in the RWA in derivative transactions under the mark-to-market method and SFT transactions under the financial collateral comprehensive method stems an overall decrease in exposure values.

Exposures to Qualifying Central Counterparties (QCCPs)

The Group does not hold any initial margins or prefunded default fund contributions. The Group started clearing derivatives through a CCP in 2018. The Exposure at Default post CRM and RWA of these transactions are nil for both 30 June 2019 and 31 December 2018.

8. Other Pillar 3 disclosures (continued)

8.4 Regulatory CVA charge for capital calculation

The table below provides a summary of the exposure subject to CVA regulatory calculations. All rows that are not relevant to the Group's activities or methods applied are not included.

EU CCR2 - CVA capital charge

		30 June 2019		31 December 2018
		Exposure value	RWA	Exposure value	RWA
		€000	€000	€000	€000
4	All portfolios subject to the standardised method	25,599	6,313	28,086	8,863
5	Total subject to the CVA capital charge	25,599	6,313	28,086	8,863

The decrease in the exposure value is the result of a decrease in both derivative transactions (30 June 2019: €1,299 thousand, 31 December 2018: €2,484 thousand) and SFTs (30 June 2019: €24,300 thousand, 31 December 2018: €25,601 thousand).

8.5 EU CCR3 - Standardised approach - CCR exposures by regulatory portfolio and risk

The table below provides a breakdown of all CCR exposures, calculated under the Standardised Approach, by portfolio (type of counterparties) and by risk weight (business attributed according to the Standardised Approach). All rows and columns that are not relevant to the Group's activities are not included.

Exposure classes		Risk Weights				Total	Of which unrated¹⁵
Exposure classes		20%	50%	75%	100%	Total	Of which unrated¹⁵
30 June 2019		€000	€000	€000	€000	€000	€000
6	Institutions	465	24,300	-	-	24,765	-
7	Corporates	-	-	-	819	819	819
8	Retail	-	-	15	-	15	15
11	Total	465	24,300	15	819	25,599	834

31 December 2018
6	Institutions	525	27,168	-	-	27,693	-
7	Corporates	-	-	-	389	389	389
8	Retail	-	-	4	-	4	4
11	Total	525	27,168	4	389	28,086	393

The allocation of exposure values among exposure classes remains unchanged.

15.Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow a uniform regulatory treatment under the standardised approach of the CRR.

8. Other Pillar 3 disclosures (continued)

8.6 EU CCR5-A Impact of netting and collateral held on exposure values

The net credit exposure of Group derivative contracts, after considering both the benefits from legally enforceable netting agreements and collateral arrangements, is presented in the table below. Collateral received through the CSA agreements from counterparties as at 30 June 2019 was €1,340 thousand (31 December 2018: €12,220 thousand).

	Gross positive fair value or net carrying amount	Netting benefits	Netted current credit exposure	Collateral held	Net credit exposure
30 June 2019	€000	€000	€000	€000	€000
Derivatives	13,632	11,777	1,855	1,340	515
SFTs	24,300	-	24,300	-	24,300
Cross-product netting	-	-	-	-	-
Total	37,932	11,777	26,155	1,340	24,815

31 December 2018
Derivatives	24,734	11,445	13,289	12,220	1,069
SFTs	25,601	-	25,601	-	25,601
Cross-product netting	-	-	-	-	-
Total	50,335	11,445	38,890	12,220	26,670

8.7 EU-CCR5-B Composition of collateral for exposures to CCR

A breakdown of all types of collateral posted or received by banks to support or reduce CCR exposures, is presented below:

30 June 2019	Collateral used in derivative transactions				Collateral used in SFTs
	Fair value of collateral received		Fair value of posted collateral		Fair value of collateral received	Fair value of posted collateral
	Segregated	Unsegregated	Segregated	Unsegregated	Fair value of collateral received	Fair value of posted collateral
	€000	€000	€000	€000	€000	€000
Cash	-	1,340	21,227	30,866	-	12,361
Total	-	1,340	21,227	30,866	-	12,361

31 December 2018
Cash	12,020	200	-	27,947	-	14,684
Total	12,020	200	-	27,947	-	14,684

Lower fair values of the outstanding derivative transactions since last reporting date, translate into higher posted amount in the case of derivatives.

8. Other Pillar 3 disclosures (continued)

8.8 EU CR1-A Credit quality of exposures by exposure class and instrument

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by exposure class and it has been completed in accordance with the regulatory requirements. Column (c) represents the value adjustment used in the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current and the previous year calculated at exposure class level. Column (c) represents the IFRS 9 transitional specific credit risk adjustment values, calculated under article 473(a) of the CRR, which results in decreased provisions used for RWA purposes compared to the provisions reported in the consolidated balance sheet of the Group.

The amounts included in column (a) represent all defaulted exposures in accordance with Article 178 of the CRR. Row 'Exposures in default' is an informative row which is not included in the rows 'Total standardised approach' and 'Total'. Column (a) summarises the defaulted exposures that have been reported in exposure class 'Exposures in default' according to Article 112(j) of the CRR and it includes the defaulted exposures in all other exposure classes except for 'Items associated with particularly high risk' and 'Equity Exposures' which is included in row 'Other'.

Materiality applied: All exposure classes that do not exceed 1% of total net exposures have been included in 'Other'.

	a	b	c	d	e	f	g
	Gross carrying values of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
30 June 2019	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	-	6,440,965	1,107	-	-	(181)	6,439,858
Institutions	93,996	702,149	95,772	-	93,988	1,652	700,373
Corporates	2,166,040	4,454,979	1,570,171	-	958,027	(2,929,916)	5,050,848
Of which: SMEs	1,070,590	2,761,463	775,525	-	438,084	(2,573,635)	3,056,528
Retail	2,441,031	2,659,331	1,782,890	-	934,768	(179,464)	3,317,472
Of which: SMEs	603,807	768,228	443,289	-	236,954	(50,708)	928,746
Secured by mortgages on immovable property	1,231,676	3,070,797	166,475	-	86,827	(35,449)	4,135,998
Of which: SMEs	216,369	695,957	32,959	-	15,815	(26,415)	879,367
Exposures in default	5,932,744	-	3,468,937	-	-	(3,127,554)	2,463,807
Items associated with particularly high risk	768,618	932,188	506,068	-	334,736	(1,523,980)	1,194,738
Other exposures	-	2,243,608	9,767	-	-	9,709	2,233,841
Other	49	696,303	2,716	-	567	(2,750)	693,636
Total standardised approach	6,701,410	21,200,320	4,134,966	-	2,408,913	(4,660,379)	23,766,764
Of which: Loans	6,473,633	16,278,980	4,097,958	-	2,408,913	(4,671,433)	18,654,655
Of which: Debt securities	-	1,640,141	1,127	-	-	(169)	1,639,014
Of which: Off-balance sheet exposures	227,729	900,075	26,115	-	-	1,512	1,101,689

8. Other Pillar 3 disclosures (continued)

8.8 EU CR1-A Credit quality of exposures by exposure class and instrument (continued)

	a	b	c	d	e	f	g
	Gross carrying values of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the year	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the year	(a+b-c-d)
31 December 2018	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	-	5,412,797	1,288	-	-	1,287	5,411,509
Institutions	93,631	635,503	94,120	-	93,599	(53,145)	635,014
Corporates	5,969,183	4,254,493	4,500,087	-	2,865,717	(151,115)	5,723,589
Of which: SMEs	4,368,924	2,498,139	3,349,160	-	2,145,333	(97,832)	3,517,903
Retail	2,650,774	2,584,409	1,962,354	-	1,063,717	25,829	3,272,829
Of which: SMEs	654,062	773,422	493,997	-	258,433	(19,925)	933,487
Secured by mortgages on immovable property	1,431,256	3,070,309	201,924	-	97,273	43,359	4,299,641
Of which: SMEs	378,878	654,415	59,374	-	28,304	2,570	973,919
Exposures in default	10,147,231	-	6,596,491	-	-	14,976	3,550,740
Items associated with particularly high risk	2,798,700	913,564	2,030,048	-	1,365,411	70,203	1,682,216
Other exposures	-	2,403,897	58	-	-	58	2,403,839
Other	2,554	622,587	5,466	-	2,772	2,307	619,675
Total Standardised Approach	12,946,098	19,897,559	8,795,345	-	5,488,489	(61,217)	24,048,312
Of which: Loans	12,653,124	15,037,275	8,769,391	-	5,488,489	(38,895)	18,921,008
Of which: Debt securities	-	1,338,418	1,296	-	-	1,296	1,337,122
Of which: Off - balance-sheet exposures	292,807	887,870	24,603	-	-	(23,673)	1,156,074

The material decrease in the Gross carrying values of Defaulted exposures results mainly from the sale of projects Helix and Velocity, the decrease in the Non-defaulted exposures in exposure class "Other Exposures" is the result of the disposal of properties held for sale from debt-for-asset swaps relating to the portfolio of loans in project Helix; and the increase in the exposure class in "Central governments or central banks". Respectively "Specific credit risk adjustments" and "Accumulated write-offs" decreased. The decrease in the Defaulted exposures was strengthened by the on-going deleveraging actions in the form of customer loan restructurings, increased provisioning and debt-for-asset swaps. On the other hand, new lending and curing resulted in an increase in non-defaulted exposures, mainly in "Corporates" and "Retail" exposure classes.

8. Other Pillar 3 disclosures (continued)

8.9 EU CR1-B Credit quality of exposures by industry of counterparty types

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by industry and it has been completed in accordance to the regulatory requirements. Column (c) represents the value adjustment used in for the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current reporting period and the 31 December 2018 balances calculated at exposure class level. Column (c) represents the IFRS 9 transitional specific credit risk adjustment values, calculated under article 473(a) of the CRR, which results in decreased provisions used for RWA purposes compared to the provisions reported in the consolidated balance sheet of the Group.

Industry 'Other services' includes exposures to Private individuals, Activities of extraterritorial organizations and bodies, Other services activities and Financial and Insurance activities.

Materiality applied: All industry sectors that do not exceed 1% of total net exposures have been included in row 'Other'.

	a	b	c	d	e	f	g
	Gross carrying values of		Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
30 June 2019	€000	€000	€000	€000	€000	€000	€000
Manufacturing	252,227	486,154	161,818	-	88,128	(250,935)	576,563
Construction	696,507	1,048,482	370,569	-	200,087	(1,590,141)	1,374,420
Wholesale and retail trade	779,282	1,535,787	508,443	-	222,907	(540,677)	1,806,626
Transport and storage	85,884	318,372	69,881	-	47,932	(71,506)	334,375
Accommo-dation and food service activities	239,135	1,111,112	177,656	-	121,971	(372,489)	1,172,591
Real estate activities	505,847	1,878,664	313,947	-	220,193	(554,130)	2,070,564
Professional, scientific and technical activities	280,181	509,725	200,920	-	137,678	(299,180)	588,986
Administrative and supportive activities	163,917	188,014	105,739	-	54,223	(46,859)	246,192
Public administra-tion and defence, compulsory social security	6	7,064,045	3,791	-	535	(3,147)	7,060,260
Other services	3,415,618	6,417,266	2,066,911	-	1,239,244	(735,590)	7,765,973
Other	282,806	642,699	155,291	-	76,015	(195,725)	770,214
Total	6,701,410	21,200,320	4,134,966	-	2,408,913	(4,660,379)	23,766,764

8. PILLAR 3 Disclosures (continued)

8.9 EU CR1-B Credit quality of exposures by industry of counterparty types (continued)

	a	b	c	d	e	f	g
	Gross carrying values of		Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the year	Net values
	Defaulted exposures	Non-defaulted exposures	Specific risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the year	(a+b-c-d)
31 December 2018	€000	€000	€000	€000	€000	€000	€000
Manufacturing	587,673	490,080	412,753	-	234,181	29,404	665,000
Construction	2,803,579	1,096,770	1,960,710	-	1,305,120	42,296	1,939,639
Wholesale and retail trade	1,550,969	1,538,151	1,049,120	-	554,667	20,329	2,040,000
Transport and storage	169,272	298,382	141,387	-	96,431	5,799	326,267
Accommodation and food service activities	770,183	1,072,559	550,145	-	394,936	5,972	1,292,597
Real estate activities	1,305,079	1,685,534	868,077	-	494,422	(141,954)	2,122,536
Professional, scientific and technical activities	635,521	468,806	500,100	-	367,233	116,239	604,227
Administrative and support service activities	218,513	185,885	152,598	-	84,806	81,512	251,800
Public administration and defence, compulsory social security	3,177	5,649,157	6,938	-	2,973	3,863	5,645,396
Other services	4,361,742	6,778,465	2,802,501	-	1,778,821	(142,339)	8,337,706
Other	540,390	633,770	351,016	-	174,899	(82,338)	823,144
Total	12,946,098	19,897,559	8,795,345	-	5,488,489	(61,217)	24,048,312

The sale of projects Helix and Velocity resulted in a material decrease of exposures from "Defaulted exposures" across all industry sectors. Their "Specific risk adjustments" and "Accumulated write-offs" decreased respectively. The decrease in the Defaulted exposures was strengthened by the on-going deleveraging actions in the form of customer loan restructurings, increased provisioning and debt-for-asset swaps. The increase in the "Non-defaulted" Gross carrying values in "Public administration and defence, compulsory social security" relates mainly to the proceeds from the sale of projects Helix and Velocity.

8. Other Pillar 3 disclosures (continued)

8.10 EU CR1-C Credit quality of exposures by geography

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by geography and it has been completed in accordance to the regulatory requirements. Column (c) represents the value adjustment used in the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current reporting period and the 31 December 2018 balances calculated at exposure class level. Column (c) represents the IFRS 9 transitional specific credit risk adjustment values, calculated under article 473(a) of the CRR, which results in decreased provisions used for RWA purposes compared to the provisions reported in the consolidated balance sheet of the Group.

The country or geographical area in which the exposure is classified is driven by the country of residence/incorporation of the counterparty.

The materiality of geographical areas has been determined using the following threshold: All EU countries that do not exceed 1% of total net exposures have been included in 'Other countries' and all non-EU countries that do not exceed 1% of total net exposures have been included in 'Other geographical areas'. There are not non-EU countries that exceed the 1% threshold. 'Supranational' exposures are included in 'Other geographical areas'.

The sale of projects Helix and Velocity was the main driver in the material changes in the amounts in country "Cyprus" and "Other geographical areas" which includes balances held with the ECB in which part of the proceeds were placed. There is an increase in the Gross carrying value of "Non-defaulted exposures" and its corresponding "Net Values" in country "Greece" from new lending to counterparties in exposure class "Corporates". Finally, an increase is observed in the Gross carrying value of "Non-defaulted exposures" and its corresponding "Net Values" in country "France" from increased investments in bonds issued by French credit institutions.

	a	b	c	d	e	f	g
	Gross carrying value of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the period	(a+b-c-d)
30 June 2019	€000	€000	€000	€000	€000	€000	€000
EU Countries	6,432,873	15,476,075	3,957,564	-	2,337,092	(4,646,865)	17,951,384
Cyprus	5,792,334	13,853,989	3,448,026	-	1,945,039	(4,550,882)	16,198,297
United Kingdom	306,801	275,633	212,527	-	156,650	(13,096)	369,907
France	4,286	360,979	173	-	24	106	365,092
Greece	131,280	405,518	124,483	-	100,997	(14,994)	412,315
Other countries	198,172	579,956	172,355	-	134,382	(67,999)	605,773
Other geographical areas	268,537	5,724,245	177,402	-	71,821	(13,514)	5,815,380
Total	6,701,410	21,200,320	4,134,966	-	2,408,913	(4,660,379)	23,766,764

8. Other Pillar 3 disclosures (continued)

8.10 EU CR1-C Credit quality of exposures by geography (continued)

	a	b	c	d	e	f	g
	Gross carrying value of		Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the year	Net values
	Defaulted exposures	Non-defaulted exposures	Specific credit risk adjustment	General credit risk adjustment	Accumulated write-offs	Credit risk adjustment charges of the year	(a+b-c-d)
31 December 2018	€000	€000	€000	€000	€000	€000	€000
EU Countries	12,651,108	14,796,225	8,604,429	-	5,411,507	14,155	18,842,904
Cyprus	11,887,096	13,439,008	7,998,908	-	4,995,187	130,334	17,327,196
United Kingdom	325,675	296,789	225,623	-	160,337	(26,706)	396,841
France	100	309,056	67	-	57	(635)	309,089
Greece	153,257	247,418	139,477	-	101,867	(29,650)	261,198
Other countries	284,980	503,954	240,354	-	154,059	(59,188)	548,580
Other geographical areas	294,990	5,101,334	190,916	-	76,982	(75,372)	5,205,408
Total	12,946,098	19,897,559	8,795,345	-	5,488,489	(61,217)	24,048,312

8.11 EU CR2-B Changes in the stock of defaulted and impaired loans and debt securities

Defaulted exposures are exposures that are defaulted in accordance with Article 178 of the CRR.

	Contractual value defaulted exposures
	30 June 2019	31 December 2018
	€000	€000
Opening balance	12,945,931	12,360,502
Loans and debt securities that have defaulted or impaired since the last reporting period	148,312	1,620,193
Returned to non-defaulted status	(240,702)	(231,938)
Amounts written off	(241,896)	(954,242)
Other changes	(5,910,283)	151,416
Closing balance	6,701,362	12,945,931

The gross contractual value relates to the contractual balances before any impairments made via an allowance or via a direct reduction in the carrying amount according to the applicable accounting framework.

The decrease in the gross contractual value of defaulted exposures is driven at its majority by the sale of projects Helix and Velocity which is reflected in line "Other changes". "Other changes" include to a lesser extent to normal movements in the balances such as accrued interest, repayments and withdrawals. Additionally, the inflows "Loans and debt securities that have defaulted or impaired since the last reporting period" have been restricted while the outflows "Returned to non-defaulted status" have comparatively increased.

8. Other Pillar 3 disclosures (continued)

8.12 EU CR2-A Changes in stock of general and specific credit risks adjustment

The changes in the accumulated specific and general adjustment are as follows:

	30 June 2019		31 December 2018
	Accumulated specific credit risk adjustment	Accumulated general credit risk adjustment	Accumulated specific credit risk adjustment	Accumulated general credit risk adjustment
	Accumulated specific credit risk adjustment	Accumulated general credit risk adjustment	Accumulated specific credit risk adjustment	Accumulated general credit risk adjustment
	€000	€000	€000	€000
1 January 2019/2018*	3,462,005	-	3,452,850	-
Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)	-	-	1,689,497	-
Impact of adopting IFRS 9 at 1 January 2018	-	-	319,102	-
Restated balance at 1 January 2019/2018	3,462,005	-	5,461,449	-
Increases due to amounts set aside for estimated loan losses during the year	350,486	-	1,494,385	-
Decreases due to amounts reversed for estimated loan losses during the year	(221,062)	-	(981,429)	-
Write offs	(246,661)	-	(2,666,113)	-
Contractual interest (provided) not recognized in the income statement	83,903	-	-	-
Foreign exchange and other adjustments	7,233	-	(6,506)	-
Business combinations, including acquisitions and disposals of subsidiaries	-	-	(3,594)	-
Interest accrued on impaired loans and advances	-	-	164,437	-
Discontinued operations	-	-	(624)	-
Disposal of Helix and Velocity portfolios	(1,602,825)	-	-	-
30 June 2019/31 December 2018	1,833,079	-	3,462,005	-
Recoveries on credit risk adjustments recorded directly to the income statement	14,739	-	140,735	-
Specific credit risk adjustments directly recorded to the income statement	240	-	37,756	-

*Reclassification of an amount €30,926 thousand from loans and advances to customers relates to loan loss provisions under IAS 39 as at 31 December 2017 on loans and advances to customers which failed the SPPI criteria and, as a result, have been classified at FVPL.

All recoveries on credit risk adjustments and specific credit risk adjustments are made via the accumulated allowance account.

The above table includes credit losses relating to loans and advances to customers classified as held for sale but does not include the fair value adjustments on initial recognition of loans acquired from Laiki Bank and provisions for impairment on financial guarantees and commitments amounting to €22,151 thousand
(December 2018: €27,685 thousand).

8. Other Pillar 3 disclosures (continued)

8.13.1 EU CR4 Standardised Approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects

The table below illustrates the effect of all CRM techniques applied in accordance with the CRR including the financial collateral comprehensive method.

RWA density is a synthetic metric on the riskiness of each portfolio which is calculated by dividing the RWAs by the Exposure post CCF and CRM (the sum of columns (c) and (d)).

All rows and columns that are not relevant to the Group's activities are not included in the table below.

		a	b	c	d	e	f
	30 June 2019	Exposures before CCF and CRM		Exposures post CCF and CRM		RWAs and RWA density
	Exposure classes	On-balance-sheet amount	Off-balance-sheet amount	On-balance-sheet amount	Off-balance-sheet amount	RWAs	RWA density
	Exposure classes	€000	€000	€000	€000	€000	%
1	Central governments or central banks	6,439,787	71	6,476,666	-	382,600	5.9%
2	Regional government or local authorities	124,623	8,790	69,661	101	1,444	2.1%
3	Public sector entities	29,636	599	29,608	38	8	0.0%
4	Multilateral development banks	111,014	-	158,686	-	-	0.0%
5	International organisations	107,809	-	107,809	-	-	0.0%
6	Institutions	637,396	62,971	639,248	29,648	186,584	27.9%
7	Corporates	3,238,398	1,145,472	3,073,270	220,278	3,264,470	99.1%
8	Retail	1,655,343	958,824	1,391,192	68,614	1,038,600	71.1%
9	Secured by mortgages on immovable property	2,940,515	101,966	2,839,281	49,456	1,082,376	37.5%
10	Exposures in default	2,286,286	177,521	2,262,617	39,193	2,550,272	110.8%
11	Higher-risk categories	954,588	240,150	843,745	46,669	1,335,621	150.0%
12	Covered bonds	169,557	-	169,557	-	16,956	10.0%
14	Collective investment undertakings (CIUs)	536	-	536	-	302	56.3%
15	Equity	141,071	-	141,071	-	330,203	234.1%
16	Other items	2,233,841	-	2,233,841	-	2,100,634	94.0%
17	Total	21,070,400	2,696,364	20,436,788	453,997	12,290,070	58.8%

8. Other Pillar 3 disclosures (continued)

8.13.1 EU CR4 Standardised Approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects (continued)

31 December 2018	Exposures before CCF and CRM		Exposures post CCF and CRM		RWAs and RWA density
	a	b	c	d	e	f
	Exposures before CCF and CRM		Exposures post CCF and CRM		RWAs and RWA density
Exposure classes	On-balance sheet amount	Off-balance sheet amount	On-balance sheet amount	Off-balance sheet amount	RWAs	RWA density
Exposure classes	€000	€000	€000	€000	€000	%
Central governments or central banks	5,411,449	60	5,449,804	-	333,243	6.1%
Regional government or local authorities	112,619	12,761	57,294	82	701	1.2%
Public sector entities	37,441	596	37,417	34	7	0.0%
Multilateral development banks	95,974	-	142,654	-	-	0.0%
International organisations	107,988	-	107,988	-	-	0.0%
Institutions	564,793	70,189	565,945	31,388	177,904	29.8%
Corporates	2,959,947	1,205,412	2,823,286	230,929	3,016,593	98.8%
Retail	1,575,155	965,208	1,327,376	61,529	987,312	71.1%
Secured by mortgages on immovable property	2,948,717	90,914	2,838,939	42,797	1,077,148	37.4%
Exposures in default	3,301,085	249,655	3,272,657	63,732	3,695,591	110.8%
Higher-risk categories	1,432,856	249,360	1,299,798	55,096	2,032,341	150.0%
Covered bonds	141,529	-	141,529	-	14,153	10.0%
Collective investment undertakings (CIUs)	172	-	172	-	172	100.0%
Equity	110,593	-	110,593	-	254,220	229.9%
Other items	2,403,839	-	2,403,839	-	2,220,345	92.4%
Total	21,204,157	2,844,155	20,579,291	485,587	13,809,730	65.6%

The main driver behind the overall decrease in the RWA density is the sale of projects Helix and Velocity whereby the exposures in exposure classes "Exposures in default", "Higher-risk categories" and "Other items" which carry high risk weights decreased and respectively the exposures in exposure class "Central governments or central banks" which carry a 0% risk weight increased. The increased exposures in "Central governments or central banks" carrying a 0% risk weight, decreased the RWA density of this exposure class. Additionally, the slight decrease in the RWA density at individual class level observed in "Institutions" derives from improved ratings and decreases in residual maturities, and in "Collective investment undertakings (CIUs)" derives from improved ratings. The small increase in the RWA density at individual class level observed in "Equity" derives from increased amounts in investments in FSE risk weighted at 250%, in "Corporates" from new lending to Large Corporates which do not benefit from the SME supporting factor under article 501 of the CRR.

The RWA intensity for each exposure class is further explained in table 8.14 below.

8. Other Pillar 3 disclosures (continued)

8.13.2 EU CR3 Credit risk mitigation techniques overview

The table below presents the exposure value excluding loans and advances classified as held for sale covered by financial collateral, other collateral, guarantees and credit derivatives.

30 June 2019	Exposures unsecured - carrying amount	Exposures secured - carrying amount	Exposures secured by collateral	Exposures secured by financial guarantees	Exposures secured by credit derivatives
	€000	€000	€000	€000	€000
Total loans	792,853	10,156,149	9,173,543	63,042	-
Total debt securities	1,550,674	169,557	169,557	-	-
Total exposures	2,343,527	10,325,706	9,343,100	63,042	-
Of which defaulted	125,865	2,230,147	2,025,074	35,742	-

31 December 2018
Total loans	679,003	10,242,783	9,096,436	63,778	-
Total debt securities	1,223,214	141,529	141,529	-	-
Total exposures	1,902,217	10,384,312	9,237,965	63,778	-
Of which defaulted	123,190	2,564,951	2,260,245	30,105	-

Exposures in unsecured debt securities have increased from December 2018 to June 2019 (from a total €1,223 million as at 31December 2018 to a total €1,551 million as at 30 June 2019). The increase of €328 million during the six months ended 30 June 2019 is mainly the net result of various purchases of bonds issued by credit institutions and supranational, government and regional government bonds. Additional purchases of covered bonds also took place, leading to an increase in the exposure in secured debt securities from a total of €142 million as at 31 December 2018 to a total of €170 million as at 30 June 2019.

Defaulted exposures have decreased significantly due to repayments, debt for asset swaps and write offs.

8. Other Pillar 3 disclosures (continued)

8.14 EU CR5 Standardised Approach

The table below presents the breakdown of exposures under the standardised approach by asset class and risk weight (corresponding to the riskiness attributed to the exposure according to the standardised approach). The exposures are disclosed post conversion factors and post risk mitigation techniques.

All rows and columns that are not relevant to the Group's activities are not included in the table below.

30 June 2019	Risk weight												Total	Of which unrated¹⁶
30 June 2019	0%	2%	10%	20%	35%	50%	75%	100%	150%	250%	Other	Deducted
Exposure classes	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	6,074,491	-	11,284	11,384	-	-	-	379,091	-	-	416	-	6,476,666	379,091
Regional government or local authorities	62,543	-	-	7,219	-	-	-	-	-	-	-	-	69,762	-
Public sector entities	29,607	-	-	39	-	-	-	-	-	-	-	-	29,646	-
Multilateral development banks	158,686	-	-	-	-	-	-	-	-	-	-	-	158,686	111,014
International organisations	107,809	-	-	-	-	-	-	-	-	-	-	-	107,809	107,809
Institutions	1,420	-	-	598,760	-	56,826	-	8,574	28,081	-	-	-	693,661	-
Corporates	-	-	-	-	-	-	-	3,272,415	21,952	-	-	-	3,294,367	3,248,900
Retail	-	-	-	-	-	-	1,459,821	-	-	-	-	-	1,459,821	1,459,821
Secured by mortgages on immovable property	-	-	-	-	2,218,347	670,390	-	-	-	-	-	-	2,888,737	2,888,737
Exposures in default	-	-	-	-	-	-	-	1,804,885	496,925	-	-	-	2,301,810	2,301,810
Higher-risk categories	-	-	-	-	-	-	-	-	890,414	-	-	-	890,414	890,414
Covered bonds	-	-	169,557	-	-	-	-	-	-	-	-	-	169,557	-
Collective investment undertakings (CIUs)	-	-	-	293	-	-	-	243	-	-	-	-	536	243
Equity	-	-	-	-	-	-	-	14,983	-	126,088	-	-	141,071	141,071
Other items	135,772	-	-	41,473	-	-	-	2,038,724	-	-	17,872	42,906	2,276,747	2,276,747
Total	6,570,328	-	180,841	659,168	2,218,347	727,216	1,459,821	7,518,915	1,437,372	126,088	18,288	42,906	20,959,290	13,805,657

16.Includes all exposures for which an issue/issuer or country rating is not available or they follow uniform regulatory treatment.

8. Other Pillar 3 disclosures (continued)

8.14 EU CR5 Standardised Approach (continued)

31 December 2018		Risk weight										Total	Of which unrated¹⁷
31 December 2018	0%	4%	10%	20%	35%	50%	75%	100%	150%	250%	Deducted
Exposure classes	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Central governments or central banks	5,304,909	11,560	232	-	-	-	-	-	-	133,103	-	5,449,804	931
Regional government or local authorities	53,873	-	-	3,503	-	-	-	-	-	-	-	57,376	-
Public sector entities	37,416	-	-	35	-	-	-	-	-	-	-	37,451	-
Multilateral development banks	142,654	-	-	-	-	-	-	-	-	-	-	142,654	95,974
International organisations	107,988	-	-	-	-	-	-	-	-	-	-	107,988	107,988
Institutions	1,435	-	-	523,293	-	59,590	-	7,830	32,878	-	-	625,026	-
Corporates	-	-	-	-	-	-	-	3,054,089	515	-	-	3,054,604	3,054,602
Retail	-	-	-	-	-	-	1,388,908	-	-	-	-	1,388,908	1,388,908
Secured by mortgages on immovable property	-	-	-	-	2,235,078	646,658	-	-	-	-	-	2,881,736	2,881,736
Exposures in default	-	-	-	-	-	-	-	2,617,988	718,401	-	-	3,336,389	3,336,388
Higher-risk categories	-	-	-	-	-	-	-	-	1,354,894	-	-	1,354,894	1,354,894
Covered bonds	-	-	141,529	-	-	-	-	-	-	-	-	141,529	-
Collective investment undertakings (CIUs)	-	-	-	-	-	-	-	172	-	-	-	172	172
Equity	-	-	-	-	-	-	-	14,842	-	95,751	-	110,593	110,592
Other items	153,715	-	-	37,224	-	-	-	2,212,900	-	-	212,033	2,615,872	2,615,872
Total	5,801,990	11,560	141,761	564,055	2,235,078	706,248	1,388,908	7,907,821	2,106,688	228,854	212,033	21,304,996	14,948,057

The sale of projects Helix and Velocity resulted in substantial decrease in exposure values in exposure classes "Exposures in default", "Higher-risk categories" and "Other items" in risk weights 100% and 150% and correspondingly increased the exposure values of "Central governments or central banks" at 0% risk weight. The law amendment of the Cyprus Parliament legislative on 1 March 2019 allowing for the conversion of deferred tax assets into deferred tax credits for regulatory capital purposes resulted in the amounts that previously carried a risk weight of 250% or were deducted from capital to be risk weighted at 100%. The impact of this amendment in the allocation of exposures is observed in exposure class "Central governments or central banks" in risk weights 100% and 250% and in exposure class "Other items" in column "Deducted". The increase in exposure values in exposure classes "Institutions" and "Covered bonds" in risk weights 20% and 10% respectively is in line with increased investments in debt securities issued by credit institutions. The increased exposures in exposure classes "Corporates" and "Retail" represents new lending and curing during the period.

17.Includes all exposures for which an issue/issuer or country rating is not available or they follow uniform regulatory treatment.

8. Other Pillar 3 disclosures (continued)

8.14 EU CR5 Standardised Approach (continued)

The increase in "Equity" in risk weight 250% relates to increased amounts in investments in FSE risk weighted at 250%. The amount observed in "Other items" under "Other" risk weights represents the net book value of properties held for sale which have been on boarded after a failed auction and carry a risk weight of 300% whereas previously were included in the 100% risk weight. Lastly, the implementation of article 114 paragraph 6(a) resulted in exposures to central governments or central banks previously risk weighted at 10% to be risk weighted at 25%.

8.15 Securitisation positions

Securitisation results from a transaction or scheme whereby the credit risk associated with an exposure or pool of exposures is tranched having both of the following characteristics:

(a) payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures; and

(b) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme.

"Tranche" means a contractually established segment of the credit risk associated with an exposure or a number of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in each other such segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments.

BOC PCL being the originator (directly involved in the original agreement which created the obligations or potential obligations giving rise to the securitised exposures) in the Project Helix traditional securitisation transaction invested in the senior tranche of the debt securities issued whereby traditional securitisation means the economic transfer of the exposures being securitised (transfer of ownership).

BOC PCL has applied the look-through approach in calculating the RWA and capital requirements for the position held in the securitisation under article 261 of the EU Regulation 2017/2401 amending the CRR.

	Traditional
30 June 2019	Exposure Value	RWA	Capital Requirements
Bank acts as originator	€000	€000	€000
Loans to corporates or SMEs (treated as corporates)	45,033	52,504	4,200
Total	45,033	52,504	4,200

BOC PCL does not hold any re-securitisation positions.

BANK OF CYPRUS HOLDINGS GROUP

Definitions and explanations of Alternative Performance Measures Disclosures

DEFINITIONS

Allowance for expected credit losses on loans and advances to customers		Allowance for expected credit losses to cover credit risk on loans and advances to customers comprises: (i) allowance for ECL on loans and advances to customers, (ii) the fair value adjustment on initial recognition of loans and advances to customers, (iii) allowance for expected credit losses for off-balance sheet exposures (contingent liabilities and commitments) disclosed on the balance sheet within other liabilities and (iv) accumulated fair value adjustments on loans and advances to customers classified at FVPL.

Cost to income ratio		Cost to income ratio is calculated as the total staff costs (on an underlying basis as reconciled in the table further below), special levy on deposits on credit institutions in Cyprus and other operating expenses (excluding advisory and other restructuring costs) (on an underlying basis as reconciled in the table further below) and (reversals of provisions)/provisions for litigation and regulatory matters divided by total income on the underlying basis (as defined below).

Gross loans and advances to customers		Comprises: (i) gross loans and advances to customers measured at amortised cost before fair value adjustment on initial recognition (including loans and advances to customers classified as non-current assets held for sale) and (ii) loans and advances to customers measured at FVPL, including accumulated fair value adjustments.

Interest earning assets		Interest earning assets is the sum of: cash and balances with central banks, loans and advances to banks, net loans and advances to customers (including loans and advances to customers classified as non-current assets held for sale) and investments (excluding equities and mutual funds).

Leverage ratio		The leverage ratio is calculated as the tangible total equity (including Other equity instruments) to total assets as presented on the balance sheet.

Loan credit losses		Loan credit losses comprises: (i) credit losses to cover credit risk on loans and advances to customers, (ii) net gains on derecognition of financial assets measured at amortised cost and (iii) net gains on loans and advances to customers at FVPL.

Loan credit losses charge (cost of risk)		Loan credit losses charge (cost of risk) (year to date) is calculated as the loan credit losses (as defined) divided by the average gross loans and advances to customers (as defined). The average balance is calculated as the average of the opening and closing balance.

Net fee and commission income over total income		Fee and commission income less fee and commission expense divided by total income (as defined).

Net Interest Margin		Net interest margin is calculated as the net interest income (on an underlying basis) (annualised based on year to date days) divided by the quarterly average interest earning assets. Average interest earning assets exclude interest earning assets of any discontinued operations at each quarter end, if applicable.

Net loans and advances to customers		Loans and advances to customers net of expected credit losses (as defined, but excluding allowance for expected credit losses for off-balance sheet exposures).

Net loans to deposits ratio		Net loans to deposits ratio is calculated as the net loans and advances to customers (as defined) divided by customer deposits. Where applicable, loans and deposits held for sale are added to the numerator and denominator respectively.
New loan originations in Directors' Report		New lending includes the average YTD change (if positive) for credit cards and overdraft facilities.

Non-performing exposures (NPEs)		The Group, in line with the European Banking Authority (EBA) standards and European Central Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in March 2017), has defined NPEs as those exposures that satisfy one of the following conditions: (vi) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due. (vii) Defaulted or impaired exposures as per the approach provided in the Capital Requirement Regulation (CRR), which would also trigger a default under specific credit adjustment, distress restructuring and obligor bankruptcy. (viii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due. (ix) Performing forborne exposures under probation for which additional forbearance measures are extended. (x) Performing forborne exposures under probation that present more than 30 days past due within the probation period. When a specific part of the exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the specific part of the exposure is classified as non-performing. The NPEs are reported before the deduction of allowance for expected credit losses on loans and advances to customers (as defined).

NPE coverage ratio		The NPE coverage ratio is calculated as the allowance for expected credit losses on loans and advances to customers (as defined) over NPEs (as defined).

NPE ratio		The NPE ratio is NPEs (as defined) divided by gross loans and advances to customers (as defined).

Non-recurring items		Non-recurring items as presented in the 'Consolidated Condensed Interim Income Statement - Underlying basis' relate to: (i) advisory and other restructuring costs, (ii) discontinued operations (UK subsidiary sale), (iii) profit/(loss) relating to NPE sale (Helix), (iv) loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates, and (v) reversal of impairment of DTA and impairment of other tax receivables.

Operating profit		Operating profit comprises profit before loan credit losses (as defined), impairments of other financial and non-financial assets, provisions for litigation, regulatory and other matters, tax, (profit)/loss attributable to non-controlling interests and non-recurring items (as defined).

Operating profit return on average assets		Operating profit return on average assets is calculated as the annualised (based on year to date days) operating profit (on an underlying basis) divided by the quarterly average of total assets for the relevant period. Average total assets exclude total assets of discontinued operations at each quarter end, if applicable.
Profit/(loss) after tax - Organic	Profit/(loss) after tax - Organic is the profit/(loss) after tax and before non-recurring items (as defined above), except for the 'Advisory and other restructuring costs - excluding discontinued operations and NPE sale (Helix)'.

Total income	Total income under the underlying basis comprises total of net interest income, net fee and commission income (on the underlying basis), net foreign exchange gains, net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates (excluding net gains on loans and advances to customers at FVPL) (on the underlying basis), insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains on disposal of stock of property and other income. A reconciliation of these amounts between the statutory and the underlying bases is disclosed in the Interim Management Report under section 'Financial Results'.

Turnover	Group turnover comprises interest income, fee and commission income, foreign exchange gains, gross insurance premiums, gains/losses of investment properties and stock of properties, turnover of property and hotel and golf business and other income.

RECONCILIATIONS

1. Reconciliation of Gross loans and advances to customers

	30 June 2019	31 December 2018
	€000	€000
Gross loans and advances to customers (as defined above)	13,071,801	15,900,427
Reconciling items:
Fair value adjustment on initial recognition (Note 29)*	(289,720)	(322,375)
Loans and advances to customers classified as non-current assets held for sale (Note 29)	-	(2,711,960)
Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale (Note 29)	-	(139,153)
Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale	-	99,000
Loans and advances to customers measured at fair value through profit and loss (Note 16)	(393,981)	(395,572)
Gross loans and advances to customers at amortised cost as per the Consolidated Condensed Interim Financial Statements (Note 16)	12,388,100	12,430,367

* Including fair value adjustment on initial recognition of loans and advances to customers measured at fair value through profit and loss amounting to €60,309 thousand (31 December 2018: €60,326 thousand).

2. Reconciliation of allowance for expected credit losses

on loans and advances to customers (ECL)

	30 June 2019	31 December 2018
	€000	€000
Allowance for expected credit losses on loans and advances to customers (as defined above)	2,144,950	3,852,218
Reconciling items:
Fair value adjustment on initial recognition (Note 29)*	(289,720)	(322,375)
Loans and advances to customers classified as non-current assets held for sale (Note 29)	-	(1,557,852)
Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale (Note 29)	-	(139,153)
Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale	-	99,000
Provisions for financial guarantees and commitments (Note 23)	(22,151)	(27,685)
Allowance for ECL of loans and advances to customers as per the Consolidated Condensed Interim Financial Statements (Note 16)	1,833,079	1,904,153

3. Reconciliation of NPEs

	30 June 2019	31 December 2018
	€000	€000
NPEs (as defined above)	4,311,520	7,418,613
Reconciling items:
Loans and advances to customers classified as non-current assets held for sale	-	(2,613,603)
Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale	-	(135,697)
Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale	-	99,000
Loans and advances to customers measured at fair value through profit and loss (NPE)	(163,047)	(160,907)
POCI (NPE)	(591,974)	(691,815)
Stage 3 loans and advances to customers as per the Consolidated Condensed Interim Financial Statements (Note 29)	3,556,499	3,915,591
NPE ratio
NPE ratio
NPEs (as per table above) (€000)	4,311,520	7,418,613
Gross loans and advances to customers (as per table above) (€000)	13,071,801	15,900,427
Ratio of NPE/Gross loans (%)	33.0%	46.7%

4. Reconciliation of Loan credit losses

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
Loan credit losses per the underlying basis	86,883	84,705
Reconciling items:
Loan credit losses relating to Helix portfolio, separately presented under the underlying basis	16,582	135,000
Loan credit losses (as defined above), reconciled to the statutory basis as:	103,465	219,705
Credit losses to cover credit risk on loans and advances to customers (Note 10)	108,911	252,953
Net gains on derecognition of financial assets measured at amortised cost (Interim Consolidated Income Statement)	(5,429)	(19,381)
Net gains on loans and advances to customers at FVPL (Note 8)	(17)	(13,867)
Credit losses per the statutory basis	103,465	219,705

5. Reconciliation of turnover as recorded in the Interim Consolidated Income Statement

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
Interest income and income similar to interest income	278,488	312,877
Fee and commission income	87,467	85,282
Foreign exchange gains	14,117	18,039
Gross insurance premiums	86,581	82,670
Gains of investment properties and stock of properties	4,813	11,325
Other income	15,679	11,276
Turnover as per the Interim Consolidated Income Statement	487,145	521,469

RATIOS INFORMATION

1. Net Interest Margin

Reconciliation of the various components of net interest margin from the underlying basis to the statutory basis is provided below:

	Six months ended 30 June
	2019	2018 (represented)
1.1. Reconciliation of Net interest income	€000	€000
Net interest income as per the underlying basis	170,147	165,846
Reclassifications for:
Net interest income relating to the NPE sale (Helix), disclosed under non-recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis	33,962	46,238
Net interest income as per the Interim Consolidated Income Statement	204,109	212,084

Net interest income (annualised)	343,114	334,441

1.2. Interest earning assets	30 June 2019	31 March 2019	31 December 2018
1.2. Interest earning assets	€000	€000	€000
Cash and balances with central banks	5,261,896	3,913,391	4,610,491
Loans and advances to banks	403,041	448,043	472,532
Loans and advances to customers	10,949,002	10,954,529	10,921,786
Loans and advances to customers held for sale (Note 19)	5,891	1,108,440	1,154,108
Investments
Debt securities (Note 13)	1,720,231	1,556,668	1,364,743
Less: Investment which is not interest bearing	(13,563)	(10,181)	(8,606)
Total interest earning assets	18,326,498	17,970,890	18,515,054

1.3. Quarterly average interest earning assets (€000)
- as at 30 June 2019	18,270,814
- as at 30 June 2018	18,005,292

2. Cost to income ratio

2.1. Reconciliation of the various components of total expenses used in the cost to income ratio calculation from the underlying basis to the statutory basis is provided below:

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
2.1.1. Reconciliation of Staff costs
Total Staff costs as per the underlying basis	111,500	102,070
Reclassifications for:
Staff costs relating to the NPE sale (Helix), reclassified under the underlying basis to 'Profit/(loss) relating to NPE sale (Helix)'	2,744	2,600
Total Staff costs as per the statutory basis	114,244	104,670

2.1.2. Reconciliation of Other operating expenses
Total Other operating expenses as per the underlying basis	84,398	80,775
Reclassifications for:
Operating expenses relating to the NPE sale (Helix), presented within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis	12,209	-
Reversal of provisions for litigation, regulatory and other matters, separately presented under the underlying basis	(2,683)	(5,813)
Advisory and other restructuring costs (excluding Helix), separately presented under the underlying basis	11,463	14,783
Restructuring costs relating to the NPE sale (Helix), presented within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis	7,580	12,547
Total Other operating expenses as per the statutory basis	112,967	102,292

2.1.3. Special Levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund (SRF)
Total Special Levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund per the underlying and statutory basis	12,477	12,073

2.2. Reconciliation of the various components of total income (as defined) used in the cost to income ratio calculation from the underlying basis to the statutory basis is provided below:

	Six months ended 30 June
	2019	2018 (represented)
	€000	€000
2.2.1. Reconciliation of Net fee and commission income
Total net fee and commission income as per the underlying basis	74,900	80,336
Reclassifications for:
Fee and commission expense relating to the revised income tax legislation, which has been disclosed within 'Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables' under the underlying basis	(6,255)	-
Fee and commission income relating to NPE sale, disclosed under non-recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis	5,867	-
Total net fee and commission income as per the statutory basis	74,512	80,336

2.2.2. Reconciliation of Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates
Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the underlying basis	26,255	41,550
Reclassifications for:
Net gains on loans and advances to customers measured at fair value through profit or loss (FVPL), disclosed within 'Loan credit losses' under the underlying basis (Note 8)	17	13,867
Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis (see below)	26,272	55,417

Net foreign exchange gains as per the statutory basis	14,117	18,039
Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis	12,155	37,378
Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis	26,272	55,417

Reconciliation of Net interest income between the underlying and the statutory basis has been provided in the tables above.

3. Operating profit return on average assets

The various components used in the determination of the operating profit return on average assets are provided below:

30 June

2019

31 March

2019

31 December

2018

€000

Total assets used in the computation of the operating profit return on average assets/per the Interim Consolidated Balance Sheet

21,887,186

21,745,438

22,075,271

	30 June 2019	30 June 2018 (represented)
	€000	€000
Annualised operating profit	252,152	305,362
Quarterly average total assets	21,902,632	21,417,686

The reconciliation of the various components of operating profit between the underlying and the statutory basis has been provided in the tables above.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR EAXPXAELNEEF

Companies

Bank of Cyprus Holdings Public Limited Company (CDI) (BOCH)

Wednesday, 15th May 2024

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Oil services company Hunting sees share price jump on news of significant contract win from Kuwait, Keller advances as pre-AGM trading statement upgrades profit forecast and Experian full year performance lands at top of expectations.

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