Interim Financial Report 2022 - 3A

RNS Number : 7201X

Bank of Cyprus Holdings PLC

31 August 2022

 

  Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2022

Interim Consolidated Income Statement

		Six months ended 30 June
		2022	2021 (restated)
	Notes	€000	€000
Turnover	7	414,996	390,624
Interest income		181,470	179,272
Income similar to interest income		9,518	17,626
Interest expense		(37,541)	(28,670)
Expense similar to interest expense		(7,752)	(16,015)
Net interest income		145,695	152,213
Fee and commission income		98,086	87,610
Fee and commission expense		(4,447)	(3,753)
Net foreign exchange gains		11,898	6,550
Net losses on financial instruments	8	(2,060)	(13,196)
Net gains on derecognition of financial assets measured at amortised cost		1,648	1,053
Income from assets under insurance and reinsurance contracts		29,859	103,824
Expenses from liabilities under insurance and reinsurance contracts		3,010	(72,756)
Net losses from revaluation and disposal of investment properties		(1,372)	(1,381)
Net gains on disposal of stock of property		8,242	7,372
Other income		8,927	5,854
Total operating income		299,486	273,390
Staff costs	9	(103,135)	(100,866)
Special levy on deposits and other levies/contributions	9	(16,507)	(15,255)
Other operating expenses	9	(80,393)	(95,588)
Operating profit before credit losses and impairment		99,451	61,681
Credit losses on financial assets	10	(24,965)	(52,163)
Impairment net of reversals on non‑financial assets	10	(12,157)	(7,398)
Profit before tax		62,329	2,120
Income tax	11	(11,579)	(968)
Profit after tax for the period		50,750	1,152
Attributable to:
Owners of the Company		50,088	739
Non‑controlling interests		662	413
Profit for the period		50,750	1,152
Basic and diluted profit per share attributable to the owners of the Company (€ cent)	12	11.2	0.2

Interim Consolidated Statement of Comprehensive Income

		Six months ended 30 June
		2022	2021
	Notes	€000	€000
Profit for the period		50,750	1,152
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in subsequent periods		(20,412)	1,059
Fair value reserve (debt instruments)		(17,909)	2,258
Net (losses)/gains on investments in debt instruments measured at fair value through OCI (FVOCI)		(17,421)	2,258
Transfer to the consolidated income statement on disposal		(488)	-
Foreign currency translation reserve		(2,503)	(1,199)
Profit/(loss) on translation of net investments in foreign branches and subsidiaries		1,576	(5,003)
(Loss)/profit on hedging of net investments in foreign branches and subsidiaries	14	(4,079)	3,867
Transfer to the consolidated income statement on dissolution/disposal of foreign branches and subsidiaries		-	(63)
OCI not to be reclassified in the consolidated income statement in subsequent periods		(211)	6,967
Fair value reserve (equity instruments)		(2,051)	576
Net (losses)/gains on investments in equity instruments designated at FVOCI		(2,051)	576
Property revaluation reserve		-	(40)
Deferred tax	11	-	(40)
Actuarial gains on defined benefit plans		1,840	6,431
Remeasurement gains on defined benefit plans		1,840	6,431
Other comprehensive (loss)/income for the period net of taxation		(20,623)	8,026
Total comprehensive income for the period		30,127	9,178
Attributable to:
Owners of the Company		29,465	8,780
Non‑controlling interests		662	398
Total comprehensive income for the period		30,127	9,178

Interim Consolidated Balance Sheet

				30 June 2022		31 December 2021 (restated)
Assets			Notes	€000		€000
Cash and balances with central banks			27	9,904,549		9,230,883
Loans and advances to banks			27	312,308		291,632
Derivative financial assets			14	38,150		6,653
Investments at FVPL			13	181,318		199,194
Investments at FVOCI			13	529,872		748,695
Investments at amortised cost			13	1,391,487		1,191,274
Loans and advances to customers			16	10,144,099		9,836,405
Life insurance business assets attributable to policyholders				533,696		551,797
Prepayments, accrued income and other assets			18	621,955		616,219
Stock of property			17	1,054,034		1,111,604
Deferred tax assets			11	265,430		265,481
Investment properties				102,040		117,745
Property and equipment				245,693		252,130
Intangible assets				171,403		184,034
Non‑current assets and disposal groups held for sale			19	347,698		358,951
Total assets				25,843,732		24,962,697
Liabilities
Deposits by banks				492,022		457,039
Funding from central banks			20	2,954,808		2,969,600
Derivative financial liabilities			14	9,485		32,452
Customer deposits			21	18,450,216		17,530,883
Insurance liabilities				689,798		736,201
Accruals, deferred income, other liabilities and other provisions			23	394,117		361,977
Pending litigation, claims, regulatory and other matters				104,793		104,108
Debt securities in issue			22	298,899		302,555
Subordinated liabilities			22	311,738		340,220
Deferred tax liabilities			11	45,235		46,435
Total liabilities				23,751,111		22,881,470
Equity
Share capital			24	44,620		44,620
Share premium			24	594,358		594,358
Revaluation and other reserves				182,329		213,192
Retained earnings				1,028,218		986,623
Equity attributable to the owners of the Company				1,849,525		1,838,793
Other equity instruments			24	220,000		220,000
Non‑controlling interests				23,096		22,434
Total equity				2,092,621		2,081,227
Total liabilities and equity				25,843,732		24,962,697
Mr. E.G. Arapoglou	Chairman	Mr. P. Nicolaou			Chief Executive Officer
Mr. N. Sofianos	Director	Mrs. E. Livadiotou			Executive Director Finance & Legacy

Interim Consolidated Statement of Changes in Equity

	Attributable to the owners 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 (Note 24)	Non‑ controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2022	44,620	594,358	(21,463)	986,623	80,060	23,285	113,651	17,659	1,838,793	220,000	22,434	2,081,227
Profit for the period	-	-	-	50,088	-	-	-	-	50,088	-	662	50,750
Other comprehensive income/(loss) after tax for the period	-	-	-	1,840	-	(19,960)	-	(2,503)	(20,623)	-	-	(20,623)
Total comprehensive income/(loss) after tax for the period	-	-	-	51,928	-	(19,960)	-	(2,503)	29,465	-	662	30,127
Decrease in value of in‑force life insurance business	-	-	-	9,600	-	-	(9,600)	-	-	-	-	-
Tax on decrease in value of in‑force life insurance business	-	-	-	(1,200)	-	-	1,200	-	-	-	-	-
Defence contribution	-	-	-	(4,983)	-	-	-	-	(4,983)	-	-	(4,983)
Payment of coupon to AT1 holders (Note 24)	-	-	-	(13,750)	-	-	-	-	(13,750)	-	-	(13,750)
30 June 2022	44,620	594,358	(21,463)	1,028,218	80,060	3,325	105,251	15,156	1,849,525	220,000	23,096	2,092,621

Interim Consolidated Statement of Changes in Equity

	Attributable to the owners 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  (Note 24)	Non‑ controlling interests	Total equity
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
1 January 2021	44,620	594,358	(21,463)	982,513	79,515	22,894	110,401	17,806	1,830,644	220,000	24,410	2,075,054
Profit for the period	-	-	-	739	-	-	-	-	739	-	413	1,152
Other comprehensive income/(loss) after tax for the period	-	-	-	6,431	(30)	2,834	-	(1,194)	8,041	-	(15)	8,026
Total comprehensive income/(loss) after tax for the period	-	-	-	7,170	(30)	2,834	-	(1,194)	8,780	-	398	9,178
Increase in value of in‑force life insurance business	-	-	-	(3,886)	-	-	3,886	-	-	-	-	-
Tax on increase in value of in‑force life insurance business	-	-	-	486	-	-	(486)	-	-	-	-	-
Payment of coupon to AT1 holders (Note 24)	-	-	-	(13,750)	-	-	-	-	(13,750)	-	-	(13,750)
30 June 2021	44,620	594,358	(21,463)	972,533	79,485	25,728	113,801	16,612	1,825,674	220,000	24,808	2,070,482

Interim Consolidated Statement of Cash flow

		Six months ended 30 June
		2022	2021 (restated)
	Note	€000	€000
Profit before tax		62,329	2,120
Adjustments for:
Share of profit from associates		-	(137)
Depreciation of property and equipment and amortisation of intangible assets		16,908	17,591
Impairment of stock of property and other non‑financial assets		12,157	7,398
Change in value of in‑force life insurance business		9,600	(3,886)
Credit losses of financial assets	10	24,965	52,163
Net gains on derecognition of financial assets measured at amortised cost		(1,648)	(1,053)
Amortisation of discounts/premiums and interest on debt securities		(8,767)	(10,273)
Dividend income		(368)	(462)
Net loss on disposal of investment in debt securities		2,826	-
Loss from revaluation of debt securities designated as fair value hedges		38,007	7,886
Interest on subordinated liabilities and debt securities in issue		14,258	11,699
Negative interest on loans and advances to banks and balances with central banks		20,104	13,141
Negative interest on funding from central banks		(14,792)	(9,469)
(Profit)/loss on disposal/dissolution of subsidiaries and associates		(179)	880
Loss from buyback of subordinated loan stock	8	-	12,433
Net gains on disposal of stock of property and investment properties		(8,358)	(7,615)
(Profit)/loss on sale and write offs of property and equipment and intangible assets		(51)	62
Interest expense on lease liability		-	44
Net losses from revaluation of investment properties and investment properties held for sale		1,488	1,624
		168,479	94,146
Change in:
Loans and advances to banks		36,345	(34,402)
Deposits by banks		34,983	8,732
Obligatory balances with central banks		(7,883)	(1,278)
Customer deposits		919,333	268,039
Life insurance assets and liabilities		(28,302)	(7,137)
Loans and advances to customers		(356,885)	(117,251)
Prepayments, accrued income and other assets		(16,810)	(14,913)
Pending litigation, claims, regulatory and other matters		685	4,986
Accruals, deferred income, other liabilities and other provisions		34,092	32,290
Derivative financial instruments		(54,464)	12,459
Investments measured at FVPL		17,876	4,432
Stock of property		86,519	81,047
		833,968	331,150
Tax paid		(441)	(813)
Net cash from operating activities		833,527	330,337
Cash flows from investing activities
Purchases of debt, treasury bills and equity securities		(329,751)	(603,791)
Proceeds on disposal/redemption of investments in debt and equity securities		295,856	304,990
Interest received from debt securities		17,230	11,660
Dividend income from equity securities		368	462
Proceeds on disposal of held for sale portfolios	19	-	144,300
Deposits on held for sale portfolios		900	-
Proceeds on disposal of subsidiaries and associates		-	9,084
Purchases of property and equipment		(817)	(942)
Purchases of intangible assets		(6,046)	(4,840)
Proceeds on disposals of property and equipment and intangible assets		109	1,138
Proceeds on disposals of investment properties		23,384	2,577
Net cash from/(used in) investing activities		1,233	(135,362)

		Six months ended 30 June
		2022	2021 (restated)
	Note	€000	€000
Cash flow from financing activities
Payment of AT1 coupon	24	(13,750)	(13,750)
Payment of defence contribution		(4,983)	-
Net proceeds of funding from central banks		-	2,000,000
Proceeds from issue of subordinated liabilities (net of costs)		-	297,551
Repayments of subordinated liabilities		(35,605)	(223,627)
Proceeds from the issue of debt securities (net of costs)		-	298,505
Interest on subordinated liabilities		(3,293)	(23,125)
Interest on debt securities in issue		(7,500)	-
Negative interest on loans and advances to banks and balances with central banks		(20,104)	(13,141)
Principle elements of lease payments		(3,507)	(3,901)
Net cash (used in)/from financing activities		(88,742)	2,318,512
Net increase in cash and cash equivalents		746,018	2,513,487
Cash and cash equivalents 1 January		9,255,210	5,890,135
Foreign exchange adjustments		(23,236)	(10,100)
30 June	27	9,977,992	8,393,522
Non‑cash transactions
Repossession of collaterals
During the six months ended 30 June 2022, the Group acquired properties by taking possession of collaterals held as security for loans and advances to customers of €23,058 thousand (six months ended 30 June 2021: €24,692 thousand).
Disposal of Project Helix 2
During the six months ended 30 June 2021 and upon the completion of the disposal of Project Helix 2, the Group recognised an amount of €381,567 thousand in other financial assets, which represents the fair value of the deferred consideration receivable for the transaction (the 'DPP'). Please refer to Note 18 for further details.

Notes to the Consolidated Condensed Interim Financial Statements

1.  Corporate information

Bank of Cyprus Holdings Public Limited Company (the 'Company') was incorporated in Ireland on 11 July 2016, as a public limited company under company number 585903 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 incorporated in Ireland and is tax resident in Cyprus.

Bank of Cyprus Holdings Public Limited Company is the holding company of Bank of Cyprus Public Company Limited ('BOC PCL') with principal place of business in Cyprus. The Bank of Cyprus Holdings Group (the 'Group') comprises the Company, its subsidiary, BOC PCL, and the subsidiaries of BOC PCL. Bank of Cyprus Holdings Public Limited Company is the ultimate parent company of the Group.

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

BOC PCL is a significant credit institution for the purposes of the SSM Regulation and has been designated by the CBC as an 'Other Systemically Important Institution' (O‑SII). The Group is subject to joint supervision by the ECB and the CBC for the purposes of its prudential requirements.

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

Consolidated Condensed Interim Financial Statements

The Consolidated Condensed Interim Financial Statements of the Company for the six months ended 30 June 2022 (the Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 30 August 2022.

The Consolidated Financial Statements are available on the Group's website www.bankofcyprus.com (Group/Investor Relations/Financial Results).

2.  Unaudited financial statements

The Consolidated 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 (FVOCI), financial assets (including loans and advances to customers and investments) at fair value through profit or loss (FVPL) 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.

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 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.

Comparative information

Comparative information was restated following certain changes in the presentation of the primary statements for the six months ended 30 June 2022 as described further below.

Reclassifications within the Consolidated Income Statement

'Gains/(losses) on disposal/dissolution of subsidiaries and associates', previously presented within 'Net (losses)/gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates', are now presented within 'Other income'. 'Net gains/(losses) on financial instrument transactions' has been renamed to 'Net gains/(losses) on financial instruments'. 'Share of profit/(loss) from associates' previously presented separately in the Consolidated Income Statement is now presented within 'Other income' as well. As a result of these changes in the presentation of 'Other income' 'Turnover' is also restated as indicated below.

Insurance income and expense previously presented in a single line as insurance income net of claims and commissions is now presented separately, whereas credit losses relating to financial assets, including loans and advances to customers, is now presented in a single line. Analysis of the individual components included within each line item is presented in the respective Notes.

	30 June 2021 (as previously presented)	Reclassifications	30 June 2021 (restated)
	€000	€000	€000
Net losses on financial instrument transactions and  disposal/dissolution of subsidiaries and associates	(14,076)	14,076	n/a
Net losses on financial instruments	n/a	(13,196)	(13,196)
Share of profit from associate	137	(137)	n/a
Other income	6,597	(743)	5,854
	(7,342)	-	(7,342)
Insurance income net of claims and commissions	31,068	(31,068)	n/a
Income from assets under insurance and reinsurance contracts	n/a	103,824	103,824
Expenses from liabilities under insurance and reinsurance contracts	n/a	(72,756)	(72,756)
	31,068	-	31,068
Credit losses to cover credit risk on loans and advances to customers	(48,349)	48,349	n/a
Credit losses of other financial instruments	(3,814)	3,814	n/a
Credit losses on financial assets	n/a	(52,163)	(52,163)
	(52,163)	-	(52,163)
Turnover	391,367	(743)	390,624

Reclassifications within the Consolidated Balance Sheet

Investments are now presented by class on the face of the consolidated balance sheet and loan stock is now presented in separate lines by type of liability issued.

	31 December 2021 (as previously presented)	Reclassifications	31 December 2021 (restated)
Assets	€000	€000	€000
Investments	879,005	(879,005)	n/a
Investments pledged as collateral	1,260,158	(1,260,158)	n/a
Investments at FVPL	n/a	199,194	199,194
Investments at FVOCI	n/a	748,695	748,695
Investments at amortised cost	n/a	1,191,274	1,191,274
	2,139,163	-	2,139,163
Liabilities
Loan stock	642,775	(642,775)	n/a
Debt securities in issue	n/a	302,555	302,555
Subordinated loan stock	n/a	340,220	340,220
	642,775	-	642,775
The Consolidated Statement of Cash Flows for the six months ended 30 June 2021 as well as respective notes were restated to reflect the changes in the presentation of the Consolidated Income Statement and Consolidated Balance Sheet described above.

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, as amended, Part 2 (Transparency Requirements) of the Central Bank (Investment Market Conduct) Rules 2019 and the applicable requirements of the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority.

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 2021, upon which the auditors have expressed an unqualified opinion, were published on 29 March 2022 and are expected to be delivered to the Registrar of Companies of Ireland within 56 days from 30 September 2022.

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 2021, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and ESEF requirements, 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 2021, except for the adoption of new and amended standards and interpretations as explained in Note 3.3.1.

3.3.1  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 or after 1 January 2022 and which are explained below. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

New and amended standards and Interpretations effective from 1 January 2022

IFRS 16: Leases COVID‑19‑Related Rent Concessions beyond 30 June 2021 (amendment)

The amendment increases the scope of COVID‑19‑related rent concessions (amendment to IFRS 16 issued in May 2020), which provides lessees with an exemption from assessing whether rent concessions that occur as a direct consequence of the COVID‑19 pandemic and meet specified conditions are lease modifications and, instead, to account for those rent concessions as if they were not lease modifications. The amendment increased the eligibility period for the application of the exemption by 12 months from 30 June 2021 to 30 June 2022.

IFRS 3: Business Combinations (amendments)

The IASB has published 'Reference to the Conceptual Framework (Amendments to IFRS 3)' with amendments to IFRS 3 'Business Combinations' that update an outdated reference in IFRS 3 without significantly changing the accounting requirements for business combinations.

IAS 16: Property, Plant and Equipment - Proceeds before Intended Use (amendments)

The amendments to the standard prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

IAS 37: Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts - Cost of Fulfilling a Contract (amendments)

The changes in Onerous Contracts - Cost of Fulfilling a Contract specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract'. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

Annual Improvements to IFRS Standards 2018-2020 Cycle

Annual Improvements to IFRS Standards 2018-2020 Cycle makes amendments to the following standards:

· IFRS 1 First time Adoption of International Financial Reporting Standards: the amendment permits a subsidiary that applies IFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent's date of transition to IFRSs.

· IFRS 9 Financial Instruments: the amendment clarifies which fees an entity includes when it applies the '10 per cent' test of IFRS 9 in assessing whether to derecognise a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other's behalf.

· IFRS 16 Leases: the amendment to Illustrative Example 13 accompanying IFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example.

· IAS 41 Agriculture: the amendment removes the requirement of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique, which ensures consistency with the requirements in IFRS 13.

These amendments and the annual improvements to IFRS Standards Cycle did not have a significant impact on the Group during the six months ended 30 June 2022.

3.3.2  Standards and Interpretations that are issued but not yet effective

IFRS 17, an accounting standard that will be effective from 1 January 2023, impacts the phasing of profit recognition for insurance contracts. Upon implementation, the Group's insurance‑related retained earnings will be restated and the reporting of insurance new business revenue will be spread over time, as the Group provides service to its policyholders (versus recognised up front under current accounting standards), with the quantum and timing of the impact dependent on, inter alia, the amount and mix of new business and extent of assumption changes in any given year following implementation. IFRS 17 requires a number of key changes compared with current accounting policies for insurance.

· Under IFRS 17, there will be no present value of in‑force insurance contracts ('PVIF') asset recognised. Instead, the estimated future profit will be included in the measurement of the insurance contract liability as the contractual service margin ('CSM') and this will be gradually recognised in revenue as services are provided over the duration of the insurance contract. While the profit over the life of an individual contract will be unchanged, its emergence will be later under IFRS 17.

· IFRS 17 requires the increased use of current market values in the measurement of insurance assets and liabilities hence insurance liabilities and related assets will be adjusted to reflect IFRS 17 measurement requirements.

· In accordance with IFRS 17, directly attributable costs will be incorporated in the CSM and, as recognised, will be presented as a deduction to reported revenue. This will result in a reduction in operating expenses.

The Group continues to make progress on the implementation of IFRS 17 and preliminary management estimate on the initial impact is as previously communicated and included below. However, industry practice and interpretation of the standard are still developing, hence uncertainty remains as to the final transition impact. Additionally, the impact on the forecast future returns of the Group's insurance business is dependent on the growth, duration and composition of its insurance contract portfolio. These estimates are therefore subject to change in the period up to adoption of the standard.

The accounting changes for the purposes of planning the Group's financial resources, are initially estimated to result in:

a)  the removal of value in force from the insurance business (including associated deferred tax liability) of approximately €105 million as per the Group's consolidated balance sheet as at 30 June 2022, which will reduce Group accounting equity by a respective amount (with no impact on the Group regulatory capital or tangible equity), and

b)  the remeasurement of insurance assets and liabilities and the creation of a contractual service margin (CSM) liability which will increase both the insurance business' and the Group's equity by an amount of approximately €50 million, predominantly relating to the life business of the Group.

The adoption of IFRS 17 may result in a modest annual negative impact on the contribution to profits of the Group's insurance business in the near term which has been incorporated in the Group business plan.

Minor amendments to other accounting standards

The IASB has issued a number of minor amendments to IFRSs effective 1 January 2023 (including IAS 1 Presentation of Financial Statements, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, IAS 12 Income Taxes). These amendments are not expected to have a significant impact on the Group.

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 Consolidated Financial Statements.

The Directors have concluded that there are no material uncertainties which would cast significant doubt over the ability of the Group, the Company and BOC PCL to continue to operate as a going concern for a period of 12 months from the date of approval of these Consolidated Financial Statements.

In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including projections of profitability, cash flows, capital requirements and capital resources, taking also into consideration, the Group's Financial Plan approved by the Board in February 2022 (the 'Plan') and Reforecast exercises run and the operating environment. The Group has sensitised its projection to cater for a downside scenario and has used reasonable economic inputs to develop its medium term strategy. The Group is working towards materialising its Strategy.

Capital

The Directors and Management have considered the Group's forecasted capital position, including the potential impact of a deterioration in economic conditions. The Group has developed capital projections under base and adverse scenario and the Directors believe that the Group has sufficient capital to meet its regulatory capital requirements throughout the period of assessment.

Funding and liquidity

The Directors and Management have considered the Group's funding and liquidity position and are satisfied that the Group has sufficient funding and liquidity throughout the period of assessment. The Group continues to hold a significant liquidity buffer at 30 June 2022 that can be easily and readily monetised in a period of stress.

5.   Economic and geopolitical environment

The Group assessed the financial impacts of the economic environment through the Group's planning process and believes that it is reasonably well positioned to withstand volatility from a resurgence of the virus, the war in Ukraine and the sanctions on Russia or other exogenous adverse shocks, particularly given the Group's continued management of its financial position and capital management.

The current geopolitical upheaval caused by the Russian invasion in Ukraine has resulted in the deterioration of the macroeconomic outlook for the European and Cyprus economy, which are now confronted with an increase in inflation. The continuation of, or any further escalation in, the Russia‑Ukraine war could have additional economic, social and political consequences. These include further sanctions and trade restrictions, longer‑term changes in the macroeconomic environment with the risk of higher and sustained inflation, and a continued increase in energy prices. The effects of these developments, such as the cost and sufficiency of energy supplies in Europe and the economic impact of various scenarios, are hard to predict and could be significant. The implications of Russia's ongoing war in Ukraine, including higher energy and commodity prices, as well as the continuing effects of the pandemic have increased uncertainty about the global and European economic outlook. In an attempt to tame inflation the ECB has started raising rates and as a result, financial conditions will be tightening further.

The above trends are driving high levels of uncertainty and volatility in the markets. Management closely monitors the developments and assesses the impact these could have on the Group's financial results and performance.

Group's Direct exposure to Russia

Russia's invasion of Ukraine has triggered disruptions and uncertainties in the markets and the global economy, as well as the coordinated implementation of sanctions by the EU, the UK and the U.S., joined by several other countries, imposed against Russia, Belarus and certain regions of Ukraine and certain Russian entities and nationals. The Group's policy is to comply with all applicable laws, including sanctions and export controls.

Overall, the Group's direct exposure to Russia, Ukraine and Belarus remains limited and has been further reduced since December 2021. The Group's direct gross lending risk exposure to Russia, Ukraine and Belarus (including loans and advances to customers classified as held for sale) was approximately €112 million (31 December 2021: €119 million) with a net book value of €108 million (31 December 2021: €110 million) across its business divisions as at 30 June 2022. Out of the gross exposures outlined above €95 million (31 December 2021: €95 million) were classified as performing (the basis of the exposure is expanded compared to the country risk exposure as included in Note 29.2 of the Consolidated Financial Statements which is disclosed by reference to the country of residency/country of registration, to also include exposures for loans and advances to customers with passport of origin in these countries and/or business activities within these countries and/or where the UBO has passport of origin or residency in these countries). Customer deposits related to Russian/Ukrainian customers are disclosed in Note 21 of the Consolidated Financial Statements.

Further, the Group had Ruble denominated loans and advances to banks of approximately €5 million as at 30 June 2022 (31 December 2021: €1 million). The Group's investments at amortised cost included EURO denominated debt securities of a carrying amount of €12 million (31 December 2021: €21.7 million) relating to debt securities of a European Union country issuer with significant exposure in Russia and Ukraine. With respect to derivatives, it is noted that the Group reduced its exposure in RUB denominated derivatives to nil since March 2022. There were no other investments relating to issuers with significant exposure to Russia and/or Ukraine. The Group's balance sheet as at 30 June 2022 also included net assets of less than €1 million (31 December 2021: €10 million) held in the Group's Russian subsidiary; forming part of the Group's overseas legacy operations which are being run down.

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 affecting future periods.

The key assumptions concerning the future and other key sources of estimation 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 the classification of financial instruments and the calculation of expected credit losses (ECL), the estimation of the net realisable value of stock of property and the provisions for pending litigation, claims, regulatory and other matters, which are presented in Notes 6.1 to 6.4 below. Other judgements, estimates and assumptions are disclosed in Notes 5.5 to 5.13 of the annual consolidated financial statements for the year ended 31 December 2021.

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, judgement 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.

It has been the Group's policy to regularly review its models in the context of actual loss experience and adjust when necessary.

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

Assessment of significant increase in credit risk (SICR)

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 a significant increase in credit risk has occurred, is based on statistical metrics and could be subject to 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 particular cases. Specifically 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 incorporating behavioural information (score cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. For revolving facilities, management estimates are required with respect to the life‑time and hence a behavioural maturity model is utilised, assigning an expected maturity based on product and customer behaviour.

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 other external factors could significantly impact ECL. Macroeconomic inputs and weights per scenario are monitored by the Economic Research Department and are based on internal model analysis after considering external market data supplemented by expert judgement.

Economic activity surprised to the upside in the first quarter of 2022, driven by higher tourist arrivals and the continuing expansion of other services exports. Arrivals of tourists increased considerably in the first half of the year and reached around 75% of pre‑pandemic levels. The outlook for the second half of the year remains positive despite the loss of Russian tourists that accounted for about 22% of total arrivals in 2016‑19. The economic fallout of the war in Ukraine and Western sanctions on Russia will impact negatively on the economy in the second half. The Cypriot economy is expected to expand by 3.2% in 2022 according to the European Commission's summer forecasts. This follows a strong recovery in 2021 when real GDP increased by 5.6%.  Over the medium term, prospects are aided by the Recovery and Resilience Fund of Next Generation EU. Its purpose is ultimately about the future, to help fund the key investments that will be needed for the green and digital transitions, and so enhance the potential and economic resilience of member states. Structural reform is an integral part of this process, and ultimately a critical factor that will determine the effectiveness of the investments. The bulk of the funds will be released in 2022‑2024 depending on the strict implementation of reform priorities agreed with the EU. These include increasing the efficiency of public and local administrations, improving the government of state‑owned enterprises, reducing further the levels of non‑performing loans in the banking sector, improving the efficiency of the judicial system and accelerating anti‑corruption reforms.

However, prospects are clouded by the war in Ukraine and sanctions on Russia. The continuing supply disruptions and the energy crisis that result from it, sustain higher inflation for longer than initially anticipated forcing central banks to reverse their policies and raise interest rates. Aggressive monetary policies in turn, raise interest rates and risk a debt crisis in countries with a high debt and political instability.

There have been distinct improvements in Cyprus' risk profile, but substantial risks remain in terms of the domestic operating environment, as well as the external environment on which it depends. Cyprus' overall country risk is a combination of sovereign, currency, banking, political and economic structure risk, including external developments with substantial potential impact on the domestic economy. The large stock of public debt weighs heavily on Cyprus' sovereign credit risk. In the banking sector, despite significant progress since the financial crisis of 2012‑2014, risks remain elevated and non‑performing loans were 11.4% of gross loans at the end of March 2022 compared to a Euro area average of just over 2%. Cyprus has a large and relatively undiversified export base. While the current account deficit will be narrowing as exports services recover in the medium‑term, it will remain sizable. Rising inflation and higher interest rates will be causing a significant slowing of economic activity in the quarters ahead. The extent of the crisis in Ukraine can lead in elevated tensions for a considerable period of time.

For the ECL, the Group updated its forward looking scenarios, factoring in updated macroeconomic assumptions and other monetary and fiscal developments at the national and the EU level based on developments and events as at the reporting date, i.e. 30 June 2022.

The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the Group as at 30 June 2022 and 31 December 2021 respectively. The Group uses three different economic scenarios in the calculation of default probabilities and provisions. The Group has used the 30‑50‑20 probability structure for the adverse, base and favourable scenarios respectively compared to the 25‑50‑25 structure derived using the method described in Note 2.19.5 of the annual consolidated financial statements for the year ended 31 December 2021. This reflects the management's view of specific characteristics of the Cyprus economy that render it more vulnerable to external and internal shocks. Given added uncertainties and elevated risks during 2022‑2023, especially in view of inflation uncertainties and added geopolitical risks, management decided to maintain an elevated weight on the adverse scenario.

The economy continues to face financial and macroeconomic risks, including a high public debt ratio and a relatively high level of NPEs that together maintain elevated vulnerabilities and limit the policy reaction space thus sustaining conditions, which can lead to a deeper recession in response to shocks than under normal times. Adverse developments and exogenous shocks, that result in significantly slower growth can lead to a rapid increase in the creation of non‑performing loans and weaken bank balance sheets.

These factors and the overall risk profile discussed earlier in this section, including economic structure risk given a very large external sector and high concentration to geographical areas render the economy more susceptible to external shocks and weaken its resilience. This may, in management's view, not be fully captured in the weights as calculated using the method described in Note 2.19.5 of the annual consolidated financial statements for the year ended 31 December 2021. Hence management has decided to keep the weight of the adverse scenario to 30%, and correspondingly keep a reduced weight of the favourable scenario to 20%.

30 June 2022

Year	Scenario	Weight %	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average  % change)	RICS House Price Index (average  % change)
2022	Adverse	30.0	0.6	6.4	7.3	0.4
	Baseline	50.0	2.7	6.2	7.8	2.6
	Favourable	20.0	3.2	6.0	8.2	2.8
2023	Adverse	30.0	‑1.8	7.1	1.6	‑0.6
	Baseline	50.0	3.0	6.3	3.3	2.8
	Favourable	20.0	3.3	5.7	3.6	3.0
2024	Adverse	30.0	0.8	7.3	0.7	0.0
	Baseline	50.0	3.2	6.1	2.1	2.8
	Favourable	20.0	3.3	5.5	2.2	3.0
2025	Adverse	30.0	1.9	7.0	1.4	1.2
	Baseline	50.0	2.8	5.7	2.2	2.9
	Favourable	20.0	2.9	5.2	2.2	3.0
2026	Adverse	30.0	3.4	5.8	2.2	3.2
	Baseline	50.0	2.7	5.4	2.0	2.9
	Favourable	20.0	2.5	4.8	2.1	2.7

31 December 2021

Year	Scenario	Weight %	Real GDP (% change)	Unemployment rate (% of labour force)	Consumer Price Index (average  % change)	RICS House Price Index (average  % change)
2022	Adverse	30.0	‑0.4	7.6	0.5	‑3.7
	Baseline	50.0	4.3	6.5	2.2	2.6
	Favourable	20.0	4.5	5.8	3.0	3.1
2023	Adverse	30.0	0.1	7.7	1.6	‑1.0
	Baseline	50.0	3.3	6.4	1.6	3.3
	Favourable	20.0	3.3	5.8	1.6	4.0
2024	Adverse	30.0	1.8	7.6	1.8	3.0
	Baseline	50.0	3.0	6.2	1.8	3.1
	Favourable	20.0	3.2	5.7	1.8	3.2
2025	Adverse	30.0	2.4	7.2	1.9	3.3
	Baseline	50.0	2.9	5.8	1.9	3.0
	Favourable	20.0	3.0	5.5	1.9	2.9
2026	Adverse	30.0	3.0	6.7	1.8	3.2
	Baseline	50.0	2.7	5.3	1.8	2.7
	Favourable	20.0	2.6	5.1	1.8	3.1
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 determined by multiple factors with GDP growth featuring prominently. However, the relationship between GDP growth and property prices entails 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.
The baseline scenario was updated for 30 June 2022 reporting, considering available information and relevant developments until that date. In the baseline, real GDP is forecast to expand by 2.7% in 2022 and inflation will rise by 7.8% compared with 2.3% in 2021. The unemployment rate will continue to drop steadily in the medium term. Property prices will continue to rise modestly in 2022 as domestic demand for housing picks up.
The adverse scenario is consistent with assumptions for continued supply disruptions and the war in Ukraine also continuing. The impact of higher inflation and tighter monetary policy on the economy will be more severe than under the baseline scenario. The Cypriot economy relies on tourism and other services exports. This makes the economy more exposed than other countries to travel restrictions and the external environment. Developments with Russia over the Ukrainian crisis and subsequent sanctions, lead to negative implications for tourism travel, investment flows and energy prices. The hit to the Cyprus economy from falling external demand for travel and tourism services and the knock‑on effects to related sectors will be significantly more severe than under the baseline scenario. Real GDP is expected to slow sharply in the second half of the year, under the adverse scenario and average a 0.6% annual growth. The economy falls into recession in the second half which deepens in 2023 with real GDP contracting by 1.8%. Economic recovery will remain weak in the medium term. In the labour market the unemployment rate will remain stuck near the 2021 levels at 6.4% in 2022 and to rise modestly to 7.1% in 2023 under the adverse scenario.
Since 1 January 2018, the Group has reassessed the key economic variables used in the ECL models consistent with the implementation of IFRS 9. The Group uses actual values for the input variables. These values are sourced from the Cyprus Statistical Service, the Eurostat, the Central Bank of Cyprus for the residential property price index, and the European Central Bank for interest rates. Interest rates are also sourced from Bloomberg. In the case of property prices the Group additionally uses data from the Royal Institute of Chartered Surveyors. For the forward reference period, the Group uses the forecast values for the same variables, as prepared by the Bank's Economic Research Department. The results of the internal forecast exercises are consistent with publicly available forecasts from official sources including the European Commission, the International Monetary Fund, the European Central Bank and the Ministry of Finance of the Republic of Cyprus.

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 were applied to the positive future property value growth to restrict the level of future property price growth to 0% for all scenarios for loans and advances to customers which are secured by property collaterals.

The RICS indices, which are considered for the purposes of determining the real estate collateral value on realisation date have been used as the basis to estimate updated market values of properties supplemented by management judgement where necessary given the difficulty in differentiating between short term impacts and long term structural changes and the shortage of market evidence for comparison purposes and are capped to 0% in case of any future projected increase, whereas any future projected decrease is taken into account.

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 either more favourable or more adverse scenarios. 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 also the weighted average of three scenarios: base, adverse and favourable.

Assessment of loss given default (LGD)

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 as the basis to estimate updated market values of properties supplemented by management judgement where necessary given the difficulty in differentiating between short term impacts and long term structural changes and the shortage of market evidence for comparison purposes. Assumptions were made on the basis of a macroeconomic scenario for future changes in property prices, and these are capped to zero for all scenarios, in case of any future projected increase, whereas any future projected decrease is taken into consideration.

At 30 June 2022, the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provisions calculation for loans and advances to customers is approximately 32% under the baseline scenario (31 December 2021: approximately 32%) excluding those classified as held for sale.

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 2021: average of seven years), excluding those classified as held for sale.

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 specific cases judgement may also be exercised over staging during the individual assessment including cases where no specific model has been developed.

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 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 a variance between assumptions made and actual results could result in significant changes in the amount of required credit losses of loans and advances to customers.

Expected lifetime of revolving facilities

The expected lifetime of revolving facilities is based on a behavioural maturity model for revolving facilities based on BOC PCL's available historical data, where an expected maturity for each revolving facility based on the customer's profile is assigned.

The credit conversion factor model for revolving products was calibrated in the fourth quarter of 2021, to include additional data points covering the period up to moratorium and in order to be aligned with the behavioural maturity model for revolving facilities with impact on the ECL for the year ended 31 December 2021 being a release of €1,790 thousand. The behavioural model was updated in the second quarter of 2022 to reflect customers profile whilst maintaining the same model components. The impact on the ECL for the six months ended 30 June 2022 was a charge of ECL of €66 thousand.

Modelling adjustments

Forward looking models have been developed for ECL parameters PD, EAD, LGD for all portfolios and segments sharing similar characteristics. Model validation (initial and periodic) is performed by the independent validation unit within the Risk Management Division and involves assessment of a model under both quantitative (i.e. stability and performance) and qualitative terms. The frequency and level of rigour of model validation is commensurate to the overall use, complexity and materiality of the models, (i.e. risk tiering). In certain cases, judgement is exercised in the form of management overlay by applying adjustments on the modelled parameters. Governance of these models lies with the Risk Management Division, where a strong governance process is in place around the determination of the impairment measurement methodology including inputs, assumptions and overlays. Any management overlays are prepared by the Risk Management Division, endorsed by the Provisions Committee and approved by the joint Risk and Audit 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.

During the third quarter of 2021, cure model recalibration was performed mainly to address the low default/cure environment observed in the recent period prior to moratorium and investigate the considered model development period such that is retains the through the cycle nature of the model. The calibration was performed on the most recent changes in definition of default introduced in January 2021 and had an ECL impact of €28 million for the year ended 31 December 2021. In the second quarter of 2022, following the agreement for the disposal of Helix 3 portfolio, cure model was updated, assigning maximum cure period for an exposure of 3 years instead of 5 years from their default date. This had an ECL impact of €1.8 million for the six months ended 30 June 2022.

Overlays in the context of COVID‑19 and current economic conditions

COVID‑19 related management overlays applied in 2020 and up to the first six months of 2021 were removed in the third quarter of 2021, except for the overlay for exposures in the hotel and catering (which applied stricter customer's credit ratings thresholds for customers in this industry sector) that was removed in the second quarter of 2022 following the introduction of the new overlays described below. The impact on the ECL, from the removal of the overlay, was a release of €152 thousand and a transfer of €52 million loans from Stage 2 to Stage 1 as at 30 June 2022.

During 2022, the Group has enhanced provisioning for exposures that could be impacted from the consequences of the Ukrainian crisis, by establishing two new overlays in the collectively assessed population, to address the increased uncertainties from the geopolitical instability, trade restrictions, disruptions in the global supply chains, increases in the energy prices and their potential negative impact in the domestic cost of living. The impact on the ECL from the application of these overlays was approximately €8.4 million charge for the six months ended 30 June 2022 and a transfer of €115 million loans from Stage 1 to Stage 2 as at 30 June 2022.

Specifically, the first overlay is related to private individuals that are expected to be affected by the increased cost of living in order to reflect the future vulnerabilities to inflation, where a scenario with higher percentage increase is applied for the cost of living. The second overlay related to sectors that have been classified as high risk (Transportation) or Early Warning (Trade, Hotels and catering, Construction, Real Estate and Other sectors such as Electricity and Mining) to reflect the expected Gross Value Added (GVA) outlook of these sectors, where this has deteriorated. Specifically, the sector risk classification is carried out by comparing the projected GVA outlook of each sector with its past performance (intrinsic) and its performance vis‑a‑vis other sectors (systemic). In cases where both systemic and intrinsic indicators are found to have deteriorated, the relevant sector is classified as 'High Risk', whereas if only one of the two has deteriorated, then the sector is classified as 'Early Warning'.

The Group has exercised critical judgement on a best effort basis, to consider all reasonable and supportable information available at the time of the assessment of the ECL allowance as at 30 June 2022. The Group will continue to evaluate the ECL allowance and the related economic outlook each quarter, so that any changes arising from the uncertainty on the macroeconomic outlook and geopolitical developments, impacted by the implications of the Russian invasion of Ukraine, as well as the degree of recurrence of the COVID‑19 pandemic due to virus mutations, are timely captured.

Portfolio segmentation

The individual assessment is performed not only for individually significant exposures 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. The selection criteria were further enhanced during the six months ended 30 June 2022 to include significant exposures to customers with passport of origin or residency in Russia, Ukraine or Belarus and/or business activity within these countries.

Further details on impairment allowances and related credit information are set out in Note 29.

6.3  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, taking 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 where considered necessary, and any other relevant parameters. Selling expenses are 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 high degree of uncertainty due to the relatively low level of market activity.

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

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

The accounting policy for provisions for pending litigation, claims, regulatory and other matters is described in Note 2.36 of the annual consolidated financial statements for the year ended 31 December 2021. Judgement is required in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. Provisions for pending litigation, 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 possible loss for such matters can be estimated. Actual results may prove to be significantly higher or lower than the estimated 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

The Group's activities are mainly concentrated in Cyprus. Cyprus operations are organised into operating segments based on the line of business. As from 2021, the results of the overseas activities of the Group, namely Greece, Romania and Russia are presented within segment 'Other', given the size of these operations which are in a run‑down mode in the last years. Further, the results of certain small subsidiaries of the Group are allocated to the segments based on their key activities.

The operating segments are analysed below:

· The Corporate, Small and medium‑sized enterprises and Retail business lines are managing loans and advances to customers. Categorisation of loans per customer group is detailed below.

· Large and International corporate business line (previously 'Global corporate') is managing loans and advances to customers within the large corporate section, the Shipping centre, the International Corporate Lending, the International Syndicate and Project Finance.

· 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 private banking and wealth management, Market execution and Custody along with Asset Management and Investment Banking. The business line Wealth management also includes subsidiary companies of the Group, whose activities relate to investment banking and brokerage, investment holding and management, administration and safekeeping of UCITS units.

· 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. The business line REMU also includes other subsidiary property companies of the Group.

· 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 non‑life insurance business.

· The business line 'Other' includes central functions of BOC PCL such as finance, risk management, compliance, legal, corporate affairs and human resources. These functions provide services to the operating segments. 'Other' includes also other subsidiary companies in Cyprus (excluding the insurance subsidiaries, property companies under REMU and subsidiary companies under Wealth) as well as the overseas activities of the Group.

BOC PCL broadly categorises its loans per customer group, using the following customer sectors:

· Retail - all physical person customers, regardless of the facility amount, and legal entities with facilities from BOC PCL of up to €260 thousand, excluding business property loans.

· SME - any company or group of companies (including personal and housing loans to the directors or shareholders of a company) with facilities from 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. These companies are either local‑larger corporations or international companies or companies in the shipping sector (lending also includes direct lending or through syndications).

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 associated with each business line are included for determining its performance. Transfer pricing methodologies are applied between the business lines to present their results on an arm's length basis. Income and expenses incurred directly by the business lines are allocated to the business lines as incurred. Indirect income and expenses are re‑allocated from the central functions to the business lines. For the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is charged/credited to 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 managed, instead of the segment where the transaction is recorded.

Comparative information in analysis by business line analysis of total revenue and turnover was restated to account for the changes in the presentation of the primary statements for the six months ended 30 June 2022 as described in Note 3.1.

Analysis by business line

	Corporate	Large and international corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
Six months ended 30 June 2022	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	28,208	30,993	14,495	43,703	16,294	10,234	578	(12,354)	(27)	13,573	(2)	145,695
Net fee and commission income/(expense)	7,744	4,184	5,587	29,562	4,252	27,928	2,569	(90)	(3,889)	1,003	14,789	93,639
Net foreign exchange gains/(losses)	269	215	279	1,137	52	2,947	86	-	-	5,809	1,104	11,898
Net gains/(losses) on financial instrument transactions	-	171	-	-	(2,230)	-	(102)	-	(1,614)	1,899	(184)	(2,060)
Net gains/(losses) on derecognition of financial assets measured at amortised cost	1,520	(376)	(20)	116	1,523	13	(269)	-	-	(867)	8	1,648
Insurance income net of claims and commissions	-	-	-	-	-	-	-	-	32,869	-	-	32,869
Net losses from revaluation and disposal of investment properties	-	-	-	-	-	-	-	(415)	(307)	-	(650)	(1,372)
Net gains on disposal of stock of property	-	-	-	-	-	-	-	7,894	-	-	348	8,242
Other income	4	4	10	43	186	(3)	155	4,867	37	1	3,623	8,927
Total operating income	37,745	35,191	20,351	74,561	20,077	41,119	3,017	(98)	27,069	21,418	19,036	299,486
Staff costs	(2,622)	(1,452)	(2,902)	(30,007)	(5,677)	(6,240)	(1,825)	(2,055)	(6,169)	(1,108)	(39,948)	(100,005)
Staff costs-voluntary exit plan and other termination benefits	-	-	-	-	-	-	-	-	-	-	(3,130)	(3,130)
Special levy on deposits and other levies/contributions	(1,015)	(625)	(806)	(10,448)	(45)	(3,272)	(295)	-	-	(1)	-	(16,507)
Other operating (expenses)/income (excluding advisory and other restructuring costs)	(9,936)	(10,096)	(7,652)	(39,183)	(11,197)	(5,055)	(1,170)	(8,215)	(5,563)	(5,142)	29,491	(73,718)
Other operating expenses ‑ advisory and other restructuring costs	-	-	-	-	(1,053)	-	-	(351)	-	-	(5,271)	(6,675)
Operating profit before credit losses and impairment	24,172	23,018	8,991	(5,077)	2,105	26,552	(273)	(10,719)	15,337	15,167	178	99,451
Credit losses on financial assets	(2,356)	(3,631)	569	293	(16,577)	285	(226)	(323)	(101)	(167)	(2,731)	(24,965)
Impairment net of reversals of non‑financial assets	-	-	-	-	-	-	-	(7,203)	-	-	(4,954)	(12,157)
Profit/(loss) before tax	21,816	19,387	9,560	(4,784)	(14,472)	26,837	(499)	(18,245)	15,236	15,000	(7,507)	62,329
Income tax	(2,727)	(2,423)	(1,195)	598	1,809	(3,355)	3	2,429	(1,309)	(1,875)	(3,534)	(11,579)
Profit/(loss) after tax	19,089	16,964	8,365	(4,186)	(12,663)	23,482	(496)	(15,816)	13,927	13,125	(11,041)	50,750
Non‑controlling interests‑profit	-	-	-	-	-	-	-	-	-	-	(662)	(662)
Profit/(loss) after tax attributable to the owners of the Company	19,089	16,964	8,365	(4,186)	(12,663)	23,482	(496)	(15,816)	13,927	13,125	(11,703)	50,088

	Corporate	Large and international corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
Six months ended 30 June 2021 (restated)	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Net interest income/(expense)	27,082	27,739	15,061	38,734	30,070	4,127	220	(12,417)	(9)	8,179	13,427	152,213
Net fee and commission income/(expense)	6,926	5,385	4,445	20,764	7,690	26,846	2,773	(86)	(3,759)	953	11,920	83,857
Net foreign exchange gains/(losses)	238	101	233	812	30	2,699	1,341	-	-	1,160	(64)	6,550
Net (losses)/gains on financial instrument transactions	-	(116)	-	-	(3,035)	-	(322)	6	(303)	(10,270)	844	(13,196)
Net gains/(losses) on derecognition of financial assets measured at amortised cost	34	1,187	658	219	(971)	(75)	1	-	-	-	-	1,053
Insurance income net of claims and commissions	-	-	-	-	-	-	-	-	31,068	-	-	31,068
Net losses from revaluation and disposal of investment properties	-	-	-	-	-	-	-	(709)	-	-	(672)	(1,381)
Net gains on disposal of stock of property	-	-	-	-	-	-	-	7,180	-	-	192	7,372
Other income	1	2	6	177	32	1	100	3,284	30	-	2,221	5,854
Total operating income	34,281	34,298	20,403	60,706	33,816	33,598	4,113	(2,742)	27,027	22	27,868	273,390
Staff costs	(2,604)	(1,473)	(2,992)	(30,147)	(8,015)	(6,222)	(1,993)	(1,838)	(5,396)	(739)	(39,447)	(100,866)
Special levy on deposits and other levies/contributions	(916)	(461)	(763)	(9,846)	(49)	(2,937)	(283)	-	-	-	-	(15,255)
Other operating (expenses)/income (excluding advisory and other restructuring costs)	(8,686)	(8,380)	(7,963)	(33,637)	(12,960)	(4,518)	(1,652)	(8,706)	(4,204)	(4,232)	14,791	(80,147)
Other operating expenses ‑ advisory and other restructuring costs	-	-	-	-	(14,559)	-	-	(607)	-	-	(275)	(15,441)
Operating profit before credit losses and impairment	22,075	23,984	8,685	(12,924)	(1,767)	19,921	185	(13,893)	17,427	(4,949)	2,937	61,681
Credit losses on financial assets	(1,666)	(4,089)	913	11,906	(55,320)	1,548	(65)	(91)	(184)	(57)	(5,058)	(52,163)
Impairment net of reversals of non‑financial assets	-	-	-	-	-	-	-	(6,742)	-	-	(656)	(7,398)
Profit/(loss) before tax	20,409	19,895	9,598	(1,018)	(57,087)	21,469	120	(20,726)	17,243	(5,006)	(2,777)	2,120
Income tax	(2,551)	(2,487)	(1,200)	127	7,136	(2,684)	(113)	895	(2,106)	626	1,389	(968)
Profit/(loss) after tax	17,858	17,408	8,398	(891)	(49,951)	18,785	7	(19,831)	15,137	(4,380)	(1,388)	1,152
Non‑controlling interests‑profit	-	-	-	-	-	-	-	-	-	-	(413)	(413)
Profit/(loss) after tax attributable to the owners of the Company	17,858	17,408	8,398	(891)	(49,951)	18,785	7	(19,831)	15,137	(4,380)	(1,801)	739
Net insurance income for the six months ended 30 June 2022 amounted to €32,869 thousand, comprising of income from assets under insurance and reinsurance contracts of €29,859 thousand and a credit for expenses from liabilities under insurance and reinsurance contracts of €3,010 thousand, compared to €31,068 thousand for the six months ended 30 June 2021 (comprising of income from assets under insurance and reinsurance contracts of €103,824 thousand and expenses from liabilities under insurance and reinsurance contracts of €72,756 thousand respectively). The increase in net insurance income of €1,801 thousand, is mainly due to increased new business and the positive changes in valuation assumptions, partially offset by higher insurance claims. The decrease in income from assets under insurance and reinsurance contracts is impacted by the valuation on the unit‑linked investments, which in turn has a positive impact on the respective technical reserves, whose movement is reported under expenses from liabilities under insurance and reinsurance contracts.

Analysis of total revenue

Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains/(losses) on financial instrument transactions, net gains/(losses) on derecognition of financial assets measured at amortised cost, 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. There was no revenue deriving from transactions with a single external customer that amounted to 10% or more of Group revenue.

	Corporate	Large and International corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
Six months ended 30 June 2022	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Revenue from third parties	42,440	40,306	21,749	77,546	21,454	37,163	3,275	12,102	31,704	(6,315)	18,062	299,486
Inter‑segment (expense)/revenue	(4,695)	(5,115)	(1,398)	(2,985)	(1,377)	3,956	(258)	(12,200)	(4,635)	27,733	974	-
Total revenue	37,745	35,191	20,351	74,561	20,077	41,119	3,017	(98)	27,069	21,418	19,036	299,486

Six months ended 30 June 2021 (restated)
Revenue from third parties	38,511	38,874	21,893	64,878	35,972	31,495	4,556	9,576	30,060	(18,244)	15,819	273,390
Inter‑segment (expense)/revenue	(4,230)	(4,576)	(1,490)	(4,172)	(2,156)	2,103	(443)	(12,318)	(3,033)	18,266	12,049	-
Total revenue	34,281	34,298	20,403	60,706	33,816	33,598	4,113	(2,742)	27,027	22	27,868	273,390

Analysis of assets and liabilities

	Corporate	Large and international corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
30 June 2022	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Assets
Assets	2,148,827	2,226,206	1,033,646	4,155,410	651,062	136,120	67,126	1,235,597	990,211	12,116,263	1,449,264	26,209,732
Inter‑segment assets	-	-	-	-	-	-	(10,838)	(35,761)	(16,487)	-	(25,659)	(88,745)
	2,148,827	2,226,206	1,033,646	4,155,410	651,062	136,120	56,288	1,199,836	973,724	12,116,263	1,423,605	26,120,987
Assets between Cyprus and overseas operations												(277,255)
Total assets												25,843,732

	Corporate	Large and international corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
31 December 2021	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Assets
Assets	2,012,908	2,139,025	1,036,958	4,011,930	703,926	134,596	73,512	1,282,342	1,023,678	11,412,964	1,583,202	25,415,041
Inter‑segment assets	-	-	-	-	-	-	(12,036)	(16,240)	(20,367)	-	(15,227)	(63,870)
	2,012,908	2,139,025	1,036,958	4,011,930	703,926	134,596	61,476	1,266,102	1,003,311	11,412,964	1,567,975	25,351,171
Assets between Cyprus and overseas operations												(388,474)
Total assets												24,962,697

	Corporate	Large and international corporate	Small and medium‑sized enterprises	Retail	Restructuring and recoveries	International banking services	Wealth management	REMU	Insurance	Treasury	Other	Total
30 June 2022	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Liabilities
Liabilities	1,247,265	820,982	900,332	11,444,665	57,974	3,667,783	329,834	39,513	787,443	4,153,824	668,622	24,118,237
Inter‑segment liabilities	-	-	-	-	-	-	-	-	-	(88,745)	-	(88,745)
	1,247,265	820,982	900,332	11,444,665	57,974	3,667,783	329,834	39,513	787,443	4,065,079	668,622	24,029,492
Liabilities between Cyprus and overseas operations												(278,381)
Total liabilities												23,751,111

31 December 2021
Liabilities
Liabilities	1,117,148	631,002	866,860	11,051,397	45,994	3,500,183	335,587	13,359	826,816	4,161,124	785,469	23,334,939
Inter‑segment liabilities	-	-	-	-	-	-	-	-	-	(63,870)	-	(63,870)
	1,117,148	631,002	866,860	11,051,397	45,994	3,500,183	335,587	13,359	826,816	4,097,254	785,469	23,271,069
Liabilities												(389,599)
Liabilities												22,881,470
Segmental analysis of customer deposits and loans and advances to customers is presented in Note 21 and Notes 29.2 and 29.4 respectively.

Analysis of turnover

	Six months ended 30 June
	2022	2021 (restated)
	€000	€000
Interest income and income similar to interest income	190,988	196,898
Fees and commission income	98,086	87,610
Net foreign exchange gains	11,898	6,550
Gross insurance premiums	105,591	95,089
Losses of investment properties and stock of properties	(494)	(1,377)
Other income	8,927	5,854
	414,996	390,624

The analysis of 'Losses of investment properties and stock of properties' is provided in the table below:

	Six months ended 30 June
	2022	2021
	€000	€000
Net losses from revaluation and disposal of investment properties	(1,372)	(1,381)
Net gains on disposal of stock of property	8,242	7,372
Impairment of stock of property (Note 10)	(7,364)	(7,368)
	(494)	(1,377)

8.   Net losses on financial instruments

	Six months ended 30 June
	2022	2021 (restated)
	€000	€000
Trading portfolio:
‑ derivative financial instruments	37	23
Other investments at FVPL:
‑ debt securities	(367)	2,540
‑ mutual funds	(1,716)	(575)
‑ equity securities	(166)	(171)
Net loss on disposal of FVOCI debt securities	(1,959)	-
Net loss on early redemption of subordinated loan stock	-	(12,433)
Net losses on loans and advances to customers at FVPL	(2,059)	(3,151)
Revaluation of financial instruments designated as fair value hedges:
‑ hedging instruments	49,687	9,786
‑ hedged items	(45,517)	(9,215)
	(2,060)	(13,196)
In April 2021, BOC PCL invited the holders of its €250 million unsecured and subordinated Tier 2 Capital Note (issued in January 2017) to tender it for purchase by BOC PCL at a price of 105.5% plus accrued interest. BOC PCL received valid tenders for approximately €207 million in aggregate nominal amount, all of which were accepted. As a result, BOC PCL incurred a loss of €12,433 thousand for the six months ended 30 June 2021, while at the same time forfeiting the relevant obligation for future coupon payments. Further information is provided in Note 22.

9.   Staff costs and other operating expenses

Staff costs

	Six months ended 30 June
	2022	2021
	€000	€000
Salaries	81,246	81,397
Employer's contributions to state social insurance	12,982	12,905
Retirement benefit plan costs	5,777	6,564
	100,005	100,866
Restructuring costs ‑ voluntary exit plans and other termination benefits	3,130	-
	103,135	100,866
The number of persons employed by the Group as at 30 June 2022 was 3,422 (31 December 2021: 3,438 and includes 49 persons that have accepted the voluntary exit plan (VEP) and left the Group in early 2022 and 30 June 2021: 3,558 and includes 98 persons relating to Helix 2 transaction that left the Group in the second half of 2021).
In January 2022, the Group's subsidiary company, JCC Payment Systems Ltd, proceeded with a VEP for its employees, through which 15 employees were approved to leave at a total cost of €3,130 thousand. In December 2021, the Group completed a VEP, through which 102 of the Group's full‑time employees were approved to leave at a total cost of €16,146 thousand. In addition, in July 2022, the Group proceeded with another VEP (refer to Note 36 for further details).
In July 2021, BOC PCL reached an agreement with the Cyprus Union of Bank Employees for the renewal of the collective agreement for the years 2021 and 2022. The agreement relates to certain changes including the introduction of a new pay grading structure linked to the value of each position of employment, and of a performance related pay component as part of the annual salary increase, both of which have been long‑standing objectives of BOC PCL and are in line with market best‑practice.
During the six months ended 30 June 2022, an amount of €831 thousand (30 June 2021: nil) relating to staff costs has been capitalised as internally developed computer software.
Other operating expenses

	Six months ended 30 June
	2022	2021
	€000	€000
Repairs and maintenance expenses	17,960	15,669
Other property‑related costs	5,865	5,708
Consultancy and other professional services fees	8,526	7,132
Insurance	4,218	3,725
Advertising and marketing	3,672	2,751
Depreciation of property and equipment	7,821	8,266
Amortisation of intangible assets	9,087	9,325
Communication expenses	3,431	3,449
Provisions for pending litigations, claims, regulatory and other matters (Note 25.4)	594	10,660
Printing and stationery	898	814
Cash transfer expenses	1,630	1,139
Other operating expenses	10,016	11,509
	73,718	80,147
Advisory and other restructuring costs	6,675	15,441
	80,393	95,588

Advisory and other restructuring costs comprise mainly fees to external advisors in relation to the transformation programme and strategy of BOC PCL.

During the six months ended 30 June 2022, the Group recognised €84 thousand relating to rent expense for short term leases, included within 'Other property related costs (30 June 2021: €67 thousand) and €3,423 thousand relating to the depreciation of right‑of‑use assets, included within 'Depreciation of property and equipment' (30 June 2021: €3,920 thousand).

	Six months ended 30 June
	2022	2021
	€000	€000
Special levy on deposits of credit institutions in Cyprus and contribution to Single Resolution Fund	13,246	12,370
Contribution to Deposit Guarantee Fund	3,261	2,885
	16,507	15,255
The special levy on credit institutions in Cyprus (the Special Levy) is imposed on the level of deposits as at the end of the previous quarter, at the rate of 0.0375% per quarter. Following an amendment of the Imposition of Special Credit Institution Tax Law in 2017, the Single Resolution Fund contribution, which is charged annually by the Single Resolution Board, reduces the payment of the Special Levy up to the level of the total annual Special Levy charge.
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to a contribution to the Deposit Guarantee Fund (DGF) on a semi‑annual basis. The contributions are calculated based on the Risk Based Methodology (RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and Other Institutions Schemes (DGS) and is publicly available on the CBC's website. In line with the RBM, the contributions are broadly calculated on the covered deposits of all authorised institutions and the target level is to reach at 0.8% of covered deposits by 3 July 2024.

10.  Credit losses on financial instruments and impairment net of reversals of non‑financial assets

	Six months ended 30 June
	2022	2021
Credit losses on financial instruments	€000	€000
Credit losses to cover credit risk on loans and advances to customers
Impairment net of reversals on loans and advances to customers (Note 29.5)	28,055	41,717
Recoveries of loans and advances to customers previously written off	(6,509)	(5,036)
Changes in expected cash flows	2,840	10,393
Financial guarantees and commitments	(427)	1,275
	23,959	48,349
Credit losses of other financial instruments
Amortised cost debt securities	21	51
FVOCI debt securities	163	15
Loans and advances to banks	(22)	9
Other financial assets (Note 18)	844	3,739
	1,006	3,814
	24,965	52,163

Impairment net of reversals on non‑financial assets
Stock of property (Note 17)	7,364	7,368
Other non‑financial assets	4,793	30
	12,157	7,398

11.  Income tax

	Six months ended 30 June
	2022	2021
	€000	€000
Current tax:
‑ Cyprus	12,653	1,973
‑ Overseas	34	-
Cyprus special defence contribution	79	59
Deferred tax (credit)/charge	(1,149)	504
Prior years' tax adjustments	(16)	(1,890)
Other tax (credits)/charges	(22)	322
	11,579	968
The net deferred tax assets comprise:

	30 June 2022	31 December 2021
	€000	€000
Deferred tax assets	265,430	265,481
Deferred tax liabilities	(45,235)	(46,435)
Net deferred tax assets	220,195	219,046
The deferred tax assets (DTA) relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:

	30 June 2022	31 December 2021
	€000	€000
1 January	219,046	295,378
Deferred tax recognised in the consolidated income statement	1,149	(641)
Deferred tax recognised in the consolidated statement of comprehensive income	-	127
Transfer to current tax receivables following conversion into tax credit	-	(75,818)
30 June/31 December	220,195	219,046
The Group offsets income tax assets and liabilities only if it has a legally enforceable right to set‑off current income tax assets and current income tax liabilities.
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment 28(I) of 2019 (the 'Law'), which allow for the conversion of specific tax losses into tax credits and subsequently any such unutilised tax credits into a receivable from the Cyprus Government, 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 upon 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 could convert up to an amount of €3.3 billion tax losses (which led to the creation of DTA amounting to €417 million) to tax credits, with the conversion being based on the tax rate applicable at the time of conversion. The period of utilisation of the tax losses which may be converted into tax credits is eleven years following the amendment of the Law in 2019, starting from 2018 i.e. by end of 2028.
As a result of the above Law, the Group has DTA amounting to €265,364 thousand as at 30 June 2022 (31 December 2021: €265,364 thousand) that meet the requirements under this Law, the recovery of which is guaranteed. On an annual basis an amount is converted to annual tax credit and is reclassified from the DTA to current tax receivables.
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 2021.

In response to concerns raised by the European Commission with regard to the provision of state aid arising out of the treatment of such tax losses, the Cyprus Government has proceeded with the adoption of modifications to the Law, including requirements for an additional annual fee over and above the 1.5% annual guarantee fee already provided for in the Law, to maintain the conversion of such DTAs into tax credits. The relevant amendments were voted by the Cyprus Parliament in May 2022 and have become effective since.  As prescribed by the amendments in the Law, the annual fee is to be determined by the Cyprus Government on an annual basis, providing however, for such fee to be charged to be set at a minimum fee of 1.5% of the annual instalment and can range up to a maximum amount of €10,000 thousand per year, and also allowing for a higher amount to be charged in the year the amendments are effective (i.e. in 2022).

The Group in prior years, in anticipation of modifications in the Law, acknowledged that such increased annual fee may be required to be recorded on an annual basis until expiration of such losses in 2028. The Group estimates that such fees could range up to €5,300 thousand per year (for each tax year in scope i.e. since 2018) although the Group understands that such fee may fluctuate annually as to be determined by the Ministry of Finance. An amount of €5,300 thousand was recorded during the year ended 31 December 2021, bringing the total amount provided by the Group for such increased fee to €21,200 thousand for years 2018‑2021. In the third quarter of 2022, BOC PCL has been levied an amount within the provisions level maintained.

Accumulated income tax losses

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

30 June 2022	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
	€000	€000	€000
Expiring within 5 years	233,545	-	233,545
Utilisation in annual instalments up to 2028	2,122,909	2,122,909	-
	2,356,454	2,122,909	233,545
31 December 2021
Expiring within 5 years	251,448	-	251,448
Utilisation in annual instalments up to 2028	2,122,909	2,122,909	-
	2,374,357	2,122,909	251,448

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 was approximately €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 profit per share attributable to the owners of the Company	2022	2021
Profit for the period attributable to the owners of the Company (€ thousand)	50,088	739
Weighted average number of shares in issue during the period, excluding treasury shares (thousand)	446,058	446,058
Basic and diluted profit per share (€ cent)	11.2	0.2

13.   Investments

The analysis of the Group's investments is presented in the table below:
	30 June 2022	31 December 2021
	€000	€000
Investments at FVPL	181,318	199,194
Investments at FVOCI	529,872	748,695
Investments at amortised cost	1,391,487	1,191,274
	2,102,677	2,139,163

Out of these, the amounts pledged as collateral are shown below:

	30 June 2022	31 December 2021
Investments pledged as collateral	€000	€000
Investments at FVOCI	385,429	488,806
Investments at amortised cost	984,042	771,352
	1,369,471	1,260,158
Investments pledged as collateral as at 30 June 2022 related to debt securities collaterised mainly for the additional amounts borrowed from the ECB Targeted Longer‑Term Refinancing Operations (TLTRO III) in March 2021 and June 2021 of a total nominal amount of €2 billion, as further described in Note 20. Encumbered assets are disclosed in Note 31.
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 2022, included above, amount to €22,451 thousand and €166,455 thousand respectively (31 December 2021: €24,668 thousand and €184,107 thousand respectively). Investments in debt securities and other non‑equity securities included above amount to €1,913,771 thousand (31 December 2021: €1,930,388 thousand) and are analysed below by issuer type.

Debt securities and other non‑equity securities by issuer type	FVPL	FVOCI	Amortised cost	Total
30 June 2022	€000	€000	€000	€000
Cyprus government	-	324,436	369,764	694,200
Other governments	-	43,441	300,545	343,986
Banks	500	142,526	451,805	594,831
Other financial institutions	5,476	-	27,234	32,710
European Financial Stability Facility and European Investment Fund	-	-	225,224	225,224
Other non‑financial corporations	-	5,905	16,915	22,820
	5,976	516,308	1,391,487	1,913,771

31 December 2021	€000	€000	€000	€000
Cyprus government	-	408,708	326,953	735,661
Other governments	-	87,295	223,813	311,108
Banks	500	230,513	397,775	628,788
Other financial institutions	5,534	-	33,507	39,041
European Financial Stability Facility and European Investment Fund	-	-	209,226	209,226
Other non‑financial corporations	-	6,564	-	6,564
	6,034	733,080	1,191,274	1,930,388
The Group enters into fair value hedging relationship to manage the interest rate risk in relation to its FVOCI bonds (Note 14).
There were no reclassifications of investments during the six months ended 30 June 2022 and the year ended 31 December 2021.

During the six months ended 30 June 2022 and the year ended 31 December 2021 no material equity investments measured at FVOCI have been disposed of. There were no 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 €10,055 thousand at 30 June 2022 (31 December 2021: €11,066 thousand). The fair value loss that would have been recognised in the consolidated income statement during the six months ended 30 June 2022 if these financial assets had not been reclassified as part of the transition to IFRS 9, amounts to €1,018 thousand (six months ended 30 June 2021: loss of €41 thousand). The effective interest rate of these instruments is 1.6%‑5.0% (2021: 1.6%‑5.0%) per annum and the respective interest income during the six months ended 30 June 2022 amounts to €128 thousand (six months ended 30 June 2021: €150 thousand).

14.   Derivative financial instruments

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

	30 June 2022			31 December 2021
		Fair value			Fair value
	Contract amount	Assets	Liabilities	Contract amount	Assets	Liabilities
	€000	€000	€000	€000	€000	€000
Trading derivatives
Forward exchange rate contracts	11,006	159	45	11,344	81	55
Currency swaps	1,047,475	11,597	2,044	991,117	4,388	1,342
Interest rate swaps	21,828	345	316	21,690	86	61
Currency options	532	438	94	83	62	21
Interest rate caps/floors	18,434	743	743	518,950	223	218
	1,099,275	13,282	3,242	1,543,184	4,840	1,697
Derivatives qualifying for hedge accounting
Fair value hedges ‑ interest rate swaps	596,606	24,868	6,236	700,835	1,813	30,025
Net investments ‑ forward exchange rate contracts and currency swaps	2,874	-	7	107,193	-	730
	599,480	24,868	6,243	808,028	1,813	30,755
Total	1,698,755	38,150	9,485	2,351,212	6,653	32,452

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 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.

Hedges of net investments

The Group's consolidated balance sheet is impacted 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 other foreign operation and by forward exchange rate contracts.

As at 30 June 2022, forward and swap exchange rate contracts amounting to €2,874 thousand (31 December 2021: €107,193 thousand) have been designated as hedging instruments and have given rise to a loss of €4,079 thousand (30 June 2021: gain of €3,867 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.

Interest rate benchmark reform

As at 30 June 2022 and 31 December 2021 the interest rate benchmarks to which BOC PCL's hedge relationships are exposed to, are Euro Interbank Offered Rate (Euribor) and US Dollar London Interbank Offered Rate (Libor) in relation to the cash flows of the hedging instruments. The Group has applied judgement in relation to market expectations regarding hedging instruments. The key judgement is that the cash flows for contracts currently indexing USD Libor tenors are expected to have broadly equivalent cash flows upon the transition of the contracts to IBOR replacement rates.

The table below indicates the nominal amount of derivatives in hedging relationships analysed by interest rate basis. The derivative hedging instruments provide a close approximation to the extent of the risk exposure BOC PCL manages through hedging relationships.

	30 June 2022	31 December 2021
Interest Rate Swaps	€000	€000
Euribor (3‑month)	527,832	529,831
Libor USD (3‑month)	68,774	171,004
Total	596,606	700,835
As at 30 June 2022, the Group's assessment regarding the on‑going transition to the new risk‑free rates (RFRs) indicates that the impact on the hedging relationships and in value terms is not significant. Further details in relation to interest rate benchmark reform are disclosed in Note 30.

15.   Fair value measurement

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

	30 June 2022		31 December 2021
	Carrying value	Fair value	Carrying value	Fair value
Financial assets	€000	€000	€000	€000
Cash and balances with central banks	9,904,549	9,904,549	9,230,883	9,230,883
Loans and advances to banks	312,308	304,227	291,632	289,519
Investments mandatorily measured at FVPL	181,318	181,318	199,194	199,194
Investments at FVOCI	529,872	529,872	748,695	748,695
Investments at amortised cost	1,391,487	1,335,249	1,191,274	1,196,753
Derivative financial assets	38,150	38,150	6,653	6,653
Loans and advances to customers	10,144,099	10,052,919	9,836,405	9,642,212
Life insurance business assets attributable to policyholders	522,376	522,376	540,827	540,827
Financial assets classified as held for sale	247,207	247,207	250,370	250,370
Other financial assets	417,162	417,162	393,464	393,464
	23,688,528	23,533,029	22,689,397	22,498,570
Financial liabilities
Funding from central banks and deposits by banks	3,446,830	3,339,059	3,426,639	3,328,987
Derivative financial liabilities	9,485	9,485	32,452	32,452
Customer deposits	18,450,216	18,434,345	17,530,883	17,532,995
Debt securities in issue	298,899	236,598	302,555	292,615
Subordinated liabilities	311,738	253,643	340,220	355,159
Other financial liabilities and lease liabilities	299,979	299,979	275,519	275,519
	22,817,147	22,573,109	21,908,268	21,817,727
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 market observable data.
For assets and liabilities that are recognised in the Consolidated 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 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 the 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 Loss Given Default (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. The discount rate used in the determination of the fair value of the loans and advances to customers measured at FVPL during the six months ended 30 June 2022 ranges from 2.65% to 8.50% (31 December 2021:2.34%‑8.50%).

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.

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 appropriate credit spread. For short‑term lending, the fair value is approximated by the carrying value.

Deposits by banks and funding from central banks

Deposits by banks and funding from central banks with maturity over one year are discounted using an appropriate risk‑free rate plus the appropriate credit spread. For short‑term lending, the fair value is approximated by the carrying value.

Debt securities in issue and Subordinated liabilities

Debt securities and subordinated liabilities issuances are traded in an active market with quoted prices.

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 2022	€000	€000	€000	€000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL	-	-	282,184	282,184
Trading derivatives
Forward exchange rate contracts	-	159	-	159
Currency swaps	-	11,597	-	11,597
Interest rate swaps	-	345	-	345
Currency options	-	438	-	438
Interest rate caps/floors	-	743	-	743
	-	13,282	-	13,282
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	24,868	-	24,868
Investments mandatorily measured at FVPL	83,879	91,463	5,976	181,318
Investments at FVOCI	517,876	-	11,996	529,872
	601,755	129,613	300,156	1,031,524
Other financial assets not measured at fair value
Loans and advances to banks	-	304,227	-	304,227
Investments at amortised cost	1,216,176	101,678	17,396	1,335,250
Loans and advances to customers	-	-	9,770,735	9,770,735
	1,216,176	405,905	9,788,131	11,410,212
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 €4,581 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €886 thousand in their fair value.
For one investment included in debt and other non‑equity securities mandatorily measured at FVPL as a result of the SPPI assessment and categorised as Level 3 with a carrying amount of €5,476 thousand as at 30 June 2022, a change in the conversion factor by 10% would result in a change in the value of the debt and other non‑equity securities by €548 thousand.

	Level 1	Level 2	Level 3	Total
30 June 2022	€000	€000	€000	€000
Financial liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts	-	45	-	45
Currency swaps	-	2,044	-	2,044
Interest rate swaps	-	316	-	316
Currency options	-	94	-	94
Interest rate caps/floors	-	743	-	743
	-	3,242	-	3,242
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	6,236	-	6,236
Net investments‑forward exchange rate contracts and currency swaps	-	7	-	7
	-	6,243	-	6,243
	-	9,485	-	9,485
Other financial liabilities not measured at fair value
Funding from central banks	-	2,910,529	-	2,910,529
Deposits by banks	-	428,530	-	428,530
Customer deposits	-	-	18,434,345	18,434,345
Debt securities in issue	236,598	-	-	236,598
Subordinated liabilities	253,643	-	-	253,643
	490,241	3,339,059	18,434,345	22,263,645

	Level 1	Level 2	Level 3	Total
31 December 2021	€000	€000	€000	€000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL	-	-	281,868	281,868
Trading derivatives
Forward exchange rate contracts	-	81	-	81
Currency swaps	-	4,388	-	4,388
Interest rate swaps	-	86	-	86
Currency options	-	62	-	62
Interest rate caps/floors	-	223	-	223
	-	4,840	-	4,840
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	1,813	-	1,813
Investments mandatorily measured at FVPL	98,016	95,144	6,034	199,194
Investments at FVOCI	734,832	-	13,863	748,695
	832,848	101,797	301,765	1,236,410
Other financial assets not measured at fair value
Loans and advances to banks	-	289,519	-	289,519
Investments at amortised cost	1,074,144	98,238	24,371	1,196,753
Loans and advances to customers	-	-	9,360,344	9,360,344
	1,074,144	387,757	9,384,715	10,846,616

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 €4,647 thousand in their fair value and a decrease in the discount factor by 10% would result in an increase of €784 thousand in their fair value.

For one investment included in debt and other non‑equity securities mandatorily measured at FVPL as a result of the SPPI assessment and categorised as Level 3 with a carrying amount of €5,534 thousand as at 31 December 2021, a change in the conversion factor by 10% would result in a change in the value of the debt and other non‑equity securities by €553 thousand.

	Level 1	Level 2	Level 3	Total
31 December 2021	€000	€000	€000	€000
Liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts	-	55	-	55
Currency swaps	-	1,342	-	1,342
Interest rate swaps	-	61	-	61
Currency options	-	21	-	21
Interest rate caps/floors	-	218	-	218
	-	1,697	-	1,697
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps	-	30,025	-	30,025
Net investments‑forward exchange rate contracts and currency swaps	-	730	-	730
	-	30,755	-	30,755
	-	32,452	-	32,452
Other financial liabilities not measured at fair value
Funding from central banks	-	2,950,646	-	2,950,646
Deposits by banks	-	378,341	-	378,341
Customer deposits	-	-	17,532,995	17,532,995
Debt securities in issue	292,615	-	-	292,615
Subordinated liabilities	355,159	-	-	355,159
	647,774	3,328,987	17,532,995	21,509,756
The cash and balances with 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. The carrying value of other financial assets and other financial liabilities and assets classified as held for sale is a close approximation of their fair value and they are categorised as Level 3.
During the six months ended 30 June 2022 and the year ended 31 December 2021 there were no significant transfers between Level 1 and Level 2.
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities becomes more liquid, which eliminates the need for the previously required significant unobservable valuation inputs. Following a transfer to Level 2 the instruments are valued using valuation models incorporating observable market inputs. Transfers into Level 3 reflect changes in market conditions as a result of which instruments become less liquid. Therefore, the Group requires significant unobservable inputs to calculate their fair value.

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

	30 June 2022			31 December 2021
	Loans and advances to customers	Financial instruments	Total	Loans and advances to customers	Financial instruments	Total
	€000	€000	€000	€000	€000	€000
1 January	281,868	19,897	301,765	289,861	33,182	323,043
Additions	-	-	-	-	396	396
Disposals	-	-	-	-	(903)	(903)
Conversion of instruments into common shares	-	-	-	-	(18,618)	(18,618)
Fair value (losses)/gains	-	(1,925)	(1,925)	-	5,840	5,840
Net losses on loans and advances to customers measured at FVPL (Note 8)	(2,059)	-	(2,059)	(17,292)	-	(17,292)
Derecognition/repayment of loans	(3,624)	-	(3,624)	(3,083)	-	(3,083)
Interest on loans	5,999	-	5,999	12,382	-	12,382
30 June/31 December	282,184	17,972	300,156	281,868	19,897	301,765

16.   Loans and advances to customers

	30 June 2022	31 December 2021
	€000	€000
Gross loans and advances to customers at amortised cost	10,068,366	9,840,535
Allowance for ECL for impairment of loans and advances to customers (Note 29.5)	(206,451)	(285,998)
	9,861,915	9,554,537
Loans and advances to customers measured at FVPL	282,184	281,868
	10,144,099	9,836,405
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 amount of stock of property 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 2022 an impairment loss of €7,364 thousand (30 June 2021: €7,368 thousand) was recognised in 'Impairment net of reversals on non‑financial assets' in the consolidated income statement. At 30 June 2022, stock of €536,355 thousand (31 December 2021: €519,978 thousand) is carried at net realisable value. Additionally, at 30 June 2022 stock of property with a carrying amount of €95,187 thousand (31 December 2021: €116,987 thousand) is carried at approximately its fair value less costs to sell.

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

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

	30 June 2022	31 December 2021
	€000	€000
Net book value at 1 January	1,111,604	1,349,609
Additions	17,402	34,347
Disposals	(67,608)	(123,520)
Transfers to disposal group (Note 19)	-	(101,978)
Impairment (Note 10)	(7,364)	(46,775)
Foreign exchange adjustments	-	(79)
Net book value at 30 June/31 December	1,054,034	1,111,604
As at 30 June 2022, there are charges against stock of property of the Group with carrying value €20,989 thousand (31 December 2021: €21,015 thousand).

Analysis by type and country	Cyprus	Greece	Romania	Total
30 June 2022	€000	€000	€000	€000
Residential properties	70,572	17,397	32	88,001
Offices and other commercial properties	156,914	11,227	-	168,141
Manufacturing and industrial properties	32,514	15,954	48	48,516
Hotels	23,874	456	-	24,330
Land (fields and plots)	720,434	4,604	8	725,046
Total	1,004,308	49,638	88	1,054,034

31 December 2021
Residential properties	74,248	18,350	32	92,630
Offices and other commercial properties	163,789	19,462	-	183,251
Manufacturing and industrial properties	33,170	15,972	43	49,185
Hotels	24,619	456	-	25,075
Land (fields and plots)	755,663	4,986	814	761,463
Total	1,051,489	59,226	889	1,111,604

18.   Prepayments, accrued income and other assets

	30 June 2022	31 December 2021
	€000	€000
Financial assets
Debtors	49,333	36,540
Receivable relating to tax	3,696	4,558
Deferred purchase payment consideration	304,268	299,766
Other assets	59,865	52,600
	417,162	393,464
Non‑financial assets
Reinsurers' share of insurance contract liabilities	58,768	55,323
Current tax receivable	114,900	124,267
Prepaid expenses	835	756
Retirement benefit plan assets	1,769	-
Other assets	28,521	42,409
	204,793	222,755
	621,955	616,219

There were no financial assets measured at FVPL as at 30 June 2022 and 31 December 2021.

On the completion date of the sale of Project Helix 2 (the 'Transaction'), the Group has recognised an amount of €381,567 thousand in other financial assets, which represented the fair value of the deferred consideration receivable from the Transaction (the 'DPP'). This amount is payable in four instalments up to December 2025 and each instalment carries interest up to each payment date. The first instalment in the amount of €84,579 thousand was received in December 2021. An amount of €4,314 thousand, which represents the interest income on DPP has been recognised in the Consolidated Income Statement for the six months ended 30 June 2022 (30 June 2021: €58 thousand) within 'Interest income‑Financial assets at amortised cost‑Other financial assets'.  There are no other conditions attached. An amount of €13,983 thousand which represents the effect of discounting the DPP at the date of derecognition of the loan portfolio was recorded as part of the transaction within 'Credit losses to cover credit risk on loans and advances to customers' during the six months ended 30 June 2021. The DPP is classified as Stage 1 as at 30 June 2022 and 31 December 2021.

During the six months ended 30 June 2022, credit losses of €844 thousand were recognised in relation to prepayments, accrued income and other financial assets. This includes ECL losses of €256 thousand (of which €188 thousand relate to a partial reversal for 12‑months ECL of the DPP), and €588 thousand impairment losses. During the six months ended 30 June 2021, credit losses of €3,739 thousand were recognised in relation to prepayments, accrued income and other financial assets of which €3,426 thousand related to 12‑months ECL of the DPP.

19.   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 2022 and 31 December 2021:

	30 June 2022	31 December 2021
	€000	€000
Disposal group 1	330,334	340,622
Disposal group 2	6,956	7,921
Freehold property	10,408	10,408
	347,698	358,951

	30 June 2022		31 December 2021
	Disposal Group 1	Disposal Group 2	Disposal Group 1	Disposal Group 2
	€000	€000	€000	€000
Gross loans and advances to customers	539,675	12,131	543,663	12,126
Allowance for ECL for impairment of loans and advances to customers (Note 29.5)	(299,028)	(5,571)	(300,608)	(4,811)
	240,647	6,560	243,055	7,315
Stock of property	84,840	396	92,246	606
Investment property	4,847	-	5,321	-
	330,334	6,956	340,622	7,921
Disposal Group 1
Disposal group 1 comprises a portfolio of loans and advances to customers and a property portfolio (comprising stock of property and investment property) known as Project Helix 3 ('Project Helix 3' or the 'Helix 3 Transaction').
In November 2021, the Group reached an agreement with Pacific Investment Management Company LLC ('PIMCO') for the sale of Project Helix 3. The Group will dispose Project Helix 3 through the transfer of the portfolio to a licensed Cypriot Credit Acquiring Company (the CyCAC) by BOC PCL. The shares of the CyCAC will be subsequently acquired by certain funds affiliated with PIMCO.

The gross consideration for the transaction amounts to approximately €385 million, before transaction and other costs, payable at completion. An amount of €19,225 thousand was received as a deposit shortly after the signing of the agreement (Note 23). The gross book value of the loans and advances to customers amounted to €550 million and the carrying value of the property portfolio amounted to €102 million as at 30 September 2021 (the reference date).

The completion of the Helix 3 Transaction is currently estimated to occur in the second half of 2022 and remains subject to a number of conditions, including customary regulatory and other approvals. The disposal group has been classified as held for sale since 30 September 2021 as management is committed to sell it and has proceeded with an active programme to complete this plan.

Disposal Group 2

Disposal group 2 comprises a portfolio of loans and advances to customers and stock of properties in Romania known as Project Sinope ('Project Sinope' or the 'Sinope Transaction'), classified as held for sale since 31 December 2021.

In December 2021, the Group entered into an agreement for the sale of Project Sinope. The transaction was completed on 24 August 2022. An amount of €900 thousand was received as a deposit in the second quarter of 2022 (Note 23).

Further analysis of the loans and advances to customers, included in these disposal groups, is disclosed in Note 29.3.

Freehold property

Freehold property classified as held for sale as at 30 June 2022 and 31 December 2021 relates to properties which management is committed to sell and proceeded with an active programme to complete this plan. The disposal is expected to be completed within 12 months from the reporting date. Freehold property classified as held for sale is measured at fair value less cost to sell.

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 2022	31 December 2021
	€000	€000
Targeted Longer‑Term Refinancing Operations (TLTRO IΙI)	2,954,808	2,969,600
As at 30 June 2022, ECB funding amounted to €3 billion (31 December 2021: €3 billion) borrowed from various TLTRO III operations.
The interest rate applicable to the TLTRO III funding depends on the eligible net lending during the specified periods laid out in the terms of the ECB operation.
In recognition of the challenging credit environment during the pandemic period, the Governing Council of the ECB announced that the interest rate on all outstanding TLTRO III operations for the periods from 24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 would be 50 basis points below the average rate applicable in the Eurosystem's main refinancing operations over the same period. The interest rate on the main refinancing operations during the above periods remained at 0%. For the counterparties whose eligible net lending reached the lending performance thresholds, the interest rate applied over the periods from 24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 on all TLTRO III operations outstanding would be 50 basis points below the average interest rate on the deposit facility prevailing over the same period, and in any case not higher than minus 1%. The deposit facility rate as at 30 June 2022 remained at minus 0.5%. BOC PCL has exceeded the eligible net lending benchmark applicable for both periods, and is entitled to the beneficial rate of minus 1% for 24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022. For the period after 23 June 2022, the interest rate shall be the average interest rate on the deposit facility over the life of the respective TLTRO‑III, as BOC PCL exceeded the benchmark net lending in both reference periods. In calculating the applicable interest BOC PCL follows a discrete approach by applying the estimated interest rate for each period.

The maturity of TLTRO III is three years from the settlement of each operation but there is an option available to early repay or reduce the amounts borrowed before their respective final maturity.

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

21.   Customer deposits

	30 June 2022	31 December 2021
	€000	€000
By type of deposit
Demand	10,049,792	9,221,791
Savings	2,640,108	2,423,086
Time or notice	5,760,316	5,886,006
	18,450,216	17,530,883
By geographical area
Cyprus	12,837,406	11,992,960
Greece	1,884,736	1,906,854
United Kingdom	720,121	713,621
Romania	58,612	54,306
Russia	620,763	661,820
Ukraine	294,218	276,248
Belarus	83,410	55,738
Other Countries	1,950,950	1,869,336
	18,450,216	17,530,883
Deposits by geographical area are based on the country of passport of the Ultimate Beneficial Owner.

	30 June 2022	31 December 2021
	€000	€000
By currency
Euro	16,529,501	15,736,030
US Dollar	1,515,565	1,373,584
British Pound	322,903	312,918
Russian Rouble	9,838	28,539
Swiss Franc	12,212	10,865
Other currencies	60,197	68,947
	18,450,216	17,530,883

	30 June 2022	31 December 2021
	€000	€000
By customer sector
Corporate	1,247,265	1,117,148
Large and international corporate	820,982	631,002
SMEs	900,332	866,860
Retail	11,444,665	11,051,397
Restructuring
- Corporate	34,563	21,658
- SMEs	10,413	13,091
- Retail other	11,851	9,862
Recoveries
- Corporate	1,147	1,383
International banking services	3,667,783	3,500,183
Wealth management	311,215	318,299
	18,450,216	17,530,883

22.   Debt securities in issue and Subordinated liabilities

			30 June 2022		31 December 2021
			€000	€000	€000	€000
	Contractual interest rate	Issuer	Nominal value	Carrying value	Nominal value	Carrying value
Subordinated liabilities
Subordinated Tier 2 Capital Note ‑ January 2017	9.25% up to 19 January 2022	BOC PCL	-	-	35,605	38,561
Subordinated Tier 2 Capital Note ‑ April 2021	6.625% up to 23 October 2026	BOCH	300,000	311,738	300,000	301,659
			300,000	311,738	335,605	340,220
Debt securities in issue
Senior Preferred Notes ‑ June 2021	2.50% up to 24 June 2026	BOC PCL	300,000	298,899	300,000	302,555

BOCH and BOC PCL maintain a Euro Medium Term Note (Ε) Programme with an aggregate nominal amount up to €4,000 million.

Subordinated Liabilities

Subordinated Tier 2 Capital Note ‑ January 2017

In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note under the EMTN Programme. The note was priced at par with a coupon of 9.25% per annum payable annually up to 19 January 2022 and thereafter 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 had a maturity date on 19 January 2027. BOC PCL had the option to redeem the note early on 19 January 2022, subject to applicable regulatory consents. In April 2021, BOC PCL invited the holders of this note to tender it for purchase by BOC PCL and following acceptance of the valid tenders of €207 million nominal amount, proceeded with the re‑purchase. By 31 December 2021, the Group purchased from the open market a further €7 million nominal amount of the notes, which were held by BOC PCL. On 19 January 2022, BOC PCL exercised its option to redeem at par the remaining nominal amount outstanding of the notes. All outstanding notes were cancelled. The note was listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.

Subordinated Tier 2 Capital Note ‑ April 2021

In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2 Capital Note under the EMTN Programme. The note was priced at par with a coupon of 6.625% per annum payable annually in arrears and resettable on 23 October 2026 at the then prevailing 5‑year swap rate plus a margin of 6.902% per annum up to 23 October 2031, payable annually. The note matures on 23 October 2031. BOCH has the option to redeem the note early on any day during the six‑month period from 23 April 2026 to 23 October 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange's Euro MTF market.

The fair value of the Subordinated liabilities as at 30 June 2022 and 31 December 2021 is disclosed in Note 15.

Debt securities in issue

Senior Preferred Notes ‑ June 2021

In June 2021, BOC PCL issued a €300 million senior preferred note under the EMTN Programme. The note was priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable on 24 June 2026. The note matures on 24 June 2027. BOC PCL has the option to redeem the note early on 24 June 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange's Euro MTF market. The note complies with the criteria for the minimum requirement for own funds and eligible liabilities (MREL) and contributes towards BOC PCL's MREL requirements.

The fair value of the debt securities in issue as at 30 June 2022 and 31 December 2021 is disclosed in Note 15.

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

	30 June 2022	31 December 2021
	€000	€000
Income tax payable and related provisions	13,608	11,168
Special defence contribution payable	145	462
Retirement benefit plans liabilities	-	1,673
Provisions for financial guarantees and commitments	21,518	21,945
Liabilities for investment‑linked contracts under administration	40,870	33,809
Accrued expenses and other provisions	49,705	79,482
Deferred income	17,872	16,441
Items in the course of settlement	87,537	64,024
Lease liabilities	30,966	33,981
Advances received for disposal group held for sale (Note 19)	20,125	19,225
Other liabilities	111,771	79,767
	394,117	361,977
Other liabilities include an amount of €26,476 thousand (31 December 2021: €26,476 thousand) relating to the annual guarantee fee for the conversion of DTA into tax credits (Note 11) and an amount of €20,101 thousand (31 December 2021: €6,642 thousand) relating to card processing transactions.

24.   Share capital

	30 June 2022		31 December 2021
	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 and 31 December	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 2022 and the year ended 31 December 2021.

Share premium reserve

There were no changes to the share premium reserve during the six months ended 30 June 2022 and the year ended 31 December 2021.

Treasury shares of the Company

The consideration paid, including any directly attributable incremental costs (net of income taxes), for shares of the Company held by entities controlled by the Group is deducted from equity attributable to the owners of the Company as treasury shares, until these shares are cancelled or reissued. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of such shares.

The life insurance subsidiary of the Group, as at 30 June 2022, held a total of 142 thousand ordinary shares of the Company of a nominal value of €0.10 each (31 December 2021: 142 thousand ordinary shares of a nominal value of €0.10 each), 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 2021: €21,463 thousand).

Share‑based payments

During the Annual General Meeting of the shareholders of the Company which took place on 20 May 2022, a special resolution was approved for the establishment and implementation of a share based Long Term Incentive Plan of Bank of Cyprus Holdings Public Limited Company (the '2022 LTIP'). The maximum number of shares that may be issued pursuant to the 2022 LTIP until the tenth anniversary of the relevant resolution shall not exceed 5% of the issued ordinary share capital of the Company, as at the date of the resolution (being 22,309,996 ordinary shares of €0.10 each), as adjusted for any issuance or cancellation of shares subsequent to the date of the resolution (excluding any issuances of shares pursuant to the 2022 LTIP). The 2022 LTIP provides for an award in the form of ordinary shares based on certain performance conditions. Performance will be measured over a 3 year period and the performance conditions will be set by the Human Resources & Remuneration Committee each year and may be differentiated to reflect the Company's strategic targets, at its discretion. Performance will be assessed against an evaluation scorecard consistent with the Group's Medium Term Strategic Targets containing both financial and non‑financial objectives, and including the areas of: (i) Profitability; (ii) Asset quality; (iii) Capital adequacy; (iv) Risk control & compliance; and (v) Environmental, Social and Governance ('ESG') targets.

No awards have been granted under the 2022 LTIP to any employees of the Group as at 30 June 2022.

The pre‑existing Share Option Plan, which was operating at the level of the Company, has been superseded by the 2022 LTIP.

Other equity instruments

	30 June 2022	31 December 2021
	€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. During the six months ended 30 June 2022, a coupon payment to AT1 holders was made amounting to €13,750 thousand and has been recognised in retained earnings (30 June 2021: €13,750 thousand). 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 conditions. 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. The AT1 notes are listed on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.

25.  Pending litigation, claims, regulatory and other matters

The Group, in the ordinary course of business, is involved in various disputes and legal proceedings and is subject to enquiries and examinations, requests for information, audits, investigations, 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. There are also situations where the Group may enter into a settlement agreement. This may occur only if such settlement is in BOC PCL's interest (such settlement does not constitute an admission of wrongdoing) and only takes place after obtaining legal advice and all approvals by the appropriate bodies of management.

Apart from what is described below, the Group considers that none of these matters are 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 (Note 6.4). 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 and other matters as at 30 June 2022 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 demonstrated that the relevant BOC PCL's 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.

So far three capital securities cases have been adjudicated in favour of BOC PCL and three cases have been adjudicated against BOC PCL at Areios Pagos (Supreme Court of Greece). Those cases which were decided in favour of BOC PCL ruled in effect that BOC PCL can rely on the defence of frustration (i.e. 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 cases that BOC PCL has won will be retried by the Court of Appeal as per the direction of the Supreme Court. One of the said cases has already been retried by the Court of Appeal and the ruling was in favour of BOC PCL primarily on the merits of the case and at a secondary level per the direction of the Supreme Court. There has been a new petition for annulment against this decision of the Court of Appeal and the case will be retried before the Supreme Court in 2023. The two cases that BOC PCL has lost will not be retried and are therefore deemed as concluded.

In Cyprus thirteen judgments have been issued so far with regards to BOC PCL capital securities. Eight of the said judgments have been issued in favour of BOC PCL (dismissing the plaintiffs' claims) and five of them against BOC PCL. BOC PCL has filed appeals with regards to three of the cases where the judgment was issued against it and will file an appeal to the fourth case. In five of the eight cases that BOC PCL won, the plaintiffs have filed an appeal. It is to be noted that the statutory limitation period for filing claims with respect to this and other matters for which the cause of action arose prior and up to 31 December 2015, expired on 31 December 2021.

Provision has been made based on management's best estimate of probable outflows for capital securities related litigation.

Bail‑in related litigation

Depositors

A number of 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.

BOC PCL has won two cases with regards to bail in related litigation. The specifics of the cases concerned alleged failure to follow instructions prior to the bail‑in. The plaintiffs have filed appeals with respect to both judgments.

BOC PCL also won three bail‑in decree related cases two of which during the six months ended 30 June 2022. The court essentially ruled that the measures that the government implemented were necessary to prevent the collapse of the financial sector, which would have detrimental consequences for the country's economy. Under the circumstances the government could rely on the doctrine of necessity when it imposed the bail‑in. Up to the date of the Consolidated Financial Statements an appeal has been filed with respect to one of the judgments.

BOC PCL lost one bail‑in wrongful application related case in March 2022. BOC PCL has filed an appeal with respect to this judgment. The court issued its decision on the ground that the disputed account was not a provident fund account and the bail‑in was wrongfully applied to this account.

BOC PCL has also lost another BOC bail‑in 'wrongful application' case in July 2022. The court issued its decision on the ground that the deposit account that the plaintiff maintained with BOC PCL which as per BOC PLC practice had been blocked against the future payment under a Letter of Credit, should not have been bailed in irrespective of the fact that the payment under the Letter of Credit had not yet been made. BOC PCL is planning on filing an appeal to this judgment.

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 alleging either the unconstitutionality of the Resolution Law and the Bail‑in Decrees, or a misapplication of same by BOC PCL (as regards the way and methodology whereby such Decrees have been implemented), or that BOC PCL failed to follow instructions promptly prior to the bail‑in coming into force. BOC PCL intends to contest all of these claims.

Legal position of the Group

All of the 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.

Employment litigation

Former employees of the Group have instituted a number of employment claims including unfair dismissals and one claim for Provident Fund entitlements against BOC PCL and the Trustees of the Provident Fund. In July 2021 the claim for Provident Fund entitlements was settled. The Group does not consider that the pending cases in relation to employment will have a material impact on its financial position.

Additionally, a number of former employees have filed claims against BOC PCL contesting entitlements received relating to the various voluntary exit plans. As at the reporting date, the Group does not expect that these actions will have a material impact on its financial position.

Swiss Francs loans litigation in Cyprus and the UK

Α 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 is contesting the said 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 UK are currently stayed in order for the parties to have time to negotiate possible settlements. The Group does not expect that these negotiations will lead to outflows for the Group.

Banking business cases

There is a number of banking business cases where the amounts claimed are significant. These cases primarily concern allegations as to BOC PCL's standard policies and procedures allegedly resulting to damages and other losses for the claimants. Further, there are several other banking claims, where the amounts involved are not as significant. Management has assessed either the probability of loss as remote and/or does not expect any future outflows with respect to these cases to have a material impact on the financial position of the Group. Such matters arise as a result of the Group's activities and management appropriately assesses the facts and the risks of each case accordingly.

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.

Others

An investigation is in process related to potentially overstated and/or fictitious claims paid by the non‑life insurance subsidiary of the Group. The information usually required by IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not disclosed on the grounds that it is expected to seriously prejudice the outcome of the investigation and/or the possible taking of legal action. Based on the information available at present, management considers that it is unlikely for this matter to have a material adverse impact on the financial position and capital adequacy of the non‑life insurance subsidiary and thereby the Group, also taking into account that it is virtually certain that compensations will be received from a relevant insurance coverage, upon the settlement of any obligation that may arise.

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 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.

Labour Inspection Body of Greece

As for other potential matters involving the exposure of BOC PCL to losses, twelve fines have been imposed by the Labour Inspection Body of Greece in prior years relating to the years prior to 2013, which amount in total to €84 thousand.

The Cyprus Securities and Exchange Commission (CySEC) Investigations

CySEC has concluded (in two stages) during 2013 and 2014 its investigation with respect to BOC PCL exposure to Greek Government Bonds, non‑disclosure of material information and other corporate governance deficiencies relating to the said exposure. In this respect, CySEC has issued two decisions, coming to the conclusion that BOC PCL was in breach of certain laws regarding disclosure of information. At all times, BOC PCL had filed recourses before the Administrative Court regarding the decisions of CySEC and the fines imposed upon it.

In May 2022, the ruling of the Administrative Court in relation to one of the recourses was issued, whereby the court found that the constitution of the CySEC Board was not flawed. A fine of €950 thousand was imposed upon BOC PCL. BOC PCL filed an appeal in June 2022. Relevant provisions were made since prior years for the said cases.

As at 30 June 2022 and 31 December 2021 there were no pending CySEC investigations against BOC PCL.

Central Bank of Cyprus (CBC)

The CBC has carried out certain investigations to assess compliance of BOC PCL under the anti‑money laundering (AML) legislation which was in place during years 2008‑2015 and 2015‑2018.

Following the investigations and the on‑site audit findings, the CBC concluded on 27 January 2021 that in the case of AML legislation 2008‑2015 BOC PCL was in breach of certain articles of the said legislation and prima facie, failed to act in accordance with certain provisions of the AML/counter terrorism financing (CTF) Law and the CBC AML/CTF Directive. In October 2021 a fine of €277 thousand was imposed upon BOC PCL. BOC PCL paid for a discounted fine and has filed a recourse against this decision and fine.

Following the investigation and the on‑site examination, the CBC concluded with regards to the files and transactions related to years 2015‑2018, that BOC PCL was in breach of certain articles of the legislation. In December 2021, a fine of €790 thousand was imposed upon BOC PCL. BOC PCL paid for a discounted fine and has filed a recourse against the decision and the fine.

The CBC had conducted an investigation in the past into BOC PCL's issuance of capital securities and concluded that BOC PCL breached certain regulatory requirements concerning the issuance of Convertible Capital Securities (Perpetual) in 2009, but not in relation to the CECS in 2011. The CBC had, in 2013, imposed a fine of €4 thousand upon BOC PCL, who filed a recourse. The Administrative Court cancelled both the CBC's decision and the fine that was imposed upon BOC PCL in a respective judgment dated in 2020. CBC decided to re‑examine this matter and to re‑open the investigation.

The CBC has decided that between the reporting date of 31 December 2014 and until the reporting date of 31 December 2017 BOC PCL was in breach of the requirements of the Directive on the Computation of Prudential Liability in Euro, of the Directive on the Prudential Liability in foreign currencies and of the CBC Directive on Governance and Management Arrangements in Credit Institutions. BOC PCL was given the opportunity to express its views with regards to the identified failures and the possible imposition of sanctions. BOC PCL has submitted its views and representations and CBC will decide on the matter.

European Central Bank (ECB) Investigation

In July 2021, BOC PCL was notified in writing by the ECB that, based on an investigation carried out by ECB's investigating unit, BOC PCL was in breach of an ECB decision of September 2016. The alleged breach related to the requirement imposed on BOC PCL to seek the prior approval of the ECB for any transfer of capital or liquidity to any subsidiary company. The Governing Council of the ECB informed BOC PCL in February 2022 of its decision to impose an administrative penalty of €575 thousand.  BOC PCL proceeded with the payment of the fine.

Commission for the Protection of Competition Investigation (CPC)

In April 2014, following an investigation which began in 2010, 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. BOC PCL is expecting the final conclusion of this matter and has provided for it accordingly.

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 had 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. During 2018, the Attorney General has filed an appeal before the Supreme court with respect to such decision. Until a judgment is issued by the Supreme Court, the decision of the CPC remains annulled and there is no subsisting fine upon BOC PCL. The said appeal is still pending as at the date of these Consolidated Financial Statements.

In 2019, the CPC initiated an ex officio investigation with respect to unfair contract terms and into the contractual arrangements/facilities offered by BOC PCL for the period from 2012 to 2016. To date no charges have been put forward nor have any formal proceedings been instituted against BOC PCL in this case. This investigation is currently at a very early stage to predict its outcome and no formal process has been initiated.

Association for the Protection of Bank Borrowers (CYPRODAT)

CYPRODAT filed a complaint with the Commission for the Protection of Competition (CPC) in January 2022, claiming that BOC PCL and another bank have concerted in practices regarding the recent revisions of their commissions and charges. It also filed an application for an interim order which, if successful, would essentially freeze the implementation of the revised commissions and charges. The application for interim order was rejected by the CPC, however, the CPC reverted in April 2022 to inform BOC PCL of the initiation of an investigation with respect to this matter. This investigation is currently at a very early stage to predict its outcome.

Commissioner for the Protection of Personal Data

The Commissioner for the Protection of Personal Data has informed BOC PCL that based on the evidence submitted, there is a breach of Regulation 2016/679 on the protection of natural persons with regards to the processing of personal data and on the free movement of such data. The breach concerned the exchange of data under the sale of a portfolio of credit facilities which did not relate to the transaction. A fine of €17 thousand was imposed on BOC PCL.

BOC PCL informed the Commissioner on the procedures to follow to avoid such oversights in the future and the measures it has taken to remedy the specific breaches.

Consumer Protection Service (CPS)

In July 2017, CPS imposed a fine of €170 thousand upon BOC PCL after concluding an ex officio investigation regarding some terms in both BOC PCL's and Marfin Popular Bank's loan documentation, that were found to constitute unfair commercial practices. Decisions of the CPS (according to rulings of the Administrative Court) are not binding but merely an expression of opinion. Against this decision, BOC PCL has filed a recourse before the Administrative Court which has not yet issued its judgement. The recourse is still pending as at the date of these Consolidated Financial Statements.

In March 2020, BOC PCL has been served with an application by the director of CPS through the Attorney General seeking for an order of the court, with immediate effect, the result of which will be for BOC PCL to cease the use of a number of terms in the contracts of BOC PCL which are deemed to be unfair under the said order. The said terms relate to contracts that had been signed during 2006‑2007. Furthermore, the said application seeks for an order ordering BOC PCL to undertake measures to remedy the situation. BOC PCL will take all necessary steps for the protection of its interests. This matter is still pending before the court as at the date of these Consolidated Financial Statements.

In April 2021, the Director of the Consumer Protection Service filed an application for the issuance of a court order against BOC PCL, prohibiting the use of a number of contractual terms included in BOC PCL's consumer contracts and the amendment of any such contracts (present and future) so as to remove such unfair terms. This matter is still pending before the court as at the date of these Consolidated Financial Statements.

BOC PCL received a letter in July 2021 from CPS, initiating an ex officio investigation under the Distance Marketing of Financial Services to Consumers Law, with respect to the services and products of BOC PCL for which the contract between BOC PCL and the consumer is entered into online via BOC PCL's website.

BOC PCL received another letter in July 2021 from CPS, initiating an investigation with respect to an alleged commercial practice of BOC PCL of promoting a product.

The investigations are currently at a very early stage to predict their outcome.

Cyprus Consumers' Association (CCA)

In March 2021, BOC PCL was served with an application filed by the CCA for the issuance of a court order prohibiting the use of a number of contractual terms included in BOC PCL's consumer contracts and the amendment of any such contracts (present and future) so as to remove such terms deemed as unfair. The said contractual terms were determined as unfair pursuant to the decisions issued by the Consumer Protection Service of the Ministry of Energy, Commerce, Industry and Tourism against BOC PCL in 2016 and 2017. BOC PCL will take all necessary steps for the protection of its interests. This matter is still pending before the court as at the date of these Consolidated Financial Statements.

The new Law on Consumer Protection brings under one umbrella the existing legislation on unfair contract terms and practices with some enhanced powers vested in the Consumer Protection Service i.e. power to impose increased fines which are immediately payable. The new Law on Consumer Protection has a retrospective effect in that it also applies to all contracts/practices entered into and/or terminated prior to this law coming into effect as opposed to contracts/practices which are only entered into/adopted as from the date of publication of the new Law on Consumer Protection.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, is unknown.

UK regulatory matters

As part of the agreement for the sale of Bank of Cyprus UK Ltd, a liability with 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.

25.3  Οther matters

Other matters include among others, provisions for various other open examination requests by governmental and other public bodies, legal matters and provisions for warranties and indemnities related to the disposal process of certain operations of the Group.

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'.

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

	Pending litigation and claims (Note 25.1)	Regulatory matters (Note 25.2)	Other matters (Note 25.3)	Total
2022	€000	€000	€000	€000
1 January	57,844	16,415	29,849	104,108
Net increase in provisions including unwinding of discount (Note 9)	1,086	950	-	2,036
Utilisation of provisions	(78)	(759)	-	(837)
Release of provisions (Note 9)	(392)	-	(100)	(492)
Foreign exchange adjustments	-	(22)	-	(22)
30 June	58,460	16,584	29,749	104,793

2021
1 January	67,439	12,305	43,871	123,615
Net increase in provisions including unwinding of discount (Note 9)	1,505	2,890	34,270	38,665
Utilisation of provisions	(6,539)	-	-	(6,539)
Foreign exchange adjustments	-	24	-	24
30 June	62,405	15,219	78,141	155,765
Provisions for pending litigation, claims, regulatory and other matters recorded in the consolidated income statement (Note 9) during the six months ended 30 June 2021 amounting to €10,660 thousand, also include an amount of €841 thousand representing an amount recovered from plaintiffs directly recognised in the consolidated income statement.
Some information required by the IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal process of certain operations of the Group.

An increase by 5% in the probability of loss rate for pending litigation and claims (31 December 2021: 5%) with all other variables held constant, would lead to an increase in the actual provision by €6,983 thousand at 30 June 2022 (31 December 2021: increase by €7,097 thousand).

26.  Contingent liabilities and commitments

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 recognised, based on management's best estimate of probable outflows, where it was assessed that such an outflow is probable.

Capital commitments for the acquisition of property, equipment and intangible assets as at 30 June 2022 amount to €17,454 thousand (31 December 2021: €18,678 thousand).

27.   Cash and cash equivalents

Cash and cash equivalents comprise:

	30 June 2022	31 December 2021
	€000	€000
Cash and non‑obligatory balances with central banks	9,729,679	9,063,896
Loans and advances to banks with original maturity less than three months	248,313	191,314
	9,977,992	9,255,210

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

	30 June 2022	31 December 2021
	€000	€000
Cash and non‑obligatory balances with central banks	9,729,679	9,063,896
Obligatory balances with central banks	174,870	166,987
Total cash and balances with central banks	9,904,549	9,230,883

Loans and advances to banks with original maturity less than three months	248,313	191,314
Restricted loans and advances to banks	63,995	100,318
Total loans and advances to banks	312,308	291,632
Restricted loans and advances to banks include collaterals under derivative transactions of €3,100 thousand (31 December 2021: €41,068 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 2022			31 December 2021
	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	9,729,679	174,870	9,904,549	9,063,896	166,987	9,230,883
Loans and advances to banks	248,313	63,995	312,308	191,314	100,318	291,632
Derivative financial assets	12,240	25,910	38,150	4,556	2,097	6,653
Investments	253,907	1,848,770	2,102,677	366,420	1,772,743	2,139,163
Loans and advances to customers	1,042,690	9,101,409	10,144,099	1,018,312	8,818,093	9,836,405
Life insurance business assets attributable to policyholders	6,214	527,482	533,696	14,111	537,686	551,797
Prepayments, accrued income and other assets	150,722	471,233	621,955	139,988	476,231	616,219
Stock of property	243,889	810,145	1,054,034	267,480	844,124	1,111,604
Deferred tax assets	37,909	227,521	265,430	37,909	227,572	265,481
Property, equipment and intangible assets	-	417,096	417,096	-	436,164	436,164
Investment properties	20,509	81,531	102,040	32,139	85,606	117,745
Non‑current assets and disposal groups held for sale	347,698	-	347,698	358,951	-	358,951
	12,093,770	13,749,962	25,843,732	11,495,076	13,467,621	24,962,697
Liabilities
Deposits by banks	156,338	335,684	492,022	100,530	356,509	457,039
Funding from central banks	979,625	1,975,183	2,954,808	2,969,600	-	2,969,600
Derivative financial liabilities	4,342	5,143	9,485	4,830	27,622	32,452
Customer deposits	7,257,960	11,192,256	18,450,216	6,909,913	10,620,970	17,530,883
Insurance liabilities	101,257	588,541	689,798	91,758	644,443	736,201
Accruals, deferred income and other liabilities and pending litigation, claims, regulatory and other matters	332,889	166,021	498,910	273,940	192,145	466,085
Debt securities in issue and subordinated liabilities	-	610,637	610,637	38,561	604,214	642,775
Deferred tax liabilities	-	45,235	45,235	937	45,498	46,435
	8,832,411	14,918,700	23,751,111	10,390,069	12,491,401	22,881,470
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
Cash and balances with central banks are classified in the relevant time band based on the contractual maturity, with the exception of obligatory balances with central banks which are classified in the 'Over one year' time band.
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.

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 cash flows from expected receipts which are included within time bands, according to historic amounts of receipts in the recent months.

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

A percentage of customer deposits 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 do not 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 credit obligations towards the Group.

The Credit Risk Management department in co‑operation with the Credit Risk Control and Monitoring department set the Group's credit disbursement policies and monitor compliance with credit risk policies applicable to each business line and the quality of the Group's loans and advances portfolio through the timely credit risk assessment of customers. The credit exposures of related accounts are aggregated and monitored on a consolidated basis.

The Credit Risk Management department, in co‑operation with the Credit Risk Control and Monitoring department, also safeguard the effective management of credit risk at all stages of the credit cycle, monitor the quality of decisions and processes and ensure that the 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 of the customers' creditworthiness, their economic sector of activity and geographical concentration.

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

The Market Risk department assesses the credit risk relating to exposures to Credit Institutions and Governments and other debt securities. Models and limits are presented to and approved by the Board of Directors, through the relevant authority based on the authorisation level limits.

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.

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

Loans and advances to customers

The Credit Risk Management 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 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.

Off‑balance sheet exposures

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 facilities (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.

Other financial instruments

Collateral held as security for financial assets other than loans and advances to customers 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. As at 30 June 2022, the majority of derivative exposures are covered by ISDA netting arrangements. A detailed analysis of derivative asset and liability exposures is available in Note 14. Information about the Group's collaterals under derivative transactions is provided in Note 27.

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 credit enhancements held.

	30 June 2022	31 December 2021
	€000	€000
Balances with central banks	9,767,741	9,087,968
Loans and advances to banks (Note 27)	312,308	291,632
FVPL debt and other non‑equity securities (Note 13)	5,976	6,034
Debt securities classified at amortised cost and FVOCI	1,907,795	1,924,354
Derivative financial instruments (Note 14)	38,150	6,653
Loans and advances to customers (Note 16)	10,144,099	9,836,405
Loans and advances to customers classified as held for sale (Note 19)	247,207	250,370
Debtors (Note 18)	49,333	36,540
Reinsurers' share of insurance contract liabilities (Note 18)	58,768	55,323
Deferred purchase payment consideration (Note 18)	304,268	299,766
Other assets (Note 18)	63,561	57,158
On‑balance sheet total	22,899,206	21,852,203
Contingent liabilities
Acceptances and endorsements	5,263	4,625
Guarantees	584,748	609,830
Commitments
Documentary credits	11,288	11,264
Undrawn formal stand‑by facilities, credit lines and other commitments to lend	1,900,867	1,950,665
Off‑balance sheet total	2,502,166	2,576,384
	25,401,372	24,428,587

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. The Group's risk appetite statement may impose stricter concentration limits which are monitored by the Group.

The credit risk concentration, which is based on industry (economic activity) and business line concentrations, as well as geographical concentration, is presented below.

The geographical concentration, for credit risk concentration purposes, is based on the Group's Country Risk Policy which is followed for monitoring the Group's exposures. Market Risk is responsible for analysing the country risk of exposures. ALCO reviews the country risk of exposures on a quarterly basis and the Board, through its Risk Committee, reviews the country risk of exposures and any breaches of country risk limits on a regular basis and at least annually.

The table below presents the geographical concentration of loans and advances to customers by country of risk based on the country of residency for individuals and the country of registration for companies.  Loans and advances to customers are presented separately for countries with high concentration and all other countries with low concentration are presented within 'Other countries' as per Group policy.

30 June 2022	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000	€000
Trade	970,006	432	71	2	-	67	970,578
Manufacturing	321,223	45,085	-	-	-	39,698	406,006
Hotels and catering	938,500	32,481	36,461	-	-	40,107	1,047,549
Construction	560,237	9,083	80	1,985	-	40	571,425
Real estate	903,732	95,373	1,901	11,064	-	48,242	1,060,312
Private individuals	4,471,587	9,053	89,316	1,191	26,735	67,973	4,665,855
Professional and other services	643,738	1,001	5,381	879	356	40,937	692,292
Other sectors	435,969	5	34	-	2	218,339	654,349
	9,244,992	192,513	133,244	15,121	27,093	455,403	10,068,366

30 June 2022	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000	€000
Corporate	2,156,913	9,471	54	-	350	117	2,166,905
Large and international corporate	1,439,771	173,810	43,175	11,780	-	376,620	2,045,156
SMEs	1,033,533	710	2,318	2,023	-	2,250	1,040,834
Retail
‑ housing	3,191,534	3,585	41,008	857	3,581	27,315	3,267,880
‑ consumer, credit cards and other	908,645	1,036	747	131	207	2,709	913,475
Restructuring
‑ corporate	47,871	-	526	-	32	61	48,490
‑ SMEs	61,076	-	168	-	163	454	61,861
‑ retail housing	79,995	152	1,897	-	416	767	83,227
‑ retail other	24,755	4	33	1	-	41	24,834
Recoveries
‑ corporate	23,084	-	4	61	141	181	23,471
‑ SMEs	27,795	-	1,672	59	2,192	1,938	33,656
‑ retail housing	90,418	251	25,694	76	5,544	11,719	133,702
‑ retail other	45,163	27	2,175	4	210	626	48,205
International banking services	82,605	2,085	13,773	129	14,257	24,350	137,199
Wealth management	31,834	1,382	-	-	-	6,255	39,471
	9,244,992	192,513	133,244	15,121	27,093	455,403	10,068,366

31 December 2021	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000	€000
Trade	977,703	505	122	60	3,351	146	981,887
Manufacturing	303,372	179	-	-	1,212	25,674	330,437
Hotels and catering	881,205	33,422	37,450	-	-	40,123	992,200
Construction	510,928	9,005	108	2,108	646	58	522,853
Real estate	959,891	125,123	1,950	11,443	-	49,293	1,147,700
Private individuals	4,379,843	9,185	121,260	1,057	37,315	73,997	4,622,657
Professional and other services	543,424	1,007	5,516	875	16,492	35,142	602,456
Other sectors	458,005	7	40	-	8	182,285	640,345
	9,014,371	178,433	166,446	15,543	59,024	406,718	9,840,535

31 December 2021	Cyprus	Greece	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000	€000
Corporate	2,018,926	9,430	60	99	15,778	113	2,044,406
Large and international corporate	1,417,643	159,349	44,132	11,742	-	320,730	1,953,596
SMEs	1,038,599	773	1,869	2,047	4,701	2,345	1,050,334
Retail
‑ housing	3,068,097	3,466	47,742	629	4,513	26,819	3,151,266
‑ consumer, credit cards and other	884,231	1,101	760	126	237	2,232	888,687
Restructuring
‑ corporate	60,446	-	526	-	32	1,213	62,217
‑ SMEs	69,501	-	338	-	-	340	70,179
‑ retail housing	80,730	152	3,058	-	392	752	85,084
‑ retail other	32,611	14	132	-	3	238	32,998
Recoveries
‑ corporate	35,010	-	-	589	219	256	36,074
‑ SMEs	30,505	-	2,557	2	3,699	2,554	39,317
‑ retail housing	109,945	382	45,158	167	9,254	18,213	183,119
‑ retail other	54,959	30	4,356	4	1,557	1,304	62,210
International banking services	76,314	2,402	15,211	138	18,639	23,214	135,918
Wealth management	36,854	1,334	547	-	-	6,395	45,130
	9,014,371	178,433	166,446	15,543	59,024	406,718	9,840,535
The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a carrying value as at 30 June 2022 of €102,150 thousand (31 December 2021: €100,039 thousand).
The loan and advances to customers reported within 'Other countries' as at 30 June 2022 include exposures of €3,2 million in Ukraine (31 December 2021: €3,6 million).

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

Economic activity, geographical and business line concentrations of Group loans and advances to customers at amortised cost classified as held for sale are presented in the table below.

30 June 2022	Cyprus	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000
Trade	56,677	-	533	1	-	57,211
Manufacturing	24,121	1	119	-	-	24,241
Hotels and catering	14,995	6	276	-	-	15,277
Construction	27,447	-	253	-	-	27,700
Real estate	6,122	-	9,635	-	-	15,757
Private individuals	366,929	1,092	55	839	4,501	373,416
Professional and other services	26,087	2	1,258	-	-	27,347
Other sectors	10,856	-	1	-	-	10,857
	533,234	1,101	12,130	840	4,501	551,806

30 June 2022	Cyprus	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000
Large and International corporate	-	-	10,507	-	-	10,507
SMEs	-	-	247	-	-	247
Restructuring
‑ corporate	366	-	-	-	-	366
‑ SMEs	3,979	-	-	-	-	3,979
‑ retail housing	18,253	492	-	-	34	18,779
‑ retail other	6,270	-	-	-	-	6,270
Recoveries
‑ corporate	8,309	-	1,058	-	1	9,368
‑ SMEs	14,780	1	318	800	394	16,293
‑ retail housing	243,857	594	-	39	3,532	248,022
‑ retail other	237,420	14	-	1	540	237,975
	533,234	1,101	12,130	840	4,501	551,806

31 December 2021	Cyprus	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By economic activity	€000	€000	€000	€000	€000	€000
Trade	56,859	-	514	-	-	57,373
Manufacturing	24,688	1	110	-	-	24,799
Hotels and catering	14,794	1	278	-	-	15,073
Construction	28,226	-	231	-	-	28,457
Real estate	4,575	-	9,395	-	-	13,970
Private individuals	369,182	1,070	55	804	4,087	375,198
Professional and other services	27,866	2	1,466	-	-	29,334
Other sectors	11,476	-	77	-	32	11,585
	537,666	1,074	12,126	804	4,119	555,789

31 December 2021	Cyprus	United Kingdom	Romania	Russia	Other countries	Gross loans at amortised cost
By business line	€000	€000	€000	€000	€000	€000
Large and International Corporate	-	-	10,441	-	32	10,473
SMEs	-	-	231	-	-	231
Retail
‑ housing	153	-	-	-	-	153
‑ consumer, credit cards and other	2	-	-	-	-	2
Restructuring
‑ corporate	374	-	-	-	-	374
‑ SMEs	5,301	-	-	-	-	5,301
‑ retail housing	23,769	501	-	-	34	24,304
‑ retail other	12,702	-	-	-	-	12,702
Recoveries
‑ corporate	8,090	-	1,111	-	-	9,201
‑ SMEs	17,923	1	343	766	381	19,414
‑ retail housing	238,791	566	-	38	3,210	242,605
‑ retail other	230,561	6	-	-	462	231,029
	537,666	1,074	12,126	804	4,119	555,789

29.4  Analysis of loans and advances to customers by staging

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2022	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	7,758,616	1,821,428	460,216	124,176	10,164,436
Residual fair value adjustment on initial recognition	(67,369)	(21,515)	(3,905)	(3,281)	(96,070)
Gross loans at amortised cost	7,691,247	1,799,913	456,311	120,895	10,068,366
Cyprus	7,691,008	1,799,913	454,177	120,895	10,065,993
Other Countries	239	-	2,134	-	2,373
	7,691,247	1,799,913	456,311	120,895	10,068,366

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2021	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	7,488,354	1,721,231	576,873	159,755	9,946,213
Residual fair value adjustment on initial recognition	(69,659)	(22,051)	(3,530)	(10,438)	(105,678)
Gross loans at amortised cost	7,418,695	1,699,180	573,343	149,317	9,840,535
Cyprus	7,418,432	1,699,180	545,327	149,317	9,812,256
Other countries	263	-	28,016	-	28,279
	7,418,695	1,699,180	573,343	149,317	9,840,535
Loans and advances to customers classified as held for sale

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2022	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	94	1,754	472,474	95,527	569,849
Residual fair value adjustment on initial recognition	-	(40)	(1,683)	(16,320)	(18,043)
Gross loans at amortised cost	94	1,714	470,791	79,207	551,806

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2021	€000	€000	€000	€000	€000
Gross loans at amortised cost before residual fair value adjustment on initial recognition	-	2,132	476,538	96,209	574,879
Residual fair value adjustment on initial recognition	-	(57)	(2,079)	(16,954)	(19,090)
Gross loans at amortised cost	-	2,075	474,459	79,255	555,789
Residual fair value adjustment
The residual fair value adjustment mainly relates 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. The residual fair value adjustment is included within the gross balances of loans and advances to customers as at each balance sheet date. However, for credit risk monitoring, the residual fair value adjustment as at each balance sheet date is presented separately from the gross balances of loans and advances, as shown in the tables above.
The following tables present the Group's gross loans and advances to customers at amortised cost by staging and by business line concentration.

30 June 2022	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1,709,712	421,888	16,962	18,343	2,166,905
Large and International corporate	1,466,397	499,664	56,220	22,875	2,045,156
SMEs	782,914	242,613	4,622	10,685	1,040,834
Retail
‑ housing	2,872,402	345,464	38,045	11,969	3,267,880
‑ consumer, credit cards and other	707,746	169,818	19,957	15,954	913,475
Restructuring
‑ corporate	6,373	33,331	8,743	43	48,490
‑ SMEs	12,510	17,222	28,884	3,245	61,861
‑ retail housing	3,854	20,918	54,630	3,825	83,227
‑ retail other	1,581	4,340	17,898	1,015	24,834
Recoveries
‑ corporate	-	-	19,706	3,765	23,471
‑ SMEs	-	-	30,062	3,594	33,656
‑ retail housing	-	-	116,070	17,632	133,702
‑ retail other	42	-	40,721	7,442	48,205
International banking services	92,001	41,277	3,778	143	137,199
Wealth management	35,715	3,378	13	365	39,471
	7,691,247	1,799,913	456,311	120,895	10,068,366

31 December 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	1,569,699	430,865	22,357	21,485	2,044,406
Large and International corporate	1,374,550	501,092	55,159	22,795	1,953,596
SMEs	812,211	215,012	12,522	10,589	1,050,334
Retail
‑ housing	2,769,274	320,473	49,633	11,886	3,151,266
‑ consumer, credit cards and other	732,154	116,983	23,361	16,189	888,687
Restructuring
‑ corporate	6,092	35,613	14,255	6,257	62,217
‑ SMEs	14,016	16,417	34,083	5,663	70,179
‑ retail housing	3,075	15,528	62,934	3,547	85,084
‑ retail other	1,409	5,701	24,838	1,050	32,998
Recoveries
‑ corporate	-	-	29,600	6,474	36,074
‑ SMEs	-	-	35,685	3,632	39,317
‑ retail housing	-	-	154,469	28,650	183,119
‑ retail other	114	-	51,672	10,424	62,210
International banking services	92,193	40,715	2,775	235	135,918
Wealth management	43,908	781	-	441	45,130
	7,418,695	1,699,180	573,343	149,317	9,840,535

Loans and advances to customers classified as held for sale

The following table presents the Group's gross loans and advances to customers at amortised cost classified as held for sale as at 30 June 2022 and 31 December 2021, by staging and business line concentration.

30 June 2022	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Large and International corporate	-	-	10,507	-	10,507
SMEs	-	-	247	-	247
Restructuring
‑ corporate	-	-	366	-	366
‑ SMEs	-	860	2,441	678	3,979
‑ retail housing	94	694	17,056	935	18,779
‑ retail other	-	160	5,537	573	6,270
Recoveries
‑ corporate	-	-	8,640	728	9,368
‑ SMEs	-	-	14,802	1,491	16,293
‑ retail housing	-	-	208,669	39,353	248,022
‑ retail other	-	-	202,526	35,449	237,975
	94	1,714	470,791	79,207	551,806

31 December 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Large and International corporate	-	-	10,470	3	10,473
SMEs	-	-	231	-	231
Retail
‑ housing	-	-	153	-	153
‑ consumer, credit cards and other	-	-	2	-	2
Restructuring
‑ corporate	-	-	374	-	374
‑ SMEs	-	718	3,842	741	5,301
‑ retail housing	-	804	22,113	1,387	24,304
‑ retail other	-	553	11,543	606	12,702
Recoveries
‑ corporate	-	-	8,507	694	9,201
‑ SMEs	-	-	17,653	1,761	19,414
‑ retail housing	-	-	204,956	37,649	242,605
‑ retail other	-	-	194,615	36,414	231,029
	-	2,075	474,459	79,255	555,789

The movement of the gross loans and advances to customers at amortised cost by staging, including the loans and advances to customers classified as held for sale, is presented in the tables below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2022	€000	€000	€000	€000	€000
1 January	7,418,695	1,701,255	1,047,802	228,572	10,396,324
Transfers to stage 1	292,741	(292,741)	-	-	-
Transfers to stage 2	(405,422)	429,065	(23,643)	-	-
Transfers to stage 3	(4,782)	(19,409)	24,191	-	-
Foreign exchange and other adjustments	(24)	-	905	-	881
Write offs	(398)	(295)	(100,301)	(17,522)	(118,516)
Interest accrued and other adjustments	94,167	38,719	37,154	13,327	183,367
New loans originated or purchased and drawdowns of existing facilities	1,060,453	46,984	200	852	1,108,489
Loans derecognised or repaid (excluding write offs)	(763,291)	(103,101)	(56,132)	(25,008)	(947,532)
Changes to contractual cash flows due to modifications	(798)	1,150	(3,074)	(119)	(2,841)
30 June	7,691,341	1,801,627	927,102	200,102	10,620,172

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2021	€000	€000	€000	€000	€000
1 January	6,615,026	2,145,329	2,502,487	479,016	11,741,858
Transfers to stage 1	811,784	(811,782)	(2)	-	-
Transfers to stage 2	(560,426)	602,381	(41,955)	-	-
Transfers to stage 3	(10,274)	(24,050)	34,324	-	-
Foreign exchange and other adjustments	7	-	1,452	(3)	1,456
Write offs	(255)	(782)	(117,481)	(19,479)	(137,997)
Interest accrued and other adjustments	23,844	102,978	54,582	10,951	192,355
New loans originated or purchased and drawdowns of existing facilities	769,064	12,736	6,107	11,889	799,796
Loans other than Helix 2 portfolio derecognised or repaid (excluding write offs)	(644,376)	(103,090)	(102,577)	(40,316)	(890,359)
Changes to contractual cash flows due to modifications	3,465	(4,539)	(3,002)	28	(4,048)
Derecognition of Helix 2 portfolio	(8,408)	(16,941)	(1,087,782)	(173,714)	(1,286,845)
30 June	6,999,451	1,902,240	1,246,153	268,372	10,416,216
For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding write‑offs is reported in 'New loans originated' and the net negative change is reported in 'Loans derecognised or repaid'.

Significant increase in credit risk (SICR)

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 date, by considering the change in the risk of default occurring over the remaining life of the financial instrument since initial recognition.

Significant increase in credit risk for loans and advances to customers

Primarily, the Group uses the lifetime probability of default (PDs) as the quantitative metric in order to assess transition from Stage 1 to Stage 2 for all portfolios. The Group considers an exposure to have experienced significant increase in credit risk (SICR) by comparing the PD at the reporting date with the PD at initial recognition to compute the relative increase in regard to the corresponding threshold. The threshold has been determined by using statistical analysis on historical information of credit migration exposures on the basis of days past due, for the different segments. The Group applies the thresholds presented in the table below 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 facility's portfolio/segment.

For Retail, SME and Corporate portfolios, the threshold applied varies depending on the original credit quality of the borrower. For specific segments, instruments with lower default probabilities at inception due to good credit quality of the counterparty, the SICR threshold is set as probability at inception times a multiple which is higher than a multiple used for instruments with higher default probabilities at inception.

The SICR trigger is activated based on the comparison of the ratio of current lifetime PD to the remaining Lifetime PD at origination (PD@O) 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 calibration is driven by changes in the PD models which are assessed semi‑annually.

The table below summarises the quantitative measure of the SICR trigger which varies depending on the credit quality at origination as follows, applied on 30 June 2022 and 31 December 2021:

Segment	Rating at origination	PD Deterioration thresholds applied at 30 June 2022	PD Deterioration thresholds applied at 31 December 2021
Retail	1‑3    4‑5    6‑7	2 X PD@O    2 X PD@O    2 X PD@O	2 X PD@O    2 X PD@O    2 X PD@O
SME	1‑3    4‑5    6‑7	2 X PD@O    2 X PD@O    2 X PD@O	2 X PD@O    2 X PD@O    2 X PD@O
Corporate	1‑7	1‑3 X PD@O	1‑3 X PD@O
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.
In addition, SICR is automatically triggered upon the granting of forbearance measures to performing borrowers. Stage 1 exposures that are classified as 'performing forborne' are automatically transferred to Stage 2.
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. The transfer to Stage 2 does not take place in cases where certain exposures are past due for more than 30 days but certain materiality limits are not met (such as arrears up to €100 and funded balances up to 1% in the case of retail exposures and arrears up to €500 and funded balances up to 1% on all exposures other than retail).  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 been 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.

29.5  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 to customers, including the loans and advances to customers held for sale, is as follows:

30 June 2022	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
1 January	15,457	29,383	478,796	67,781	591,417
Transfers to stage 1	4,837	(4,837)	-	-	-
Transfers to stage 2	(1,355)	5,604	(4,249)	-	-
Transfers to stage 3	(34)	(591)	625	-	-
Impact on transfer between stages during the period*	(4,177)	2	5,205	(41)	989
Foreign exchange and other adjustments	-	-	1,406	-	1,406
Write offs	(398)	(295)	(100,781)	(17,522)	(118,996)
Interest (provided) not recognised in the income statement	-	-	7,697	1,471	9,168
New loans originated or purchased*	1,985	-	-	27	2,012
Loans derecognised or repaid (excluding write offs)*	(254)	(830)	(7,779)	(1,490)	(10,353)
Write offs*	380	196	6,565	734	7,875
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	625	(3,302)	28,536	4,162	30,021
Changes to contractual cash flows due to modifications not resulting in derecognition*	(158)	1,685	(3,755)	(261)	(2,489)
30 June 2022	16,908	27,015	412,266	54,861	511,050
Individually assessed	6,380	12,327	63,636	4,530	86,873
Collectively assessed	10,528	14,688	348,630	50,331	424,177
	16,908	27,015	412,266	54,861	511,050
* Individual components of the 'Impairment loss net of reversals on loans and advances to customers' (Note 10).
The impairment loss for the six months ended 30 June 2022 was driven mainly from additional net credit losses recorded on NPEs as part of the Group's de‑risking activities and additional ECL charge of €9 million following the changes in the methodology for the cure models and the new overlays introduced in 2022, as explained in Note 6.2.

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2021	€000	€000	€000	€000	€000
1 January	22,619	49,127	1,376,412	204,477	1,652,635
Transfers to stage 1	11,504	(11,504)	-	-	-
Transfers to stage 2	(3,543)	9,116	(5,573)	-	-
Transfers to stage 3	(437)	(197)	634	-	-
Impact on transfer between stages during the period*	(10,536)	1,291	2,328	(264)	(7,181)
Foreign exchange and other adjustments	165	-	1,193	(44)	1,314
Write offs	(255)	(782)	(117,482)	(19,479)	(137,998)
Interest (provided) not recognised in the income statement	-	-	30,896	4,322	35,218
New loans originated or purchased*	4,606	-	-	-	4,606
Loans other than Helix 2 portfolio derecognised or repaid (excluding write offs)*	(246)	(436)	(12,673)	397	(12,958)
Write offs*	242	350	(4,331)	579	(3,160)
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL calculations*	(3,306)	(4,450)	65,757	9,120	67,121
Changes to contractual cash flows due to modifications not resulting in derecognition*	(654)	1,020	(5,044)	(2,033)	(6,711)
Disposal of Helix 2 portfolio	(3,197)	(12,802)	(725,525)	(109,569)	(851,093)
30 June 2021	16,962	30,733	606,592	87,506	741,793
Individually assessed	5,748	11,858	86,297	7,869	111,772
Collectively assessed	11,214	18,875	520,295	79,637	630,021
	16,962	30,733	606,592	87,506	741,793
The analysis of credit losses of loans and advances to customers, including the loans and advances to customers held for sale, by business line is presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
30 June 2022	€000	€000	€000	€000	€000
Corporate	6,441	4,445	5,878	965	17,729
Large and International corporate	4,554	7,509	33,334	973	46,370
SMEs	1,550	3,217	2,235	178	7,180
Retail
‑ housing	1,775	2,096	5,833	281	9,985
‑ consumer, credit cards and other	2,295	4,907	7,671	1,087	15,960
Restructuring
‑ corporate	41	2,135	1,849	24	4,049
‑ SMEs	102	1,132	13,743	872	15,849
‑ retail housing	46	719	15,735	809	17,309
‑ retail other	29	603	10,116	816	11,564
Recoveries
‑ corporate	-	-	17,650	2,460	20,110
‑ SMEs	-	-	22,153	1,308	23,461
‑ retail housing	-	-	125,168	21,652	146,820
‑ retail other	-	-	150,114	23,431	173,545
International banking services	44	248	783	4	1,079
Wealth management	31	4	4	1	40
	16,908	27,015	412,266	54,861	511,050

	Stage 1	Stage 2	Stage 3	POCI	Total
31 December 2021	€000	€000	€000	€000	€000
Corporate	5,131	6,851	18,163	750	30,895
Large and International corporate	4,204	6,511	28,539	734	39,988
SMEs	1,653	3,242	8,151	276	13,322
Retail
‑ housing	1,615	2,868	7,045	317	11,845
‑ consumer, credit cards and other	2,674	4,434	8,223	1,002	16,333
Restructuring
‑ corporate	40	1,397	5,015	2,292	8,744
‑ SMEs	79	1,139	13,970	884	16,072
‑ retail housing	3	708	20,005	775	21,491
‑ retail other	14	1,049	16,583	806	18,452
Recoveries
‑ corporate	-	-	21,374	3,518	24,892
‑ SMEs	-	-	26,338	2,045	28,383
‑ retail housing	-	-	152,596	27,732	180,328
‑ retail other	-	-	152,691	26,643	179,334
International banking services	33	1,181	102	6	1,322
Wealth management	11	3	1	1	16
	15,457	29,383	478,796	67,781	591,417

Credit losses of loans and advances to customers as at 30 June 2022 and 31 December 2021 include credit losses relating to loans and advances to customers classified as held for sale as presented in the table below:

	Stage 1	Stage 2	Stage 3	POCI	Total
	€000	€000	€000	€000	€000
30 June 2022	7	438	262,821	41,333	304,599
31 December 2021	-	710	262,706	42,003	305,419
During the six months ended 30 June 2022 the total non‑contractual write‑offs recorded by the Group amounted to €98,625 thousand (30 June 2021: €116,667 thousand). The contractual amount outstanding on financial assets that were written off during the six months ended 30 June 2022 and that are still subject to enforcement activity is €538,069 thousand (31 December 2021: €984,329 thousand).
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 as the basis to estimate updated market values of properties supplemented by management judgement where necessary given the difficulty in differentiating between short term impacts and long term structural changes and the shortage of market evidence for comparison purposes. Assumptions were made on the basis of macroeconomic scenario for future changes in property prices, and are capped to zero for all scenarios in case of any future projected increase, whereas any future projected decrease is taken into consideration.
At 30 June 2022 the weighted average haircut (including liquidity haircut and selling expenses) used in the collectively assessed provision calculation for loans and advances to customers is approximately 32% under the baseline scenario (31 December 2021: approximately 32%), excluding those classified as held for sale.
The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for loans and advances to customers has been estimated to be on average seven years under the baseline scenario (31 December 2021: average of seven years), excluding those classified as held for sale.
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 the calculation of expected credit losses three scenarios were used; base, adverse and favourable with 50%, 30% and 20% probability respectively.
For Stage 3 customers, 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 favourable and adverse scenarios. 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 takes into consideration the timing of expected sale and the estimated sale proceeds in determining the ECL.
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 to customers.

Sensitivity analysis

The Group has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents more than 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 2022 and 31 December 2021.

The Group has altered for the purpose of sensitivity analysis the below parameters and the impact on the ECL, for both individually and collectively assessed ECL calculations, is presented in the table below:

	Increase/(decrease) on ECL for loans and advances to customers at amortised cost
	30 June 2022	31 December 2021
	€000	€000
Increase the adverse weight by 5% and decrease the favourable weight by 5%	2,854	3,610
Decrease the adverse weight by 5% and increase the favourable weight by 5%	(2,841)	(3,626)
Increase the expected recovery period by 1 year	4,847	8,000
Decrease the expected recovery period by 1 year	(4,304)	(7,421)
Increase the collateral realisation haircut by 5%	13,451	19,063
Decrease the collateral realisation haircut by 5%	(11,107)	(16,906)
Increase in the PDs of stages 1 and 2 by 20%	7,230	8,190
Decrease in the PDs of stages 1 and 2 by 20%	(6,870)	(8,011)
The increase/(decrease) on ECL, per stage, for loans and advances to customers at amortised cost is further presented in the table below:

	Stage 1	Stage 2	Stage 3	Total
30 June 2022	€000	€000	€000	€000
Increase the adverse weight by 5% and decrease the favourable weight by 5%	155	295	2,404	2,854
Decrease the adverse weight by 5% and increase the favourable weight by 5%	(161)	(276)	(2,404)	(2,841)
Increase the expected recovery period by 1 year	395	1,138	3,314	4,847
Decrease the expected recovery period by 1 year	(369)	(1,019)	(2,916)	(4,304)
Increase the collateral realisation haircut by 5%	1,076	2,888	9,487	13,451
Decrease the collateral realisation haircut by 5%	(888)	(2,309)	(7,910)	(11,107)
Increase in the PDs of stages 1 and 2 by 20%*	1,875	5,355	-	7,230
Decrease in the PDs of stages 1 and 2 by 20%*	(2,302)	(4,568)	-	(6,870)

	Stage 1	Stage 2	Stage 3	Total
31 December 2021	€000	€000	€000	€000
Increase the adverse weight by 5% and decrease the favourable weight by 5%	384	413	2,813	3,610
Decrease the adverse weight by 5% and increase the favourable weight by 5%	(351)	(461)	(2,814)	(3,626)
Increase the expected recovery period by 1 year	434	1,402	6,164	8,000
Decrease the expected recovery period by 1 year	(401)	(1,323)	(5,697)	(7,421)
Increase the collateral realisation haircut by 5%	1,215	3,742	14,106	19,063
Decrease the collateral realisation haircut by 5%	(1,004)	(3,266)	(12,636)	(16,906)
Increase in the PDs of stages 1 and 2 by 20%*	2,687	5,503	-	8,190
Decrease in the PDs of stages 1 and 2 by 20%*	(2,882)	(5,129)	-	(8,011)
*The impact on the ECL also includes the transfer between stages of the loans and advances to customers following the increase/ decrease in the PD.

The sensitivity analysis performed on the collateral realisation haircut and its impact on the ECL by business line is presented in the table below:

	Increase the collateral realisation haircut by 5%	Decrease the collateral realisation haircut by 5%	Increase the collateral realisation haircut by 5%	Decrease the collateral realisation haircut by 5%
	30 June 2022	30 June 2022	31 December 2021	31 December 2021
	€000	€000	€000	€000
Corporate	1,687	(1,380)	1,365	(1,272)
Large and International corporate	1,290	(1,228)	2,194	(1,976)
SMEs	524	(444)	724	(627)
Retail
‑ housing	1,492	(1,263)	1,838	(1,545)
‑ consumer, credit cards and other	628	(530)	718	(653)
Restructuring
‑ corporate	290	(254)	551	(558)
‑ SMEs	944	(852)	956	(858)
‑ retail housing	958	(823)	1,079	(972)
‑ retail other	380	(333)	458	(420)
Recoveries
‑ corporate	640	(553)	748	(760)
‑ SMEs	853	(722)	1,114	(940)
‑ retail housing	2,626	(1,899)	5,541	(4,889)
‑ retail other	982	(680)	1,503	(1,233)
International banking services	157	(146)	273	(202)
Wealth management	-	-	1	(1)
	13,451	(11,107)	19,063	(16,906)

29.6  Currency concentration of loans and advances to customers

The following table presents the currency concentration of the Group's loans and advances at amortised cost.

	30 June 2022	31 December 2021
Gross loans at amortised cost	€000	€000
Euro	9,478,377	9,294,950
US Dollar	453,374	372,263
British Pound	91,859	93,369
Russian Rouble	350	16,329
Romanian Lei	1	-
Swiss Franc	42,596	61,336
Other currencies	1,809	2,288
	10,068,366	9,840,535

Loans and advances to customers classified as held for sale

The following table presents the currency concentration of the Group's loans and advances at amortised cost classified as held for sale.

	30 June 2022	31 December 2021
Gross loans at amortised cost	€000	€000
Euro	528,996	533,190
US Dollar	752	700
British Pound	226	230
Swiss Franc	18,279	18,184
Other currencies	3,553	3,485
	551,806	555,789

29.7  Forbearance/Restructuring

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, previously classified as NPEs 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 (e.g. 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).

For an account to qualify for rescheduling it must meet certain criteria including that the customer 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 allowed 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. It also contributes in the construction through the cycle probability of default and cure curves, 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 a combination thereof. The Group has developed and deployed sustainable 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:

· Suspension of capital or capital and interest: granting to the borrower a grace period in the payment of capital (i.e. during this period only interest is paid) or capital and interest, for a specific period of time.

· 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: capitalisation of the arrears and of any unpaid interest to the outstanding principal balance for repayment under a rescheduled program.

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.

· Sale of Assets: Part of the restructuring can be the agreement with the borrower for immediate or on time sale of assets (mainly real estate) to reduce borrowing.

· Modification of existing terms of previous decisions: In the context of the new sustainable settlement / restructuring solution, review any terms of previous decisions that may not be met.

· Consolidation / refinancing of Existing Facilities: In cases where the borrower maintains several separate loans with different collaterals, these can be consolidated and a new repayment schedule can be set and the new loan can be secured with all existing collaterals.

· Hard Core Current Account Limit: In such cases a loan with a longer repayment may be offered to replace / reduce the current account limit.

· Split and freeze: the customer's debt is split into sustainable and unsustainable parts. The sustainable part is restructured to a sustainable repayment program. 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.

· 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.

· Liquidation Collateral: An agreement between BOC PCL and a borrower for the voluntary sale of mortgaged assets, for partial or full repayment of the debt.

· Currency Conversion: This solution is provided to match the credit facility currency and the borrower's income currency.

· Additional Financing: This solution can be granted, simultaneously with the restructuring of the existing credit facilities of the borrower, to cover any financing gap.

· Partial or full write‑off: BOC PCL agrees to seize the right to recover part of the debt or the entire amount due from the borrower (such as Fast Settlement), according to the provisions of the respective write‑off policy.

· Debt/equity swaps: debt restructuring that allows partial or full repayment of the debt in exchange of obtaining an equivalent amount of equity by the Group, with the remaining debt right sized to the cash flows of the borrower to allow repayment. 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 transfer the mortgaged asset or other immovable property to the Group, to partially or fully repay the debt. Any residual debt may be restructured within an appropriate repayment schedule in line with the borrower's reassessed repayment ability.

29.8  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. The rescheduled loans related to loans and advances classified as held for sale as at 30 June 2022 amounts to €238,195 thousand (31 December 2021: €245,452 thousand and 30 June 2021: nil).

	30 June 2022	30 June 2021
	€000	€000
1 January	1,469,182	1,981,825
New loans and advances rescheduled in the period	56,411	405,472
Loans no longer classified as rescheduled and repayments	(148,629)	(283,370)
Write off of rescheduled loans and advances	(39,834)	(58,758)
Interest accrued on rescheduled loans and advances	26,911	25,932
Foreign exchange adjustments	1,127	385
Derecognition of Helix 2 portfolio	-	(733,448)
30 June	1,365,168	1,338,038
The classification as forborne loans is discontinued when all EBA criteria for the discontinuation of the classification as forborne exposure are met. The criteria are set out in the 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, economic activity and business line classification excluding those classified as held for sale, as well as ECL allowances and tangible collateral held for such rescheduled loans.

	30 June 2022	31 December 2021
	€000	€000
Stage 1	-	6,883
Stage 2	818,330	828,849
Stage 3	281,832	348,385
POCI	26,811	39,613
	1,126,973	1,223,730

Fair value of collateral

	30 June 2022	31 December 2021
	€000	€000
Stage 1	-	6,751
Stage 2	774,087	782,843
Stage 3	230,213	275,882
POCI	23,355	37,824
	1,027,655	1,103,300

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

Credit risk concentration

	30 June 2022	31 December 2021
By economic activity	€000	€000
Trade	44,452	52,714
Manufacturing	14,925	16,217
Hotels and catering	264,027	259,534
Construction	230,792	164,871
Real estate	136,820	196,522
Private individuals	336,966	414,463
Professional and other services	78,528	96,714
Other sectors	20,463	22,695
	1,126,973	1,223,730

30 June 2022	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	-	272,991	4,267	2,964	280,222
Large and international corporate	-	312,715	54,841	-	367,556
SMEs	-	79,657	1,701	923	82,281
Retail
‑ housing	-	63,318	29,528	1,926	94,772
‑ consumer, credit cards and other	-	23,247	13,118	847	37,212
Restructuring
‑ corporate	-	21,977	4,003	1	25,981
‑ SMEs	-	11,004	19,118	2,303	32,425
‑ retail housing	-	19,112	44,426	3,524	67,062
‑ retail other	-	3,841	11,057	419	15,317
Recoveries
‑ corporate	-	-	9,518	1,831	11,349
‑ SMEs	-	-	10,611	2,250	12,861
‑ retail housing	-	-	58,985	7,109	66,094
‑ retail other	-	-	17,737	2,386	20,123
International banking services	-	10,468	2,922	1	13,391
Wealth management	-	-	-	327	327
	-	818,330	281,832	26,811	1,126,973

31 December 2021	Stage 1	Stage 2	Stage 3	POCI	Total
By business line	€000	€000	€000	€000	€000
Corporate	6,461	255,488	14,735	-	276,684
Large and international corporate	-	303,823	53,667	-	357,490
SMEs	-	96,654	5,736	3,972	106,362
Retail
‑ housing	381	97,548	38,276	2,548	138,753
‑ consumer, credit cards and other	41	29,578	16,181	1,206	47,006
Restructuring
‑ corporate	-	6,941	8,882	6,013	21,836
‑ SMEs	-	8,705	23,410	3,775	35,890
‑ retail housing	-	13,500	49,746	3,362	66,608
‑ retail other	-	5,047	15,088	426	20,561
Recoveries
‑ corporate	-	-	17,503	2,293	19,796
‑ SMEs	-	-	12,402	1,980	14,382
‑ retail housing	-	-	70,951	10,367	81,318
‑ retail other	-	-	19,313	3,165	22,478
International banking services	-	11,565	2,495	99	14,159
Wealth management	-	-	-	407	407
	6,883	828,849	348,385	39,613	1,223,730

ECL allowance

	30 June 2022	31 December 2021
	€000	€000
Stage 1	-	8
Stage 2	12,276	13,349
Stage 3	93,731	120,345
POCI	5,719	10,218
	111,726	143,920

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 on financial instruments 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.

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.

Interest rate risk is measured mainly using the impact on net interest income and impact on economic value. In addition to the above measures, interest rate risk is also measured using interest rate risk gap analysis where the assets, liabilities and off‑balance sheet items, are classified according to their remaining repricing period. Items that are not sensitive to rate changes are recognised as non‑rate sensitive (NRS) items. The present value of 1 basis point (PV01) is also calculated. Interest rate risk is managed through a 1 Year Interest Rate Effect (IRE) limit on the maximum reduction of net interest income under the various interest rate shock scenarios. Limits are set as a percentage of the Group capital and as a percentage of the net interest income. There are different limits for the Euro and the US Dollar.

Sensitivity analysis

The table below sets out the impact on the Group's net interest income, over a one‑year period, from reasonably possible changes in the interest rates of the main currencies using the assumption of the prevailing market risk policy for the current and the comparative period:

		Impact on Net Interest Income in €000
Currency	Interest Rate Scenario	30 June 2022 (50 bps for Euro and 60 bps for US Dollar)	31 December 2021 (50 bps for Euro and 60 bps for US Dollar)
All	Parallel up	53,336	35,677
All	Parallel down	(48,311)	(28,235)
All	Steepening	(33,955)	(19,944)
All	Flattening	42,534	25,546
All	Short up	51,166	33,182
All	Short down	(47,077)	(28,169)

Euro	Parallel up	52,302	34,484
Euro	Parallel down	(46,103)	(26,230)
Euro	Steepening	(31,851)	(17,866)
Euro	Flattening	42,107	25,153
Euro	Short up	50,287	32,200
Euro	Short down	(44,121)	(25,208)

US Dollar	Parallel up	1,034	1,193
US Dollar	Parallel down	(2,208)	(2,005)
US Dollar	Steepening	(2,104)	(2,078)
US Dollar	Flattening	427	393
US Dollar	Short up	879	982
US Dollar	Short down	(2,956)	(2,961)

The table below sets out the impact on the Group's equity, from reasonably possible changes in the interest rates under various interest rate scenarios for the Euro and the US Dollar in line with the EBA guidelines.

		Impact on Equity in €000
Currency	Interest Rate Scenario	30 June 2022 (50 bps for Euro and 60 bps for US Dollar)	31 December 2021 (50 bps for Euro and 60 bps for US Dollar)
All	Parallel up	5,147	(14,964)
All	Parallel down	(9,228)	23,698
All	Steepening	(11,749)	(9,300)
All	Flattening	8,207	8,986
All	Short up	10,396	3,616
All	Short down	(20,326)	6,273

Euro	Parallel up	4,313	(18,080)
Euro	Parallel down	(1,804)	60,603
Euro	Steepening	(11,128)	(7,836)
Euro	Flattening	17,544	17,714
Euro	Short up	16,315	2,234
Euro	Short down	(13,550)	26,386

US Dollar	Parallel up	5,980	6,232
US Dollar	Parallel down	(7,424)	(6,604)
US Dollar	Steepening	(621)	(1,464)
US Dollar	Flattening	(565)	258
US Dollar	Short up	4,476	4,998
US Dollar	Short down	(6,776)	(6,920)
The aggregation of the impact on equity was performed as per the EBA guidelines by adding the negative and 50% of the positive impact of each scenario.
In addition to the above fluctuations in net interest income, interest rate changes can result in fluctuations in the fair value of investments at FVPL (including investments held for trading) and in the fair value of derivative financial instruments.
The equity of the Group is also affected by changes in market interest rates.  The impact on the Group's equity arises from changes in the fair value of fixed rate debt securities classified at FVOCI.
The sensitivity analysis is based on the assumption of a parallel shift of the yield curve.  The table below sets out the impact on the Group's profit/loss before tax and equity as a result of reasonably possible changes in the interest rates of the major currencies.

Parallel change in interest rates ((increase)/decrease in net interest income)	Impact on profit/loss before tax	Impact on equity
30 June 2022	€000	€000
+0.6% for US Dollar +0.5% for Euro +1.0% for British Pound	(619)	(504)
‑0.6% for US Dollar ‑0.5% for Euro ‑1.0% for British Pound	619	504

	Impact on profit/loss before tax	Impact on equity
Parallel change in interest rates ((increase)/decrease in net interest income)	€000	€000
31 December 2021
+0.6% for US Dollar +0.5% for Euro +1.0% for British Pound	1,219	(739)
‑0.6% for US Dollar ‑0.5% for Euro ‑1.0% for British Pound	(782)	739
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) are the subject of international, national and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented as explained further below. These reforms may cause such benchmarks to perform differently from the past or cease to exist entirely or have other consequences that cannot be predicted.
Regarding LIBOR reform, regulators and industry working groups have identified alternative rates to transition to. On 5 March, 2021 the Financial Conduct Authority (FCA) confirmed that all LIBOR settings would either cease to be provided by any administrator or no longer be representative of the underlying market they intended to measure:
· immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1 week and 2 month US dollar settings; and
· immediately after 30 June 2023, in the case of the remaining US dollar settings.
In October 2021, the European Commission designated a statutory replacement rate for certain settings of CHF LIBOR. On 16 November 2021, the Financial Conduct Authority of the United Kingdom (UK FCA) confirmed that they would permit the temporary use of the synthetic GBP and JPY LIBOR in all legacy LIBOR contracts, other than cleared derivatives that have not been changed at or ahead of end‑31 December 2021. Also, under their new use restriction power they would prohibit new use of USD LIBOR from the end of 2021, except in specific circumstances.
How the Group is managing the transition to alternative benchmark rates
BOC PCL established a project to manage the transition to alternative interest rate benchmarks with the Director of Treasury as the project owner and with oversight from a dedicated Benchmark Steering Committee. The main divisions involved in the project at the highest level are the Legal Department, Treasury, Risk Management, Finance, Information Technology (IT), Operations and the business lines. The Assets and Liabilities Committee (ALCO) monitors the project on a regular basis.
The Group's transition project also involved the drawing up of appropriate fallback provisions for LIBOR linked contracts and transition mechanisms in its floating rate assets and liabilities with maturities after 2021.
For the legacy non‑cleared derivatives exposures, the Group has adhered to the International Swaps and Derivatives Association (ISDA) protocol which came into effect in January 2021, while for cleared derivatives, BOC PCL adopted the market wide standardised approach to be followed by the relevant clearing house.

The Group proactively engaged with its customer base and market counterparties for the amendment of substantially all impacted LIBOR contracts (other than the relevant contracts referencing to USD LIBOR and which they will cease on 30 June 2023) by 31 December 2021 for transitioning to alternative rates. Those legacy credit facilities in CHF for which the contract was not amended by the first interest period commencing in 2022 ('tough legacy'), have been transitioned to the statutory rate provided by EU legislation. The Group has also made the necessary arrangements to transition its tough legacy GBP and JPY credit facilities to alternative rates by notifying its customer base accordingly and reserving the right to use a statutory rate provided by EU legislation in case such a rate is nominated in the future. Specifically, in anticipation that the European Commission might not designate an alternative rate for JPY and GBP Libor, the Group has informed its customers of its decision to transition tough legacy JPY and GBP LIBOR credit facilities to the same alternative rates, as if the customer has signed the relevant contract amendment. This would ensure that customers would not be treated differently to other similar customers on the same JPY and GBP LIBOR tenor who have signed their contract amendment. The Group has also engaged in client communication to inform customers and ensure a smooth transition of non‑USD LIBOR credit facilities to RFRs.

New RFR lending products have also been introduced and adopted across the Group's key currencies.

The Group's project for the transition to alternative interest rate benchmarks is now focused of the transition of USD LIBOR contracts ahead of the June 2023 deadline.

BOC PCL has dedicated teams in place to support the transition and continuously assess, monitor and dynamically manage risks arising from the transition when required.

The Group has also been actively monitoring for any market and regulatory developments published by regulatory bodies as well as by relevant Working Groups across various jurisdictions.

The Group will continue to assess, monitor and dynamically manage risks, and implement specific mitigating controls when required, progressing towards an orderly transition to alternative benchmarks.

The following table summarises the significant non‑derivative exposures impacted by interest rate benchmark reform which have yet to transition as at 30 June 2022 and 31 December 2021 to the replacement benchmark rate at the respective date:

30 June 2022	USD LIBOR	Other LIBOR	Total
Non‑derivative financial assets	€000	€000	€000
Loans and advances to customers	451,218	-	451,218
Loans and advances to banks	42,081	2,104	44,185
Total	493,299	2,104	495,403
Non‑derivative financial liabilities
Deposits by banks	114	374	488
Total	114	374	488

31 December 2021	GBP LIBOR	USD LIBOR	CHF LIBOR	Other LIBOR	Total
Non‑derivative financial assets	€000	€000	€000	€000	€000
Loans and advances to customers	92,819	364,113	26,727	1,627	485,286
Loans and advances to banks	18,341	87,397	4,984	10,261	120,983
Total	111,160	451,510	31,711	11,888	606,269
Non‑derivative financial liabilities
Deposits by banks	113	7,658	-	503	8,274
Total	113	7,658	-	503	8,274
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to be used as a benchmark interest rate for existing and new contracts. The Group therefore, does not consider that Group's exposure to EURIBOR is affected by the BMR reform.

For derivatives in hedging relationships subject to IBOR reform refer to Note 14.

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.

The impact on equity arises mainly from the impact of hedging instruments used to hedge part of the net assets of the subsidiaries. At Group level, there is an approximately equal and opposite impact on equity from the revaluation of the net assets of the foreign operations of the Group.

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 highly rated securities. The average Moody's Investors Service rating of the debt securities portfolio of the Group as at 30 June 2022 was A3 (31 December 2021: A3). The average rating excluding the Cyprus Government bond and non‑rated transactions as at 30 June 2022 was Aa2 (31 December 2021: Aa2).

Property price risk

A significant part of the Group's loan portfolio is secured by real estate the majority of which is located in Cyprus. Furthermore, the Group holds a substantial number of properties mainly arising from loan restructuring activities; the enforcement of loan collateral and debt for asset swaps. These properties are held by the Group primarily as stock of properties and some are held as investment properties.

Property risk is the risk that the Group's business and financial position will be affected by adverse changes in the demand for, and prices of, real estate, or by regulatory capital requirements relating to increased charges with respect to the stock of properties held.

31.   Risk management ‑ Liquidity and funding risk

Liquidity Risk

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 and 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 has adopted a strategy 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 which defines 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 at frequent intervals the liquidity position of the Group.

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

The Treasury Division 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.  Treasury assesses on a continuous basis, 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, to ensure compliance with both internal policies and limits, and with the limits set by the regulatory authorities. Market Risk reports the liquidity position to ALCO 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 and take action 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 so as 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 identified and 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 which are, among others, to set key Recovery and Early Warning Indicators 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 liquidity 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. The historical summary results of this report are made available to ALCO members and to members of the Risk Division, Treasury and Financial Control department. In addition, 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 twelve‑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.

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. In addition, it takes into account SREP recommendations as well as the Annual Risk Identification Process of the Group. The stress test 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, own issue covered bond, additional credit claims, interbank takings and cash collateral for derivatives and repos (as applicable).

Weekly

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

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 available liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the percentage of International Banking Services deposits over total deposits and the percentage of instant access deposits are also presented. The liquidity mismatch in the form of the Maturity Ladder report (for both contractual and behavioural flows) is presented to ALCO and the resulting 30‑day mismatch between assets and liabilities is compared to previous month's mismatch.

Market Risk also prepares a monthly liquidity report which is submitted to the ECB. The report includes information on 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 BOC PCL and describes the measures implemented and to be implemented in the short term to improve liquidity position if needed.

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

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 on a quarterly basis.

Annually

The Group prepares on an annual basis its ILAAP package. The ILAAP package provides a holistic view of the Group's liquidity adequacy under normal and stress conditions. Within ILAAP, the Group evaluates its liquidity risk in the context of established policies, processes for the identification, measurement, management and monitoring of liquidity risk implemented by the institution.

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 is tested annually. The LCP, which forms 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 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. Τhe minimum requirement is 100%. The Group also calculates its NSFR as per Capital Requirements Regulation II (CRR II), enforced in June 2021, with the limit set at 100%. The NSFR is the ratio of available stable funding to required stable funding. NSFR has been developed to promote a sustainable maturity structure of assets and liabilities.

Funding risk

Funding risk is the risk that the Group does not have sufficiently stable sources of funding or access to sources of funding may not always be available at a reasonable cost and thus the Group may fail to meet its obligations, including regulatory ones (e.g. MREL).

Main sources of funding

As at 30 June 2022 the Group's main sources of funding were its deposit base and central bank funding, through the Eurosystem monetary policy operations. Wholesale funding is also becoming an important source of funding, following the refinancing of the Tier 2 for €300 million in April 2021 and the issuance of senior preferred debt of €300 million in June 2021.

With respect to TLTRO III operations, BOC PCL borrowed in March 2021 an amount of €1,700 million and in June 2021 another €300 million, having previously borrowed in June 2020 €1,000 million under the TLTRO III, given the favourable borrowing rate, in combination with the relaxation of collateral terms (lower haircuts and widening of eligibility of credit claims), all being part of the ECB's COVID 19 aid package. As a result, at 30 June 2022 the carrying value of the ECB funding was €2,955 million (31 December 2021: €2,970 million).

As at 30 June 2022, the wholesale funding nominal amount was €820 million (31 December 2021: €856 million). This includes funding raised from the wholesale debt capital markets of €220 million AT1 issued in December 2018, €300 million new Tier 2 issued in April 2021 and €300 million senior preferred debt issued in June 2021. In January 2022, BOC PCL redeemed the remaining €36 million outstanding of the Tier 2 issued in January 2017.

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.

The subsidiaries may proceed with dividend distributions in the form of cash to BOC PCL, provided that they are not in breach of their regulatory capital and liquidity requirements, where applicable. Certain subsidiaries have a recommendation from their regulator to exercise caution and prudence regarding dividend distributions and to consider the impact of COVID‑19 on their operating models, solvency, liquidity and financial position.

Collateral requirements and other disclosures

Collateral requirements

The carrying values of the Group's encumbered assets as at 30 June 2022 and 31 December 2021 are summarised below:

	30 June 2022	31 December 2021
	€000	€000
Cash and other liquid assets	66,579	102,463
Investments	1,369,471	1,260,158
Loans and advances	3,283,003	3,126,803
	4,719,053	4,489,424
Cash is mainly used to cover collateral required for derivatives, trade finance transactions and guarantees issued. It may also be used as part of the supplementary assets for the covered bond. The decrease in cash and other liquid assets presented as encumbered assets during the six months ended 30 June 2022 was driven mainly by the decrease in cash encumbered for derivatives.
As at 30 June 2022 and 31 December 2021, investments are mainly used as collateral for ECB funding or as supplementary assets for the covered bond. The increase in the investments presented as encumbered assets during the six months ended 30 June 2022 was driven by the pledging of additional debt securities to the ECB in anticipation of the gradual phasing out of the pandemic collateral easing measures effective from 8 July 2022.
Loans and advances indicated as encumbered as at 30 June 2022 and 31 December 2021 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 of €1,005 million as at 30 June 2022 (31 December 2021: €1,007 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 2022 housing loans of a nominal amount of €2,223 million (31 December 2021: €2,091 million) in Cyprus, are pledged as collateral for funding from the ECB.

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. The covered bonds have a maturity date on 12 December 2026 and interest rate of 3 months Euribor plus 1.25% on a quarterly basis. On 9 August 2022, BOC PCL proceeded with an amendment to the terms and conditions of the covered bonds following the implementation of Directive (EU) 2019/2162 in Cyprus. The covered bonds are listed 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.

Other disclosures

Deposits by banks include balances of €32,201 thousand as at 30 June 2022 (31 December 2021: €36,571 thousand) relating to borrowings from international financial and similar institutions for funding, aiming to facilitate access to finance and improve funding conditions for small or medium sized enterprises, active in Cyprus. The carrying value of the respective loans and advances granted to such enterprises serving this agreement amounts to €62,735 thousand as at 30 June 2022 (31 December 2021: €71,321 thousand).

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 healthy capital adequacy ratios to cover the risks of its business and support its strategy and maximise shareholders' value.

The capital adequacy framework, as in force, was incorporated through the Capital Requirements Regulation (CRR) and Capital Requirements Directive IV (CRD IV) which came into effect on 1 January 2014 with certain specified provisions implemented gradually. The CRR and CRD 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. It is directly applicable in all EU member states. CRD 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 into national law and national regulators were allowed to impose additional capital buffer requirements.

On 27 June 2019, the revised rules on capital and liquidity Regulation (EU) 2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an amending regulation, the existing provisions of CRR apply unless they are amended by CRR II. Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities (MREL)), but most changes became effective as of June 2021. The key changes introduced consist of among others, changes to qualifying criteria for Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments, introduction of requirements for MREL and a binding Leverage Ratio requirement (as defined in the CRR) and a Net Stable Funding Ratio (NSFR).

The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020 through Regulation (EU) 2020/873, which among other, brought forward certain CRR II changes in light of the COVID 19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's capital ratio relate to i) the acceleration of the CRR II provision for the implementation of the new SME discount factor (lower RWAs), ii) extending the IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020 and 2021 for non‑credit impaired financial assets and phasing in this starting from 2022 (phasing‑in at 25% in 2022) and iii) advancing the application of prudential treatment of software assets as amended by CRR II (which came into force in December 2020). In addition, Regulation (EU) 2020/873 introduced a temporary treatment of unrealized gains and losses on exposures to central governments, to regional governments or to local authorities measured at fair value through other comprehensive income which the Group elected to apply and implemented from the third quarter of 2020.

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

In October 2021, the European Commission adopted legislative proposals for further amendments to Capital Requirements Regulation (CRR), CRD IV and the BRRD (the '2021 Banking Package'). Amongst other things, the 2021 Banking Package would implement certain elements of Basel III that have not yet been transposed into EU law. The 2021 Banking Package is subject to amendment in the course of the EU's legislative process; and its scope and terms may change prior to its implementation. In addition, in the case of the proposed amendments to CRD and the BRRD, their terms and effect will depend, in part, on how they are transposed in each member state. As a general matter, it is likely to be several years until the 2021 Banking Package begins to be implemented (currently expected in 2025); and certain measures are expected to be subject to transitional arrangements or to be phased in over time.

The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd and EuroLife Ltd, comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated UCITS management company of the Group, BOC Asset Management Ltd complies with the regulatory capital requirements of the Cyprus Securities and Exchange Commission (CySEC) laws and regulations. The regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO) complies with the minimum capital adequacy ratio requirements. CISCO has been classified as Non‑Systemic 'Class 2' company under the prudential regime for Investment Firms and is subject to the new IFR/IFD regime in full.  The payment services subsidiary of the Group, JCC Payment Services Ltd, complies with the regulatory capital requirements.

Additional information on regulatory capital is disclosed in 'Additional Risk and Capital Management Disclosures' included in the Interim Financial Report 2022 and in the 'Interim Pillar III disclosures 2022', which are available on the Group's website.

33.   Related party transactions

Related parties of the Group include associates and joint ventures, key management personnel, members of the 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
	2022	2021
Director emoluments	€000	€000
Executives
Salaries and other short‑term benefits	523	337
Employer's contributions	35	20
Retirement benefit plan costs	44	30
	602	387
Non‑executives
Fees	663	615
Total directors' emoluments	1,265	1,002
Other key management personnel emoluments
Salaries and other short‑term benefits	1,397	1,792
Employer's contributions	163	138
Retirement benefit plan costs	105	100
Total other key management personnel emoluments	1,665	2,030
Total	2,930	3,032
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 Senior Management team (Extended EXCO) (prior to the change in the Group organisational structure, those members of the management team who report directly to the Chief Executive Officer or to the Deputy Chief Executive Officer & Chief of Business). Mrs Eliza Livadiotou has been appointed as member of the Board of Directors from 6 October 2021 and her emoluments from that date onwards are disclosed within the Executive Directors emoluments above.

Aggregate amounts outstanding and additional transactions

The table below shows the loans and advances, deposits and other credit balances held by the members of the Board of Directors and key management personnel and their connected persons, as at the balance sheet date:

	30 June 2022	31 December 2021
Loans and advances	€000	€000
‑ members of the Board of Directors and other key management personnel	2,504	2,364
‑ connected persons	773	164
	3,277	2,528
Deposits
‑ members of the Board of Directors and other key management personnel	5,127	2,687
‑ connected persons	3,145	2,254
	8,272	4,941
Accruals and other liabilities
‑ balances with entity providing key management personnel services	n/a	1,199
The above table does not include period/year‑end balances for members of the Board of Directors and other key management personnel and their connected persons who resigned during the year.
The aggregate expected credit loss allowance of the above loans and credit facilities is below €7 thousand as at 30 June 2022. All interest that has fallen due on these loans or credit facilities has been paid.
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 to their connected persons on the same terms as those of customers.
Connected persons include spouses, minor/dependent 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.
Related parties also include entities providing key management personnel services to the Group.
The table below discloses interest, commission and insurance premium income, as well other transactions and expenses with the members of the Board of Directors, key management personnel and their connected persons for the reference period.

	Six months ended 30 June
	2022	2021
	€000	€000
Interest income for the period	29	366
Commission income for the period	3	1
Insurance premium income for the period	206	160
Subscriptions and insurance expenses for the period	488	348
Staff costs, consultancy and restructuring expenses with entity providing key management personnel services	-	7,035
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.
During the six months ended 30 June 2022 connected persons of key management personnel transacted with REMU for the purchase of a property amounting to €58 thousand (30 June 2021: nil). The transaction is made on normal business terms as for comparable transactions with third parties.
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 €130 thousand as at 30 June 2022 (31 December 2021: €133 thousand).
There were also contingent liabilities and commitments to key management personnel and their connected persons amounting to €1,181 thousand as at 30 June 2022 (31 December 2021: €573 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 connected persons (using forced‑sale values for tangible collaterals and assigning no value to other types of collaterals) at 30 June 2022 amounted to €1,290 thousand (31 December 2021: €774 thousand).
During the six months ended 30 June 2022 premiums of €94 thousand (six months ended 30 June 2021: €68 thousand) and claims of €20 thousand (six months ended 30 June 2021: €15 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 2022 and the year ended 31 December 2021 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 2022 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
EuroLife Ltd	Cyprus	Life insurance	100
General Insurance of Cyprus Ltd	Cyprus	Non‑life insurance	100
JCC Payment Systems Ltd	Cyprus	Card processing transaction services	75
The Cyprus Investment and Securities Corporation Ltd (CISCO)	Cyprus	Investment banking and brokerage	100
BOC Asset Management Ltd	Cyprus	Management administration and safekeeping of UCITS Units	100
LCP Holdings and Investments Public Ltd	Cyprus	Investments in securities and participations in companies and schemes that are active in various business sectors and projects	67
Kermia Ltd	Cyprus	Property trading and development	100
Kermia Properties & Investments Ltd	Cyprus	Property trading and development	100
S.Z. Eliades Leisure Ltd	Cyprus	Land development and operation of a golf resort	70
Auction Yard Ltd	Cyprus	Auction company	100
BOC Secretarial Company Ltd	Cyprus	Secretarial services	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, as at 30 June 2022 BOC PCL had 100% shareholding in the companies listed below, whose activity is the ownership and management of immovable property:

Cyprus: Hamura Properties Ltd, Noleta Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Pelika Properties Ltd, Cobhan Properties Ltd, Innerwick Properties Ltd, Ramendi Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Tebane Properties Ltd, Cranmer Properties 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, 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, Spacous Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd, Linaland 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, Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco Properties Ltd, Hovita Properties Ltd, Astromeria Properties Ltd, Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd, Fareland Properties Ltd, Barosca Properties Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco 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, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Garmozy Properties Ltd, Palmco Properties Ltd, Thermano 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, 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, Samilo Properties Ltd, Sendilo Properties Ltd, Baleland Properties Ltd, Prodino Properties Ltd, Alezia Properties Ltd, Zenoplus Properties Ltd, Alepar Properties Ltd, Enelo Properties Ltd, Monata Properties Ltd and Vertilia Properties Ltd.

Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL, Imoreth Properties SRL, Inroda Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.

Further, at 30 June 2022 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties Ltd and Gosman Properties Ltd.

The main activities of the above companies are the holding of shares and other investments and the provision of services.

At 30 June 2022 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I Plc which is a real estate alternative investment fund.

At 30 June 2022 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, Cramonco Properties Ltd, Aktilo Properties Ltd, Aparno Properties Ltd, Stormino Properties Ltd, Lomenia Properties Ltd, Carilo Properties Ltd, Gelimo Properties Ltd, Rifelo Properties Ltd, Avaleto Properties Ltd, Midelox Properties Ltd, Ameleto Properties Ltd, Orilema Properties Ltd, Montira Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.

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

Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Bonayia Properties Ltd, Janoland Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Zunimar 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: Birkdale Properties Ltd, Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Folimo Properties Ltd, Paneuropean Ltd, Philiki Ltd, Nelcon Transport Co. Ltd, Weinco Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd, CYCMC II Ltd, CYCMC IV Ltd, Steparco Ltd, Trecoda Properties Ltd and Romaland Properties 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 have share capital consisting of ordinary shares.

Acquisitions of subsidiaries

During the six months ended 30 June 2022 and during 31 December 2021 there were no acquisitions of subsidiaries.

Dissolution and disposal of subsidiaries

There were no material disposals of subsidiaries during the six months ended 30 June 2022. Renalandia Properties Ltd, Crolandia Properties Ltd, Elosis Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd, Otoba Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, Polkima Properties Ltd and Fledgego Properties Ltd were dissolved during the six months ended 30 June 2022. Vieman Ltd, Edilia Properties Ltd, Limoro Properties Ltd, Stevolo Properties Ltd, Yossi Properties Ltd and Jalimo Properties Ltd were disposed off during the six months ended 30 June 2022.

As at 30 June 2022, the following subsidiaries were in the process of dissolution or in the process of being struck off:  Fantasio Properties Ltd, Demoro Properties Ltd, Bramwell Properties Ltd, Blindingqueen Properties Ltd, Buchuland Properties Ltd, Fairford Properties Ltd, Salecom Ltd, Sylvesta Properties Ltd, Bocaland Properties Ltd, Tantora Properties Ltd, Selilar Properties Ltd, Cyprialife Ltd, Imperial Life Assurances Ltd, Philiki Management Services Ltd and Battersee Real Estate SRL.

35.   Investments in associates and joint venture

	Percentage holding	Type of investment
	(%)
Aris Capital Management LLC	30.0	Associate
Rosequeens Properties Limited	33.3	Associate
Rosequeens Properties SRL	33.3	Associate
Tsiros (Agios Tychon) Ltd	50.0	Joint Venture
Fairways Automotive Holdings Ltd	45.0	Associate
The carrying values of the investments in associates and joint venture are considered to be fully impaired and their value has been restricted to zero.
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
In March 2021, the Group completed the sale of its entire holding of 34.2% of the UCITS of Apollo. The Group considered that it exercised significant influence over Apollo even though no Board representation existed, because due to its UCITS holdings, it possessed the power to potentially appoint members of the Board of Directors. During the year ended 31 December 2021, an amount of €137 thousand was recognised in the consolidated income statement as the Group's share of profit from Apollo. The loss on the sale of the investment in associate amounted to €97 thousand and has been recognised in 'Other Income' during the year ended 31 December 2021.

36.   Events after the reporting period

Voluntary exit plan

In July 2022, the Group proceeded with a VEP for its employees, with a cost of around €99 million. In total around 550 employees accepted the VEP and are expected to leave the Group in the second half of 2022.

 

END

 

 

IR FIFSETRILVIF