Ιnterim Financial Report 2019

BANK OF CYPRUS HOLDINGS GROUPInterim Financial ReportSix months ended 30 June 2019

Contents PageBoard of Directors and Executives 1Forward Looking Statements and Notes 2Interim Management Report 3Consolidated Condensed Interim Financial statementsInterim Consolidated Income Statement 25Interim Consolidated Statement of Comprehensive Income 26Interim Consolidated Balance Sheet 27Interim Consolidated Statement of Changes in Equity 28Interim Consolidated Statement of Cash Flows 30Notes to the Consolidated Condensed Interim Financial Statements

1. Corporate information 322. Unaudited financial statements 323. Summary of significant accounting policies 324. Going concern 375. Operating environment 386. Significant and other judgements, estimates and assumptions 397. Segmental analysis 458. Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates 539. Staff costs and other operating expenses 5310. Credit losses of financial instruments and impairment of non-financial instruments11. Income tax 5512. Earnings per share 5813. Investments 5814. Derivative financial instruments 6015. Fair value measurement 6116. Loans and advances to customers 6817. Stock of property 6818. Prepayments, accrued income and other assets 6919. Non-current assets and disposal groups held for sale 7020. Funding from central banks 7121. Customer deposits 7222. Subordinated loan stock 7323. Accruals, deferred income, other liabilities and other provisions 7324. Share capital 7325. Pending litigation, claims, regulatory and other matters 7526. Contingent liabilities 7927. Cash and cash equivalents 8028. Analysis of assets and liabilities by expected maturity 8129. Risk management - Credit risk 8230. Risk management - Market risk 11831. Risk management - Liquidity risk and funding 11832. Capital management 12233. Related party transactions 12234. Group companies 12535. Acquisitions and disposals of subsidiaries 12836. Investments in associates and joint venture 12937. Events after the reporting period 131Independent Review Report to the Bank of Cyprus Holdings Public Limited Company 132Additional Risk and Capital Management Disclosures including Pillar 3 semi-annual disclosures 134Definitions and explanations of Alternative Performance Measures Disclosures 173

BANK OF CYPRUS HOLDINGS GROUPBoard of Directors and Executivesas at 26 August 2019

Board of Directors of Bank of CyprusHoldings Public Limited Company

Efstratios-Georgios ArapoglouCHAIRMAN

Maksim Goldman VICE CHAIRMAN

Arne BerggrenLyn GroblerDr. Michael HegerJohn Patrick HouricanDr. Christodoulos PatsalidesIoannis ZographakisAnat Bar-GeraMaria PhilippouPaula Hadjisotiriou

Executive Committee John Patrick HouricanOUTGOING CHIEF EXECUTIVE OFFICER

Panicos Nicolaou DIRECTOR CORPORATE BANKING/CHIEF EXECUTIVE OFFICER DESIGNATE

Dr. Christodoulos PatsalidesDEPUTY CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER

Michalis AthanasiouCHIEF RISK OFFICER

Eliza LivadiotouFINANCE DIRECTOR

Louis PochanisDIRECTOR INTERNATIONAL BANKING, WEALTH AND MARKETS

Dr. Charis PouangareDIRECTOR CONSUMER AND SME BANKING

Nicolas Scott SmithDIRECTOR RESTRUCTURING AND RECOVERIES DIVISION

Anna SofroniouDIRECTOR REAL ESTATE MANAGEMENT UNIT

Aristos StylianouEXECUTIVE CHAIRMAN, INSURANCE BUSINESSES

Company Secretary Katia Santis

Legal Advisers as to matters of IrishLaw

Arthur Cox

Legal Advisers as to matters ofEnglish and US Law

Sidley Austin LLP

Legal Advisers as to matters ofCypriot Law

Chryssafinis & Polyviou

Statutory Auditors

PricewaterhouseCoopers,One Spencer Dock,North Wall Quay,Dublin 1,Ireland,I.D.E. Box No. 137

Registered Office

Arthur Cox 10 Earlsfort TerraceDublin 2D02 T380Ireland

1

BANK OF CYPRUS HOLDINGS GROUPForward Looking Statements and Notes

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

Non-IFRS performance measures

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

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

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results

Commentary on underlying basisThe financial information presented below provides an overview of the Group financial results for the sixmonths ended 30 June 2019 on the ‘underlying basis’ which the management believes it best fits themeasurement of the performance and position of the Group. Reconciliations are included in the belowsections and in ‘Definitions and explanations on Alternative Performance Measures Disclosures’ to allow forthe comparability of the underlying basis to statutory information.

The main financial highlights for 2019 are set out below:

Consolidated Condensed Interim Income Statement underlying basis

€ million30 June

201930 June 2018(represented)

Net interest income 170 166

Net fee and commission income 75 80

Net foreign exchange gains and net gains on financial instrumentstransactions and disposal/dissolution of subsidiaries and associates 26 42

Insurance income net of insurance claims and commissions 30 25

Net gains from revaluation and disposal of investment properties andon disposal of stock of properties 16 21

Other income 16 11

Total income 333 345

Staff costs (112) (102)

Other operating expenses (84) (80)

Special levy on deposits on credit institutions in Cyprus andcontribution to Single Resolution Fund (SRF) (12) (12)

Total expenses (208) (194)

Operating profit 125 151

Loan credit losses (87) (85)

Impairments of other financial and non-financial instruments (10) (13)

Reversal of provisions for litigation, regulatory and other matters 3 6

Total loan credit losses, impairments and provisions (94) (92)

Profit before tax and non-recurring items 31 59

Tax - (4)

(Profit)/loss attributable to non-controlling interests (2) 2

Profit after tax and before non-recurring items 29 57

Advisory and other restructuring costs excluding discontinuedoperations and NPE sale (Helix) (12) (15)

Profit after tax - organic 17 42

Profit from discontinued operations (UK) - 4

Profit/(loss) relating to NPE Sale (Helix) - (105)

Loss on remeasurement of investment in associate classified as heldfor sale (CNP) net of share of profit from associates (21) 5

Reversal of impairment of deferred tax assets and impairment of othertax receivables 101 -

Profit/(loss) after tax (attributable to the owners of theCompany) 97 (54)

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Consolidated Condensed Interim Income Statement underlying basis (continued)

Reclassifications to comparative information were made as follows: Unrecognised interest on previously credit impaired loans which have cured during the period

amounting to €14,918 thousand was reclassified from 'Net interest income' to ‘Credit losses tocover credit risk on loans and advances to customers’ in line with an IFRIC discussion, which hastaken place in November 2018 (Presentation of unrecognised interest following the curing of acredit impaired financial asset (IFRS 9)). The corresponding amount for the six months ended 30June 2019 stood at €7,781 thousand.

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

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

Key Performance Ratios30 June2019*

30 June2018**

Net interest margin %1.88 %1.86

Cost to income ratio %63 %56

Cost to income ratio excluding special levy and contribution to SingleResolution Fund %59 %53

Operating profit return on average assets %1.2 %1.4

Basic earnings/(losses) per share attributable to the owners of theCompany (€ cent) 21.84 (12.12)

*The interest income, non-interest income, staff costs, other operating expenses and loan credit lossesrelated to Project Helix are disclosed under 'Profit/(loss) relating to NPE sale (Helix)' in the underlying basis.**Additionally to the above, amounts are represented for the disposal of the UK subsidiary and includingthe impact from IFRIC presentation of unrecognised interest following the curing of a credit-impairedfinancial asset (IFRS 9). This resulted to a reclassification between net interest income and loan creditlosses, with no impact on overall profitability.

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Consolidated Condensed Interim Balance Sheet underlying basis

€ million30 June

2019

31 December2018

(restated)Cash and balances with central banks 5,262 4,610

Loans and advances to banks 403 473

Debt securities, treasury bills and equity investments 1,881 1,515

Net loans and advances to customers 10,949 10,922

Stock of property 1,430 1,427

Investment property 142 127

Non-current assets and disposal groups classified as held for sale 198 1,470

Other assets 1,622 1,531

Total assets 21,887 22,075

Deposits by banks 532 432

Funding from central banks 830 830

Repurchase agreements 248 249

Customer deposits 16,377 16,844

Subordinated loan stock 261 271

Other liabilities 1,169 1,082

Total liabilities 19,417 19,708

Shareholders’ equity 2,222 2,121

Other equity instruments (AT1) 220 220

Total equity excluding non-controlling interests 2,442 2,341

Non-controlling interests 28 26

Total equity 2,470 2,367

Total liabilities and equity 21,887 22,075

Comparative information was restated following the change in the classification of properties which areleased out under operating leases as investment properties.

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Consolidated Condensed Interim Balance Sheet underlying basis (continued)

Key Balance Sheet figures and ratios30 June20191

30 June2019

31 December2018

Gross loans and advances to customers (€ million) 13,072 13,148

Allowance for expected credit losses (€ million) 2,145 2,254

Customer deposits (€ million) 16,377 16,844

Loans to deposits ratio (net) %67 %65

NPE ratio %33 %36

Expected credit losses coverage ratio for NPEs %50 %47

Leverage ratio %10.5 %10.0

Capital ratios and risk weighted assets

Common Equity Tier 1 capital ratio (CET 1)(transitional for IFRS 9) 15.2% %14.9 %11.9

Total capital ratio 18.1% %17.8 %14.9

Risk weighted assets (€ million) 13,724 13,962 15,373

1As at 30 June 2019, BOC PCL signed an agreement for the disposal of its entire holding of 49.9% in CNPCyprus Insurance Holdings Ltd (CNP). Prior to the classification as held for sale, the investment wasremeasured and a loss of €25.9 million was recognised in the consolidated income statement. The above 30June 2019 figures and calculations have been calculated on the basis that the sale of CNP had beencompleted.

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

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

€ millionUnderlying

basisHelix

portfolio

Investmentin associate

classifiedas HFS

Taxrelateditems

OtherStatutory

basis

Net interest income 170 34 - - - 204

Net fee and commission income 75 6 - (6) - 75

Net foreign exchange gains and netgains on other financial instrumentstransactions and disposal/dissolution of subsidiaries andassociates 26 - - - 0 26

Insurance income net of insuranceclaims and commissions 30 - - - - 30

Net gains from revaluation anddisposal of investment propertiesand on disposal of stock ofproperties 16 - - - - 16

Other income 16 - - - - 16

Total income 333 40 - (6) 0 367

Total expenses (208) (23) - - (9) (240)

Operating profit 125 17 - (6) (9) 127

Loan credit losses (87) (17) - - 0 (104)

Impairments of other financial andnon-financial assets (10) - - (8) - (18)

Reversal of provisions for litigation,regulatory and other matters 3 - - - (3) -

Remeasurement of investment inassociate classified as held for sale - - (26) - - (26)

Share of profit from associate - - 5 - - 5

Profit/(loss) before tax and non-recurring items 31 - (21) (14) (12) (16)

Tax 0 - - 115 - 115

(Profit) attributable to non-controlling interests (2) - - - - (2)

Profit after tax and before non-recurring items 29 - (21) 101 (12) 97

Advisory and other restructuringcosts excluding discontinuedoperations and NPE sale (Helix) (12) - - - 12 -

Profit after tax - organic* 17 - (21) 101 - 97

Profit/(loss) relating to NPE sale(Helix) 0 (0) - - - -

Loss on remeasurement ofinvestment in associate classified asheld for sale (CNP) net of share ofprofit from associates (21) - 21 - - -

Reversal of impairment of deferredtax assets (DTA) and impairment ofother tax receivables 101 - - (101) - -

Profit after tax (attributable tothe owners of the Company) 97 - - - - 97

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Financial results (continued)

Reconciliation of the Income Statement for the six months ended 30 June 2019 betweenstatutory and underlying basis (continued)

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

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

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

Helix portfolio Net interest income of €34 million and fee and commission income of €6 million relating to the

NPE sale (Helix) is disclosed under non-recurring items within 'Profit/(loss) relating to NPE sale(Helix)' under the underlying basis.

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

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

Investment in associate classified as HFS Loss on remeasurement of investment in associate classified as held for sale (CNP) net of share

of profit form associate of €21 million comprises the share of profit for associate of €5 millionwhich is reported in the 'Share of profits from associates' under the statutory basis and the losson remeasurement of €26 million which is classified as 'Remeasurement of investment inassociate classified as held for sale' under the statutory basis.

Tax related items Reversal of impairment of the deferred tax asset amounting to €115 million included within 'Tax'

under the statutory basis is classified as a non-recurring item and disclosed within 'Reversal ofimpairment of DTA and impairment of other tax receivables' under the underlying basis. 'Fee andcommission expense' relating to the revised income tax legislation of €6 million, which has beendisclosed within 'Reversal of impairment of deferred tax asset and impairment of other taxreceivables' under the underlying basis, is disclosed within the 'Net fee and commission income'under the statutory basis.

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

Other reclassifications Advisory and other restructuring costs of approximately €12 million included in 'Other operating

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

included in 'Other operating expenses' under the statutory basis, are separately presented underthe underlying basis.

Balance Sheet Analysis

Capital Base

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

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Balance Sheet Analysis (continued)

Capital Base (continued)

The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.9% at 30 June2019 (and 15.2% pro forma for the sale of investment in CNP Cyprus Insurance Holdings Ltd ('CNP')),compared to 11.9% at 31 December 2018 (adjusted to take into account the DTAs which were fully phasedin as of 1 January 2019). During the six months ended 30 June 2019 the Project Helix was completed,positively impacting CET1 ratio by c.140 bps. The CET1 ratio was positively affected by the tax legislationamendments relating to the conversion of deferred tax assets into deferred tax credits (DTC) and includesreviewed profits for the six months ended 30 June 2019.

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

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

The Group’s capital ratios are above the minimum CET1 regulatory capital ratio of 10.5% (comprising a4.5% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and theOther Systemically Important Institution Buffer of 0.5%) and the overall Total Capital requirement of14.0%, comprising an 8.0% Pillar I requirement (of which up to 1.5% can be in the form of Additional Tier 1capital and up to 2.0% in the form of Tier 2 capital), a 3.0% Pillar II requirement (in the form of CET1), theCapital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. TheECB has also provided non-public guidance for an additional Pillar II CET1 buffer.

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

In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the CentralBank of Cyprus (CBC) is also the responsible authority for the designation of banks that are OtherSystemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for thesesystemically important banks. The Group has been designated as an O-SII and the O-SII buffer currentlyset by the CBC for the Group is 2%. This buffer is being phased-in gradually having started from 1 January2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1January 2022.

Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibitionfor equity dividend distribution and therefore no dividends were declared or paid during years 2018 and2017. Following the 2018 SREP decision, the Company and BOC PCL are still under equity dividenddistribution prohibition. This prohibition does not apply if the distribution is made via the issuance of newordinary shares to the shareholders which are eligible as CET1 capital. No prohibition applies to thepayment of coupons on any AT1 capital instruments issued by the Company and the BOC PCL.

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

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Balance Sheet Analysis (continued)

Project Helix

In June 2019, the Group completed the sale of a portfolio of loans with a gross book value of €2.8 billion (ofwhich €2.7 billion related to non-performing loans) (the 'Portfolio') secured by real estate collateral tocertain funds affiliated with Apollo Global Management LLC, the agreement for which was announced on 28August 2018 (Project Helix). Cash consideration of c.€1.2 billion was received on completion, reflectingadjustments resulting from, inter alia, loan repayments received on the Portfolio since the reference date of31 March 2018.

Overall, the transaction is capital accretive, with a net positive impact on the Group capital ratios of c.60bps. The impact from the completion of Project Helix on the CET1 ratio and Total Capital ratio at 30 June2019 is an increase of c.140 bps.

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

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

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

Additional Tier 1 (AT1)

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

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

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

Pro forma capital ratios

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

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Balance Sheet Analysis (continued)

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

Share premium reduction of BOC PCL

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

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

Funding

Funding from Central Banks

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

Deposits

Customer deposits totalled €16,377 million at 30 June 2019 compared to €16,844 million at 31 December2018, down by 3%.

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

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

Subordinated Loan Stock

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

Liquidity

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

The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will become a regulatory indicatorwhen Capital Requirement Regulation 2 (CRR2) is enforced, currently expected in 2021, with the limit set at100%. At 30 June 2019, the Group’s NSFR, on the basis of Basel ΙΙΙ standards, stood at 128% (comparedto 119% at 31 December 2018).

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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANYInterim Management Report

Financial results (continued)

Balance Sheet Analysis (continued)

Loans

Group gross loans totalled €13,072 million at 30 June 2019 compared to €15,900 million at 31 December2018. Gross loans in Cyprus totalled €12,945 million at 30 June 2019. The reduction in gross loans by 17%is attributed mainly to the completion of Project Helix (sale of €2.8 billion of gross loans of which €2.7billion related to non-performing loans) and to a lesser extent to the completion of Project Velocity (sale of€30 million gross loans, of which the whole amount related to non-performing loans) in the second quarterof 2019.

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

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

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

Loan portfolio quality

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

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

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

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

30 June 2019 31 December 2018

€ million% of gross

loans€ million

% of grossloans

NPEs as per EBA definition 4,312 %33.0 7,419 %46.7

Of which:- NPEs with forbearance measures, no arrears 657 %5.0 1,211 %7.6

Overall, the Group has recorded organic NPE reductions for seventeen consecutive quarters and expects theorganic reduction of NPEs to continue during the coming quarters.

Project Helix

In June 2019, the Group announced the completion of Project Helix, that refers to the sale of a portfolio ofloans with a gross book value of €2.8 billion (of which €2.7 billion related to non-performing loans) (the'Portfolio') secured by real estate collateral to certain funds affiliated with Apollo Global Management LLC,the agreement for which was announced on 28 August 2018.

Following the completion of Project Helix, the Group’s gross NPEs are c.70% lower than its peak in 2014.Project Helix reduced the NPE ratio by c.11 p.p. to 33% as at 30 June 2019.

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Financial results (continued)

Balance Sheet Analysis (continued)

Overall, the Group has recorded organic NPE reductions for seventeen consecutive quarters andexpects the organic reduction of NPEs to continue during the coming quarters. (continued)

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

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

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

ESTIA

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

Project Velocity

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

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

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Financial results (continued)

Balance Sheet Analysis (continued)

Real Estate Management Unit (REMU)

The Real Estate Management Unit (REMU) on-boarded €126 million of assets during the six months ended30 June 2019, via the execution of debt for asset swaps and repossessed properties. The focus for REMU isincreasingly shifting from on-boarding of assets resulting from debt for asset swaps towards the disposal ofthese assets. The Group completed organic disposals of €92 million during the six months ended 30 June2019 (compared to €126 million for the same period last year), resulting in a profit on disposal of €16million for the six months ended 30 June 2019. During the six months ended 30 June 2019, the Groupexecuted sale-purchase agreements (SPAs) with contract value of €110 million (258 properties), excludingthe sale of Cyreit. In addition, the Group signed SPAs for disposals of assets with contract value of €89million.

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

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

The Group has decided to classify the leased properties acquired in exchange of debt and leased out underoperating leases as ‘Investment Properties’ instead of ‘Inventories’. This change has been appliedretrospectively resulting in the restatement of comparatives.

As a result of the above change in classification, properties with carrying value of €118 million werereclassified from the stock of properties (measured at the lower of cost and net realisable value under IAS2) to investment properties (measured at fair value under IAS 40) as at 30 June 2019 (compared to €103million at 31 December 2018). These properties continue to be managed by REMU.

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

Overseas exposure

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

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

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

Income Statement Analysis

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

Average interest earning assets for the six months ended 30 June 2019 amounted to €18,270 million, up by1% a year earlier.

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Financial results (continued)

Income Statement Analysis (continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

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Financial results (continued)

Income Statement Analysis (continued)

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

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

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

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

Profit/(loss) after taxThe tax credit for the six months ended 30 June 2019 is minimal, positively affected by overprovisionsrelating to prior years, compared to a tax charge of €4 million for the six months ended 30 June 2018.

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

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

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

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

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

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

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

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Operating environment

Economic expansion continued into 2019 with real Gross Domestic Product (GDP) increasing by 3.4% in thefirst quarter and by 3.2% in the second quarter seasonally adjusted, after rising by 3.9% in 2018, and by4.5% and 4.8% respectively in 2017 and 2016 (Cyprus Statistical Service). The deceleration was driven byslowing activity in the traditional sectors including tourism and construction. From the demand side theslowdown was driven by a deteriorating external balance. Excluding ships registrations, net exports havebeen contributing negatively to real GDP growth in 2018 and in the first quarter of 2019. Exports andimports of goods and services excluding ships, declined in the first quarter. Regarding exports, both thegoods and services components declined, the latter reflecting a poorer tourism performance at the start ofthe year. Government consumption surged in the quarter. Other than transport equipment which fluctuateswith ship registrations, fixed investment was driven by construction related activities.

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

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

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

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

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

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

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Operating environment (continued)

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

Business Overview

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

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

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

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

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

Management is also placing emphasis on diversifying income streams by optimising fee income frominternational transaction services, wealth management and insurance. The Group’s insurance companies,EuroLife Ltd and General Insurance of Cyprus Ltd operating in the sectors of life and general insurancerespectively, are leading players in the insurance business in Cyprus, with such businesses providing arecurring income, further diversifying the Group’s income streams. The insurance income net of insuranceclaims for the six months ended 30 June 2019 amounted to €30 million, up by 20% compared to sameperiod last year, contributing to 18% of non-interest income.

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Business Overview (continued)

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

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

Digital Transformation

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

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

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

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

Outlook

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

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Outlook (continued)

The key pillars of the Group's strategy are to: Materially reduce the level of delinquent loans Further optimise the funding structure Maintain an appropriate capital position by internally generating capital Focus on the core Cyprus market Achieve a lean operating model Deliver value to shareholders and other stakeholders

KEY PILLARS PLAN OF ACTION

1. Materially reduce the level of delinquent loans

Sustain momentum in restructuring andcontinue reduction of NPEs

Focus on terminated portfolios (in RecoveryUnit) – "accelerated consensual foreclosures"

Real estate management via REMU Continue to explore alternative accelerating

NPE reduction measures such as NPE sales,securitisations etc.

2. Further optimise the funding structure Focus on shape and cost of deposit franchise 3. Maintain an appropriate capital position Internally generating capital

4. Focus on core Cyprus market

Targeted lending in Cyprus into promisingsectors to fund recovery

New loan origination, while maintaininglending yields

Revenue diversification via fee income frominternational banking, wealth, and insurance

5. Achieve a lean operating model

Implementation of digital transformationprogram underway, aimed at enhancingproductivity through alternative distributionchannels and reducing operating costs overtime, including containment of staff costs

Post the execution of further NPE reduction,BOC PCL is focusing on the need to managecosts

6. Deliver value Deliver appropriate medium term risk-

adjusted returns

Going concern

The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of12 months from the date of approval of these Financial Statements. The Directors believe that the Group istaking all necessary measures to maintain its viability and the development of its business in the currenteconomic environment.

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

The Group has developed a Financial and Capital Plan (the ‘Plan’), which has been approved by the Board inFebruary 2019. One of the most important objectives of the Plan was to ensure that the Group has sufficientresources and capital in order to continue the balance sheet de-risking and further deal with the residualNPEs. The IFRS 9 impact on a fully phased-in basis has been considered within the Group’s Plan.

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Going concern (continued)

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

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

Non-Performing Exposures The Group completed the Helix transaction in June 2019 which along with the organic reduction

led to a significant decrease of NPEs during the six months ended 30 June 2019; and The reduction of NPEs has been a regulatory focus for a number of years and will continue to be

so. The Group has prepared an updated NPE strategy plan for the years 2019-2021 which wassubmitted to the ECB in June 2019. The Directors believe that the reduction of NPEs is asignificant factor with regards to the future viability of the Group as a pillar bank in Cyprus.

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

Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 andbased on the final 2018 SREP decision received on 27 March 2019, the Group’s minimum phased in CET1ratio and Total Capital ratio remain unchanged, when ignoring the phasing-in of the Capital ConservationsBuffer and the Other Systemically Important Institution Buffer. The final 2018 SREP decision was appliedfrom 1 April 2019.

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

The phase-in of IFRS 9. The Group has elected to apply the EU transitional arrangements forregulatory capital purposes (EU Regulation 2017/2395) where the total impact on adoption ofIFRS 9 of €308,511 thousand, on 1 January 2018 and any subsequent increase allowed by theregulation for phasing-in (i.e. increase in Stage 1 and Stage 2 allowance), will impact the capitalratios over a period of five years. The impact on the regulatory capital is being phased-in basedon a weighting factor until it is fully absorbed at the end of the five years. The initial impact ofIFRS 9 was phased in by 5% on 1 January 2018 and increased to 15% (cumulative) on 1 January2019.

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

The Group’s capital position is sufficient, allowing acceleration of risk reduction and recalibrationof the cost base. The Group remains focused to implement the actions contemplated in the Plansubmitted to the ECB.

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

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

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Going concern (continued) Most recently, at the end of July 2019, Standard and Poor’s affirmed their long-term issuer credit

rating on the BOC PCL’s of ‘B+’ (stable outlook). In March 2019, Fitch Ratings affirmed their long-term issuer default rating of B- (positive outlook). In January 2019, Moody’s Investors Serviceupgraded the Bank’s long-term deposit rating to B3 from Caa1, with a positive outlook. Thepositive outlook reflects expectations of further improvements in the BOC PCL’s financialfundamentals, mainly asset quality over the next 12-18 months, in the context of an improvedoperating environment in Cyprus. The key drivers for the ratings were the improvement in theBOC PCL’s financial fundamentals, mainly in asset quality, and its funding position.

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

and The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the

minimum requirements (Note 31 of these Consolidated Condensed Interim Financial Statements).

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

Principal risks and uncertainties - Risk management and mitigation

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

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

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

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

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

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

Events after the reporting date

ESTIA Memorandum of Understanding

In July 2019 the Memorandum of Understanding was signed by BOC PCL and the Government for theimplementation of ESTIA scheme, which is underway for official launch in September 2019. ESTIA is ascheme aimed at addressing NPEs backed by primary residence, announced by the Government in July2018. According to the timeline provided by the Government, the application submissions will occur fromSeptember 2019 to mid-November 2019. During the forth quarter of 2019 BOC PCL, will offer restructuringsolutions to the applicants and simultaneously the applications will be reviewed and approved by theGovernment. The first payment of the state subsidy installment is expected to occur between December2019 and April 2020.

22

Consolidated Condensed Interim FinancialStatements for the six months ended

30 June2019

BANK OF CYPRUS HOLDINGS GROUPInterim Consolidated Income Statement

Six months ended30 June

20192018

(represented)*

Notes €000 €000

Continuing operations

Turnover 3487,145 521,469

Interest income 251,805 286,581

Income similar to interest income 26,683 26,296

Interest expense (50,415) (78,016)

Expense similar to interest expense (23,964) (22,777)

Net interest income 204,109 212,084

Fee and commission income 87,467 85,282

Fee and commission expense (12,955) (4,946)

Net foreign exchange gains 14,117 18,039

Net gains on financial instrument transactions and disposal/dissolution of subsidiaries andassociates 8 12,155 37,378

Insurance income net of claims and commissions 30,036 25,094

Net (losses)/gains from revaluation and disposal of investment properties (1,349) 1,165

Net gains on disposal of stock of property 17,747 20,266

Other income 15,679 11,276

367,006 405,638

Staff costs 9 (114,244) (104,670)

Special levy on deposits on credit institutions in Cyprus and contribution to SingleResolution Fund (12,477) (12,073)

Other operating expenses 9 (112,967) (102,292)

127,318 186,603

Net gains on derecognition of financial assets measured at amortised cost 5,429 19,381

Credit losses to cover credit risk on loans and advances to customers 10 (108,911) (252,953)

Credit losses of other financial instruments 10 (7,367) (3,331)

Impairment of non-financial instruments 10 (11,585) (10,117)

Profit/(loss) before share of profit from associates and remeasurement 4,884 (60,417)

Remeasurement of investment in associate classified as held for sale 19 (25,943) -

Share of profit from associates 36 5,312 4,520

Loss before tax from continuing operations (15,747) (55,897)

Income tax 11 115,144 (3,890)

Profit/(loss) after tax from continuing operations 99,397 (59,787)

Discontinued operations

Profit after tax from discontinued operations 7 - 4,010

Profit/(loss) for the period 99,397 (55,777)

Attributable to:

Owners of the Company-continuing operations profit/(loss) 97,398 (58,058)

Owners of the Company-discontinued operations profit - 4,010

Total profit/(loss) attributable to the owners of the Company 97,398 (54,048)

Non-controlling interests-continuing operations profit/(loss) 1,999 (1,729)

Total profit/(loss) attributable to non-controlling interests 1,999 (1,729)

Profit/(loss) for the period 99,397 (55,777)

Basic and diluted profits/(losses) per share attributable to the owners of theCompany (€ cent)-continuing operations 12

21.8 (13.0)

Basic and diluted profits/(losses) per share attributable to the owners of theCompany (€ cent) 12

21.8 (12.1)

* For comparative represented information refer to Note 3.1.

25

BANK OF CYPRUS HOLDINGS GROUPInterim Consolidated Statement of Comprehensive Income

Six months ended30 June

20192018

(represented)

Notes €000 €000

Profit/(loss) for the period 99,397 (55,777)

Other comprehensive income (OCI)

OCI that may be reclassified in the consolidated income statement insubsequent periods

Fair value reserve (debt instruments)Net gains/(losses) on investments in debt instruments measured at fairvalue through OCI (FVOCI) 14,426 (10,455)

Transfer to the consolidated income statement on disposal - (19,787)

14,426 (30,242)

Foreign currency translation reserve(Loss)/profit on translation of net investments in foreign branches andsubsidiaries (7,200) 4,017

Profit/(loss) on hedging of net investments in foreign branches andsubsidiaries 14 8,279 (3,859)

Transfer to the consolidated income statement on dissolution/disposal offoreign branches and subsidiaries (426) (48)

653 110

Total OCI that may be reclassified in the consolidated incomestatement in subsequent periods 15,079 (30,132)

OCI not to be reclassified in the consolidated income statement insubsequent periods

Fair value reserve (equity instruments)Share of net gains/(losses) from fair value changes of associates 4,199 (1,935)

Net gains on investments in equity instruments designated at FVOCI 236 2,857

4,435 922

Property revaluationDeferred tax

11 29 17

Actuarial (losses)/gains on the defined benefit plansRemeasurement (losses)/gains on defined benefit plans (2,149) 2,784

Total OCI not to be reclassified in the consolidated income statementin subsequent periods 2,315 3,723

Other comprehensive income/(loss) for the period net of taxation 17,394 (26,409)

Total comprehensive income/(loss) for the period 116,791 (82,186)

Attributable to:Owners of the Company 114,770 (80,453)

Non-controlling interests 2,021 (1,733)

Total comprehensive income/(loss) for the period 116,791 (82,186)

26

BANK OF CYPRUS HOLDINGS GROUPInterim Consolidated Statement of Changes in Equity

Attributable to shareholders of the Company

Share capital(Note 24)

Share premium(Note 24)

Treasuryshares

(Note 24)

Retained earningsProperty

revaluationreserve

Financial instrumentsfair value reserve

Life insurancein-forcebusinessreserve

Foreigncurrency

translationreserve

Total

Other equityinstruments

Non-controllinginterests

Total equity

€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

1 January 2019 44,620 1,294,358 (21,463) 591,941 79,433 15,289 101,001 16,151 2,121,330 220,000 25,998 2,367,328

Profit for the period - - - 97,398 - - - - 97,398 - 1,999 99,397

Other comprehensive(loss)/income after tax forthe period

- - - (2,149) 22 18,846 - 653 17,372 - 22 17,394

Total comprehensiveincome after tax for theperiod

- - - 95,249 22 18,846 - 653 114,770 - 2,021 116,791

Increase in value of in-forcelife insurance business - - - (4,114) - - 4,114 - - - - -

Tax on decrease in value ofin-force life insurancebusiness - - - 514 - - (514) - - - - -

Payment of coupon to AT1holders (Note 24)

- - - (13,447) - - - - (13,447) - - (13,447)

30 June 2019 44,620 1,294,358 (21,463) 670,143 79,455 34,135 104,601 16,804 2,222,653 220,000 28,019 2,470,672

28

BANK OF CYPRUS HOLDINGS GROUPInterim Consolidated Statement of Changes in Equity

Attributable to shareholders of the Company

Share capital(Note 24)

Share premium(Note 24)

Treasuryshares

(Note 24)

Accumulated lossesProperty

revaluationreserve

Financial instrumentsfair value reserve

Other reservesLife insurance in-

force businessreserve

Foreign currencytranslation

reserveTotal

Non-controllinginterests

Total equity

€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

1 January 2018 44,620 2,794,358 (21,463) (527,128) 92,878 54,485 6,059 105,651 36,098 2,585,558 31,150 2,616,708

Impact of adopting IFRS 9at 1 January 2018

- - - (299,150) - (8,470) - - - (307,620) - (307,620)

Restated balance at 1January 2018

44,620 2,794,358 (21,463) (826,278) 92,878 46,015 6,059 105,651 36,098 2,277,938 31,150 2,309,088

Loss for the period - - - (54,048) - - - - - (54,048) (1,729) (55,777)

Other comprehensiveincome/(loss) after tax forthe period

- - - 2,784 17 (29,316) - - 110 (26,405) (4) (26,409)

Total comprehensive(loss)/income for the period

- - - (51,264) 17 (29,316) - - 110 (80,453) (1,733) (82,186)

Increase in value of in-forcelife insurance business - - - (515) - - - 515 - - - -

Tax on increase in value ofin-force life insurancebusiness - - - 65 - - - (65) - - - -

Transfer of realised profitson disposal of properties - - - 3,361 (3,361) - - - - - - -

Transfer of propertyrevaluation reserve andother reserve of subsidiaryto retained earnings - - - 14,014 (7,955) - (6,059) - - - - -

Decrease in share capital ofsubsidiary - - - (554) - - - - - (554) (395) (949)

Transfer of loss on disposalof FVOCI equityinvestments to accumulatedlosses - - - (67) - 67 - - - - - -

Increase in non-controllinginterests due to change inshareholding of subsidiary

- - - 705 - - - - - 705 16,596 17,301

30 June 2018 44,620 2,794,358 (21,463) (860,533) 81,579 16,766 - 106,101 36,208 2,197,636 45,618 2,243,254

29

BANK OF CYPRUS HOLDINGS GROUPInterim Consolidated Statement of Cash Flows

Six months ended30 June

20192018

(represented)

Net cash flow from operating activities Note €000 €000

Loss before tax from continuing operations (15,747) (55,897)

Profit before tax from discontinued operations 7 - 4,934

Share of profit from associates 36 (5,312) (4,520)

Credit losses to cover credit risk on loans and advances to customers and net gains on derecognition of financialassets measured at amortised cost 103,482 233,572

Depreciation of property and equipment and amortisation of intangible assets 17,462 12,013

Change in value of in-force life insurance business (4,114) (515)

Credit losses of other financial instruments 10 7,367 3,331

Amortisation of discounts/premiums, catch-up adjustment on debt securities and interest on debt securities (15,546) (11,883)

Dividend income (139) (143)

Net gains on disposal of investments at FVOCI and amortised cost - (19,787)

(Profit)/loss from revaluation of debt securities designated as fair value hedges (13,416) 94

Interest on funding from central banks - 3

Interest on subordinated loan stock 11,567 11,567

Impairment of stock of property 10 11,585 10,106

Remeasurement of investment in associate classified as held for sale 19 25,943 -

Loss on disposal/dissolution of subsidiaries/associates - 145

Net gains on disposal of stock of property (17,747) (20,266)

Net losses/(gains) from revaluation of investment properties and investment properties held for sale 44 (1,238)

105,429 161,516

Net increase in loans and advances to customers and other accounts (239,065) (268,760)

Net (decrease)/increase in customer deposits and other accounts (272,430) 590,977

(406,066) 483,733

Tax paid (912) (1,470)

Net cash (used in)/from operating activities (406,978) 482,263

Cash flows from investing activities

Purchases of debt securities and equity securities (277,244) (226,103)

Proceeds on disposal/redemption of investments:

- debt securities 9,523 235,062

- equity securities - 5,030

Interest received from debt securities 9,726 7,441

Dividend income from equity securities 139 143

Proceeds on disposal of subsidiaries and associates 139,760 2,083

Proceeds on disposal of the Helix portfolio 1,140,231 -

Purchases of property and equipment (3,889) (5,476)

Purchases of intangible assets (6,878) (9,738)

Proceeds on disposals of property and equipment and intangible assets 252 1,778

Proceeds on disposals of investment properties and investment properties held for sale 11,945 6,500

Net cash from investing activities 1,023,565 16,720

Cash flow from financing activities

Payment of AT1 coupon 24 (13,447) -

Net repayment of funding from central banks - (100,000)

Interest on subordinated loan stock (21,080) (22,258)

Interest on funding from central banks - (3)

Principle elements of lease payments (4,682) -

Net proceeds from increase in non-controlling interests due to change in the shareholding of subsidiary - 17,596

Net cash used in financing activities (39,209) (104,665)

Net increase in cash and cash equivalents 577,378 394,318

Cash and cash equivalents

1 January 4,804,844 4,280,231

Foreign exchange adjustments (2,385) 2,857

Net increase in cash and cash equivalents 577,378 394,318

30 June 27 5,379,837 4,677,406

30

BANK OF CYPRUS HOLDINGS GROUPInterim Consolidated Statement of Cash Flows

Non cash transactions

Repossession of collateralsDuring the six months ended 30 June 2019, the Group acquired properties by taking possession ofcollaterals held as security for loans and advances to customers of €126,480 thousand (six months ended30 June 2018: €210,241 thousand) (Note 17).

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

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

31

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

1. Corporate information

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

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

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

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

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

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

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

2. Unaudited financial statements

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

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

The Group’s external auditors have conducted a review in accordance with the International Standard onReview Engagements 2410 ‘Review of Interim Financial Information performed by the Independent Auditorof 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 propertiesheld for own use and investment properties, investments at fair value through other comprehensive income,financial assets (including loans and advances to customers and investments) at fair value through profit orloss 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 atnet realisable value where this is lower than cost. The carrying values of recognised assets and liabilitiesthat are hedged items in fair value hedges, and otherwise carried at cost, are adjusted to record changes infair value attributable to the risks that are being hedged.

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

32

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

3. Summary of significant accounting policies (continued)

3.1 Basis of preparation (continued)

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

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

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

Comparative informationComparative information was restated following the change in the classification of properties which areleased out under operating leases as investment properties as disclosed in Note 3.3.1. Reclassifications tocomparative information were also made as follows: Unrecognised interest on previously credit impaired loans which have cured during the period

amounting to €14,918 thousand was reclassified from 'Net interest income' to ‘Credit losses tocover credit risk on loans and advances to customers’ in line with an IFRIC discussion, which hastaken place in November 2018 (Presentation of unrecognised interest following the curing of acredit impaired financial asset (IFRS 9)). The corresponding amount for the six months ended 30June 2019 stood at €7,781 thousand.

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

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

3.2 Statement of compliance

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

The Consolidated Financial Statements do not comprise statutory financial statements for the purposes ofthe Companies Act 2014 of Ireland. The Company’s statutory financial statements for the purposes ofChapter 4 of Part 6 of the Companies Act 2014 of Ireland for the year ended 31 December 2018, uponwhich the previous auditors have expressed an unqualified opinion, were published on 28 March 2019 andare expected to be delivered to the Registrar of Companies of Ireland within 28 days from 30 September2019.

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

33

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies, presentation and disclosures

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

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

The Group has decided to classify the leased properties which are acquired in exchange of debt and areleased out under operating leases as ‘Investment Properties’ instead of ‘Inventories’. The Group previouslyclassified these properties as inventory under IAS 2 and measured them upon on-boarding at cost andsubsequently at the lower of cost and net realisable value.

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

There was no material impact on the Group’s retained earnings as of 1 January 2018 and 31 December2018 as a result of the above described change in classification. The cumulative impact amounted to €1,189thousand (gain) and has been recognised in the Interim Consolidated Income Statement of the Group forthe six months ended 30 June 2019. The earnings per share increased by €0.30 for the six months ended30 June 2019.

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

31 December2018

1 January2018

€000 €000Consolidated balance sheet

Stock of property

Before the change in classification 1,530,388 1,641,422

Impact of the recognition of leased out property as investment properties (103,531) (154,443)

After the change in classification 1,426,857 1,486,979

Investment properties

Before the change in classification 24,475 19,646

Impact of the recognition of leased out property as investment properties 103,531 154,443

After the change in classification 128,006 174,089

3.3.2 New and amended standards and interpretations

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

The Group has adopted the new standards, amendments and interpretations to the extent as they wererelevant for the Group. The relevant and significant new standards for the Group are: IFRS 16 Leases IFRS 9 Prepayment features with negative compensation (amendment) IAS 28 Long term Interests in Associates and Joint Ventures (amendments)

34

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies, presentation and disclosures (continued)

3.3.2 New and amended standards and interpretations (continued) IFRIC Interpretation 23 Uncertainty over Income Tax Treatments IAS 19: Plan Amendment, Curtailment or Settlement (amendments) Annual Improvements to IFRSs 2015-2017 Cycle

The impact of adoption of IFRS 16 Leases is described below. The amendments to IFRS 9, IAS 19 and IAS28 and IFRIC 23 did not have any material impact on the Consolidated Financial Statements. New oramended interim disclosures have been provided for the current period, where applicable, and comparativeperiod disclosures are consistent with those made in the prior year.

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

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

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

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

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

Lessor accounting remains similar to IAS 17 Leases – i.e. lessors continue to classify leases as finance oroperating leases.

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

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

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

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

35

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

3. Summary of significant accounting policies (continued)

3.3 Changes in accounting policies, presentation and disclosures (continued)

3.3.2 New and amended standards and interpretations (continued) Use of hindsight in determining the lease term if the contract contains options to extend or

terminate the lease. Exclusion of the initial direct costs from the measurement of the right of use asset. Election to use the transition practical expedient allowing the standard to be applied only to

contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date ofinitial application of 1 January 2019.

The Group also elected to use the recognition exemption for lease contracts that, at the commencementdate, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’),and lease contracts for which the underlying asset is of low value (‘low-value assets’). The Group hasexercised judgement in determining the threshold of low value assets which was set at €5,000. Paymentsassociated with short term leases and leases of low value assets are recognised on a straight line basis asan expense in the consolidated income statement.

The Group holds lease contracts mainly for commercial properties such as office buildings and branches. Theimplementation of IFRS 16 led to the recognition of the right of use assets at an equal amount as leaseliabilities and restoration liability with no effect on equity or retained earnings of the Group as at 1 January2019.

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

1 January2019 €000

Assets

Right of use assets (disclosed within 'Property, plant and equipment') 37,474

Liabilities

Lease liabilities (disclosed separately within ‘Accruals, deferred income and other liabilities) 36,164

Restoration liabilities (disclosed within other liabilities within ‘Accruals, deferred income andother liabilities') 1,310

37,474

The lease liabilities as at 1 January 2019 are reconciled to the operating lease commitments as disclosed inthe consolidated financial statements for the year ended 31 December 2018 as follows:

1 January2019 €000

Operating lease commitments as at 31 December 2018 (non-cancellable) 4,453

Weighted average incremental borrowing rate as at 1 January 2019 1.05%

Discounted operating lease commitment as at 1 January 2019 4,226

Add:

Payments in optional extension periods not recognised as at 31 December 2018 31,938

Lease liabilities as at 1 January 2019 36,164

The effect of the adoption of IFRS 16 remains subject to change until the Group finalises its financialstatements for the year ended 31 December 2019, the year of initial application.

36

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

4. Going concern

The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of12 months from the date of approval of these Financial Statements. The Directors believe that the Group istaking all necessary measures to maintain its viability and the development of its business in the currenteconomic environment.

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

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

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

Non-Performing Exposures The Group completed the Helix transaction in June 2019 which along with the organic reduction

led to a significant decrease of NPEs during the six months ended 30 June 2019; and The reduction of NPEs has been a regulatory focus for a number of years and will continue to be

so. The Group has prepared an updated NPE strategy plan for the years 2019-2021 which wassubmitted to the European Central Bank (ECB) in June 2019. The Directors believe that thereduction of NPEs is a significant factor with regards to the future viability of the Group as a pillarbank in Cyprus.

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

Following the Annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 andbased on the final 2018 SREP decision received on 27 March 2019, the Group’s minimum phased in CET1ratio and Total Capital ratio remain unchanged, when ignoring the phasing-in of the Capital ConservationsBuffer and the Other Systemically Important Institution Buffer. The final 2018 SREP decision was appliedfrom 1 April 2019.

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

The phase-in of IFRS 9. The Group has elected to apply the EU transitional arrangements forregulatory capital purposes (EU Regulation 2017/2395) where the total impact on adoption ofIFRS 9 of €308,511 thousand, on 1 January 2018 and any subsequent increase allowed by theregulation for phasing-in (i.e. increase in Stage 1 and Stage 2 allowance), will impact the capitalratios over a period of five years. The impact on the regulatory capital is being phased-in basedon a weighting factor until it is fully absorbed at the end of the five years. The initial impact ofIFRS 9 was phased in by 5% on 1 January 2018 and increased to 15% (cumulative) on 1 January2019.

37

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

4. Going concern (continued) The regulatory capital position of the Group has strengthened further, upon the completion of the

Helix transaction. On completion, the derecognition of the Helix portfolio had a positive impact onthe Group's capital ratios resulting from the release of risk weighted assets.

The Group’s capital position is sufficient, allowing acceleration of risk reduction and recalibrationof the cost base. The Group remains focused to implement the actions contemplated in the Plansubmitted to the ECB.

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

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

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

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

and The Group is in compliance with the Liquidity Coverage Ratio (LCR) and is significantly above the

minimum requirements (Note 31).Based on the projections of the management, it is expected that the Group will maintain compliance withthese liquidity requirements for the period of the going concern assessment.

5. Operating environment

5.1 Regulatory capital ratios

The minimum Pillar I total capital ratio requirement is 8.0% and may be met, in addition to the 4.5% CET1requirement, with up to 1.5% of Additional Tier 1 capital and with up to 2.0% of Tier 2 capital. The Group isalso subject to additional capital requirements for risks which are not covered by the Pillar I capitalrequirements (Pillar II add-ons).

Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 andbased on the final 2018 SREP decision received on 27 March 2019, the Group’s minimum phased-in CET1capital ratio and Total capital ratio remain unchanged when ignoring the phasing-in of the CapitalConservation Buffer (CCB) and the Other Systemically Important Institution Buffer. The final 2018 SREPdecision applies from 1 April 2019.

The Group’s minimum phased-in CET1 capital ratio requirement is 10.5% (2018: 9.375%), comprising of a4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% (2018: 1.875%) and the OtherSystemically Important Institution Buffer of 0.5% (2018: Nil). The ECB has also provided non-publicguidance for an additional Pillar II CET1 buffer.

38

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

5. Operating environment (continued)

5.1 Regulatory capital ratios (continued)

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

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

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

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

5.2 Asset quality

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

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

5.3 Liquidity

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

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

5.4 Pending litigation, claims, regulatory and other matters

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

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

6. Significant and other judgements, estimates and assumptions

The preparation of the Consolidated Financial Statements requires the Company’s Board of Directors andmanagement to make judgements, estimates and assumptions that can have a material impact on theamounts recognised in the Consolidated Financial Statements and the accompanying disclosures, as well asthe disclosures of contingent liabilities. Uncertainty about these assumptions and estimates could result inoutcomes that require a material adjustment to the carrying amount of assets or liabilities affected in futureperiods.

39

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

6. Significant and other judgements, estimates and assumptions (continued)

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

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

6.1 Classification of financial assets

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

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

The Group also applies judgement upon considering whether contractual features including interest ratecould significantly affect future cash flows. Furthermore, judgment is required when assessing whethercompensation paid or received on early termination of lending arrangements results in cash flows that arenot SPPI.

6.2 Calculation of expected credit losses

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

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

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

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

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

40

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

6. Significant and other judgements, estimates and assumptions (continued)

6.2 Calculation of expected credit losses (continued)

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

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

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

The Group uses three different economic scenarios.

The table below indicates the most significant macroeconomic variables as well as the scenarios used by theGroup as at 30 June 2019 and 31 December 2018 respectively. The Group has used the 30-50-20probability structure for the adverse, base and favourable scenarios respectively compared to the 20-60-20structure derived using the method described in Note 2.19.5 of the Consolidated Financial Statements forthe year ended 31 December 2018. This is due to the fact that, the data set used to calculate scenarioweights (GDP growth over 1980-2018) is heterogeneous, involving significant breaks deriving from thechanging nature of the Cyprus economy and responses to shocks. Additionally, the economy continues toface high public and private indebtedness and a high level of NPEs that together raise the degree ofvulnerability of the economy and limit its reaction space thus sustaining conditions; which can lead todeeper recession in response to shocks than under normal times. Furthermore, the economy presents astructure risk given a very large external sector, making it especially vulnerable to the externalenvironment. The heightened uncertainties in 2019 and beyond relating to Brexit, trade disputes betweenthe US and the China and between the US and the EU, and economic fragility in southern Europe, entail ahigher risk of a global recession and financial instability. These factors display a relatively high volatility,which the management considered that may not be fully captured in the weights as calculated using themethod described in Note 2.19.5 of the Consolidated Financial Statements for the year ended 31 December2018 and hence the management has decided to increase the weight of the adverse scenario to 30%, andcorrespondingly reduce the weight of the base scenario to 50%.

41

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

6. Significant and other judgements, estimates and assumptions (continued)

6.2 Calculation of expected credit losses (continued)

30 June 2019

Year ScenarioWeight

%Real GDP

(% change)

Unemploymentrate (% of

labour force)

ConsumerPrice Index(average

% change)

RICS HousePrice Index(average

% change)2020 Adverse 30.0 -2.8 11.0 -0.8 -1.0

Baseline 50.0 2.7 6.3 1.6 3.2Favourable 20.0 4.8 5.8 2.7 4.8

2021 Adverse 30.0 -0.9 11.3 1.7 0.3Baseline 50.0 2.5 5.8 2.0 3.6Favourable 20.0 3.2 5.3 2.4 4.3

2022 Adverse 30.0 2.1 10.7 2.6 3.1Baseline 50.0 2.4 5.6 2.3 4.1Favourable 20.0 2.4 5.1 2.3 4.2

2023 Adverse 30.0 3.6 9.6 2.8 4.6Baseline 50.0 2.3 5.5 2.4 4.1Favourable 20.0 2.3 5.0 2.4 4.2

2024 Adverse 30.0 4.3 8.8 2.8 5.5Baseline 50.0 2.3 5.4 2.4 4.2Favourable 20.0 2.3 4.9 2.4 4.4

31 December 2018

Year ScenarioWeight

%Real GDP

(% change)

Unemploymentrate (% of

labour force)

ConsumerPrice Index(average

% change)

RICS HousePrice Index(average

% change)2019 Adverse 30.0 -1.3 10.0 -0.2 1.4

Baseline 50.0 3.1 7.6 1.7 4.4Favourable 20.0 4.3 7.2 2.5 5.5

2020 Adverse 30.0 -1.3 12.2 0.3 -1.7Baseline 50.0 2.6 7.3 1.7 2.7Favourable 20.0 3.4 6.8 2.6 4.1

2021 Adverse 30.0 3.0 12.4 2.1 0.7Baseline 50.0 2.4 6.9 2.0 2.9Favourable 20.0 2.6 6.5 2.4 3.6

2022 Adverse 30.0 4.1 11.1 2.4 3.1Baseline 50.0 2.5 6.5 2.0 3.1Favourable 20.0 2.6 6.1 2.6 3.7

2023 Adverse 30.0 3.9 10.0 2.5 4.7Baseline 50.0 2.3 6.3 2.1 3.8Favourable 20.0 2.3 5.8 2.6 4.0

The adverse scenarios may outpace the base and favourable scenarios after the initial shock has beenadjusted to and the economy starts to expand from a lower base. Thus in the adverse scenario GDP willfollow a growth trajectory that will ultimately equal and surpass the baseline before converging. Propertyprices are primarily determined by GDP growth but with a lag. Thus property prices will initially adjust lesssteeply than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After thispoint, property prices will accelerate and will match and surpass the pace in the baseline scenario, beforefinally converging.

42

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

6. Significant and other judgements, estimates and assumptions (continued)

6.2 Calculation of expected credit losses (continued)

Since 1 January 2018, the Group has reassessed the key economic indicators used in the ECL models andusing actual performance ratios of the economy as revised by the Cyprus statistical service for 2016 and2017 and the forecast upgrades by the International Monetary Fund (IMF) and the European Commission.

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

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

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

Expected lifetime of revolving facilities Judgement is exercised on the measurement period of expected lifetime for revolving facilities. Thedetermination of the expected life for the revolving portfolio is sensitive to changes in contractual maturitiesresulting from business decisions. The Group exercises judgement in determining the period over which ECLshould be computed.

Assessment of loss given default A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount fromrepossession 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 therealisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral aswell as any other applicable haircuts. Indexation has been used to estimate updated market values ofproperties, while assumptions were made on the basis of a macroeconomic scenario for future changes inproperty values.

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

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

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

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

43

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

6. Significant and other judgements, estimates and assumptions (continued)

6.2 Calculation of expected credit losses (continued)

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

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

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

ECL allowances also include off-balance sheet credit exposures represented by guarantees given and byirrevocable commitments to disburse funds. Off-balance sheet credit exposures of the individually assessedassets require assumptions on the probability, timing and amount of cash outflows. For the collectivelyassessed off-balance sheet credit exposures, the allowance for provisions is calculated using the CreditConversion Factor (CCF) model.

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

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

6.3 Tax

The Group has run down operations and is therefore subject to tax on those countries. Estimates arerequired in determining the provision for taxes at the reporting date. The Group recognises income taxliabilities for transactions and assessments whose tax treatment is uncertain. Where the final tax is differentfrom the amounts initially recognised in the consolidated income statement, such differences will impact theincome tax expense, the tax liabilities and deferred tax assets or liabilities of the period in which the finaltax is agreed with the relevant tax authorities.

Deferred tax assetsIn the absence of a specific accounting standard dedicated to the accounting of the asset that arose uponthe reversal of deferred tax asset impairment recognised in previous years (Note 11), BOC PCL hasexercised judgment in applying the guidance of IAS 12 in accounting for this asset item as the mostrelevant available standard. On the basis of this guidance, BOC PCL has determined that this asset shouldbe accounted for on the basis of IAS 12 principles relating to deferred tax assets.

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

44

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

6. Significant and other judgements, estimates and assumptions (continued)

6.4 Stock of property - estimation of net realisable value

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

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

6.5 Provisions

The accounting policy for provisions is described in Note 2.39 of the Annual Consolidated FinancialStatements for the year ended 31 December 2018. Judgement is involved in determining whether a presentobligation exists and in estimating the probability, timing and amount of any outflows. Provisions forpending litigations, claims, regulatory and other matters usually require a higher degree of judgement thanother types of provisions. It is expected that the Group will continue to have a material exposure tolitigation and regulatory proceedings and investigations relating to legacy issues in the medium term. Thematters for which the Group determines that the probability of a future loss is more than remote will changefrom time to time, as will the matters as to which a reliable estimate can be made and the estimatedpossible loss for such matters. Actual results may prove to be significantly higher or lower than the estimateof possible loss in those matters, where an estimate was made. In addition, loss may be incurred in matterswith 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 andtiming of pending litigation, claims, regulatory and other matters refer to Note 25.

7. Segmental analysis

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

The Corporate, Small and medium-sized enterprises and Retail business lines are managing loans andadvances to customers as detailed in ‘Credit risk concentration of loans and advances to customers’ (Note29).

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

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

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

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

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

45

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

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

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

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

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

Management monitors the operating results of each business segment separately for the purposes ofperformance assessment and resource allocation. Segment performance is evaluated based on profit aftertax and non-controlling interests. Inter-segment transactions and balances are eliminated on consolidationand are made on an arm’s length basis.

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

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

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

46

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

Analysis by business line

Continuing operations

Corporate

Small andmedium-

sizedenterprises

RetailRestructuringand recoveries

Internationalbankingservices

Wealthmanagement

REMU Insurance Treasury OtherTotal

CyprusOverseas Total

Six months ended 30 June 2019 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Net interest income/(expense) 60,029 20,327 80,099 32,218 17,962 3,643 (7,403) 29 (941) 2,015 207,978 (3,869) 204,109

Net fee and commission income/(expense) 8,591 4,676 21,583 11,241 26,050 1,024 - (3,106) 1,063 3,283 74,405 107 74,512

Net foreign exchange gains/(losses) 425 328 1,308 96 3,660 1,630 - - 9,451 (1,751) 15,147 (1,030) 14,117

Net gains/(losses) on financial instrument transactions and ondisposal/dissolution of subsidiaries and associates - - - - - 12 - 1,070 4,930 6,009 12,021 134 12,155

Insurance income net of claims and commissions - - - - - - - 28,824 - - 28,824 1,212 30,036

Net gains/(losses) from revaluation and disposal of investmentproperties - - - - - - 630 - - (748) (118) (1,231) (1,349)

Net gains on disposal of stock of property - - - - - - 17,497 - - 59 17,556 191 17,747

Total other income/(expense) 4 6 47 23 1 1 1,128 9 - 13,349 14,568 1,111 15,679

69,049 25,337 103,037 43,578 47,673 6,310 11,852 26,826 14,503 22,216 370,381 (3,375) 367,006

Staff costs (4,395) (2,854) (37,848) (12,677) (8,184) (2,078) (1,331) (5,087) (844) (38,539) (113,837) (407) (114,244)

Other operating (expenses)/income (excluding advisory andother restructuring costs) (12,492) (8,603) (49,532) (18,457) (12,350) (2,117) (2,636) (4,576) (3,906) 24,624 (90,045) (3,879) (93,924)

Special levy on deposits on credit institutions and contribution toSingle Resolution Fund - - - - - - - - - (12,477) (12,477) - (12,477)

Other operating expenses - advisory and other restructuringcosts

(187) (108) (781) (15,442) (207) (42) (2,237) - (39) - (19,043) - (19,043)

51,975 13,772 14,876 (2,998) 26,932 2,073 5,648 17,163 9,714 (4,176) 134,979 (7,661) 127,318

Net gains/(losses) on derecognition of financial assets measuredat amortised cost 3,933 162 171 (844) 294 18 - - - 1,682 5,416 13 5,429

Credit gains/(losses) to cover credit risk on loans and advancesto customers 3,306 5,395 (15,607) (103,965) 332 397 - - - 632 (109,510) 599 (108,911)

Credit (losses)/gains of other financial instruments - - - - - - - (86) 797 (15) 696 (8,063) (7,367)

Impairment of non-financial instruments - - - - - - (9,942) - - - (9,942) (1,643) (11,585)

Remeasurement of investment in associate classified as held forsale - - - - - - - - - (25,943) (25,943) - (25,943)

Share of profit from associates - - - - - - - - - 5,312 5,312 - 5,312

Profit/(loss) before tax 59,214 19,329 (560) (107,807) 27,558 2,488 (4,294) 17,077 10,511 (22,508) 1,008 (16,755) (15,747)

Income tax - - - - - - - (1,853) - 117,199 115,346 (202) 115,144

Profit/(loss) after tax 59,214 19,329 (560) (107,807) 27,558 2,488 (4,294) 15,224 10,511 94,691 116,354 (16,957) 99,397

Non-controlling interests-profit - - - - - - - - - (1,999) (1,999) - (1,999)

Profit/(loss) after tax attributable to the owners of theCompany

59,214 19,329 (560) (107,807) 27,558 2,488 (4,294) 15,224 10,511 92,692 114,355 (16,957) 97,398

47

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

Corporate

Small andmedium-

sizedenterprises

RetailRestructuringand recoveries

Internationalbankingservices

Wealthmanagement

REMU Insurance Treasury OtherTotal

CyprusOverseas

Totalcontinuingoperations

Six months ended 30 June 2018 (represented) €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Net interest income/(expense) 48,675 19,770 92,489 31,311 26,585 3,856 (7,994) 92 6,964 (4,739) 217,009 (4,925) 212,084

Net fee and commission income/(expense) 7,864 5,047 22,896 4,791 31,795 1,153 - (2,853) 956 8,559 80,208 128 80,336

Net foreign exchange gains 388 317 1,891 149 3,743 1,543 - - 8,710 716 17,457 582 18,039

Net gains on financial instrument transactions anddisposal/dissolution of subsidiaries and associates - - - - - 65 - 60 22,211 15,017 37,353 25 37,378

Insurance income net of claims and commissions - - - - - - - 23,971 - - 23,971 1,123 25,094

Net gains/(losses) from revaluation and disposal of investmentproperties - - - - - - 743 - - 1,405 2,148 (983) 1,165

Net gains/(losses) on disposal of stock of property - - - - - - 24,040 - - (3,833) 20,207 59 20,266

Other income/(expenses) 269 6 50 13,677 3 - - 226 - (4,245) 9,986 1,290 11,276

57,196 25,140 117,326 49,928 62,126 6,617 16,789 21,496 38,841 12,880 408,339 (2,701) 405,638

Staff costs (3,860) (2,778) (33,993) (11,543) (7,071) (1,811) (978) (4,725) (1,000) (36,303) (104,062) (608) (104,670)

Special levy on deposits on credit institutions and contribution toSingle Resolution Fund - - - - - - - - - (12,073) (12,073) - (12,073)

Other operating (expenses)/income (excluding advisory andother restructuring costs) (9,979) (6,757) (55,727) (19,037) (15,119) (1,991) (2,821) (3,895) (4,273) 49,156 (70,443) (4,519) (74,962)

Other operating expenses - advisory and other restructuringcosts

(17) (3) (40) (21,331) (8) (6) (2,641) - - (3,169) (27,215) (115) (27,330)

43,340 15,602 27,566 (1,983) 39,928 2,809 10,349 12,876 33,568 10,491 194,546 (7,943) 186,603

Net gains on derecognition of financial assets measured atamortised cost 5,377 1,289 6,804 5,052 796 25 - - - - 19,343 38 19,381

Credit (losses)/gains to cover credit risk on loans and advancesto customers (18,062) (10,112) (21,128) (205,972) (7,173) (3,334) - - - (1,476) (267,257) 14,304 (252,953)

Credit (losses)/gains of other financial instruments - - - - - - - - (670) (2,664) (3,334) 3 (3,331)

Impairment of non-financial instruments - - - - - - (7,898) - - (11) (7,909) (2,208) (10,117)

Share of profit from associates - - - - - - - - - 4,520 4,520 - 4,520

Profit/(loss) before tax 30,655 6,779 13,242 (202,903) 33,551 (500) 2,451 12,876 32,898 10,860 (60,091) 4,194 (55,897)

Income tax (3,832) (847) (1,655) 19,738 (4,194) 63 (306) (1,390) (4,028) (7,046) (3,497) (393) (3,890)

Profit/(loss) after tax 26,823 5,932 11,587 (183,165) 29,357 (437) 2,145 11,486 28,870 3,814 (63,588) 3,801 (59,787)

Non-controlling interests-loss - - - - - - - - - 1,729 1,729 - 1,729

Profit/(loss) after tax attributable to the owners of theCompany

26,823 5,932 11,587 (183,165) 29,357 (437) 2,145 11,486 28,870 5,543 (61,859) 3,801 (58,058)

48

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

Discontinued operations

Six monthsended

30 June2018€000

Net interest income 22,397

Net fee and commission income 3,077

Net foreign exchange gains 163

25,637

Staff costs (11,714)

Other operating expenses (9,136)

4,787

Credit gains to cover credit risk on loans and advances to customers 147

Profit before tax 4,934

Income tax (924)

Profit after tax 4,010

The above information on discontinued operations relates to the disposal of the Group's subsidiary bank inthe UK, Bank of Cyprus UK Limited and its subsidiary Bank of Cyprus Financial Services Limited, details ofwhich are disclosed in Note 53.2.1 in the Group's Consolidated Financial Statements for the year ended 31December 2018.

49

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

Analysis of total revenue

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

Continuing operations

CorporateSmall and

medium-sizedenterprises

RetailRestructuringand recoveries

Internationalbankingservices

Wealthmanagement

REMU Insurance Treasury Other Total Cyprus Overseas Total

Six months ended 30 June 2019 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Total revenue from third parties 71,888 24,657 62,857 98,100 29,511 4,508 19,255 29,302 6,126 26,682 372,886 (5,880) 367,006

Inter-segment (expense)/revenue (2,839) 680 40,180 (54,522) 18,162 1,802 (7,403) (2,476) 8,377 (1,961) - - -

Revenue between Cyprus and othercountries

- - - - - - - - - 5,170 5,170 (5,170) -

Total revenue 69,049 25,337 103,037 43,578 47,673 6,310 11,852 26,826 14,503 29,891 378,056 (11,050) 367,006

Six months ended 30 June 2018(represented)

Total revenue from third parties 65,094 26,761 53,809 131,205 34,256 761 24,783 24,126 32,063 10,837 403,695 1,943 405,638

Inter-segment (expense)/revenue (7,898) (1,621) 63,517 (81,277) 27,870 5,856 (7,994) (2,630) 6,778 (2,601) - - -

Revenue between Cyprus and othercountries

- - - - - - - - - 4,644 4,644 (4,644) -

Total revenue 57,196 25,140 117,326 49,928 62,126 6,617 16,789 21,496 38,841 12,880 408,339 (2,701) 405,638

The revenue from 'Overseas segment' mainly relates to banking and financial services for the six months ended 30 June 2019 and 2018.

50

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

Analysis of assets and liabilities

CorporateSmall and

medium-sizedenterprises

RetailRestructuringand recoveries

Internationalbankingservices

Wealthmanagement

REMU Insurance Treasury Other Total Cyprus Overseas Total

30 June 2019 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Assets

Assets 3,791,863 1,123,484 3,674,938 2,054,056 158,581 115,936 1,420,405 835,435 7,333,112 1,590,735 22,098,545 315,585 22,414,130

Inter-segment assets - - - - - - - (33,303) - (61,978) (95,281) - (95,281)

3,791,863 1,123,484 3,674,938 2,054,056 158,581 115,936 1,420,405 802,132 7,333,112 1,528,757 22,003,264 315,58522,318,849

Assets between Cyprus andoverseas operations

(431,663)

Total assets 21,887,186

31 December 2018

Assets

Assets 3,524,412 1,150,640 3,699,397 2,229,146 178,627 98,851 1,658,982 816,336 6,396,620 2,581,386 22,334,397 254,988 22,589,385

Inter-segment assets - - - - - - - (39,642) - (59,133) (98,775) - (98,775)

3,524,412 1,150,640 3,699,397 2,229,146 178,627 98,851 1,658,982 776,694 6,396,620 2,522,253 22,235,622 254,98822,490,610

Assets between Cyprus andoverseas operations

(415,339)

Total assets 22,075,271

51

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

7. Segmental analysis (continued)

CorporateSmall and

medium-sizedenterprises

RetailRestructuringand recoveries

Internationalbankingservices

Wealthmanagement

Insurance Treasury Other Total Cyprus Overseas Total

30 June 2019 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Liabilities

Liabilities 1,872,614 738,515 9,806,679 114,579 3,459,828 384,471 676,089 1,852,509 582,611 19,487,895 452,659 19,940,554

Inter-segment liabilities - - - - - - - (95,281) - (95,281) - (95,281)

1,872,614 738,515 9,806,679 114,579 3,459,828 384,471 676,089 1,757,228 582,611 19,392,614 452,65919,845,273

Liabilities between Cyprus andoverseas operations

(428,759)

Total liabilities 19,416,514

31 December 2018

Liabilities

Liabilities 1,750,517 800,671 10,032,047 121,744 3,707,713 430,866 632,308 1,877,549 452,708 19,806,123 417,159 20,223,282

Inter-segment liabilities - - - - - - - (98,775) - (98,775) - (98,775)

1,750,517 800,671 10,032,047 121,744 3,707,713 430,866 632,308 1,778,774 452,708 19,707,348 417,15920,124,507

Liabilities between Cyprus andoverseas operations

(416,564)

Total liabilities 19,707,943

Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 21 and 29.2 and 29.7, respectively.

52

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

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

Six months ended30 June

20192018

(represented)Trading portfolio: €000 €000

- derivative financial instruments 1,506 177

Other investments at FVPL:

- debt securities 9,181 1,973

- equity securities 1,556 662

Net gains on disposal of FVOCI debt securities - 19,787

Net gains on loans and advances to customers at FVPL 17 13,867

Revaluation of financial instruments designated as fair value hedges:

- hedging instruments (11,092) 10,673

- hedged items 11,400 (9,616)

Net loss on financial liabilities at FVPL (413) -

Loss on disposal/dissolution of subsidiaries and associates - (145)

12,155 37,378

9. Staff costs and other operating expenses

Staff costs

Six months ended30 June

20192018

(represented)€000 €000

Salaries 93,989 86,650

Employer’s contributions to state social insurance 13,045 11,170

Retirement benefit plan costs 7,210 6,850

114,244 104,670

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

53

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

9. Staff costs and other operating expenses (continued)

Other operating expenses

Six months ended30 June

20192018

(represented)€000 €000

Repairs and maintenance of property and equipment 15,262 13,337

Other property-related costs 9,290 6,535

Operating lease rentals for property and equipment - 4,783

Consultancy and other professional services fees 8,494 10,959

Insurance 3,454 3,660

Advertising and marketing 6,819 8,494

Depreciation of property and equipment 9,862 5,465

Amortisation of intangible assets 7,600 5,711

Communication expenses 4,047 4,548

Provisions and settlements of litigations, claims and provisions for regulatorymatters (Note 25.3) 8,961 (5,813)

Printing and stationery 1,433 1,120

Local cash transfer expenses 1,397 1,478

Other operating expenses 17,305 14,685

93,924 74,962

Advisory and other restructuring costs 19,043 27,330

112,967 102,292

Advisory and other restructuring costs comprise mainly fees of external advisors in relation to: (i) customerloan restructuring activities which are not part of the effective interest rate and (ii) disposal of operationsand non-core assets.

Following the adoption of IFRS 16 as of 1 January 2019, the Group during the six months ended 30 June2019, recognised within 'Other property-related costs' rent expense for short term leases amounting to€235 thousand and 'Depreciation of property and equipment' includes €4,405 thousand relating to thedepreciation of right of use assets (Note 3.3.2). Furthermore, as a result of the adoption of IFRS 16 the lineitem 'Operating lease rentals for property and equipment' is nil for the current period.

54

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

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

Six months ended30 June

20192018

(represented)€000 €000

Credit losses to cover credit risk on loans and advances to customers

Impairment loss net of reversals on loans and advances to customers 129,424 410,090

Recoveries of loans and advances to customers previously written off (14,739) (124,880)

Changes in expected cash flows (240) (26,735)

Financial guarantees and commitments (5,534) (5,522)

108,911 252,953

Credit losses of other financial instruments

Amortised cost treasury bills 40 -

Amortised cost debt securities (162) (1,201)

FVOCI debt securities 9 (462)

Loans and advances to banks 1,304 518

Balances with central banks - 2,396

Other financial assets (Note 18) 6,176 2,080

7,367 3,331

Impairment of non-financial instruments

Stock of property (Note 17) 11,585 10,106

Equipment - 11

11,585 10,117

11. Income tax

Six months ended30 June

20192018

(represented)€000 €000

Current tax:

- Cyprus 2,570 2,719

- Overseas 223 281

Cyprus special defence contribution 148 139

Deferred tax (credit)/charge (114,692) 1,663

Prior years’ tax adjustments (3,422) 1,376

Other tax charges/(credits) 29 (2,288)

(115,144) 3,890

The Group's share of income tax from associates for the six months ended 30 June 2019 amounts to €703thousand (30 June 2018: €647 thousand).

55

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

11. Income tax (continued)

The net deferred tax assets comprise of:

30 June2019

31 December2018

€000 €000

Deferred tax assets 379,126 301,778

Deferred tax liabilities (44,818) (44,282)

Net deferred tax assets 334,308 257,496

The deferred tax assets relate to Cyprus operations.

The movement of the net deferred tax assets is set out below:

30 June2019

31 December2018

€000 €0001 January 257,496 337,385

Deferred tax recognised in the consolidated income statement - continuingoperations 114,692 (81,436)

Deferred tax recognised in the consolidated statement of comprehensiveincome 29 579

Disposal of subsidiary - 967

Transfer to current tax receivables (37,909) -

Foreign exchange adjustments - 1

30 June/31 December 334,308 257,496

Income Tax Law Amendment 28 (I) of 2019On 1 March 2019 the Cyprus Parliament adopted legislative amendments on Income Tax Law (the 'Law')published on the Official Gazette of the Republic on 15 March 2019 ('the amendments').

The main provisions of the legislation are set out below: The amendments allow for the conversion of specific tax losses into tax credits. The Law applies only to tax losses transferred following resolution of a credit institution within the

framework of ‘The Resolution of Credit and Other Institutions Law’. The losses are capped to the amount of Deferred Tax Assets (DTA) recognised on the balance

sheet of the audited financial statements of the acquiring credit institution in the year ofacquisition. The tax losses in excess of the capped amount can only be utilised in cases involvingtransfers of tax losses in relation to tax reorganisations, which will be completed before 1October 2019. Post 1 October 2019, any excess tax losses expire.

Acquired tax losses are converted into 15 equal annual instalments for credit institutions that willenter into resolution in the future or into 11 equal annual instalments for credit institutions whichwere in resolution pre 31 December 2017.

Each annual instalment can be claimed as a deductible expense in the determination of thetaxable income for the relevant year. Annual instalments are capped and cannot create additionallosses for the credit institution.

Any amount of annual instalment not utilised as a deductible expense is converted into a taxcredit at the year end (with reference to the applicable tax rate enacted at the time of theconversion) and it can be utilised as a tax credit in the tax year following the tax year to whichthis tax credit relates to.

The tax credit can be used against a tax liability (Corporate Income Tax Law, VAT Law or Banklevy Law) of the credit institution or any other eligible subsidiary for group relief. Any unutilisedtax credits in the relevant year are converted into a receivable from the Cyprus Government.

56

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

11. Income tax (continued) In financial years a credit institution has accounting losses the amount of the annual instalment is

recalculated. Upon recalculation, the mechanics outlined above remain unchanged. In case a credit institution in scope goes into liquidation the total amount of unused annual

instalments are converted to tax credits and immediately become a receivable from theGovernment.

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

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

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

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

Accumulated income tax losses

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

Total incometax losses

Income taxlosses forwhich a

deferred taxasset wasrecognised

Income taxlosses forwhich no

deferred taxasset wasrecognised

30 June 2019 €000 €000 €000

Expiring within 5 years 72,171 - 72,171

Utilisation in annual instalments up to 2028 3,032,728 3,032,728 -

3,104,899 3,032,728 72,171

31 December 2018

Expiring within 5 years 950,084 - 950,084

Expiring by the end of 2028 7,378,801 2,414,176 4,964,625

8,328,885 2,414,176 5,914,709

In relation to the tax losses that were transferred to BOC PCL in 2013, the income tax authorities in Cyprusissued their tax assessments in March and April 2019. On the basis of these assessments the quantum ofLaiki Bank tax losses were c.€5 billion and lower than the initial amount of €7.4 billion estimated in 2013.

The tax losses in excess of the €3.3 billion transferred from Laiki Bank to BOC PCL in March 2013 cannot beutilised by BOC PCL, in line with the March 2019 Law amendments, except in cases where there aretransfers arising due to reorganisations made prior to 1 October 2019.

57

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

12. Earnings per share

Six months ended30 June

Basic and diluted earnings/(losses) per share attributable to theowners of the Company

20192018

(represented)Profit/(loss) for the period attributable to the owners of the Company (€thousand)

97,398 (54,048)

Weighted average number of shares in issue during the period, excludingtreasury shares (thousand)

446,058 446,058

Basic and diluted earnings/(losses) per share (€ cent) 21.8 (12.1)

Basic and diluted earnings/(losses) per share attributable to theowners of the Company-continuing operationsProfit/(loss) for the period attributable to the owners of the Company-continuing operations (€ thousand)

97,398 (58,058)

Weighted average number of shares in issue during the period, excludingtreasury shares (thousand)

446,058 446,058

Basic and diluted earnings/(losses) per share-continuing operations (€ cent) 21.8 (13.0)

Basic and diluted earnings per share attributable to the owners ofthe Company-discontinued operationsProfit for the period attributable to the owners of the Company-discontinuedoperations (€ thousand)

- 4,010

Weighted average number of shares in issue during the period, excludingtreasury shares (thousand)

446,058 446,058

Basic and diluted earnings per share-discontinued operations (€ cent) - 0.9

13. Investments

Investments30 June

2019€000

31 December2018€000

Investments mandatorily measured at FVPL 166,480 152,473

Investments at FVOCI 644,038 231,548

Investments at amortised cost 778,064 393,083

1,588,582 777,104

During the six months ended 30 June 2019, the Group has proceeded to invest in debt securities, as part ofits investing strategy.

58

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

13. Investments (continued)

The amounts pledged as collateral are shown below:

Investments pledged as collateral30 June

2019€000

31 December2018€000

Investments at FVOCI 282,257 600,291

Investments at amortised cost 10,060 137,296

292,317 737,587

The decrease in investments pledged as collateral during the six months ended 30 June 2019 related to thechange in the type of collateral pledged by the Group. Encumbered assets are disclosed in Note 31.

All investments pledged as collateral under repurchase agreements can be sold or repledged by thecounterparty.

The maximum exposure to credit risk for debt securities is disclosed in Note 29.1.

Investments in equity securities and mutual funds as at 30 June 2019, included above, amount to €19,287thousand and €141,381thousand respectively (31 December 2018: €15,309 thousand and €134,639thousand respectively).

There were no reclassifications of investments during the six months ended 30 June 2019.

The debt securities which are measured at FVPL are classified as such because they failed to meet the SPPIcriteria.

At 1 January 2018 the Group irrevocably made the election to classify its equity investments previouslyclassified as available-for-sale as equity investments at FVOCI on the basis that these are not held fortrading. Their carrying value included in the table above amounts to €9,579 thousand at 30 June 2019 andis equal to their fair value. Dividend income amounting to €113 thousand has been received and recognisedfor the six months ended 30 June 2019 (corresponding period of 2018: €122 thousand).

During the six months ended 30 June 2019 no equity investments measured at FVOCI have been disposedof (year 2018: €5,458 thousand). The cumulative gain transferred to retained earnings during the year2018 amounted to €173 thousand. There were no other transfers from OCI to retained earnings during theperiod.

The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS9, amounts to €15,683 thousand at 30 June 2019 (31 December 2018: €14,940 thousand). The fair valuegain that would have been recognised in the consolidated income statement if these financial assets had notbeen reclassified as part of the transition to IFRS 9, amounts to €834 thousand (year 2018: €359thousand). The effective interest rate of these instruments is 1.6%-5.0% per annum and the respectiveinterest income during the six months ended 30 June 2019 amounts to €197 thousand.

59

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

14. Derivative financial instruments

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

30 June 2019 31 December 2018

Fair value Fair value

Contractamount

Assets Liabilities Contract amount Assets Liabilities

€000 €000 €000 €000 €000 €000

TradingderivativesForward exchangerate contracts 23,985 212 118 17,114 240 192

Currency swaps 1,476,053 820 6,092 1,219,749 3,405 6,342

Interest rate swaps 53,664 359 267 57,652 471 422

Currency options 1,160 1 265 12,704 8 382

Interest ratecaps/floors 1,650,000 1,944 - 1,650,000 462 -

3,204,862 3,336 6,742 2,957,219 4,586 7,338

Derivativesqualifying forhedge accountingFair value hedges -interest rate swaps 1,093,827 8,653 49,884 1,016,083 20,137 29,029

Net investments -forward exchangerate contracts andcurrency swaps 88,119 1,662 76 74,973 31 2,616

1,181,946 10,315 49,960 1,091,056 20,168 31,645

Total 4,386,808 13,651 56,702 4,048,275 24,754 38,983

Hedge accounting

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

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

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

Fair value hedgesThe Group uses interest rate swaps to hedge the interest rate risk arising as a result of the possible adversemovement in the fair value of fixed rate debt securities measured at FVOCI and fixed rate customer loansand deposits.

60

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

14. Derivative financial instruments (continued)

Hedges of net investmentsThe Group’s consolidated balance sheet is affected by foreign exchange differences between the Euro and allnon-Euro functional currencies of overseas subsidiaries and other foreign operations. The Group hedges itsstructural currency risk when it considers that the cost of such hedging is within an acceptable range (inrelation to the underlying risk). This hedging is effected by financing with borrowings in the same currencyas the functional currency of the overseas subsidiaries and forward exchange rate contracts.

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

15. Fair value measurement

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

30 June 2019 31 December 2018Carrying

valueFair value Carrying value Fair value

Financial assets €000 €000 €000 €000

Cash and balances with central banks 5,261,896 5,261,896 4,610,491 4,610,491

Loans and advances to banks 403,041 401,701 472,532 467,026

Investments mandatorily measured at FVPL 166,480 166,480 152,473 152,473

Investments at FVOCI 926,295 926,295 831,839 831,839

Investments at amortised cost 788,124 808,196 530,379 538,631

Derivative financial assets 13,651 13,651 24,754 24,754

Loans and advances to customers 10,949,002 10,947,534 10,921,786 10,788,446

Life insurance business assets attributable topolicyholders 426,800 426,800 388,745 388,745

Financial assets classified as held for sale 8,318 8,318 1,154,108 1,154,108

Other financial assets 189,929 189,929 144,381 144,381

19,133,536 19,150,800 19,231,488 19,100,894

Financial liabilities

Obligations to central banks and deposits bybanks 1,362,023 1,362,023 1,261,942 1,261,942

Repurchase agreements 247,813 252,749 248,945 263,511

Derivative financial liabilities 56,702 56,702 38,983 38,983

Customer deposits 16,376,686 16,383,990 16,843,558 16,849,222

Subordinated loan stock 261,417 275,592 270,930 276,527

Other financial liabilities 173,975 173,975 188,512 188,512

18,478,616 18,505,031 18,852,870 18,878,697

The fair value of financial assets and liabilities in the above table is as at the reporting date and does notrepresent 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.

61

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

15. Fair value measurement (continued)

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

Level 3: investments valued using models for which inputs that have a significant effect on fair value are notbased on observable market data.

For assets and liabilities that are recognised in the Financial Statements at fair value, the Group determineswhether transfers have occurred between levels in the hierarchy by re-assessing categorisation at the endof each reporting period.

The following is a description of the determination of fair value for financial instruments which are recordedat fair value on a recurring and on a non-recurring basis and for financial instruments which are notmeasured at fair value but for which fair value is disclosed, using valuation techniques. These incorporatethe Group’s estimate of assumptions that a market participant would make when valuing the instruments.

Derivative financial instrumentsDerivative financial instruments valued using a valuation technique with market observable inputs aremainly interest rate swaps, currency swaps, currency rate options, forward foreign exchange rate contracts,equity options and interest rate collars. The most frequently applied valuation techniques include forwardpricing and swap models, using present value calculations. The models incorporate various inputs includingthe 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 ofcounterparty 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 theGroup, to the Group’s expected positive exposure to the counterparty and multiplying the result by the lossexpected 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 toGroup and multiplying the result by the loss expected in the event of default. Both calculations areperformed over the life of the potential exposure.

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

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

Investments at FVPL, investments at FVOCI and investments at amortised costInvestments which are valued using a valuation technique or pricing models, primarily consist of unquotedequity securities and debt securities. These assets are valued using valuation models which sometimes onlyincorporate market observable data and at other times use both observable and non-observable data. Therest of the investments are valued using quoted prices in active markets.

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

62

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

15. Fair value measurement (continued)

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

Repurchase agreementsRepurchase agreements are collateralised bank takings. Given that the collateral provided by the Group isgreater than the amount borrowed, the fair value calculation of these repurchase agreements takes intoaccount the time value of money.

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

Deposits by banksSince almost all deposits by banks are very short-term, the fair value is an approximation of the carryingvalue.

Subordinated loan stockThe current issue of BOC PCL is liquid with quoted prices in an active market.

Model inputs for valuationObservable inputs to the models for the valuation of unquoted equity and debt securities include, whereapplicable, current and expected market interest rates, market expected default rates, market impliedcountry and counterparty credit risk and market liquidity discounts.

63

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

15. Fair value measurement (continued)

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

Level 1 Level 2 Level 3 Total30 June 2019 €000 €000 €000 €000Financial assets

Loans and advances to customers measuredat FVPL - - 393,981 393,981

Trading derivatives

Forward exchange rate contracts - 212 - 212

Currency swaps - 820 - 820

Interest rate swaps - 359 - 359

Currency options - 1 - 1

Interest rate caps/floors - 1,944 - 1,944

- 3,336 - 3,336

Derivatives qualifying for hedge accounting

Fair value hedges-interest rate swaps - 8,653 - 8,653

Net investments-forward exchange ratecontracts and currency swaps - 1,662 - 1,662

- 10,315 - 10,315

Investments mandatorily measured at FVPL 142,306 1,794 22,380 166,480

Investments at FVOCI 910,469 1,087 14,739 926,295

1,052,775 16,532 431,100 1,500,407

Other financial assets not measured atfair value

Loans and advances to banks - 401,701 - 401,701

Investments at amortised cost 687,785 75,378 45,033 808,196

Loans and advances to customers - - 10,553,553 10,553,553

687,785 477,079 10,598,586 11,763,450

For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discountfactor by 10% would result in a decrease of €10,206 thousand in their fair value and a decrease in thediscount factor by 10% would result in an increase of €6,129 thousand in their fair value.

For one investment included in debt securities mandatorily measured at fair value through profit and loss asa result of the SPPI assessment and categorised as Level 3 (Note 13) with a carrying amount of €21,403thousand as of 30 June 2019, for which a change in the conversion factor by 10% would result in a changein the value of the debt securities by €2,140 thousand.

64

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

15. Fair value measurement (continued)

Level 1 Level 2 Level 3 Total30 June 2019 €000 €000 €000 €000Financial liabilities

Trading derivatives

Forward exchange rate contracts - 118 - 118

Currency swaps - 6,092 - 6,092

Interest rate swaps - 267 - 267

Currency options - 265 - 265

- 6,742 - 6,742

Derivatives qualifying for hedge accounting

Fair value hedges-interest rate swaps - 49,884 - 49,884

Net investments-forward exchange ratecontracts - 76 - 76

- 49,960 - 49,960

- 56,702 - 56,702

Other financial liabilities not measuredat fair value

Deposits by banks - 532,023 - 532,023

Repurchase agreements - 252,749 - 252,749

Customer deposits - - 16,383,990 16,383,990

Subordinated loan stock 275,592 - - 275,592

275,592 784,772 16,383,990 17,444,354

65

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

15. Fair value measurement (continued)

Level 1 Level 2 Level 3 Total31 December 2018 €000 €000 €000 €000Financial assets

Loans and advances to customers measuredat FVPL - - 395,572 395,572

Trading derivatives

Forward exchange rate contracts - 240 - 240

Currency swaps - 3,405 - 3,405

Interest rate swaps - 471 - 471

Currency options - 8 - 8

Interest rate caps/floors - 462 - 462

- 4,586 - 4,586

Derivatives qualifying for hedge accounting

Fair value hedges-interest rate swaps - 20,137 - 20,137

Net investments-forward exchange ratecontracts - 31 - 31

- 20,168 - 20,168

Investments mandatorily measured at FVPL 137,093 394 14,986 152,473

Investments at FVOCI 822,628 1,051 8,160 831,839

959,721 26,199 418,718 1,404,638

Other financial assets not measured atfair value

Loans and advances to banks - 467,026 - 467,026

Investments at amortised cost 484,417 54,214 - 538,631

Loans and advances to customers - - 10,392,874 10,392,874

484,417 521,240 10,392,874 11,398,531

For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discountfactor by 10% would result in a decrease of €12,134 thousand in their fair value and a decrease in thediscount factor by 10% would result in an increase of €5,263 thousand in their fair value.

For one investment included in debt securites mandatorily measured at fair value through profit and loss asa result of the SPPI assessment and categorised as Level 3 (Note 13) with a carrying amount of €13,569thousand as at 31 December 2018, for which a change in the conversion factor by 10% would result in achange in the value of the debt securities by €1,357 thousand.

66

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

15. Fair value measurement (continued)

Level 1 Level 2 Level 3 Total

31 December 2018 €000 €000 €000 €000

Financial liabilities

Trading derivatives

Forward exchange rate contracts - 192 - 192

Currency swaps - 6,342 - 6,342

Interest rate swaps - 422 - 422

Currency options - 382 - 382

- 7,338 - 7,338

Derivatives qualifying for hedge accounting

Fair value hedges-interest rate swaps - 29,029 - 29,029

Net investments-forward exchange rate contracts - 2,616 - 2,616

- 31,645 - 31,645

- 38,983 - 38,983

Other financial liabilities not measured atfair value

Deposits by banks - 431,942 - 431,942

Repurchase agreements - 263,511 - 263,511

Customer deposits - - 16,849,222 16,849,222

Subordinated loan stock 276,527 - - 276,527

276,527 695,453 16,849,222 17,821,202

The cash and balances with central banks and the funding from central banks are financial instrumentswhose carrying value is a reasonable approximation of fair value, because they are mostly short-term innature or are repriced to current market rates frequently.

During the six months ended 30 June 2019 and the year 2018 there were no significant transfers betweenLevel 1 and Level 2.

The movement in Level 3 financial assets which are measured at fair value is presented below:30 June 2019 31 December 2018

Loans andadvances tocustomers

Financialinstruments

TotalLoans and

advances tocustomers

Financialinstruments

Total

€000 €000 €000 €000 €000 €000

1 January 395,572 23,146 418,718 389,862 22,621 412,483

Additions - 6,529 6,529 35,601 - 35,601

Disposals - (465) (465) - - -

Net gains from fair valuechanges recognised in theconsolidated statement ofother comprehensive income - 7,909 7,909 - 525 525

Net gains on loans andadvances to customersmeasured at FVPL 17 - 17 16,125 - 16,125

Repayments of loans (9,792) - (9,792) (62,809) - (62,809)

Interest on loans 8,184 - 8,184 16,793 - 16,793

30 June/31 December 393,981 37,119 431,100 395,572 23,146 418,718

67

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

16. Loans and advances to customers

30 June2019

31 December2018

€000 €000

Gross loans and advances to customers at amortised cost 12,388,100 12,430,367

Allowance for ECL for impairment of loans and advances to customers(Note 29) (1,833,079) (1,904,153)

Loans and advances to customers measured at amortised cost 10,555,021 10,526,214

Loans and advances to customers measured at FVPL 393,981 395,572

10,949,002 10,921,786

Loans and advances to customers pledged as collateral are disclosed in Note 31.

Additional analysis and information regarding credit risk and analysis of the allowance for ECL of loans andadvances to customers are set out in Note 29.

17. Stock of property

The carrying value of stock is determined as the lower of cost and net realisable value. Impairment isrecognised if the net realisable value is below the cost of the stock of property. During the six monthsended 30 June 2019 an impairment loss of €11,585 thousand (30 June 2018: €10,106 thousand) wasrecognised in 'Impairment of non-financial instruments' in the consolidated income statement. At 30 June2019, stock of €353,958 thousand (31 December 2018: €387,085 thousand) is carried at net realisablevalue which is approximately the fair value less costs to sell.

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

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

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

20192018

(restated)€000 €000

Net book value at 1 January 1,426,857 1,486,979

Additions 102,307 300,626

Disposals (80,723) (184,818)

Tranfers of stock of property to serbian entities to non-current assets heldfor sale (2,427) -

Transfers to own use properties - (84,744)

Transfers to disposal groups (Note 19) (3,816) (73,899)

Impairment (Note 10) (11,585) (17,270)

Foreign exchange adjustments (172) (17)

Net book value at 30 June/31 December 1,430,441 1,426,857

Additions during the year 2018 include costs of construction of €31,860 thousand. There were no costs ofconstruction during the six months ended 30 June 2019 (corresponding period 2018: €10,095 thousand).

68

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

17. Stock of property (continued)

Analysis by type and country Cyprus Greece Romania Total30 June 2019 €000 €000 €000 €000

Residential properties 154,330 22,437 117 176,884

Offices and other commercial properties 171,670 34,406 9,686 215,762

Manufacturing and industrial properties 53,334 28,213 490 82,037

Hotels 26,339 489 - 26,828

Land (fields and plots) 916,479 7,435 3,427 927,341

Properties under construction 1,589 - - 1,589

Total 1,323,741 92,980 13,720 1,430,441

31 December 2018 (restated)

Residential properties 150,106 20,855 313 171,274

Offices and other commercial properties 179,822 33,283 7,401 220,506

Manufacturing and industrial properties 54,188 36,212 498 90,898

Hotels 34,840 484 - 35,324

Land (fields and plots) 897,020 7,546 3,611 908,177

Properties under construction 678 - - 678

Total 1,316,654 98,380 11,823 1,426,857

18. Prepayments, accrued income and other assets

30 June2019

31 December2018

€000 €000

Financial assetsReceivables relating to disposal of operations, loan portfolios and otherassets 130,716 85,606

Debtors 42,599 30,671

Receivable relating to tax 4,692 12,329

Other assets 11,922 15,775

189,929 144,381

Non financial assets

Reinsurers’ share of insurance contract liabilities 51,481 48,348

Current tax receivable 24,698 2,307

Prepaid expenses 7,199 8,658

Other assets 49,946 52,308

133,324 111,621

323,253 256,002

As at 30 June 2019, the receivable relating to the disposal of operations in the UK amounts to €56,064thousand (31 December 2018: €54,760 thousand). Half of the consideration was received upon completionof the transaction and the remaining half is deferred up to November 2020, without any performanceconditions attached. The receivable relating to the disposal of the Ukrainian operations in 2014, amountedto €28,023 thousand (31 December 2018: €30,846 thousand) and the deferred consideration is due to bepaid to BOC PCL under a repayment programme which has been extended from June 2019 to December2022. The receivable is fully secured.

69

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

18. Prepayments, accrued income and other assets (continued)

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

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

Non-current assets and disposal groups held for saleThe following non-current assets and disposal groups were classified as held for sale as at 30 June 2019 and31 December 2018:

30 June2019

31 December2018

€000 €000

Gross loans and advances to customers at amortised cost (Note 29.7) - 2,711,960

Allowance for ECL - (1,557,852)

- 1,154,108

Stock of property (Note 17) - 73,899

Disposal group 1 - 1,228,007

Disposal group 2 - 151,248

Disposal group 3 91,701 89,683

Investment in associate 97,502 -

Lending and other exposures to serbian entities 8,318 -

Investment properties held for sale - 1,100

197,521 1,470,038

Non-current liabilities and disposal group held for sale

Liabilities relating to disposal group 3 6,760 5,812

Disposal group 1Disposal group 1 comprised of a portfolio of loans and advances to customers (the Portfolio) and stock ofproperty (known as 'Project Helix' or the 'Transaction') and a portfolio of loans and advances to customersknown as 'Velocity'. During the six months ended 30 June 2019, the Group disposed of the Portfolio throughthe transfer of the Portfolio by BOC PCL to a licensed Cypriot Credit Acquiring Company (the ‘CyCAC’). Theshares of the CyCAC were subsequently acquired by certain funds affiliated with Apollo Global ManagementLLC (together with its consolidated subsidiaries 'Apollo', the purchaser of the Portfolio). Funds managed byApollo provided equity capital in relation to the financing of the purchase of the Portfolio. In addition, duringthe six months ended 30 June 2019 the Group disposed of the portfolio of project 'Velocity'.

BOC PCL received consideration of c.€1,186 million on completion, reflecting adjustments resulting from,inter alia, loan repayments received on the Portfolio since the reference date of 31 March 2018, of which€45 million concern the BOC PCL participation in the senior debt issued to finance the transaction. As at thedate of the completion of the sale, the Portfolio included loans and advances to customers of gross bookvalue amounting to €2,631 million (net book value €1,054 million) and stock of properties with carryingvalue amounting to €109 million. As at 30 June 2019 the Group has derecognised the disposed portfoliorelating to Project Helix.

The portfolio of project Velocity comprised of gross loans and advances to customers amounting to €30million with net book value of €4 million and the net proceeds amounted to €4 million. The Group hasderecognised the disposed portfolio relating to Project Velocity as of 30 June 2019.

70

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

19. Non-current assets and disposal groups held for sale (continued)

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

Disposal group 2In June 2019 BOC PCL disposed of its entire holding of 88.2% in the investment shares of Cyreit. Cyreit isthe holding company of a group of companies which holds and manages investment properties. As at 31December 2018, the subsidiary was classified as a disposal group.

The investment properties held within the disposal group were measured at fair value up to the date ofdisposal. The results of the fair value changes and the impact on disposal are presented within ‘Net lossesfrom revaluation and disposal of investment properties’ in the consolidated income statement and are withinthe Cyprus operating segment since the investment properties are in Cyprus. Further information ispresented in Note 35.2.1.

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

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

Lending and other exposures to serbian entitiesIn May 2019, BOC PCL signed an agreement for the disposal of a loan portfolio amounting to €5,891thousand and a properties portfolio amounting to €2,427 thousand. The portfolio relates to serbian entityloans or with collaterals in Serbia. The disposal is subject to regulatory approvals and is expected to takeplace within the third quarter of 2019.

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

20. Funding from central banks

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

30 June2019

31 December2018

€000 €000

Targeted Longer-Term Refinancing Operations (TLTRO II) 830,000 830,000

As at 30 June 2019 and 31 December 2018, ECB funding was at €830 million that was borrowed from the 4-year TLTRO II.

71

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

20. Funding from central banks (continued)

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

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

21. Customer deposits

30 June2019

31 December2018

€000 €000By type of deposit

Demand 6,818,036 6,708,852

Savings 1,419,200 1,352,452

Time or notice 8,139,450 8,782,254

16,376,686 16,843,558

By geographical area

Cyprus 16,376,686 16,843,558

By currency

Euro 14,686,817 14,961,025

US Dollar 1,301,014 1,482,867

British Pound 274,532 292,640

Russian Rouble 31,589 25,529

Swiss Franc 7,713 7,994

Other currencies 75,021 73,503

16,376,686 16,843,558

By customer sector

Corporate 1,872,614 1,750,517

SMEs 738,515 800,671

Retail 9,806,679 10,032,047

Restructuring

– Corporate 54,670 69,180

– SMEs 24,702 29,299

– Retail other 16,597 16,773

Recoveries

– Corporate 18,610 6,492

International banking services 3,459,828 3,707,713

Wealth management 384,471 430,866

16,376,686 16,843,558

Deposits by geographical area are based on the originator country of the deposit.

72

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

22. Subordinated loan stock

30 June2019

31 December2018

Contractual interest rate €000 €000Subordinated Tier 2 Capital Note withnominal value of €250 million

9.25% up to 19 January 2022 261,417 270,930

BOC PCL maintains a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal amount up to€4,000 million.

In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note (the Note)under BOC PCL’s EMTN Programme. The Note was priced at par with a coupon of 9.25% per annum payableannually up to 19 January 2022 and then a rate at the then prevailing 5-year swap rate plus a margin of9.176% per annum up to 19 January 2027, payable annually. The Note matures on 19 January 2027. BOCPCL has the option to redeem the Note early on 19 January 2022, subject to applicable regulatory consents.The Note is listed on the Luxembourg Stock Exchange’s Euro Multilateral Trading Facility (MTF) market. Thefair value as at 30 June 2019 is disclosed in Note 15.

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

30 June2019

31 December2018

€000 €000

Income tax payable and related provisions 5,022 14,568

Special defence contribution payable 1,052 4,270

Retirement benefit plans liabilities 9,327 8,777

Provisions for financial guarantees and commitments 22,151 27,685

Liabilities for investment-linked contracts under administration 3,844 2,971

Accrued expenses and other provisions 63,013 72,702

Deferred income 21,213 18,869

Items in the course of settlement 69,769 47,958

Lease liabilities 31,760 -

Other liabilities 104,257 87,683

331,408 285,483

24. Share capital

30 June 2019 31 December 2018Number of

shares(thousand)

€000Number of

shares(thousand)

€000

Authorised

Ordinary shares of €0.10 each 10,000,000 1,000,000 10,000,000 1,000,000

Issued

1 January 446,200 44,620 446,200 44,620

30 June 2019/31 December 2018 446,200 44,620 446,200 44,620

Authorised and issued share capital

All issued ordinary shares carry the same rights.

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

73

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

24. Share capital (continued)

Share premium reserve

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

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

Treasury shares of the Company

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

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

Share-based payments - share options

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

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

Other equity instruments

30 June2019

31 December2018

€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 AdditionalTier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company.The coupon is at 12.50% and is payable semi-annually. The first coupon payment to AT1 holders was madein June 2019 and has been recognised in retained earnings. The Company may elect to cancel any interestpayment for an unlimited period, on a non-cumulative basis, whereas it mandatorily cancels interestpayment under certain circumstances. AT1 is perpetual and has no fixed date for redemption but can beredeemed (in whole but not in part) at the Company's option on the fifth anniversary of the issue date andeach subsequent fifth anniversary subject to the prior approval of the regulator. AT1 is listed on theLuxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.

74

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

24. Share capital (continued)

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

25. Pending litigation, claims, regulatory and other matters

The Group, in the ordinary course of business is subject to enquiries and examinations, requests forinformation, audits, investigations and legal and other proceedings by regulators, governmental and otherpublic bodies, actual and threatened, relating to the suitability and adequacy of advice given to clients orthe 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 economyand banking sector in 2012 and the subsequent Restructuring of BOC PCL in 2013 as a result of the bail-inDecrees, BOC PCL is subject to a large number of proceedings and investigations that either precede, orresult from the events that occurred during the period of the bail-in Decrees. Most ongoing investigationsand proceedings of significance relate to matters arising during the period prior to the issue of the bail-inDecrees.

Apart from what is described below, the Group considers that none of these matters is material, eitherindividually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on itscontingent liabilities arising from these matters where it is not practicable to do so because it is too early orthe outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct ofthe matters. Provisions have been recognised for those cases where the Group is able to estimate probablelosses. Where an individual provision is material, the fact that a provision has been made is stated. Anyprovision recognised does not constitute an admission of wrongdoing or legal liability. While the outcome ofthese matters is inherently uncertain, management believes that, based on the information available to it,appropriate provisions have been made in respect of legal proceedings and regulatory matters as at 30 June2019 and hence it is not believed that such matters, when concluded, will have a material impact upon thefinancial position of the Group.

25.1 Pending litigation and claims

Investigations and litigation relating to securities issued by BOC PCLA number of institutional and retail customers have filed various separate actions against BOC PCL allegingthat 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 currentlypending before the courts in Cyprus and in Greece, as well as the decisions and fines imposed upon BOCPCL in related matters by Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic CapitalMarket Commission (HCMC).

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

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

In July 2019 the first capital securities case to reach the Areios Pagos (Supreme Court of Greece) has beenadjudged in favour of BOC PCL, ruling in effect that BOC PCL can rely on the defence of Frustration (ieintervening event out of the control of BOC PCL in this case BOC PCL’s resolution and recapitalisationthrough the bail-in of deposits) to show that the risks associated with the sale of the capital securitiesbecause of the consequences of the bail-in were unforeseeable.

75

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

25. Pending litigation, claims, regulatory and other matters (continued)

25.1 Pending litigation and claims (continued)

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

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

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

Bail-in related litigationDepositorsA number of the BOC PCL's depositors, who allege that they were adversely affected by the bail in, filedclaims against BOC PCL and other parties (such as the CBC and the Ministry of Finance of Cyprus) includingagainst BOC PCL as the alleged successor of Laiki Bank on the grounds that, inter alia, the ‘Resolution Lawof 2013’ and the Bail-in Decrees were in conflict with the Constitution of the Republic of Cyprus and theEuropean Convention on Human Rights. They are seeking damages for their alleged losses resulting fromthe bail in of their deposits. BOC PCL is defending these actions.

ShareholdersNumerous claims were filed by shareholders in 2013 against the Government and the CBC before theSupreme Court in relation to the dilution of their shareholding as a result of the recapitalisation pursuant tothe Resolution Law and the Bail-in Decrees issued thereunder. These proceedings sought the cancellationand setting aside of the Bail-in Decrees as unconstitutional and/or unlawful and/or irregular. BOC PCLappeared in these proceedings as an interested party to support the position that the cases should beadjudicated upon in the context of private law. The Supreme Court ruled in these cases in October 2014that the proceedings fall within private and public law and thus fall within the jurisdiction of the DistrictCourts.

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

Claims based on set-offCertain claims have been filed by customers against BOC PCL alleging that the implementation of the bail-inunder the Bail-in Decrees was not carried out correctly in relation to them and, in particular, that theirrights of set-off were not properly respected. BOC PCL intends to contest such claims.

Implementation of DecreesOccasionally, other claims are brought against BOC PCL in respect of the implementation of the Decreesissued following the adoption of the Resolution Law (as regards the way and methodology whereby suchDecrees have been implemented).

Legal position of the GroupAll above claims are being vigorously disputed by the Group, in close consultation with the appropriate stateand governmental authorities. The position of the Group is that the Resolution Law and the Decrees takeprecedence over all other laws. As matters now stand, both the Resolution Law and the Decrees issuedthereunder are constitutional and lawful, in that they were properly enacted and have not so far beenannulled by any court.

76

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

25. Pending litigation, claims, regulatory and other matters (continued)

25.1 Pending litigation and claims (continued)

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

Employment litigationFormer senior officers of BOC PCL have instituted one claim for unfair dismissal and one claim for ProvidentFund entitlements against BOC PCL and Trustees of the Provident Fund. As at the present date one case hadbeen dismissed as filed out of time, but the plaintiff has subsequently filed a civil action in the District Courton the same grounds as the previous case which was filed in the Labour Disputes Court. The Group does notconsider that these cases will have a material impact on its financial position.

Swiss Francs loans litigation in Cyprus and UKA number of actions have been instituted against BOC PCL by borrowers who obtained loans in foreigncurrencies (mainly Swiss Francs). The central allegation in these cases is that BOC PCL misled theseborrowers and/or misrepresented matters, in violation of applicable law. BOC PCL intends to contest suchproceedings. The Group does not expect that these actions will have a material impact on its financialposition.

UK property lending claimsBOC 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. Theproceedings in the United Kingdom are currently stayed in order for the parties to have time to negotiatepossible settlements.

Banking business casesThere are a number of banking business cases where the amounts claimed are significant. Management hasassessed the probability of loss as possible and does not expect any future outflows with respect to thesecases to have a material impact on the financial position of the Group. These cases primarily concernallegations as to BOC PCL's standard policies and procedures allegedly resulting to damages and otherlosses for the claimants.

General criminal investigations and proceedingsThe Attorney General and the Cypriot Police (the Police) are conducting various investigations and inquiriesfollowing and relating to the financial crisis which culminated in March 2013. BOC PCL is cooperating fullywith the Attorney General and the Police and is providing all information requested of it. Based on thecurrently available information, the Group is of the view that any further investigations or claims resultingfrom these investigations will not have a material impact on its financial position.

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

77

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

25. Pending litigation, claims, regulatory and other matters (continued)

25.2 Regulatory matters

The Hellenic Capital Market Commission (HCMC) InvestigationThe HCMC is currently in the process of investigating matters concerning the Group's investment in GreekGovernment Bonds from 2009 to 2011, including, inter-alia, related non-disclosure of material informationin BOC PCL's CCS and CECS and rights issue prospectus (tracking the investigation carried out by CySEC in2013), Greek government bonds' reclassification, ELA disclosures and allegations by some GreekGovernment Bond investors regarding BOC PCL's non-compliance with Markets in Financial InstrumentsDirective (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 givenat this stage, though it is not expected that any resulting liability or damages will have a material impact onthe financial position of the Group.

The Cyprus Securities and Exchange Commission (CySEC) InvestigationsAs at 30 June 2019, the only pending CySEC investigation against BOC PCL concerns possible pricemanipulation attributable to BOC PCL for the period from 1 November 2009 to 30 June 2010 post theinvestment in Banca Transylvania. In July 2019 the CySEC has submitted their report and the investigationwas closed with no findings against BOC PCL.

Commission for the Protection of Competition InvestigationIn April 2014, following an investigation which began in 2010, the Cypriot Commission for the Protection ofCompetition (the CPC) issued a statement of objections, alleging violations of Cypriot and EU competitionlaw 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 BOCPCL.

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

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

78

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

25. Pending litigation, claims, regulatory and other matters (continued)

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

Pendinglitigation or

claims(Note 25.1)

Regulatorymatters

(Note 25.2)

Other matters(Note 25.4)

Total

2019 €000 €000 €000 €0001 January 74,372 29,569 13,010 116,951

Increase of provisions including unwinding ofdiscount (Note 9) 195 390 11,644 12,229

Utilisation of provisions (8,234) (13,325) (1,926) (23,485)

Release of provisions (Note 9) (1,788) (1,480) - (3,268)

Foreign exchange adjustments - (52) - (52)

30 June 64,545 15,102 22,728 102,375

2018

1 January 62,646 70,672 5,057 138,375

Increase of provisions including unwinding ofdiscount - continuing operations (Note 9) 3,187 - - 3,187

Utilisation of provisions (2,945) (16,095) - (19,040)

Release of provisions - continuing operations(Note 9) - (9,000) - (9,000)

Foreign exchange adjustments - 194 - 194

30 June 62,888 45,771 5,057 113,716

The decrease of accumulated provisions for regulatory matters during the six months ended 30 June 2019mainly relates to utilisation of provisions on UK regulatory matters as detailed in Note 25.2. The decreaseof provisions for pending litigation and claims during the six months ended 30 June 2019 mainly relates toutilisation of provision recognised on investigations and litigations relating to securities issued by BOC PCLas detailed in Note 25.1.

25.4 Οther matters

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

Some information required by the IAS 37 (Provision, Contingent Liabilities and Contingent Assets) is notdisclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation.

26. Contingent liabilities

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

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

79

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

27. Cash and cash equivalents

Cash and cash equivalents comprise:

30 June2019

30 June2018

€000 €000

Cash and non-obligatory balances with central bank 5,104,501 4,001,987

Loans and advances to banks with original maturity less than three months 275,336 675,419

5,379,837 4,677,406

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

30 June2019

31 December2018

€000 €000

Cash and non-obligatory balances with central bank 5,104,501 4,447,816

Obligatory balances with central banks 157,395 162,675

Total cash and balances with central banks 5,261,896 4,610,491

Loans and advances to banks with original maturity less than three months 275,336 357,028

Restricted loans and advances to banks 125,704 115,504

Other loans and advances to banks 2,001 -

Total loans and advances to banks 403,041 472,532

Restricted loans and advances to banks include collaterals under derivative transactions of €64,344thousand (31 December 2018: €42,631 thousand) which are not immediately available for use by theGroup, but are released once the transactions are terminated.

80

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

28. Analysis of assets and liabilities by expected maturity

30 June 2019 31 December 2018 (restated)

Less thanone year

Over oneyear

TotalLess than one

yearOver one year Total

Assets €000 €000 €000 €000 €000 €000

Cash and balances withcentral banks 5,104,501 157,395 5,261,896 4,447,816 162,675 4,610,491

Loans and advances tobanks 280,184 122,857 403,041 364,655 107,877 472,532

Derivative financial assets 4,656 8,995 13,651 4,148 20,606 24,754

Investments includinginvestments pledged ascollateral 379,373 1,501,526 1,880,899 135,679 1,379,012 1,514,691

Loans and advances tocustomers 1,451,413 9,497,589 10,949,002 1,525,865 9,395,921 10,921,786

Life insurance businessassets attributable topolicyholders 8,069 430,491 438,560 498 402,067 402,565

Prepayments, accruedincome and other assets 184,067 139,186 323,253 82,214 173,788 256,002

Stock of property 520,033 910,408 1,430,441 542,419 884,438 1,426,857

Deferred tax assets 37,909 341,217 379,126 - 301,778 301,778

Property, equipment andintangible assets - 465,741 465,741 6 431,128 431,134

Investment properties - 141,864 141,864 - 128,006 128,006

Investment in associates andjoint venture - 2,191 2,191 - 114,637 114,637

Non-current assets anddisposal groups held for sale 197,521 - 197,521 1,470,038 - 1,470,038

8,167,726 13,719,460 21,887,186 8,573,338 13,501,933 22,075,271

Liabilities

Deposits by banks 277,059 254,964 532,023 168,740 263,202 431,942

Funding from central banks - 830,000 830,000 - 830,000 830,000

Repurchase agreements 124,586 123,227 247,813 80,692 168,253 248,945

Derivative financial liabilities 11,086 45,616 56,702 12,459 26,524 38,983

Customer deposits 2,812,842 13,563,844 16,376,686 2,946,714 13,896,844 16,843,558

Insurance liabilities 85,978 540,534 626,512 90,464 500,593 591,057

Accruals, deferred incomeand other liabilities andpending litigation, claims,regulatory and other matters 376,280 57,503 433,783 300,765 101,669 402,434

Subordinated loan stock - 261,417 261,417 - 270,930 270,930

Deferred tax liabilities - 44,818 44,818 - 44,282 44,282

Non-current liabilities anddisposal group classified asheld for sale 6,760 - 6,760 5,812 - 5,812

3,694,591 15,721,923 19,416,514 3,605,646 16,102,297 19,707,943

The main assumptions used in determining the expected maturity of assets and liabilities are set out below.

The investments are classified in the relevant time band based on expectations as to their realisation. Inmost cases this is the maturity date, unless there is an indication that the maturity will be prolonged orthere is an intention to sell, roll or replace the security with a similar one. The latter would be the casewhere there is secured borrowing, requiring the pledging of bonds and these bonds mature before thematurity of the secured borrowing. The maturity of bonds is then extended to cover the period of thesecured borrowing. Investments in equity securities are classified in the 'less than one year' time band.

81

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

28. Analysis of assets and liabilities by expected maturity (continued)

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

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

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

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

29. Risk management - Credit risk

In the ordinary course of its business the Group is exposed to credit risk which is monitored through variouscontrol mechanisms across all Group entities in order to prevent undue risk concentrations and to pricecredit 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 theirobligations towards the Group.

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

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

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

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

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

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

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

82

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

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

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

30 June2019

31 December2018

On-balance sheet €000 €000

Cyprus 18,414,125 18,504,113

Other countries 45,209 83,307

18,459,334 18,587,420

Off-balance sheet

Cyprus 2,634,615 2,781,943

Other countries 58,538 60,592

2,693,153 2,842,535

Total on and off-balance sheet

Cyprus 21,048,740 21,286,056

Other countries 103,747 143,899

21,152,487 21,429,955

The Group offers guarantee facilities to its customers under which the Group may be required to makepayments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs.

Letters of credit and guarantee (including standby letters of credit) commit the Group to make payments onbehalf of customers in the event of a specific act, generally related to the import or export of goods. Suchcommitments expose the Group to risks similar to those of loans and advances and are therefore monitoredby the same policies and control processes.

Loans and advances to customersThe Credit Risk department determines the amount and type of collateral and other credit enhancementsrequired for the granting of new loans to customers.

The main types of collateral obtained by the Group are mortgages on real estate, cash collateral/blockeddeposits, bank guarantees, government guarantees, pledges of equity securities and debt instruments ofpublic companies, fixed and floating charges over corporate assets, assignment of life insurance policies,assignment of rights on certain contracts and personal and corporate guarantees.

The Group’s management regularly monitors the changes in the market value of the collateral and, wherenecessary, requests the pledging of additional collateral in accordance with the relevant agreement.

Other financial instruments Collateral held as security for financial assets other than loans and advances is determined by the nature ofthe financial instrument. Debt securities and other eligible bills are generally unsecured with the exceptionof asset-backed securities and similar instruments, which are secured by pools of financial assets. Inaddition, some debt securities are government-guaranteed.

The Group has chosen the ISDA Master Agreement for documenting its derivatives activity. It provides thecontractual framework within which dealing activity across a full range of over-the-counter (OTC) productsis conducted and contractually binds both parties to apply close-out netting across all outstandingtransactions covered by an agreement, if either party defaults. In most cases the parties execute a CreditSupport Annex (CSA) in conjunction with the ISDA Master Agreement. Under a CSA, the collateral is passedbetween the parties in order to mitigate the market contingent counterparty risk inherent in their openpositions.

83

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.1 Maximum exposure to credit risk and collateral and other credit enhancements(continued)

Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of acorresponding 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 adelivery upon payment basis.

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

30 June2019

31 December2018

€000 €000

Balances with central banks 5,126,108 4,456,768

Loans and advances to banks 403,041 472,532

FVPL debt securities 22,513 14,616

Debt securities classified at amortised cost and FVOCI 1,697,718 1,350,127

Derivative financial instruments (Note 14) 13,651 24,754

Loans and advances to customers (Note 16) 10,949,002 10,921,786

Loans and advances to customers classified as held for sale (Note 19) 5,891 1,154,108

Receivables relating to disposal of operations, loan portfolios and otherassets (Note 18) 130,716 85,606

Debtors (Note 18) 42,599 30,671

Reinsurers' share of insurance contract liabilities (Note 18) 51,481 48,348

Other assets (Note 18) 16,614 28,104

On-balance sheet total 18,459,334 18,587,420

Contingent liabilities

Acceptances and endorsements 7,705 5,561

Guarantees 719,012 748,705

Commitments

Documentary credits 14,511 24,297

Undrawn formal stand-by facilities, credit lines and other commitments tolend 1,951,925 2,063,972

Off-balance sheet total 2,693,153 2,842,535

21,152,487 21,429,955

84

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

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 relevantCBC Directives and CRR. According to these restrictions, banks are prohibited from lending more than 25%of their capital base to a single customer group. The Group’s risk appetite statement imposes stricterconcentration limits and the Group is taking actions to run down those exposures which are in excess ofthese internal limits over time.

BOC PCL categorises its loans using the following customer sectors:

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

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

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

Fair value adjustment on initial recognitionThe fair value adjustment on initial recognition related to the loans and advances to customers acquired aspart of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS3, this adjustment decreased the gross balance of loans and advances to customers. However, for IFRS 7disclosure purposes as well as for credit risk monitoring, the residual of the fair value adjustment on initialrecognition as at each balance sheet date is not presented within the gross balances of loans and advances.

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

30 June 2019

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans atamortised cost

after residual fairvalue adjustment

on initialrecognition

By economic activity €000 €000 €000 €000 €000

Trade 1,424,245 34,981 1,459,226 (22,323) 1,436,903

Manufacturing 441,324 9,738 451,062 (5,284) 445,778

Hotels and catering 933,195 3,419 936,614 (18,225) 918,389

Construction 890,295 5,802 896,097 (12,138) 883,959

Real estate 1,090,903 23,604 1,114,507 (17,025) 1,097,482

Private individuals 6,116,364 1,019 6,117,383 (120,479) 5,996,904

Professional and other services 877,347 47,653 925,000 (28,387) 896,613

Other sectors 716,833 789 717,622 (5,550) 712,072

12,490,506 127,005 12,617,511 (229,411) 12,388,100

85

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.2 Credit risk concentration of loans and advances to customers (continued)

30 June 2019

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans atamortised cost

after residual fairvalue adjustment

on initialrecognition

By business line €000 €000 €000 €000 €000

Corporate 3,611,937 115,247 3,727,184 (39,594) 3,687,590

SMEs 1,153,766 10,927 1,164,693 (16,400) 1,148,293

Retail

- housing 2,860,064 - 2,860,064 (43,199) 2,816,865

- consumer, credit cards and other 927,404 831 928,235 3,047 931,282

Restructuring

- corporate 416,325 - 416,325 (7,284) 409,041

- SMEs 413,240 - 413,240 (7,520) 405,720

- retail housing 433,694 - 433,694 (2,930) 430,764

- retail other 237,948 - 237,948 (4,736) 233,212

Recoveries

- corporate 119,487 - 119,487 (3,651) 115,836

- SMEs 570,762 - 570,762 (22,726) 548,036

- retail housing 776,744 - 776,744 (38,533) 738,211

- retail other 685,211 - 685,211 (42,001) 643,210

International banking services 163,902 - 163,902 (1,261) 162,641

Wealth management 120,022 - 120,022 (2,623) 117,399

12,490,506 127,005 12,617,511 (229,411) 12,388,100

31 December 2018

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans afterresidual fair value

adjustment oninitial recognition

By economic activity €000 €000 €000 €000 €000

Trade 1,447,623 39,682 1,487,305 (24,096) 1,463,209

Manufacturing 437,030 7,572 444,602 (6,439) 438,163

Hotels and catering 877,501 3,806 881,307 (20,354) 860,953

Construction 991,122 2,552 993,674 (14,661) 979,013

Real estate 980,152 21,644 1,001,796 (16,231) 985,565

Private individuals 6,234,765 11,536 6,246,301 (135,603) 6,110,698

Professional and other services 866,093 45,758 911,851 (36,551) 875,300

Other sectors 720,876 4,704 725,580 (8,114) 717,466

12,555,162 137,254 12,692,416 (262,049) 12,430,367

86

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.2 Credit risk concentration of loans and advances to customers (continued)

31 December 2018

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans afterresidual fair value

adjustment oninitial recognition

By business line €000 €000 €000 €000 €000

Corporate 3,363,298 125,138 3,488,436 (49,982) 3,438,454

SMEs 1,188,456 11,188 1,199,644 (16,537) 1,183,107

Retail

- housing 2,871,294 - 2,871,294 (45,016) 2,826,278

- consumer, credit cards and other 940,388 904 941,292 2,965 944,257

Restructuring

- corporate 531,462 24 531,486 (7,907) 523,579

- SMEs 560,806 - 560,806 (11,637) 549,169

- retail housing 498,601 - 498,601 (4,481) 494,120

- retail other 328,952 - 328,952 (8,588) 320,364

Recoveries

- corporate 164,821 - 164,821 (7,439) 157,382

- SMEs 630,968 - 630,968 (26,178) 604,790

- retail housing 697,212 - 697,212 (40,577) 656,635

- retail other 480,733 - 480,733 (39,923) 440,810

International banking services 192,646 - 192,646 (2,158) 190,488

Wealth management 105,525 - 105,525 (4,591) 100,934

12,555,162 137,254 12,692,416 (262,049) 12,430,367

The residual fair value adjustment on initial recognition for loans and advances to customers included in theCyprus geographical area amounts to €229,236 thousand (31 December 2018: €261,862 thousand).

The loans and advances to customers in Cyprus include lending exposures to greek entities granted by BOCPCL in Cyprus in its normal course of business with a carrying value of €231,542 thousand (31 December2018: €67,930 thousand) and lending exposures in Cyprus with collaterals in Greece with a carrying valueof €79,363 thousand (31 December 2018: €76,303 thousand).

87

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

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

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

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

31 December 2018

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans atamortised cost

after residual fairvalue adjustment

on initialrecognition

By economic activity €000 €000 €000 €000 €000

Trade 373,351 - 373,351 (12,213) 361,138

Manufacturing 202,193 - 202,193 (7,216) 194,977

Hotels and catering 258,529 - 258,529 (11,960) 246,569

Construction 995,430 - 995,430 (74,233) 921,197

Real estate 409,632 55,225 464,857 (11,765) 453,092

Private individuals 218,531 - 218,531 (9,098) 209,433

Professional and other services 140,748 - 140,748 (5,941) 134,807

Other sectors 191,463 6,011 197,474 (6,727) 190,747

2,789,877 61,236 2,851,113 (139,153) 2,711,960

31 December 2018

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans atamortised cost

after residual fairvalue adjustment

on initialrecognition

By business line €000 €000 €000 €000 €000

Corporate 15,249 - 15,249 (584) 14,665

SMEs 2,841 - 2,841 - 2,841

Retail

- consumer, credit cards and other 128 - 128 (1) 127

Restructuring

- corporate 859,214 - 859,214 (24,379) 834,835

- SMEs 216,866 - 216,866 (4,858) 212,008

- retail housing 272 - 272 - 272

- retail other 5,773 - 5,773 (210) 5,563

Recoveries

- corporate 1,274,835 61,236 1,336,071 (86,644) 1,249,427

- SMEs 374,336 - 374,336 (17,991) 356,345

- retail housing 635 - 635 (115) 520

- retail other 39,720 - 39,720 (4,371) 35,349

International banking services 8 - 8 - 8

2,789,877 61,236 2,851,113 (139,153) 2,711,960

88

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.4 Currency concentration of loans and advances to customers

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans atamortised cost

after residual fairvalue adjustment

on initialrecognition

30 June 2019 €000 €000 €000 €000 €000

Euro 11,894,047 62,651 11,956,698 (225,340) 11,731,358

US Dollar 310,914 23,983 334,897 (273) 334,624

British Pound 46,061 1,026 47,087 (283) 46,804

Russian Rouble 3 38,699 38,702 - 38,702

Romanian Lei 1 646 647 - 647

Swiss Franc 221,709 - 221,709 (2,967) 218,742

Other currencies 17,771 - 17,771 (548) 17,223

12,490,506 127,005 12,617,511 (229,411) 12,388,100

31 December 2018

Euro 11,992,100 60,006 12,052,106 (256,720) 11,795,386

US Dollar 300,718 28,523 329,241 (276) 328,965

British Pound 37,955 11,735 49,690 (248) 49,442

Russian Rouble 81 36,058 36,139 - 36,139

Romanian Lei - 932 932 - 932

Swiss Franc 203,026 - 203,026 (3,242) 199,784

Other currencies 21,282 - 21,282 (1,563) 19,719

12,555,162 137,254 12,692,416 (262,049) 12,430,367

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

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

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

CyprusOther

countriesTotal

Residual fair valueadjustment on

initial recognition

Gross loans atamortised cost

after residual fairvalue adjustment

on initialrecognition

31 December 2018 €000 €000 €000 €000 €000

Euro 2,638,647 61,236 2,699,883 (129,898) 2,569,985

US Dollar 20,593 - 20,593 (123) 20,470

British Pound 2,469 - 2,469 (18) 2,451

Swiss Franc 90,951 - 90,951 (8,239) 82,712

Other currencies 37,217 - 37,217 (875) 36,342

2,789,877 61,236 2,851,113 (139,153) 2,711,960

89

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging

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

Stage 1 Stage 2 Stage 3 POCI Total30 June 2019 €000 €000 €000 €000 €000Gross loans at amortised costbefore residual fair valueadjustment on initialrecognition 5,870,781 2,479,903 3,556,499 710,328 12,617,511

Residual fair value adjustmenton initial recognition (62,590) (33,674) (27,864) (105,283) (229,411)

Gross loans at amortisedcost after residual fairvalue adjustment on initialrecognition 5,808,191 2,446,229 3,528,635 605,045 12,388,100

Gross loans at amortisedcost before residual fairvalue adjustment on initialrecognition

Stage 1 Stage 2 Stage 3 POCI Total

30 June 2019 €000 €000 €000 €000 €000By business line

Corporate 2,320,917 1,034,710 287,224 84,333 3,727,184

SMEs 728,747 353,560 71,461 10,925 1,164,693

Retail

- housing 2,014,816 583,298 251,121 10,829 2,860,064

- consumer, credit cards andother 592,266 207,700 108,129 20,140 928,235

Restructuring

- corporate 35,095 102,800 237,769 40,661 416,325

- SMEs 39,851 65,042 279,481 28,866 413,240

- retail housing 6,355 6,242 407,785 13,312 433,694

- retail other 2,435 1,094 221,433 12,986 237,948

Recoveries

- corporate - - 93,057 26,430 119,487

- SMEs - - 465,876 104,886 570,762

- retail housing - - 600,966 175,778 776,744

- retail other 86 - 505,676 179,449 685,211

International banking services 65,696 78,175 19,288 743 163,902

Wealth management 64,517 47,282 7,233 990 120,022

5,870,781 2,479,903 3,556,499 710,328 12,617,511

90

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Residual fair valueadjustment on initialrecognition

Stage 1 Stage 2 Stage 3 POCI Total

30 June 2019 €000 €000 €000 €000 €000By business line

Corporate (20,216) (15,179) (3,399) (800) (39,594)

SMEs (9,801) (5,437) (547) (615) (16,400)

Retail

- housing (33,912) (8,765) (79) (443) (43,199)

- consumer, credit cards andother 2,835 305 63 (156) 3,047

Restructuring

- corporate (288) (1,883) (4,115) (998) (7,284)

- SMEs 68 (1,141) (2,253) (4,194) (7,520)

- retail housing (47) (31) (1,541) (1,311) (2,930)

- retail other 22 (13) (2,051) (2,694) (4,736)

Recoveries

- corporate - - (408) (3,243) (3,651)

- SMEs - - (1,869) (20,857) (22,726)

- retail housing - - (3,641) (34,892) (38,533)

- retail other - - (6,928) (35,073) (42,001)

International banking services (255) (961) (38) (7) (1,261)

Wealth management (996) (569) (1,058) - (2,623)

(62,590) (33,674) (27,864) (105,283) (229,411)

91

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Gross loans at amortisedcost after residual fairvalue adjustment on initialrecognition

Stage 1 Stage 2 Stage 3 POCI Total

30 June 2019 €000 €000 €000 €000 €000By business line

Corporate 2,300,701 1,019,531 283,825 83,533 3,687,590

SMEs 718,946 348,123 70,914 10,310 1,148,293

Retail

- housing 1,980,904 574,533 251,042 10,386 2,816,865

- consumer, credit cards andother 595,101 208,005 108,192 19,984 931,282

Restructuring

- corporate 34,807 100,917 233,654 39,663 409,041

- SMEs 39,919 63,901 277,228 24,672 405,720

- retail housing 6,308 6,211 406,244 12,001 430,764

- retail other 2,457 1,081 219,382 10,292 233,212

Recoveries

- corporate - - 92,649 23,187 115,836

- SMEs - - 464,007 84,029 548,036

- retail housing - - 597,325 140,886 738,211

- retail other 86 - 498,748 144,376 643,210

International banking services 65,441 77,214 19,250 736 162,641

Wealth management 63,521 46,713 6,175 990 117,399

5,808,191 2,446,229 3,528,635 605,045 12,388,100

Stage 1 Stage 2 Stage 3 POCI Total31 December 2018 €000 €000 €000 €000 €000Gross loans at amortised costbefore residual fair valueadjustment on initialrecognition 6,035,781 1,921,255 3,915,591 819,789 12,692,416

Residual fair value adjustmenton initial recognition (77,738) (20,673) (40,432) (123,206) (262,049)

Gross loans at amortisedcost after residual fairvalue adjustment on initialrecognition 5,958,043 1,900,582 3,875,159 696,583 12,430,367

92

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Gross loans at amortisedcost before residual fairvalue adjustment on initialrecognition

Stage 1 Stage 2 Stage 3 POCI Total

31 December 2018 €000 €000 €000 €000 €000By business line

Corporate 2,215,264 793,249 387,093 92,830 3,488,436

SMEs 739,166 346,148 103,384 10,946 1,199,644

Retail

- housing 2,259,976 300,101 300,584 10,633 2,871,294

- consumer, credit cards andother 591,242 199,099 130,816 20,135 941,292

Restructuring

- corporate 48,943 92,537 303,955 86,051 531,486

- SMEs 55,295 52,573 406,369 46,569 560,806

- retail housing 6,883 3,745 473,444 14,529 498,601

- retail other 5,140 1,226 304,076 18,510 328,952

Recoveries

- corporate - - 120,234 44,587 164,821

- SMEs - - 515,542 115,426 630,968

- retail housing - - 512,175 185,037 697,212

- retail other 89 - 313,529 167,115 480,733

International banking services 69,620 78,109 41,352 3,565 192,646

Wealth management 44,163 54,468 3,038 3,856 105,525

6,035,781 1,921,255 3,915,591 819,789 12,692,416

93

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Residual fair valueadjustment on initialrecognition

Stage 1 Stage 2 Stage 3 POCI Total

31 December 2018 €000 €000 €000 €000 €000By business line

Corporate (25,159) (11,564) (12,282) (977) (49,982)

SMEs (10,652) (4,150) (1,113) (622) (16,537)

Retail

- housing (43,528) (97) (1,246) (145) (45,016)

- consumer, credit cards andother 3,248 352 (375) (260) 2,965

Restructuring

- corporate (199) (1,988) (2,687) (3,033) (7,907)

- SMEs 28 (580) (3,931) (7,154) (11,637)

- retail housing (119) (3) (2,796) (1,563) (4,481)

- retail other 34 (40) (3,971) (4,611) (8,588)

Recoveries

- corporate - - (1,654) (5,785) (7,439)

- SMEs - - (2,073) (24,105) (26,178)

- retail housing - - (3,200) (37,377) (40,577)

- retail other - - (4,695) (35,228) (39,923)

International banking services (303) (1,164) (195) (496) (2,158)

Wealth management (1,088) (1,439) (214) (1,850) (4,591)

(77,738) (20,673) (40,432) (123,206) (262,049)

94

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Gross loans at amortisedcost after residual fairvalue adjustment on initialrecognition

Stage 1 Stage 2 Stage 3 POCI Total

31 December 2018 €000 €000 €000 €000 €000

By business line

Corporate 2,190,105 781,685 374,811 91,853 3,438,454

SMEs 728,514 341,998 102,271 10,324 1,183,107

Retail

- housing 2,216,448 300,004 299,338 10,488 2,826,278

- consumer, credit cards andother 594,490 199,451 130,441 19,875 944,257

Restructuring

- corporate 48,744 90,549 301,268 83,018 523,579

- SMEs 55,323 51,993 402,438 39,415 549,169

- retail housing 6,764 3,742 470,648 12,966 494,120

- retail other 5,174 1,186 300,105 13,899 320,364

Recoveries

- corporate - - 118,580 38,802 157,382

- SMEs - - 513,469 91,321 604,790

- retail housing - - 508,975 147,660 656,635

- retail other 89 - 308,834 131,887 440,810

International banking services 69,317 76,945 41,157 3,069 190,488

Wealth management 43,075 53,029 2,824 2,006 100,934

5,958,043 1,900,582 3,875,159 696,583 12,430,367

The movement of the gross loans at amortised cost after residual fair value adjustment on initial recognitionby staging including the loans and advances to customers classified as held for sale is presented in the tablebelow. Details on the loans and advances to customers classified as held for sale are disclosed in Note 29.7.

95

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Stage 1 Stage 2 Stage 3 POCI Total30 June 2019 €000 €000 €000 €000 €000

1 January 5,964,996 1,991,921 6,073,519 1,111,891 15,142,327

Transfers to stage 1 342,837 (261,697) (81,140) - -

Transfers to stage 2 (840,515) 974,154 (133,639) - -

Transfers to stage 3 (80,086) (95,068) 175,154 - -

Foreign exchange and otheradjustments 9 - 7,064 - 7,073

Write offs (2,300) (4,303) (196,235) (42,342) (245,180)

Interest accrued and otheradjustments 107,253 25,058 162,995 38,340 333,646

New loans originated orpurchased and drawdowns ofexisting facilities 895,900 73,161 36,519 2,643 1,008,223

Assets derecognised or repaid(excluding write offs) (570,940) (209,254) (314,563) (97,583) (1,192,340)

Changes to contractual cashflows due to modificationsresulting in derecognition 1,950 (2,667) 3,090 (659) 1,714

Disposal of Helix and Velocityportfolios (10,913) (45,076) (2,198,238) (407,245) (2,661,472)

30 June 5,808,191 2,446,229 3,534,526 605,045 12,393,991

Stage 1 Stage 2 Stage 3 POCI Total31 December 2018 €000 €000 €000 €000 €000

1 January 5,100,964 4,418,226 6,838,643 1,308,500 17,666,333

Change in the basis ofcalculation of gross carryingvalue (IFRS 9 Grossing upadjustment) 5,068 6,594 1,350,043 327,792 1,689,497

Restated balance at 1 January2018 5,106,032 4,424,820 8,188,686 1,636,292 19,355,830

Transfers to stage 1 2,180,460 (1,952,997) (227,463) - -

Transfers to stage 2 (269,513) 462,775 (193,262) - -

Transfers to stage 3 (171,920) (441,097) 613,017 - -

Write offs (12,256) (21,814) (2,028,137) (556,097) (2,618,304)

Interest accrued and otheradjustments 97,860 38,850 516,425 109,977 763,112

New loans originated orpurchased and drawdowns ofexisting facilities 1,752,138 193,416 111,124 33,044 2,089,722

Assets derecognised or repaid(excluding write offs) (1,021,693) (603,701) (879,866) (112,836) (2,618,096)

Changes to contractual cashflows due to modificationsresulting in derecognition (22) (65) (654) 1,511 770

Disposal of subsidiary (1,696,090) (108,266) (26,351) - (1,830,707)

31 December 5,964,996 1,991,921 6,073,519 1,111,891 15,142,327

96

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excludingwrite-offs is reported in ‘New assets originated’ and if negative change is reported as ‘Assets derecognisedor repaid'.

Significant increase in credit risk

IFRS 9 requires that in the event of a significant increase in credit risk since initial recognition, thecalculation 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 ateach reporting period, by considering the change in the risk of default occurring over the remaining life ofthe financial instrument since initial recognition.

Significant credit risk increase for loans and advances to customersPrimarily, the Group uses the lifetime PDs as the quantitative metric in order to assess transition from Stage1 to Stage 2 for all portfolios, by considering whether the lifetime PD at the reporting date exceeds thelifetime PD at origination by using an established relative threshold. The Group considers an exposure tohave significant increase in credit risk (SICR) by comparing the lifetime PD at the reporting date with theremaining lifetime PD at initial recognition to compute the increase in regards to the correspondingthreshold. The threshold has been determined by using statistical analysis on historic information of creditmigration exposures on the basis of days past due, for the different segments. The Group appliesappropriate thresholds at a point in time to each portfolio/segment, based on the following characteristics:customer type, product type and rating at origination. The threshold is then assigned to each facilityaccording to the facilities portfolio/segment.

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

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

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

significant change in collateral value or guarantee or financial support provided byshareholders/directors,

significant adverse changes in business, financial and/or economic conditions in which theborrower operates.

The Group also considers, as a backstop criterion, that a significant increase in the credit risk occurs whencontractual payments are more than 30 days past due (past due materiality is applied). Loans that meetthis condition are classified in Stage 2. In cases where certain exposures are past due for more than 30days if certain materiality limits are not met (such as arrears equal to €100 and funded balances equal to1% in the case of retail exposures and arrears equal to €500 and funded balances equal to 1% on allexposures other than retail), then the transfer to Stage 2 does not take place. The materiality levels areset 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 hastransferred to Stage 2, if its credit risk is no longer considered to have significantly increased relative to itsinitial recognition, the financial asset will move back to Stage 1.

97

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.6 Analysis of loans and advances to customers by staging (continued)

Significant credit risk increase for financial instruments other than loans and advances to customers Low credit risk simplification is adopted for debt security instruments, loans and advances to banks andbalances with central banks with external credit ratings that are rated as investment grade. The assessmentof low credit risk is based on both the external credit rating and the internal scoring (which considers latestavailable information on the instrument and issuer). The combination of the two provides an adjusted creditrating. An adjusted rating which remains investment grade is considered as having low credit risk.

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

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

30 June 2019 Stage 1 Stage 2 Stage 3 POCI Total€000 €000 €000 €000 €000

Cyprus 5,869,438 2,479,903 3,430,837 710,328 12,490,506

Other countries 1,343 - 125,662 - 127,005

5,870,781 2,479,903 3,556,499 710,328 12,617,511

31 December 2018 Stage 1 Stage 2 Stage 3 POCI Total€000 €000 €000 €000 €000

Cyprus 6,023,870 1,921,234 3,790,269 819,789 12,555,162

Other countries 11,911 21 125,322 - 137,254

6,035,781 1,921,255 3,915,591 819,789 12,692,416

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

The loans and advances to customers classified as held for sale as at 30 June 2019 are categorised as stage3 and their gross value before residual fair value adjustment on initial recognition is €12,422 thousand.Their residual fair value adjustment on initial recognition amounted to €6,531 thousand at 30 June 2019,and their gross value after residual fair value adjustment on initial recognition amounted to €5,891thousand.

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

98

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

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

Stage 1 Stage 2 Stage 3 POCI Total31 December 2018 €000 €000 €000 €000 €000Gross loans at amortised costbefore residual fair valueadjustment on initialrecognition 7,148 94,600 2,222,931 526,434 2,851,113

Residual fair value adjustmenton initial recognition (195) (3,261) (24,571) (111,126) (139,153)

Gross loans at amortised costafter residual fair valueadjustment on initialrecognition 6,953 91,339 2,198,360 415,308 2,711,960

31 December 2018 Stage 1 Stage 2 Stage 3 POCI TotalGross loans at amortisedcost before residual fairvalue adjustment on initialrecognition

€000 €000 €000 €000 €000

Corporate 165 - 14,343 741 15,249

SMEs 2,835 - 6 - 2,841

Retail

- consumer, credit cards andother

- - 125 3 128

Restructuring

- corporate 2,110 85,783 722,631 48,690 859,214

- SMEs 2,038 8,817 187,831 18,180 216,866

- retail housing - - 231 41 272

- retail other - - 5,575 198 5,773

Recoveries

- corporate - - 967,761 368,310 1,336,071

- SMEs - - 300,509 73,827 374,336

- retail housing - - 484 151 635

- retail other - - 23,427 16,293 39,720

International banking services - - 8 - 8

7,148 94,600 2,222,931 526,434 2,851,113

99

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

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

31 December 2018 Stage 1 Stage 2 Stage 3 POCI TotalResidual fair valueadjustment on initialrecognition

€000 €000 €000 €000 €000

Corporate - - (584) - (584)

Retail

- consumer, credit cards andother

- - - (1) (1)

Restructuring

- corporate - (2,722) (13,730) (7,927) (24,379)

- SMEs (195) (539) (1,470) (2,654) (4,858)

- retail other - - (132) (78) (210)

Recoveries

- corporate - - (4,900) (81,744) (86,644)

- SMEs - - (3,473) (14,518) (17,991)

- retail housing - - - (115) (115)

- retail other - - (282) (4,089) (4,371)

(195) (3,261) (24,571) (111,126) (139,153)

31 December 2018 Stage 1 Stage 2 Stage 3 POCI TotalGross loans at amortisedcost after residual fairvalue adjustment on initialrecognition

€000 €000 €000 €000 €000

Corporate 165 - 13,759 741 14,665

SMEs 2,835 - 6 - 2,841

Retail

- consumer, credit cards andother - - 125 2 127

Restructuring

- corporate 2,110 83,061 708,901 40,763 834,835

- SMEs 1,843 8,278 186,361 15,526 212,008

- retail housing - - 231 41 272

- retail other - - 5,443 120 5,563

Recoveries

- corporate - - 962,861 286,566 1,249,427

- SMEs - - 297,036 59,309 356,345

- retail housing - - 484 36 520

- retail other - - 23,145 12,204 35,349

International banking services - - 8 - 8

6,953 91,339 2,198,360 415,308 2,711,960

The following table presents the staging of the Group’s gross loans and advances before residual fair valueadjustment on initial recognition at amortised cost classified as held for sale as at 31 December 2018 bygeographical concentration.

100

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

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

31 December 2018 Stage 1 Stage 2 Stage 3 POCI Total€000 €000 €000 €000 €000

Cyprus 7,148 94,600 2,161,695 526,434 2,789,877

Other countries - - 61,236 - 61,236

7,148 94,600 2,222,931 526,434 2,851,113

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

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

30 June 2019 Stage 1 Stage 2 Stage 3 POCI TotalCyprus €000 €000 €000 €000 €000

1 January 26,233 73,870 2,783,232 431,924 3,315,259

Transfers to stage 1 14,659 (8,355) (6,304) - -

Transfers to stage 2 (4,532) 17,601 (13,069) - -

Transfers to stage 3 (1,068) (17,395) 18,463 - -

Impact on transfer betweenstages during the period* (9,227) 10,713 10,369 (1,049) 10,806

Foreign exchange and otheradjustments - - 3,568 331 3,899

Write offs (2,426) (2,339) (195,808) (43,538) (244,111)

Contractual interest(provided) not recognised inthe income statement - - 70,257 9,132 79,389

New loans originated orpurchased* 5,074 - - - 5,074

Assets derecognised or repaid(excluding write offs)* (446) (3,239) (55,917) (7,188) (66,790)

Write offs* 996 1,075 24,347 4,138 30,556

Changes to models and inputs(changes in PDs, LGDs andEADs) used for ECLcalculations* (3,453) 218 127,947 25,952 150,664

Changes to contractual cashflows due to modifications notresulting in derecognition* (74) 429 (369) (275) (289)

Disposal of Helix and Velocityportfolios (7,778) (22,248) (1,313,522) (204,512) (1,548,060)

30 June 17,958 50,330 1,453,194 214,915 1,736,397

Individually assessed 6,859 22,983 131,054 14,769 175,665

Collectively assessed 11,099 27,347 1,322,140 200,146 1,560,732

17,958 50,330 1,453,194 214,915 1,736,397

* Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’

101

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

30 June 2019 Stage 1 Stage 2 Stage 3 POCI TotalOther countries €000 €000 €000 €000 €000

1 January 135 - 146,611 - 146,746

Impact on transfer betweenstages during the period* - - 70 - 70

Foreign exchange and otheradjustments - 2 3,332 - 3,334

Write offs - - (2,550) - (2,550)

Contractual interest(provided) not recognised inthe income statement - - 4,514 - 4,514

Assets derecognised or repaid(excluding write offs)* (132) - (187) - (319)

Write offs* - - 17 - 17

Changes to models and inputs(changes in PDs, LGDs andEADs) used for ECLcalculations* - - (365) - (365)

Disposal of Helix portfolio - - (54,765) - (54,765)

30 June 3 2 96,677 - 96,682

Individually assessed - - 90,937 - 90,937

Collectively assessed 3 2 5,740 - 5,745

3 2 96,677 - 96,682

*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’

102

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

30 June 2019 Stage 1 Stage 2 Stage 3 POCI TotalTotal €000 €000 €000 €000 €000

1 January 26,368 73,870 2,929,843 431,924 3,462,005

Transfers to stage 1 14,659 (8,355) (6,304) - -

Transfers to stage 2 (4,532) 17,601 (13,069) - -

Transfers to stage 3 (1,068) (17,395) 18,463 - -

Impact on transfer betweenstages during the period* (9,227) 10,713 10,439 (1,049) 10,876

Foreign exchange and otheradjustments - 2 6,900 331 7,233

Write offs (2,426) (2,339) (198,358) (43,538) (246,661)

Contractual interest(provided) not recognised inthe income statement - - 74,771 9,132 83,903

New loans originated orpurchased* 5,074 - - - 5,074

Assets derecognised or repaid(excluding write offs)* (578) (3,239) (56,104) (7,188) (67,109)

Write offs* 996 1,075 24,364 4,138 30,573

Changes to models and inputs(changes in PDs, LGDs andEADs) used for ECLcalculations* (3,453) 218 127,582 25,952 150,299

Changes to contractual cashflows due to modifications notresulting in derecognition* (74) 429 (369) (275) (289)

Disposal of Helix and Velocityportfolios (7,778) (22,248) (1,368,287) (204,512) (1,602,825)

30 June 17,961 50,332 1,549,871 214,915 1,833,079

Individually assessed 6,859 22,983 221,991 14,769 266,602

Collectively assessed 11,102 27,349 1,327,880 200,146 1,566,477

17,961 50,332 1,549,871 214,915 1,833,079

*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’

103

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

30 June 2018 Stage 1 Stage 2 Stage 3 POCI Total

Cyprus €000 €000 €000 €000 €000

1 January 20,840 29,510 2,654,800 500,027 3,205,177

Change in the basis of calculationof gross carrying value (IFRS 9Grossing up adjustment) 5,068 6,561 1,294,541 326,152 1,632,322

Impact of adopting IFRS 9 at 1January 2018 (6,660) 32,744 235,471 52,373 313,928

Restated balance at 1 January 19,248 68,815 4,184,812 878,552 5,151,427

Transfer from Romania branch('Other countries' table) - - - 19,258 19,258

Transfers to stage 1 35,649 (20,882) (14,767) - -

Transfers to stage 2 (731) 25,830 (25,099) - -

Transfers to stage 3 (1,049) (3,857) 34,097 (29,191) -

Impact on transfer betweenstages during the period* (29,348) (10,590) 43,015 236 3,313

Foreign exchange and otheradjustments - - 923 168 1,091

Write offs (15,000) (26,361) (1,709,431) (473,023) (2,223,815)

Contractual interest (provided)not recognised in the incomestatement - - 68,475 9,501 77,976

New loans originated orpurchased* 5,759 - - 13 5,772

Assets derecognised or repaid(excluding write offs)* 588 (2,015) (61,691) - (63,118)

Write offs* 735 2,345 43,025 801 46,906

Changes to models and inputs(changes in PDs, LGDs and EADs)used for ECL calculations* 15,530 54,757 325,908 38,230 434,425

Changes to contractual cash flowsdue to modifications not resultingin derecognition* - - 394 - 394

30 June 31,381 88,042 2,889,661 444,545 3,453,629

Individually assessed 9,018 28,680 750,596 68,719 857,013

Collectively assessed 22,363 59,362 2,139,065 375,826 2,596,616

31,381 88,042 2,889,661 444,545 3,453,629

*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’

104

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

30 June 2018 Stage 1 Stage 2 Stage 3 POCI TotalOther countries €000 €000 €000 €000 €000

1 January 1,344 365 222,389 23,575 247,673

Change in the basis of calculationof gross carrying value (IFRS 9Grossing up adjustment) - 33 55,502 1,640 57,175

Impact of adopting IFRS 9 at 1January 2018 (7) 4,215 933 33 5,174

Restated balance at 1 January 1,337 4,613 278,824 25,248 310,022

Transfer to Cyprus operations('Cyprus' table) - - - (19,258) (19,258)

Transfers to stage 2 - 25 (25) - -

Impact on transfer betweenstages during the period* 62 (41) 1,155 (2,742) (1,566)

Foreign exchange and otheradjustments (2) 1 (557) 1 (557)

Write offs - - (62,325) (4) (62,329)

Contractual interest (provided)not recognised in the incomestatement - - 1,996 - 1,996

Assets derecognised or repaid(excluding write offs)* - - (45) - (45)

Write offs* - - (274) - (274)

Changes to models and inputs(changes in PDs, LGDs and EADs)used for ECL calculations* 21 (1,314) (13,995) (429) (15,717)

Discontinued operations 27 (109) (65) - (147)

30 June 1,445 3,175 204,689 2,816 212,125

Individually assessed 793 3,150 195,711 - 199,654

Collectively assessed 652 25 8,978 2,816 12,471

1,445 3,175 204,689 2,816 212,125

*Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’.

105

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

30 June 2018 Stage 1 Stage 2 Stage 3 POCI TotalTotal €000 €000 €000 €000 €000

1 January 22,184 29,875 2,877,189 523,602 3,452,850

Change in the basis of calculationof gross carrying value (IFRS 9Grossing up adjustment) 5,068 6,594 1,350,043 327,792 1,689,497

Impact of adopting IFRS 9 at 1January 2018 (6,667) 36,959 236,404 52,406 319,102

Restated balance at 1 January 20,585 73,428 4,463,636 903,800 5,461,449

Transfers to stage 1 35,649 (20,882) (14,767) - -

Transfers to stage 2 (731) 25,855 (25,124) - -

Transfers to stage 3 (1,049) (3,857) 34,097 (29,191) -

Impact on transfer betweenstages during the period* (29,286) (10,631) 44,170 (2,506) 1,747

Foreign exchange and otheradjustments (2) 1 366 169 534

Write offs (15,000) (26,361) (1,771,756) (473,027) (2,286,144)

Contractual interest (provided)not recognised in the incomestatement - - 70,471 9,501 79,972

New assets originated orpurchased* 5,759 - - 13 5,772

Assets derecognised or repaid(excluding write offs)* 588 (2,015) (61,736) - (63,163)

Write offs* 735 2,345 42,751 801 46,632

Changes to models and inputs(changes in PDs, LGDs and EADs)used for ECL calculations* 15,551 53,443 311,913 37,801 418,708

Discontinued operations 27 (109) (65) - (147)

Changes to contractual cash flowsdue to modifications not resultingin derecognition* - - 394 - 394

30 June 32,826 91,217 3,094,350 447,361 3,665,754

Individually assessed 9,811 31,830 946,307 68,719 1,056,667

Collectively assessed 23,015 59,387 2,148,043 378,642 2,609,087

32,826 91,217 3,094,350 447,361 3,665,754

* Individual components of the ‘Impairment loss net of reversals of loans and advances to customers’.

The above tables do not include the residual fair value adjustments on initial recognition of loans acquiredfrom Laiki Bank and ECL on financial guarantees which are part of other liabilities on the balance sheet.

Loans and advances to customers classified as held for sale as at 30 June 2019 do not carry any creditlosses.

106

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

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

Stage 1 Stage 2 Stage 3 POCI Total30 June 2018 €000 €000 €000 €000 €000

Cyprus 6,473 40,896 1,265,223 178,720 1,491,312

Other countries - - 45,495 - 45,495

Total 6,473 40,896 1,310,718 178,720 1,536,807

Individually assessed - 8,320 639,680 43,920 691,920

Collectively assessed 6,473 32,576 671,038 134,800 844,887

6,473 40,896 1,310,718 178,720 1,536,807

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

Stage 1 Stage 2 Stage 3 POCI Total30 June 2019 €000 €000 €000 €000 €000

Corporate 9,168 27,441 132,111 4,629 173,349

SMEs 1,778 3,717 17,061 253 22,809

Retail

- housing 3,449 6,570 28,664 361 39,044

- consumer, credit cards andother 2,220 4,068 26,406 1,241 33,935

Restructuring

- corporate 367 5,423 63,015 5,764 74,569

- SMEs 859 1,777 92,463 8,632 103,731

- retail housing 38 204 121,981 3,657 125,880

- retail other 31 53 110,112 6,653 116,849

Recoveries

- corporate - - 54,491 14,835 69,326

- SMEs - - 302,275 43,971 346,246

- retail housing - - 274,494 56,201 330,695

- retail other - - 322,985 68,138 391,123

International banking services 46 1,073 2,799 142 4,060

Wealth management 5 6 1,014 438 1,463

17,961 50,332 1,549,871 214,915 1,833,079

107

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

Stage 1 Stage 2 Stage 3 POCI Total31 December 2018 €000 €000 €000 €000 €000

Corporate 8,322 16,008 165,706 5,143 195,179

SMEs 5,621 3,333 22,574 320 31,848

Retail

- housing 4,052 1,028 28,109 301 33,490

- consumer, credit cards andother 4,848 4,655 26,152 1,878 37,533

Restructuring

- corporate 1,803 42,745 402,181 21,621 468,350

- SMEs 1,507 5,469 253,504 24,325 284,805

- retail housing 23 102 138,799 4,309 143,233

- retail other 127 53 171,882 9,479 181,541

Recoveries

- corporate - - 696,310 147,552 843,862

- SMEs - - 538,148 83,209 621,357

- retail housing - - 248,429 59,651 308,080

- retail other - - 226,379 72,396 298,775

International banking services 52 462 10,180 1,175 11,869

Wealth management 13 15 1,490 565 2,083

26,368 73,870 2,929,843 431,924 3,462,005

As from 1 January 2018, to comply with the requirements of IFRS 9, relating to the measurement andpresentation of the gross carrying amount and accumulated allowance for impairment as impacted frominterest income on impaired loans, the gross carrying amounts of the loans have been increased by anamount of €1,689,497 thousand and an equivalent adjustment was effected on the accumulated allowancefor impairment. There was no impact on the net carrying amount of the customer loans and advances fromthis change in the presentation.

During the six months ended 30 June 2019 the total non-contractual write-offs recorded by the Groupamounted to €145,112 thousand (six months ended 30 June 2018: €2,119 million).

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

At 30 June 2019 the weighted average haircut (including liquidity haircut and selling expenses) used in thecollectively assessed provision calculation for loans and advances to customers other than those classifiedas held for sale is c.32% under the baseline scenario (31 December 2018: c.32%).

The timing of recovery from real estate collaterals used in the collectively assessed provision calculation forloans and advances to customers other than those classified as held for sale has been estimated to be onaverage seven years under the baseline scenario (31 December 2018: average of seven years).

For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as thehaircuts used are based on the specific facts and circumstances of each case.

108

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

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

For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with50%, 30% and 20% probability respectively.

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

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

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

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

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

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

109

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.8 Credit losses of loans and advances to customers, including loans and advances tocustomers held for sale (continued)

Increase/(decrease) on ECLfor loans and advances to

customers at amortised cost30 June

201931 December

2018€000 €000

Increase the adverse weight by 5% and decrease the favourable weight by5% 4,025 4,963

Decrease the adverse weight by 5% and increase the favourable weight by5% (4,025) (4,956)

Increase the expected recovery period by 1 year 49,398 50,898

Decrease the expected recovery period by 1 year (48,822) (49,821)

Increase the collateral realisation haircut by 5% 90,690 89,682

Decrease the collateral realisation haircut by 5% (82,558) (81,862)

Increase in the PDs of stages 1 and 2 by 20% 10,824 12,733

Decrease in the PDs of stages 1 and 2 by 20% (12,344) (11,126)

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

29.9 Forbearance

Forbearance measures occur in situations in which the borrower is considered to be unable to meet theterms 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 theability 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 orpermanently to that borrower. A concession may involve restructuring the contractual terms of a debt orpayment in some form other than cash, such as an arrangement whereby the borrower transfers collateralpledged to the Group.

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

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

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

110

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.9 Forbearance (continued)

For an account to qualify for rescheduling it must meet certain criteria including that the client’s businessmust be considered to be viable. The extent to which the Group reschedules accounts that are eligibleunder its existing policies may vary depending on its view of the prevailing economic conditions and otherfactors which may change from year to year. In addition, exceptions to policies and practices may be madein 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 eachindividual facility. Specifically, it is taken into consideration in the scorecard development where if thischaracteristic is identified as statistically significant it affects negatively the rating of each facility. Thesecond contribution of the forbearance flag is in the construction of the through the cycle probability ofdefault curve, where when feasible a specific curve for the forborne products is calculated and assignedaccordingly.

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

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

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

Short-term restructuring solutions can include the following: Interest only: during a defined short-term period, only interest is paid on credit facilities and no

principal repayment is made. Reduced payments: decrease of the amount of repayment instalments over a defined short-term

period in order to accommodate the borrower’s new cash flow position. Arrears and/or interest capitalisation: the capitalisation of arrears and/or of accrued interest arrears;

that is forbearance of the arrears and capitalisation of any unpaid interest to the outstandingprincipal balance for repayment under a rescheduled program.

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

Long-term restructuring solutions can include the following: Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a

fair and sustainable rate. Extension of maturity: extension of the maturity of the loan which allows a reduction in instalment

amounts by spreading the repayments over a longer period. Additional security: when additional liens on unencumbered assets are obtained as additional

security from the borrower in order to compensate for the higher risk exposure and as part of therestructuring process.

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

Rescheduling of payments: the existing contractual repayment schedule is adjusted to a newsustainable repayment program based on a realistic, current and forecasted, assessment of the cashflow generation of the borrower.

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

111

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.9 Forbearance (continued) New loan facilities: new loan facilities may be granted during a restructuring agreement, which may

entail the pledge of additional security and in the case of inter-creditor arrangements theintroduction of covenants in order to compensate for the additional risk incurred by the Group inproviding a new financing to a distressed borrower.

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

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

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

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

Split and freeze: the customer’s debt is split into sustainable and unsustainable parts. Thesustainable part is restructured and continues to operate. The unsustainable part is ‘frozen’ for therestructured duration of the sustainable part. At the maturity of the restructuring, the frozen part iseither forgiven pro-rata (based on the actual repayment of the sustainable part) or restructured.

29.10 Rescheduled loans and advances to customers

The below table presents the movement of the Group’s rescheduled loans and advances to customersmeasured at amortised cost including those classified as held for sale (by geography). There were norescheduled loans related to loans and advances classified as held for sale as at 30 June 2019 (31December 2018: €1,412,802 thousand, 30 June 2018: €1,479,578 thousand).

CyprusOther

countriesTotal

2019 €000 €000 €000

1 January 4,566,470 48,806 4,615,276

New loans and advances rescheduled in the period 101,057 - 101,057

Assets no longer classified as rescheduled (includingrepayments) (439,401) (713) (440,114)

Applied in writing off rescheduled loans and advances (76,914) - (76,914)

Interest accrued on rescheduled loans and advances 57,936 122 58,058

Foreign exchange adjustments 2,247 4,784 7,031

Disposal of Helix and Velocity portfolios (1,370,825) - (1,370,825)

30 June 2,840,570 52,999 2,893,569

112

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.10 Rescheduled loans and advances to customers (continued)

CyprusOther

countriesTotal

2018 €000 €000 €000

1 January 6,272,946 99,068 6,372,014

Rescheduled loans measured at FVPL on adoption of IFRS 9 (341,765) - (341,765)

Change in the basis of calculation ofgross carrying value (IFRS 9 Grossing up adjustment) 416,093 3,678 419,771

Restated balance at 1 January 6,347,274 102,746 6,450,020

Transfer between geographical areas 4,465 (4,465) -

New loans and advances rescheduled in the period 147,624 522 148,146

Assets no longer classified as rescheduled (includingrepayments) (703,140) (2,738) (705,878)

Applied in writing off rescheduled loans and advances (599,686) (504) (600,190)

Interest accrued on rescheduled loans and advances 88,378 21 88,399

Foreign exchange adjustments 2,313 (3,556) (1,243)

30 June 5,287,228 92,026 5,379,254

The classification as rescheduled loans is discontinued when all EBA criteria for the discontinuation of theclassification as forborne exposure are met. These are set out in EBA Final draft Implementing TechnicalStandards (ITS) on supervisory reporting and non-performing exposures.

The below tables present the Group’s rescheduled loans and advances to customers by staging, industrysector, geography and business line classification excluding those classified as held for sale, as well as ECLallowances and tangible collateral held for rescheduled loans.

CyprusOther

countriesTotal

30 June 2019 €000 €000 €000

Stage 1 285,953 114 286,067

Stage 2 531,221 - 531,221

Stage 3 1,804,397 52,885 1,857,282

POCI 218,999 - 218,999

2,840,570 52,999 2,893,569

CyprusOther

countriesTotal

31 December 2018 €000 €000 €000

Stage 1 508,664 120 508,784

Stage 2 376,794 24 376,818

Stage 3 2,001,947 48,662 2,050,609

POCI 266,263 - 266,263

3,153,668 48,806 3,202,474

113

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.10 Rescheduled loans and advances to customers (continued)

Fair value of collateral

CyprusOther

countriesTotal

30 June 2019 €000 €000 €000

Stage 1 269,814 101 269,915

Stage 2 470,732 - 470,732

Stage 3 1,460,076 17,695 1,477,771

POCI 202,477 - 202,477

2,403,099 17,796 2,420,895

CyprusOther

countriesTotal

31 December 2018 €000 €000 €000

Stage 1 480,611 101 480,712

Stage 2 327,142 21 327,163

Stage 3 1,631,012 11,204 1,642,216

POCI 248,691 - 248,691

2,687,456 11,326 2,698,782

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

Credit risk concentration

30 June 2019Cyprus

Othercountries

Total

By economic activity €000 €000 €000

Trade 221,193 21,378 242,571

Manufacturing 76,744 5,414 82,158

Hotels and catering 123,332 - 123,332

Construction 349,476 579 350,055

Real estate 189,355 12,471 201,826

Private individuals 1,615,596 143 1,615,739

Professional and other services 194,123 13,011 207,134

Other sectors 70,751 3 70,754

2,840,570 52,999 2,893,569

114

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.10 Rescheduled loans and advances to customers (continued)

30 June 2019Cyprus

Othercountries

Total

By business line €000 €000 €000

Corporate 314,139 49,031 363,170

SMEs 151,510 3,854 155,364

Retail

- housing 445,276 - 445,276

- consumer, credit cards and other 136,360 114 136,474

Restructuring

- corporate 277,854 - 277,854

- SMEs 270,470 - 270,470

- retail housing 331,639 - 331,639

- retail other 136,546 - 136,546

Recoveries

- corporate 51,792 - 51,792

- SMEs 126,588 - 126,588

- retail housing 313,518 - 313,518

- retail other 241,131 - 241,131

International banking services 40,344 - 40,344

Wealth management 3,403 - 3,403

2,840,570 52,999 2,893,569

30 June 2019 Stage 1 Stage 2 Stage 3 POCI TotalBy business line €000 €000 €000 €000 €000

Corporate 82,084 197,384 80,973 2,729 363,170

SMEs 33,494 67,947 51,396 2,527 155,364

Retail

- housing 115,777 105,831 218,958 4,710 445,276

- consumer, credit cards andother 25,192 23,626 85,393 2,263 136,474

Restructuring

- corporate 167 69,520 183,964 24,203 277,854

- SMEs 21,114 37,752 195,972 15,632 270,470

- retail housing 4,123 3,123 317,216 7,177 331,639

- retail other 859 549 131,937 3,201 136,546

Recoveries

- corporate - - 40,014 11,778 51,792

- SMEs - - 89,540 37,048 126,588

- retail housing - - 255,187 58,331 313,518

- retail other - - 192,848 48,283 241,131

International banking services 2,741 25,489 11,946 168 40,344

Wealth management 516 - 1,938 949 3,403

286,067 531,221 1,857,282 218,999 2,893,569

115

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.10 Rescheduled loans and advances to customers (continued)

31 December 2018Cyprus

Othercountries

Total

By economic activity €000 €000 €000

Trade 245,919 20,430 266,349

Manufacturing 84,267 2,729 86,996

Hotels and catering 123,596 1 123,597

Construction 373,539 532 374,071

Real estate 221,011 13,186 234,197

Private individuals 1,761,663 166 1,761,829

Professional and other services 249,607 11,761 261,368

Other sectors 94,066 1 94,067

3,153,668 48,806 3,202,474

31 December 2018Cyprus

Othercountries

Total

By business line €000 €000 €000

Corporate 337,316 45,192 382,508

SMEs 207,000 3,466 210,466

Retail

- housing 568,879 - 568,879

- consumer, credit cards and other 172,559 124 172,683

Restructuring

- corporate 353,210 24 353,234

- SMEs 363,465 - 363,465

- retail housing 382,478 - 382,478

- retail other 177,241 - 177,241

Recoveries

- corporate 64,698 - 64,698

- SMEs 139,309 - 139,309

- retail housing 222,244 - 222,244

- retail other 117,573 - 117,573

International banking services 43,698 - 43,698

Wealth management 3,998 - 3,998

3,153,668 48,806 3,202,474

116

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

29. Risk management - Credit risk (continued)

29.10 Rescheduled loans and advances to customers (continued)

31 December 2018 Stage 1 Stage 2 Stage 3 POCI TotalBy business line €000 €000 €000 €000 €000

Corporate 98,485 154,531 126,186 3,306 382,508

SMEs 67,513 63,170 75,310 4,473 210,466

Retail

- housing 246,922 45,090 271,988 4,879 568,879

- consumer, credit cards andother 46,012 17,148 107,184 2,339 172,683

Restructuring

- corporate 7,903 44,505 236,389 64,437 353,234

- SMEs 31,579 27,729 281,415 22,742 363,465

- retail housing 3,800 871 369,482 8,325 382,478

- retail other 1,468 153 171,789 3,831 177,241

Recoveries

- corporate - - 49,759 14,939 64,698

- SMEs - - 102,355 36,954 139,309

- retail housing - - 165,738 56,506 222,244

- retail other - - 76,716 40,857 117,573

International banking services 4,174 23,621 14,185 1,718 43,698

Wealth management 928 - 2,113 957 3,998

508,784 376,818 2,050,609 266,263 3,202,474

ECL allowances

CyprusOther

countriesTotal

30 June 2019 €000 €000 €000

Stage 1 2,551 - 2,551

Stage 2 15,713 - 15,713

Stage 3 612,120 39,940 652,060

POCI 80,193 - 80,193

710,577 39,940 750,517

CyprusOther

countriesTotal

31 December 2018 €000 €000 €000

Stage 1 4,122 - 4,122

Stage 2 8,613 - 8,613

Stage 3 589,372 7,513 596,885

POCI 85,412 - 85,412

687,519 7,513 695,032

117

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

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 therisk resulting from such changes with the objective to minimise the impact on earnings and capital. Thedepartment also monitors liquidity risk and credit risk with counterparties and countries. It is alsoresponsible for monitoring compliance with the various market risk policies and procedures.

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

Interest rate risk

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

Currency risk

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

Price risk

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

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

31. Risk management - Liquidity risk and funding

Liquidity risk is the risk that the Group is unable to fully or promptly meet current and future paymentobligations as and when they fall due. This risk includes the possibility that the Group may have to raisefunding 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 accountunexpected delays in repayment or unexpectedly high payment outflows. Liquidity risk involves both therisk of unexpected increases in the cost of funding of the portfolio of assets and the risk of being unable toliquidate a position in a timely manner on reasonable terms.

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

Management and structure

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

118

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

31. Risk management - Liquidity risk and funding (continued)

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

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

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

Liquidity is also monitored daily by Market Risk, which is an independent department responsible formonitoring compliance with both internal policies and limits, and with the limits set by the regulatoryauthorities. Market Risk reports to ALCO the regulatory liquidity position of the Group, at least monthly. Italso 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, inorder to raise flags when the ratios deteriorate.

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

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

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

Monitoring process

DailyThe daily monitoring of customer flows and the stock of highly liquid assets is important to safeguard andensure the uninterrupted operations of the Group’s activities. Market risk prepares a daily report analysingthe internal liquidity buffer and comparing it to the previous day’s buffer. This report is made available toGroup Treasury and Group Finance. In addition, Group Treasury monitors daily and intraday the customerinflows 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. Therequirement is to have sufficient liquidity buffer to enable BOC PCL to survive a three month stress period,including capacity to raise funding under all scenarios.

Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquiditybuffer 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 stresshorizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds. These bonds are High Quality Liquid Assets (HQLA) as per the LCR definitions and/or ECB Eligible bonds.

119

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

31. Risk management - Liquidity risk and funding (continued)

The designing of the stress tests followed guidance and was based on the liquidity risk drivers which arerecognised internationally by both the Prudential Regulation Authority (PRA) and EBA SREP. The stress testsassumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and approvedby 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 differentscenarios are: deposit outflows, wholesale funding, loan repayments, off-balance sheet commitments,marketable securities and cash collateral for derivatives and repos.

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

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

MonthlyMarket Risk prepares reports monitoring compliance with internal and regulatory liquidity ratiosrequirements and submits them to the ALCO, the Executive Committee and the Board Risk Committee. Italso calculates the expected flows under a stress scenario and compares them with the projected availableliquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the percentage ofIBU deposits over total deposits and the percentage of instant access deposits are also presented to theALCO. The liquidity mismatch in the form of the Maturity Ladder report is also presented to ALCO andresulting mismatch between assets and liabilities is compared to previous month’s mismatch.

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

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

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

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

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

Liquidity ratios

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

120

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

31. Risk management - Liquidity risk and funding (continued)

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

Main sources of funding

During the six months ended 30 June 2019 and the year ended 31 December 2018, the Group’s mainsources of funding were its deposit base and central bank funding, through the Eurosystem monetary policyoperations.

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

Funding to subsidiaries

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

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

Collateral requirements

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

30 June2019

31 December2018

€000 €000

Cash and other liquid assets 128,743 118,627

Investments 292,317 737,587

Loans and advances 2,584,294 2,528,241

3,005,354 3,384,455

Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) tradefinance transactions and guarantees issued. It is also used as part of the supplementary assets for thecovered bond.

Investments are mainly used as collateral for repurchase transactions with commercial banks,supplementary assets for the covered bond and with the ECB.

Loans and advances indicated as encumbered as at 30 June 2019 and 31 December 2018 are mainly usedas collateral for funding from ECB and the covered bond.

Loans and advances to customers include mortgage loans of a nominal amount €1,005 million as at 30 June2019 (31 December 2018: €1,009 million) in Cyprus, pledged as collateral for the covered bond issued byBOC PCL in 2011 under its Covered Bond Programme. Furthermore as at 30 June 2019 housing loans of anominal amount €1,570 million (31 December 2018: €1,543 million) in Cyprus are pledged as collateral forthe funding from the ECB (Note 20).

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

121

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

32. Capital management

The primary objective of the Group’s capital management is to ensure compliance with the relevantregulatory capital requirements and to maintain strong credit ratings and healthy capital adequacy ratios inorder to support its business and maximise shareholders’ value.

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

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

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

Additional information on regulatory capital is disclosed in the Additional Risk and Capital ManagementDisclosures, including Pillar 3 semi-annual disclosures (unaudited), which are available on the Group’swebsite www.bankofcyprus.com (Investor Relations).

33. Related party transactions

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

Fees and emoluments of members of the Board of Directors and other key managementpersonnel

Six months ended30 June

2019 2018Director emoluments €000 €000

Executives

Salaries and other short term benefits 1,248 1,225

Employer's contributions 62 49

Retirement benefit plan costs 109 108

1,419 1,382

Non-executives

Fees 499 452

Total directors' emoluments 1,918 1,834

Other key management personnel emoluments

Salaries and other short term benefits 1,425 1,606

Employer's contributions 76 104

Retirement benefit plan costs 63 65

Total other key management personnel emoluments 1,564 1,775

Total 3,482 3,609

Other key management personnel emoluments for the six months ended 30 June 2018 include an amountof €367 thousand which relates to emoluments of key management personnel of Bank of Cyprus UKLimited, which was disposed of in November 2018.

The fees of the non-executive Directors include fees as members of the Board of Directors of the Companyand its subsidiaries, as well as of committees of the Board of Directors.

122

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

33. Related party transactions (continued)

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

Aggregate amounts outstanding and additional transactions

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

30 June2019

31 December2018

€000 €000

Loans and advances

- members of the Board of Directors and other key management personnel 2,325 2,476

- connected persons 371 381

2,696 2,857

Deposits

- members of the Board of Directors and other key management personnel 1,387 1,575

- connected persons 1,964 3,122

3,351 4,697

Accruals and other liabilities

- balances with entity providing key management personnel services 5,061 5,108

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

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

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

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

123

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

33. Related party transactions (continued)

Six months ended30 June

2019 2018€000 €000

Interest income for the period 30 40

Interest expense on deposits for the period 3 26

Commission income for the period 1 7

Insurance premium income for the period 75 72

Subscriptions and insurance expenses for the period 611 -

Staff costs, consultancy and restructuring expenses with entityproviding key management personnel services 6,617 10,481

Interest income and expense are disclosed for the period during which they were members of the Board ofDirectors or served as key management personnel.

In addition to loans and advances, there were contingent liabilities and commitments in respect of membersof the Board of Directors and their connected persons, mainly in the form of documentary credits,guarantees and commitments to lend, amounting to €15 thousand (31 December 2018: €37 thousand).

There were also contingent liabilities and commitments to other key management personnel and theirconnected persons amounting to €424 thousand (31 December 2018: €402 thousand).

The total unsecured amount of the loans and advances and contingent liabilities and commitments tomembers of the Board of Directors, key management personnel and other connected persons (using forced-sale values for tangible collaterals and assigning no value to other types of collaterals) at 30 June 2019amounted to €502 thousand (31 December 2018: €532 thousand).

At 30 June 2019 the Group has a deposit of €4,201 thousand (31 December 2018: €4,086 thousand) withPiraeus Bank SA, in which Mr Arne Berggren is a non-executive Director. The Group has also providedcertain indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.

During the period ended 30 June 2019 premiums of €17 thousand (corresponding period of 2018: €19thousand) and claims of €690 thousand (corresponding period 2018: €1 thousand) were paid between themembers of the Board of Directors of the Company and their connected persons and the insurancesubsidiaries of the Group.

There were no other transactions during the six months ended 30 June 2019 and the year ended 31December 2018 with connected persons of the current members of the Board of Directors or with anymembers who resigned during the period/year.

124

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

34. Group companies

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

Company Country ActivitiesPercentage

holding(%)

Bank of Cyprus Holdings Public LimitedCompany

Ireland Holding company n/a

Bank of Cyprus Public Company Ltd Cyprus Commercial bank 100The Cyprus Investment and SecuritiesCorporation Ltd (CISCO)

CyprusInvestment banking, asset managementand brokerage

100

General Insurance of Cyprus Ltd Cyprus General insurance 100EuroLife Ltd Cyprus Life insurance 100Kermia Ltd Cyprus Property trading and development 100Kermia Properties & Investments Ltd Cyprus Property trading and development 100Global Balanced Fund of Funds SalamisVariable Capital Investment CompanyPLC (formerly Cytrustees InvestmentPublic Company Ltd)

Cyprus UCITS Fund 61

LCP Holdings and Investments Public Ltd Cyprus Holding company 67JCC Payment Systems Ltd Cyprus Card processing transaction services 75CLR Investment Fund Public Ltd Cyprus Investment company 20Auction Yard Ltd Cyprus Auction company 100BOC Secretarial Company Ltd Cyprus Secretarial services 100

S.Z. Eliades Leisure Ltd CyprusLand development and operation of agolf resort

70

BOC Asset Management Ltd CyprusManagement administration andsafekeeping of UCITS Units

100

Bank of Cyprus Public Company Ltd(branch of BOC PCL)

GreeceAdministration of guarantees andholding of real estate properties

n/a

BOC Asset Management Romania S.A. RomaniaCollection of the existing portfolio ofreceivables, including third partycollections

100

MC Investment Assets Management LLC Russia Problem asset management company 100Fortuna Astrum Ltd Serbia Problem asset management company 100

125

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

34. Group companies (continued)

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

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

Romania: Otherland Properties Dorobanti SRL, Battersee Real Estate SRL, Trecoda Real Estate SRL, GreenHills Properties SRL, Bocaland Properties SRL, Romaland Properties SRL, Imoreth Properties SRL, InrodaProperties SRL, Tantora Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and NikabaProperties SRL.

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

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

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

126

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

34. Group companies (continued)

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

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

Romania: Selilar Properties SRL.

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

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

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

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

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

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

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

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

127

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

34. Group companies (continued)

Dissolution and disposal of subsidiaries

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

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

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

35. Acquisitions and disposals of subsidiaries

35.1 Acquisitions during 2019

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

35.2 Disposals during 2019

35.2.1 Disposal of Cyreit

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

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

Assets €000

Loans and advances to banks 7,980

Investment properties 133,401

141,381

Liabilities

Other liabilities (314)

Net identifiable assets sold 141,067

The purchase consideration amounts to €139,760 thousand. The disposal resulted in a loss of €1,307thousand disclosed within 'Net losses from revaluation and disposal of investment properties'.

128

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

35. Acquisitions and disposals of subsidiaries (continued)

35.2. Disposals during 2019 (continued)

35.2.1. Disposal of Cyreit (continued)

The net cash flows of Cyreit are as follows:

30 June2019

30 June2018

€000 €000

Net cash inflow for the period from operating activities 1,330 652

There were no cash equivalents as at the date of disposal.

35.3 Acquisitions during 2018

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

35.4 Disposals during 2018

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

36. Investments in associates and joint venture

Carrying value of the investments in associates and joint venture

Percentageholdings

30 June2019

31 December2018

(%) €000 €000

CNP Cyprus Insurance Holdings Ltd (Note 19) 49.9 - 114,637

Apollo Global Equity Fund of Funds Variable CapitalInvestment Company Plc 31.6 2,191 -

Aris Capital Management LLC 30.0 - -

Rosequeens Properties Limited 33.3 - -

Rosequeens Properties SRL 33.3 - -

Tsiros (Agios Tychon) Ltd 50.0 - -

M.S. (Skyra) Vassas Ltd 15.0 - -

D.J. Karapatakis & Sons Limited 7.5 - -

Rodhagate Entertainment Ltd 7.5 - -

Fairways Automotive Holdings Ltd 45.0 - -

2,191 114,637

Investments in associates

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

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

129

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

36. Investments in associates and joint venture (continued)

Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)The Group holds effectively 31.6% of the UCITS of Apollo due to gradual redemption of the other holders ofApollo. The Group considers that it exercises significant influence over Apollo even though no Boardrepresentation exists, because due to its UCITS holdings, it possesses the power to potentially appointmembers of the Board of Directors.

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

Aris Capital Management LLCThe Group’s holding in Aris Capital Management LLC of 30.0% was transferred to the Group following theacquisition of certain operations of Laiki Bank. The investment is considered to be fully impaired and itsvalue is restricted to zero.

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

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

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

Investment in joint venture

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

The percentage holdings are in ordinary shares or membership interests.

130

BANK OF CYPRUS HOLDINGS GROUPNotes to the Consolidated Condensed Interim Financial Statements

37. Events after the reporting period

37.1 ESTIA Memorandum of Understanding

In July 2019 the Memorandum of Understanding was signed by the banks and the Government forparticipation in the Estia scheme, which is underway for official launch in September 2019. ESTIA is ascheme aimed at addressing NPEs backed by primary residence, announced by the Government in July2018. According to the timeline provided by the Government, the application submissions will occur fromSeptember to mid-November 2019 with evaluation by the banks running concurrently until the end ofNovember 2019. During the forth quarter of 2019, the participating banks will offer restructuring solutionsto the applicants and simultaneously the applications will be reviewed and approved by the Government.The first payment of the state subsidy installment is expected to occur between December 2019 and April2020.

131

Independent review report to Bank of Cyprus Holdings Public Limited Company

Report on the consolidated condensed interim financial statements

Our COnClUSIOn

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

What we have reviewed

The interim financial statements, comprising:

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

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

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

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

• the explanatory notes to the interim financial statements.

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

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

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

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

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

What a review of interim financial statements involves

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

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

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

PricewaterhouseCoopers Chartered Accountants Dublin 26 August 2019

134

Additional Risk and Capital Management

Disclosures, including Pillar 3 semi-annual disclosures

30 June 2019

BANK OF CYPRUS HOLDINGS GROUP Additional Risk and Capital Management Disclosures, including Pillar 3 semi-annual disclosures (Unaudited)

135

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

The Central Bank of Cyprus (CBC) issued to credit institutions the Loan Impairment and Provisioning Directives of 2014 and 2015 (Directive), which provides guidance to banks for loan impairment policy and procedures for provisions. The purpose of this Directive is to ensure that credit institutions have in place adequate provisioning policies and procedures for the identification of credit losses and prudent application of International Financial Reporting Standards (IFRSs) in the preparation of their financial statements. The Directive requires certain disclosures in relation to the loan portfolio quality, provisioning policy and levels of provision. The disclosures required by the Directive, in addition to those presented in Note 2 of the Consolidated Financial Statements for the year ended 31 December 2018 and Note 29 of the Interim Consolidated Financial Statements are set out in the following tables. The tables disclose Non-Performing Exposures (NPEs) based on the definitions of the EBA standards. According to the EBA standards and European Central Bank’s (ECB) Guidance to Banks on Non-Performing loans (which was published in March 2017), Non-Performing Exposures (NPEs) are defined as those exposures that satisfy one of the following conditions: (i) The debtor is assessed as unlikely to pay its credit obligations in full without the realisation of the

collateral, regardless of the existence of any past due amount or of the number of days past due. (ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirements Regulation

(CRR) (Article 178). (iii) Material exposures (as defined below) which are more than 90 days past due. (iv) Performing forborne exposures under probation for which additional forbearance measures are

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

probation period. Exposures include all on and off balance sheet exposures, except those held for trading, and are categorised as such for their entire amount without taking into account the existence of collateral. The following materiality criteria are applied: When the problematic exposures of a customer that fulfil the NPE criteria set out above are greater than

20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the problematic part of the exposure is classified as non-performing.

Material arrears/excesses are defined as follows:

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

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

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

NPEs may cease to be considered as non-performing only when all of the following conditions are met: (i) The extension of forbearance measures does not lead to the recognition of impairment or default. (ii) One year has passed since the forbearance measures were extended. (iii) Following the forbearance measures and according to the post-forbearance conditions, there is no past

due amount or concerns regarding the full repayment of the exposure. (iv) No unlikely-to-pay criteria exist for the debtor. (v) The debtor has made post-forbearance payments of a non-insignificant amount of capital (different

capital thresholds exist according to the facility type).

BANK OF CYPRUS HOLDINGS GROUP Additional Risk and Capital Management Disclosures, including Pillar 3 semi-annual disclosures (Unaudited)

136

1. Credit risk (continued)

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

30 June 2019

Gross loans and advances to customers Provision for impairment and fair value adjustment on initial recognition

Group gross customer loans and advances1

Of which NPEs

Of which exposures with forbearance measures

Total provision for impairment and fair value adjustment on

initial recognition

Of which NPEs

Of which exposures with forbearance measures

Total exposures with

forbearance measures

Of which NPEs

Total exposures with

forbearance measures

Of which NPEs

€000 €000 €000 €000 €000 €000 €000 €000 Loans and advances to customers General governments 65,343 1 1,253 - 3,527 - 459 - Other financial corporations 140,273 14,577 6,232 2,546 8,058 4,069 807 730 Non-financial corporations 6,425,493 1,677,875 1,500,016 889,448 902,249 810,060 389,259 372,469 Of which: Small and Medium sized Enterprises2 4,797,119 1,269,815 990,569 652,230 730,839 651,615 277,047 264,776

Of which: Commercial real estate2 4,321,386 1,054,203 971,665 600,195 529,644 459,089 240,702 230,901 Non-financial corporations by sector

Construction 858,863 317,986 162,186 Wholesale and retail trade 1,402,677 455,738 238,273 Accommodation and food service activities 1,060,709 80,473 60,188

Real estate activities 1,257,258 341,831 168,354 Professional, scientific and technical activities 451,332 102,479 59,321

Other sectors 1,394,654 379,368 213,927 Households 6,450,041 2,619,068 1,778,289 1,397,764 1,218,314 1,150,098 502,173 487,784 Of which: Residential mortgage loans2 4,899,475 1,976,590 1,428,118 1,117,686 791,989 732,911 351,842 340,418

Of which: Credit for consumption2 865,993 372,801 214,603 185,650 213,969 212,628 84,485 83,012 13,081,150 4,311,521 3,285,790 2,289,758 2,132,148 1,964,227 892,698 860,983 Loans and advances to customers classified as held for sale 12,422 12,422 - - 6,531 6,531 - -

Total on-balance sheet 13,093,572 4,323,943 3,285,790 2,289,758 2,138,679 1,970,758 892,698 860,983

1 Excluding loans and advances to central banks and credit institutions. 2 The analysis shown in lines ‘non financial corporations’ and ‘households’ is non-additive across categories as certain customers could be in both categories.

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1. Credit risk (continued)

31 December 2018

Gross loans and advances to customers Provision for impairment and fair value adjustment on initial recognition

Group gross customer loans and advances3

Of which NPEs

Of which exposures with forbearance measures

Total provision for impairment and fair value adjustment on

initial recognition

Of which NPEs

Of which exposures with forbearance measures

Total exposures with

forbearance measures

Of which NPEs

Total exposures with

forbearance measures

Of which NPEs

€000 €000 €000 €000 €000 €000 €000 €000 Loans and advances to customers General governments 70,638 3 1,595 - 3,681 - 468 - Other financial corporations 167,910 21,338 28,028 5,621 13,378 8,471 3,374 2,076 Non-financial corporations 6,331,381 1,941,479 1,682,997 1,042,164 947,857 864,983 367,235 347,924 Of which: Small and Medium sized Enterprises4 4,573,824 1,488,289 1,108,153 793,579 759,484 692,343 280,675 266,736

Of which: Commercial real estate4 4,473,159 1,284,145 1,124,078 742,839 569,351 501,842 231,694 216,486 Non-financial corporations by sector

Construction 972,059 382,697 184,282 Wholesale and retail trade 1,431,706 522,151 254,823 Accommodation and food service activities 1,005,691 96,702 58,563

Real estate activities 1,140,596 406,226 174,269 Manufacturing 428,828 134,950 74,884 Other sectors 1,352,501 398,753 201,036 Households 6,588,202 2,805,496 1,924,928 1,486,583 1,271,429 1,208,624 481,701 471,184 Of which: Residential mortgage loans4 5,022,617 2,112,152 1,552,445 1,180,705 828,205 774,656 336,651 327,956

Of which: Credit for consumption4 891,964 397,747 234,572 195,422 225,505 221,996 79,417 77,930 13,158,131 4,768,316 3,637,548 2,534,368 2,236,345 2,082,078 852,778 821,184 Loans and advances to customers classified as held for sale 2,851,113 2,749,301 1,492,083 1,437,851 1,697,005 1,646,091 825,977 797,692

Total on-balance sheet 16,009,244 7,517,617 5,129,631 3,972,219 3,933,350 3,728,169 1,678,755 1,618,876

3 Excluding loans and advances to central banks and credit institutions. 4 The analysis shown in lines ‘non financial corporations’ and ‘households’ is non-additive across categories as certain customers could be in both categories.

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2. Liquidity risk and funding

2.1 Encumbered and unencumbered assets

Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. An asset is classified as encumbered if it has been pledged as collateral against secured funding and other collateralised obligations and, as a result, is no longer available to the Bank of Cyprus Holdings Group (the Group) for further collateral or liquidity requirements. The total encumbered assets of the Group amounted to €3,005,354 thousand as at 30 June 2019 (31 December 2018: €3,384,455 thousand). An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other collateralised obligations. Unencumbered assets are further analysed into those that are available and can be potentially pledged and those that are not readily available to be pledged. As at 30 June 2019, the Group held €14,317,652 thousand (31 December 2018: €12,518,132 thousand) of unencumbered assets that can be potentially pledged and can be used to support potential liquidity funding needs and €3,176,101 thousand (31 December 2018: €4,878,219 thousand) of unencumbered assets that are not readily available to be pledged for funding requirements in their current form. Loans and advances indicated as encumbered as at June 2019 and 31 December 2018 are mainly used as collateral for funding from the ECB and the covered bond. Loans and advances to customers include mortgage loans of a nominal amount €1,005 million as at 30 June 2019 (31 December 2018: €1,009 million) in Cyprus, pledged as collateral for the covered bond issued by Bank of Cyprus Public Company Ltd (BOC PCL) in 2011 under its Covered Bond Programme. Furthermore, as at 30 June 2019 housing loans of a nominal amount €1,570 million (31 December 2018: €1,543 million) in Cyprus are pledged as collateral for the funding from the ECB (Note 20 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019). The table below presents an analysis of the Group’s encumbered and unencumbered assets and the extent to which these assets are currently pledged for funding or other purposes. The carrying amount of such assets is disclosed below:

30 June 2019

Encumbered Unencumbered

Total Pledged as collateral

Which can potentially be

pledged

Which are not readily available

to be pledged €000 €000 €000 €000

Cash and bank placements 128,743 5,003,766 532,428 5,664,937 Investments 292,317 1,520,845 67,737 1,880,899 Loans and advances to customers 2,584,294 6,015,014 2,349,693 10,949,001 Non-current assets held for sale - - 197,521 197,521 Property - 1,778,027 28,722 1,806,749 Total on-balance sheet 3,005,354 14,317,652 3,176,101 20,499,107

31 December 2018 Cash and bank placements 118,627 4,326,166 638,230 5,083,023 Investments 737,587 742,152 34,952 1,514,691 Loans and advances to customers 2,528,241 5,708,960 2,684,585 10,921,786 Non-current assets held for sale - - 1,470,038 1,470,038

Property - 1,740,854 50,414 1,791,268 Total on-balance sheet 3,384,455 12,518,132 4,878,219 20,780,806

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2. Liquidity risk and funding (continued)

2.1 Encumbered and unencumbered assets (continued)

Encumbered assets primarily consist of loans and advances to customers and investments in debt securities. These are mainly pledged for the funding facilities of the Central Banks (ECB and CBC) (Note 20 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019) and for the covered bond. Investments are mainly used as collateral for repurchase transactions with commercial banks as well as supplementary assets for the covered bond (Note 31 of the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019). Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA/GMRA agreements which are not immediately available for use by the Group but are released once the transactions are terminated. Cash is mainly used to cover collateral required for (i) derivatives and repurchase transactions and (ii) trade finance transactions and guarantees issued. It is also used as part of the supplementary assets for the covered bond and for other operational purposes. BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the Covered Bonds Directive of CBC. Under the Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus. On 6 June 2018, the terms of the covered bond have been amended to extend the maturity date to 12 December 2021, and set the interest rate to 3 months Euribor plus 2.50% on a quarterly basis. The covered bonds are traded on the Luxemburg Bourse. The covered bonds have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for accessing funding from the ECB. Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than 90 days past due and are expected to be eligible for ELA funding, as well as loans of overseas subsidiaries and branches which are available to be pledged. Customer loans of overseas subsidiaries and branches cannot be pledged with the CBC as collateral for ELA. Moreover, for some of the overseas subsidiaries and branches, these assets are only available to be pledged for other purposes for the needs of the particular subsidiary/branch and not to provide liquidity to any other entity of the Group. Balances with central banks are reported as unencumbered and can be pledged, to the extent that there is excess available over the minimum reserve requirement. The minimum reserve requirement is reported as unencumbered not readily available to be pledged. Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which are prohibited by contract or law to be encumbered or which are over 90 days past due or for which there are pending litigations or other legal actions against the customer, a proportion of which would be suitable for use in secured funding structures but are conservatively classified as not readily available for collateral. Properties whose legal title has not been transferred in the name of the Company or the subsidiary are not considered to be readily available as collateral. Insurance assets held by Group insurance subsidiaries are not included in the table below as they are primarily due to the insurance policyholders.

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2. Liquidity risk and funding (continued)

2.1 Encumbered and unencumbered assets (continued)

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

30 June 2019

Carrying value of

encumbered investments

Fair value of encumbered investments

Carrying value of unencumbered

investments

Fair value of unencumbered

investments

€000 €000 €000 €000

Equity securities - - 160,668 160,668

Debt securities 292,317 292,581 1,427,914 1,447,722

Total investments 292,317 292,581 1,588,582 1,608,390

31 December 2018

Equity securities - - 149,948 149,948

Debt securities 737,587 739,222 627,156 633,773

Total investments 737,587 739,222 777,104 783,721

2.2 Liquidity regulation

The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by the Commission Delegated Regulation (EU) No 2015/61 which prescribes the criteria for liquid assets and methods of calculation as from 1 October 2015 and the Commission Implementing Regulation (EU) No 2016/322 which prescribes supervisory reporting requirements and applied from 10 September 2016). It also monitors its position against the Net Stable Funding Ratio (NSFR) as proposed under Basel III. The LCR is designed to promote short-term resilience of a Group’s liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been developed to promote a sustainable maturity structure of assets and liabilities. In October 2014, the Basel Committee on Banking Supervision proposed the methodology for calculating the NSFR. It is noted that the NSFR did not become effective on 1 January 2018 as opposed to what was expected. It will become a regulatory indicator when CRR2 is enforced with the limit set at 100%. As at 30 June 2019 the Group was in compliance with all regulatory liquidity requirements. As at 30 June 2019 the LCR stood at 253% for the Group (compared to 231% at 31 December 2018) and was in compliance with the minimum regulatory requirement of 100% applicable as from 1 January 2018. As at 30 June 2019 the Group’s NSFR, on the basis of the Basel ΙΙΙ standards, was 128% (compared to 119% at 31 December 2018).

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2. Liquidity risk and funding (continued)

2.3 Liquidity reserves

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

Composition of the liquidity reserves

30 June 2019 31 December 2018

Internal Liquidity reserves

Liquidity reserves as per LCR Delegated

Reg (EU) 2015/61 LCR eligible

Internal Liquidity reserves

Liquidity reserves as per LCR Delegated Reg (EU)

2015/61 LCR eligible

Level 1 Level 2A Level 1 Level 2A €000 €000 €000 €000 €000 €000

Cash and balances with central banks 5,104,296 5,104,296 - 4,447,511 4,447,511 -

Nostro and overnight placements with banks 61,344 - - 281,383 - -

Other placements with banks 138,050 - - - - -

Liquid investments 1,172,841 1,117,496 130,343 881,091 929,380 93,165Available ECB Buffer 277,241 - - 108,374 - -Total 6,753,772 6,221,792 130,343 5,718,359 5,376,891 93,165 Internal Liquidity Reserves show the total liquid assets as defined in the Bank’s Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation (EU) 2015/61 show the liquid assets as per the definition of the aforementioned regulation i.e. High Quality Liquid Assets (HQLA). Under Liquidity reserves as per LCR, Nostro and placements with banks are not included, as they are not considered HQLA (they are part of the LCR Inflows). Liquid investments under the Liquidity reserves as per LCR, are shown at market values reduced by standard weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity reserves, include all LCR and/or ECB eligible investments and are shown at market values net of haircut based on ECB haircuts and methodology. Finally, available ECB buffer is not part of the Liquidity reserves as per LCR, since the collateralised assets in the ECB pool are not LCR eligible but only ECB eligible. The Liquidity Reserves are managed by Group Treasury.

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

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

The Group assesses its capital requirements taking into consideration its regulatory requirements, risk profile and appetite set by the Board of Directors. A Financial and Capital Plan (the Plan) is annually prepared revising the financial forecasts and capital projections over a three year horizon in light of recent developments and it is approved by the Board of Directors. The Plan takes into account the Group key strategic pillars and Risk Appetite Statement (RAS). The Plan is rolled forward on a quarterly basis after taking into account the actual results of each quarter. The Group’s capital projections are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group’s risk profile, regulatory and business needs. These are frequently monitored against relevant internal target capital ratios to ensure they remain appropriate and consider risks to the plan, including possible future regulatory changes. The main strategic and business risks are monitored regularly by the Executive Committee (ExCo), the Assets and Liabilities Committee (ALCO) and the Board Risk Committee (RC). These committees receive regular reports of risk and performance indicators, from relevant managers and make decisions to ensure adherence to the Group’s strategic objective, while remaining within the Group RAS. The Group remains on track for implementing its strategic objectives aiming to become a stronger, safer and a more focused institution capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the medium term. The key pillars of the Group’s strategy are to: Materially reduce the level of delinquent loans Further improve the funding structure Maintain an appropriate capital position by internally generating capital Focus on the core Cyprus market Achieve a lean operating model Deliver value to shareholders and other stakeholders The Risk Weighted Assets (RWA) that form the denominator of the risk-based capital ratio are presented below. Minimum capital requirements are calculated as 8% of the RWA. All rows that are not relevant to the Group’s activities are not included. As of 1 January 2018 the RWA are reported on an IFRS 9 transitional basis under article 473(a) of the CRR by which provisions amounts are decreased by an appropriate ratio hence creating higher exposures compared to the actual balance sheet values and as a result comparatively higher RWA and capital requirements. The IFRS 9 transitional basis effect will be phased out by 1 January 2023.

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

Overview of RWA

RWA

Minimum capital

requirements 30 June

2019 31 March

2019 30 June

2019 €000 €000 €000

1 Credit risk (excluding counterparty credit risk (CCR)) 11,974,850 13,523,159 957,988

2 Of which the Standardised Approach 11,974,850 13,523,159 957,988

6 CCR 19,194 19,765 1,5367 Of which mark to market 12,881 12,615 1,030

11 Of which risk exposure amount for contributions to the default fund of a CCP - - -

12 Of which Credit Valuation Adjustment (CVA) 6,313 7,150 50513 Settlement risk - - -

14 Securitisation exposures in the banking book (after the cap) 52,504 - 4,200

18 Of which Standardised Approach 52,504 - 4,20019 Market risk 61,712 - 4,93720 Of which the Standardised Approach 61,712 - 4,93722 Large exposures - - -23 Operational risk 1,538,588 1,538,588 123,08725 Of which Standardised Approach 1,538,588 1,538,588 123,087

27 Amounts below the thresholds for deduction (subject to 250% risk weight) 315,220 309,743 25,218

29 Total 13,962,068 15,391,255 1,116,966 The overall decrease in total RWA was mainly driven from “Credit Risk (excluding counterparty credit risk)” observed in line 1 which at its majority was driven from the sale of a portfolio of loans (Projects Helix and Velocity) which at the same time created a new position in “Securitisation exposures in the banking book” observed in line 14 from BOC PCL’s investment in a senior debt security issued. The newly created RWA and capital requirements amounts observed in line 19 relate to an open Foreign Currency position created by the Project Helix transaction. This open position closed in early July 2019 and the RWA and capital requirements have been reversed. There were no large exposures for institutions that exceeded the relevant limits.

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

3.1 Credit Risk

The Standardised Approach has been applied to calculate the minimum capital requirement in accordance with the requirements laid down in Article 92 of the CRR as shown in the table below. Minimum capital requirements are calculated as 8% of the RWAs. As of 1 January 2018 the RWA are reported on an IFRS 9 transitional basis under article 473(a) of the CRR by which provisions amounts are decreased by an appropriate ratio hence creating comparatively higher exposures compared to the actual balance sheet values and as a result higher RWA and capital requirements. The IFRS 9 transitional basis effect will be phased out by 1 January 2023. Further analysis on the RWA intensity is available in Sections 8.13.1 and 8.13.2.

Exposure Portfolio 30 June

2019 31 December

2018 €000 €000

Central governments or central banks 30,608 26,659Regional governments or local authorities 116 56Public sector entities 1 1Institutions 15,906 15,328Corporates 261,208 241,352Retail 83,089 78,985Secured by mortgages on immovable property 86,590 86,172Exposures in default 204,022 295,647Items associated with particular high risk 106,850 162,587Covered bonds 1,356 1,132Collective Investments Undertakings (CIU) 24 14Items representing securitisation positions 4,200 -Equity 26,416 20,338Other items 168,050 177,628Total Capital Requirement for Credit Risk 988,436 1,105,899 The movement in capital requirements in exposure class “Central governments or central banks” derives from the law amendment of the Cyprus Parliament legislative on 1 March 2019 allowing for the conversion of deferred tax assets into deferred tax credits for regulatory capital purposes carrying a RW of 100% which were previously risk weighted at 250% or deducted from capital. The material decrease in capital requirements observed in exposure classes “Exposures in Default” and “Items associated with particular high risk” results mainly from the sale of a portfolio of loans (Projects Helix and Velocity). Additionally the decrease in these exposure classes was strengthened by the on-going deleveraging actions in the form of customer loan restructurings, increased provisioning and debt-for-asset swaps. New lending and curing increased the exposure values and respectively the capital requirements in exposure classes “Corporates”, “Retail”, and “Secured by mortgages on immovable property”. “Other Items” show a decrease in the capital requirements at its majority from the disposal of properties held for sale from debt-for-asset swaps in the portfolio of loans in Project Helix. The newly created capital requirements in exposure class “Items representing securitisation positions” relates to the investment of BOC PCL in a senior debt security issued for the financing of Project Helix. The increase in “Equity” mainly results from the increase in the amount of the Financial Sector Entities (FSE) carrying a risk weight of 250%. All movements in all other exposure classes are in line with balance sheet movements.

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

3.2 EU MR1 Market risk under the standardised approach

All rows that are not relevant to the Group’s activities are not included in the table below. The minimum capital requirement calculated under the Standardised Approach in accordance with Title IV: Own funds requirements for Market Risk of the CRR are exclusively related to equity risk. The BOC PCL does not have any exposures in the trading book in “Interest rate risk”, “Commodity Risk”, “Options” or “Securitisation” positions. Due to the small trading book, Article 94 of the CRR was applied in 2019 allowing the RWA for trading book positions to be calculated in accordance with Article 92 paragraph 3(a) of the CRR, hence the RWA and capital requirements are included in the Credit Risk tables. The newly created RWA and capital requirements amounts observed in line 3 relate to an open Foreign Currency position created by the Project Helix transaction. This open position closed in early July 2019 and the RWA and capital requirements have been reversed.

30 June 2019 31 December 2018

RWAs Capital requirements RWAs Capital

requirements €000 €000 €000 €000

Outright products

2 Equity risk (general and specific) - - 1,006 803 Foreign exchange risk 61,712 4,937 - -

9 Total Capital Requirement for Market Risk 61,712 4,937 1,006 80

3.3 Operational Risk

The minimum capital requirement for operational risk is calculated in accordance with Title III: Own funds requirements for operational risk of the CRR. The Group uses the Standardised Approach for the operational risk capital calculation. As at 30 June 2019, the minimum capital requirement in relation to operational risk, calculated in accordance with the Standardised Approach, amounts to €123,087 thousand (31 December 2018: €123,087 thousand).

30 June 2019/31 December 2018 Standardised

approach €000

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

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

3.4 Credit Valuation Adjustment (CVA) Risk

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

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

30 June 2019

31 December 2018

€000 €000 CVA (Capital Requirement) 505 709

The decrease in the capital requirements relates to a decrease in derivative values. 3.5 EU INS1 Non-deducted participations in insurance undertakings

Carrying amount

30 June 2019

31 December 2018

€000 €000 Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (before risk-weighting)

117,871 91,094

Total RWAs 294,678 227,734 4. Other risks

4.1 Operational risk

Operational risk is defined as the risk of a direct or indirect impact loss resulting from inadequate or failed internal processes, people and systems or external events. The Group includes in this definition compliance, legal and reputational risk. The Group recognises that the control of operational risk is directly related to effective and efficient management practices and high standards of corporate governance. To that effect, the management of operational risk is geared towards maintaining a strong internal control governance framework and managing operational risk exposures through a consistent set of management processes that drive risk identification, assessment, control and monitoring. The main objectives of operational risk management within the Group are: (i) the development of operational risk awareness and culture, (ii) the provision of adequate information to the Group’s management at all levels in relation to the operational risk profile at a company, unit and activity level, so as to facilitate decision making for risk control activities, and (iii) the control of operational risk to ensure that operational losses do not cause material damage to the Group’s franchise and that the impact on the Group’s profitability and corporate objectives is contained. Operational risks can arise from all business lines and from all activities carried out by the Group and are thus diverse in nature. To enable effective management of all material operational risks, the operational risk management framework adopted by the Group is based on the three lines of defence model, through which risk ownership is dispersed throughout the organisation. The first line of defence comprises of management and staff who have immediate responsibility of day-to-day operational risk management and own the risk. Each business unit owner is responsible for identifying and managing all the risks that arise from the unit’s activities as an integral part of their first line responsibilities.

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4. Other risks (continued)

4.1 Operational risk (continued)

The second line of defence comprises of the risk management function whose role is to provide operational risk oversight and independent and objective challenge to the first line of defence, supported by other specialist control and support functions such as the Group Compliance, Legal, Information Technology, Information Security and Health and Safety functions. The third line of defence comprises of the Internal Audit function, which provides independent assurance over the integrity and effectiveness of the risk management framework throughout the Group. During the first half of 2019, ongoing activities/initiatives towards further enhancement of Operational Risk management involved inter alia the following: (i) successful implementation in production of additional monetary and non-monetary transactions and functionality to enhance customers’ profiles of the fraud system (FRMS), (ii) testing the implementation of the interface between the operational loss database (RCMS) with the automated tool used by Legal Department for recording/monitoring of legal cases, with an aim to go live in September 2019, (iii) gradual incorporation of business units’ plans into the Business Continuity Management software tool (namely Continuity 2), along with relevant training delivered, (iv) training offered to all staff in the form of e-learning on the basic concepts and management of operational risk, (v) on-going enhancements to the Risk Control Self-Assessment methodology. Operational risk loss events are classified and recorded in the Group’s internal loss database (a new improved system was launched in 2016 providing for the integration of all risk-control data under the same system) to enable risk identification, corrective action and statistical analysis. During the first half of the year 2019, 379 loss events with gross loss equal to or greater than €1,000 each were recorded including incidents of prior years (mostly legal cases) for which losses materialised in the first six months of 2019 (six months ended 30 June 2018: 162 loss events). The Group strives to continuously enhance its risk control culture and increase awareness of its employees on operational risk issues through ongoing staff training (both classroom/workshop type of training and e-learning sessions). The Group also maintains adequate insurance policies to cover for unexpected material operational losses. Business resilience is treated as a priority and as such the Group places significant importance on continuously enhancing the continuity arrangements for all markets in which the Group operates, to ensure timely recovery in the case of events that may cause major disruptions to the business operations. 4.2 Political risk

External factors which are beyond the control of the Group, such as developments in the European and the global economy, as well as political and government actions in Cyprus can affect the operations of the Group, its strategy and prospects, either directly or indirectly through their possible impact on the domestic economy. Cyprus is a small open economy with a large external sector. Exports of goods and services in real terms were about 63% of Gross Domestic Product (GDP) in 2017 and 2018. Imports formed 64% of GDP excluding ship registrations. As a result the Cyprus economy is exposed to developments outside its borders, particularly in Russia, the UK and Greece. Cyprus is also exposed to developments in the European Union and the Eurozone that might impact bond markets and interest rates as well as to developments in the global economy at large, including trade. There is rising risk of a global recession. The world economy is facing slowing growth, the behaviour of great power rivalries, financial uncertainties and geopolitical risks. The International Monetary Fund in its July 2019 World Economic Outlook Update, lowered its global growth forecast to 3.2% in 2019 pointing to weaker-than-anticipated economic activity. Growth in the US is expected to slow to 2.6% in 2019 and to 1.3% in the Eurozone. In China growth is forecasted at 6.2% which is the lowest pace in more than two decades. The major economies of the US, China and Germany appear to be heading towards a significant slowdown. China depends on exports, but during the financial crisis global demand decreased and economic growth has been slowing since.

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4. Other risks (continued)

4.2 Political risk (continued)

According to Eurostat, Germany’s real GDP increased by 0.8% year-on-year in the first quarter of 2019 and by 0% in the second quarter. German exports account for 50% of GDP making it especially vulnerable to a slow-down or recession in its export countries. Economic growth in Italy remains one of the lowest in the Eurozone, and its debt the highest in absolute terms and the second highest in relation to GDP after Greece’s. Financial markets are therefore especially sensitive to Italian political instability. The ten year yield spread against Germany rose to 240 basis points in early August 2019. Regarding Brexit, the UK new government failed to convince the European Commission to re-open negotiations over the terms of UK’s exit from the EU. The risk of a no deal Brexit has been rising as a result. However, opposition parties and a group of conservative members of parliament oppose a no-deal Brexit and are looking for ways to avoid it. Cyprus has close trade and investment links with the UK making its economy vulnerable to the impact of the exit of UK from the EU on the UK economy. Weaker demand in the UK and the depreciation of sterling against the euro following the referendum in 2016 affected the competitiveness of Cypriot exports to the UK. Exports of goods to the UK were about 8% of total exports of goods on average in the three years to 2016 and 5.7% in 2017. Tourist arrivals from the UK accounted for about 34% of total arrivals in 2017-2018. A decline in tourist arrivals from the UK and a drop in their spending will need to be mitigated by increasing arrivals and revenues from other countries. Cyprus is less exposed to Greece than it was prior to the crisis in 2013. Greece’s departure from the Eurozone is no longer a short-term risk. Although Greece still has a high unemployment rate, a heavy debt burden and a fragile banking sector, the outlook appears positive and the European Commission projects growth of 2.1% and 2.2% in 2019 and 2020 respectively (European Economic Forecast, Summer 2019, Interim). The Russian economy extended by 1.6% in 2017 and by 2.3% in 2018 and expected to grow by 1.2% in 2019 and by 1.9% in 2020 according to the IMF (World Economic Outlook Update, July 2019). Russia is impacted negatively by persistent sanctions and by low oil prices. In this respect Russia expanded economic ties with non-western countries primarily with China. While this strategy has been successful in stabilising the macroeconomic environment, in the long term Russia continues to face significant challenges. Developments in other non-EU countries with which Cyprus maintains significant economic links, the unresolved Cyprus problem, and political and social unrest or escalation of military conflict in neighboring countries and/or other overseas areas may adversely affect the Cyprus economy. Political risk remains at an elevated level due to the de facto division of the island and the potential for tension with Turkey over hydrocarbons explorations in Cyprus’ Exclusive Economic Zone (EEZ). Given the above, the Group recognises that unforeseen political events can have negative effects on the fulfilment of contractual relationships and obligations of its customers and other counterparties, which may have a significant impact on the Group’s activities, operating results and position. 5. Capital management

The primary objective of the Group’s capital management is to ensure compliance with the relevant regulatory capital requirements and to maintain strong credit ratings and healthy capital adequacy ratios in order to support its business and maximise shareholders’ value. With the exception of certain specified provisions, the CRR and Capital Requirements Directive IV (CRD IV) came into effect on 1 January 2014. The CRR and CRD IV transposed the new capital, liquidity and leverage standards of Basel III into the European Union’s legal framework. CRR establishes the prudential requirements for capital, liquidity and leverage for credit institutions and investment firms. It is directly applicable in all EU member states. CRD IV governs access to deposit-taking activities and internal governance arrangements including remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV into national laws and it allowed national regulators to impose additional capital buffer requirements. CRR introduced significant changes in the prudential regulatory regime applicable to banks including amended minimum capital adequacy ratios, changes to the definition of capital and the calculation of risk weighted assets and the introduction of new measures relating to leverage, liquidity and funding. CRR permits a transitional period for certain of the enhanced capital requirements and certain other measures, which are largely fully effective in 2019.

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5. Capital management (continued)

In addition, the Regulation (EU) 2016/445 of the ECB on the exercise of options and discretions available in Union law (ECB/2016/4) provides certain transitional arrangements which supersede the national discretions unless they are stricter than the EU Regulation 2016/445. The CET1 ratio of the Group at 30 June 2019 stands at 14.9% and the total capital ratio at 17.8% on a transitional basis. The minimum Pillar I total capital requirement is 8.0% and may be met, in addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1 capital and with up to 2.0% by Tier 2 capital. The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital requirements (Pillar II add-ons). Following the annual Supervisory Review and Evaluation Process (SREP) performed by the ECB in 2018 and based on the final 2018 SREP decision received on 27 March 2019, the Group’s minimum phased-in CET1 capital ratio and Total capital ratio remain unchanged when ignoring the phasing-in of the Capital Conservation Buffer (CCB) and the Other Systemically Important Institution Buffer. The Group’s phased-in CET1 capital ratio requirement is 10.5%, comprising of a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The Group’s Total capital ratio requirement is 14.0%, comprising of a 8.0% Pillar I requirement, a 3.0% Pillar II requirement, the Capital Conservation Buffer of 2.5% and the Other Systemically Important Institution Buffer of 0.5%. The final 2018 SREP decision applies from 1 April 2019. The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer. The Group’s minimum phased-in CET1 capital ratio for 2018 was 9.375%, comprising of a 4.50% Pillar I requirement, a 3.00% Pillar II requirement and the CCB of 1.875%. The ECB had also provided non-public guidance for an additional Pillar II CET1 buffer. The overall Total Capital Ratio Requirement for 2018 was 12.875% comprising of 8.00% Pillar I requirement (of which up to 1.50% could be in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a 3.00% Pillar II requirement (in the form of CET1) and the CCB of 1.875% applicable for 2018. The above minimum ratios apply for both, BOC PCL and the Group. BOC PCL is 100% subsidiary of the Company and its principal activities are the provision of banking, financial services and management and disposal of property predominately acquired in exchange of debt. The capital position of the Group and BOC PCL at 30 June 2019 exceeds both their Pillar I and their Pillar II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time assessment and therefore are subject to change over time. Based on the provisions of the Macroprudential Oversight of Institutions Law of 2015 which came into force on 1 January 2016, the CBC is the designated Authority responsible for setting the macroprudential buffers that derive from the CRD IV. In accordance with the provisions of the above law, the CBC sets, on a quarterly basis, the Countercyclical Capital Buffer (CCyB) level in accordance with the methodology described in this law. The CCyB is effective as from 1 January 2016 and is determined for all the countries in the European Economic Area (EEA) by their local competent authorities ahead of the beginning of each quarter. The CBC has set the level of the CCyB for Cyprus at 0% for the nine months up to September 2019 and the year of 2018. In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically important banks. The Group has been designated as an O-SII and the CBC set the O-SII buffer for the Group at 2.0%. This buffer is being phased-in gradually, having started from 1 January 2019 at 0.5% and increasing by 0.5% every year thereafter, until being fully implemented (2.0%) on 1 January 2022. The Capital Conservation Buffer (CCB) was gradually phased-in at 0.625% in 2016, 1.25% in 2017, 1.875% in 2018 and has been fully implemented on 1 January 2019 at 2.5%.

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5. Capital management (continued)

The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states shall apply the BRRD’s provisions requiring EU credit institutions and certain investment firms to maintain a minimum requirement for own funds and eligible liabilities (MREL), subject to the provisions of the Commission Delegated Regulation (EU) 2016/1450. Although the precise calibration and ultimate designation of the Group’s MREL has not yet been finalised, BOC PCL is monitoring developments in this area very closely. The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated investment firms of the Group comply with the regulatory capital requirements of the CySEC laws and regulations. The capital position of the Group and the BOC PCL under CRD IV/CRR basis (after applying the transitional arrangements) is presented below:

Regulatory capital

Group BOC PCL 30 June

2019 31 December

20185 30 June

2019 31 December

2018 €000 €000 €000 €000

Transitional Common Equity Tier 1 (CET1)6&7

2,080,059 1,864,000 2,093,135 1,861,098

Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000

Tier 2 capital (T2) 191,909 212,000 250,000 250,000

Transitional total regulatory capital7 2,491,968 2,296,000 2,563,135 2,331,098

Risk weighted assets – credit risk8 12,361,768 13,832,589 12,370,997 13,820,385 Risk weighted assets – market risk 61,712 2,182 61,712 -

Risk weighted assets – operational risk 1,538,588 1,538,588 1,411,788 1,411,788

Total risk weighted assets 13,962,068 15,373,359 13,844,497 15,232,173

% % % %

Transitional Common Equity Tier 1 ratio 14.9 12.1 15.1 12.2

Transitional total capital ratio 17.8 14.9 18.5 15.3

Fully loaded

Group BOC PCL 30 June 2019*

31 December 2018**

30 June 2019*

31 December 2018**

€000 €000 €000 €000 Common Equity Tier 1 ratio (%) 13.3 10.1 13.5 10.2 Total capital ratio (%) 16.4 13.2 17.0 13.4

* IFRS 9 fully loaded ** IFRS 9 & Deferred Tax Asset fully loaded During the period ended 30 June 2019, the CET1 was negatively affected by the phasing-in of transitional adjustments, mainly the IFRS 9, and it was positively affected by the profit9 for the period of €110,930 thousand, in line with the prudential consolidation, primarily driven by legislative changes. Moreover on 1 March 2019 the Cyprus Parliament adopted legislative amendments allowing for the conversion of deferred tax assets into deferred tax credits for regulatory purposes, under the CRR. For more details refer to Note 11 of the Consolidated Condensed Interim Financial Statements for the period ended 30 June 2019.

5 As per the Annual Report 2018 and Pillar 3 Disclosures 2018 6 CET1 includes regulatory deductions, primarily comprising intangible assets amounting to €42,906 thousand as at 30 June 2019 (31 December 2018: €43,364 thousand). As at 31 December 2018 CET1 included regulatory deductions comprising deferred tax assets amounting to €163,082 thousand. 7 Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), the deferred tax asset was phasing-in for 5 years, with effect as from the reporting of 31 December 2016, and fully phased-in on 1 January 2019. 8 Includes Credit Valuation Adjustments (CVA). 9 No permission has been requested by the ECB for the inclusion of interim profits in capital regulatory submissions.

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5. Capital management (continued)

The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9 on the capital ratios is phased-in gradually over a five year period. The Group has notified its regulator about its election to adopt the transitional arrangements. The amount added back over the transitional period decreases based on a weighting factor of 95% in 2018, 85% in 2019, 70% in 2020, 50% in 2021 and 25% in 2022. The impact of IFRS 9 is fully absorbed after the five year transitional period. In accordance with the EU Regulation 2017/2395, BOC PCL can choose either a ‘Static’ or a ‘Static and dynamic’ approach. These are defined as follows:

1. A ‘Static’ approach: the transitional adjustment is calculated just once, at the effective date of the

transition to ECL accounting. 2. A ‘Static-dynamic’ approach: allows for recalculation of the transitional adjustment periodically on

Stage 1 and Stage 2 so as to reflect the increase of the ECL provisions within the transition period. The Stage 3 ECL remains static over the transition period as per the impact upon initial recognition.

The Group has elected the static-dynamic approach and it therefore applies paragraph 4 of Article 473(a) of the CRR.

A comparison of the Group’s own funds and capital and leverage ratios with the application of transitional arrangements for IFRS 9 or analogous ECLs, is presented in the table below.

30 June 2019*

31 March 2019*

31 December 2018**

30 September 2018**

30 June 2018**

€000 €000 €000 €000 €000

1 Common Equity Tier 1 (CET1) capital 1,969,129 1,970,129 1,862,739 1,865,988 2,017,756

2

CET1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

1,706,673 1,707,673 1,557,946 1,544,249 1,696,017

3 Tier 1 capital 2,189,129 2,190,129 2,082,739 1,865,988 2,017,756

4

Tier 1 capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

1,926,673 1,927,673 1,777,946 1,544,249 1,696,017

5 Total capital 2,389,755 2,410,870 2,294,717 2,104,979 2,284,535

6

Total capital as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

2,146,888 2,148,414 1,989,924 1,783,240 1,962,796

Risk-weighted assets

7 Total risk-weighted assets 13,962,068 15,390,159 15,371,777 15,712,638 17,193,734

8

Total risk-weighted assets as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

13,676,337 15,091,977 15,035,125 15,353,048 16,832,809

*As per the final capital regulatory submission, excluding interim profits. ** As per the final capital regulatory submission.

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5. Capital management (continued)

30 June 2019*

31 March 2019*

31 December 2018**

30 September 2018**

30 June 2018**

€000 €000 €000 €000 €000

Capital ratios

9 CET1 (as a percentage of risk exposure amount) 14.1% 12.8% 12.1% 11.9% 11.7%

10

CET1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

12.5% 11.3% 10.4% 10.1% 10.1%

11 Tier 1 (as a percentage of risk exposure amount) 15.7% 14.2% 13.5% 11.9% 11.7%

12

Tier 1 (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

14.1% 12.8% 11.8% 10.1% 10.1%

13 Total capital (as a percentage of risk exposure amount)

17.1% 15.7% 14.9% 13.4% 13.3%

14

Total capital (as a percentage of risk exposure amount) as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

15.7% 14.2% 13.2% 11.6% 11.7%

Leverage ratio

15 Leverage ratio total exposure measure 21,873,669 21,731,587 22,051,037 22,072,321 23,715,702

16 Leverage ratio 10.0% 10.1% 9.5% 8.5% 8.5%

17

Leverage ratio as if IFRS 9 or analogous ECLs transitional arrangements had not been applied

8.9% 9.0% 8.0% 6.8% 7.0%

*As per the final capital regulatory submission, excluding interim profits. ** As per the final capital regulatory submission.

The main driver behind the overall decrease in the RWA during the period is the sale of a portfolio of loans (Projects Helix and Velocity). The overall leverage ratio, which is well above the minimum ratio set at 3% by the amended CRR will be effective on 28 June 2021, has increased since 31 December 2018 mainly due to the increase in Tier 1 Capital. The increase in Tier 1 Capital is primarily driven by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits. The leverage ratio total exposure measure has decreased in line with the movements in the Group’s balance sheet assets.

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6. Leverage ratio

According to CRR Article 429, the leverage ratio, expressed as a percentage, is calculated as the capital measure divided by the total exposure measure of the Group. The leverage ratio of the Group is presented below:

30 June 2019

31 December 2018

Transitional basis €000 €000 Capital measure (Tier1) 2,189,129 2,084,000Total exposure measure 21,873,669 22,052,298Leverage ratio (%) 10.01% 9.45% IFRS 9 fully loaded Capital measure (Tier1) 1,926,673 1,745,473Total exposure measure 21,657,529 21,893,785Leverage ratio (%) 8.90% 7.97%

The decrease in the ‘Total exposure measure’ follows the movements in the Group’s balance sheet assets. For the ‘Capital measure’ the increase in Tier1 is primarily driven by the tax legislation amendments relating to the conversion of deferred tax assets into deferred tax credits. The leverage ratio, including the profit (prudential consolidation) of €110,930 thousand for the six month period ended 30 June 2019, is calculated at 10.52% on a transitional basis and 9.41% on IFRS 9 fully loaded basis. 7. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment

Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)

The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2018 were approved by the Board of Directors and submitted to the ECB on 25 April 2019. The Group also undertakes a quarterly review of its ICAAP results (as at the end of June and as at the end of September) considering the latest actual and forecasted information. During the quarterly review, the Group’s risk profile and risk management policies and processes are reviewed and any changes since the annual ICAAP exercise are taken into consideration. The ICAAP process demonstrates that the Group has sufficient capital under both the base case and stress scenarios under the Normative internal perspective. Under the Economic internal perspective there are shortfalls in the adverse scenario, which however can be largely neutralised by the available mitigants. The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO and RC. During the quarterly review, the liquidity risk drivers are assessed and, if needed, the stress test assumptions are amended accordingly. The quarterly review identifies whether the Group has an adequate liquidity buffer to cover the stress outflows. The Group’s ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to the Group are adequate. The ECB, as part of its supervisory role, has been conducting the SREP and onsite inspections on the Group. SREP is a holistic assessment of, amongst other things, the Group’s business model, internal governance and institution-wide control arrangements, risks to capital and adequacy of capital to cover these risks and risks to liquidity and adequacy of liquidity resources to cover these risks. The objective of the SREP is for the ECB to form an up-to-date supervisory view of the Group’s risks and viability and to form the basis for supervisory measures and dialogue with the Group. Additional capital and other requirements could be imposed on the Group as a result of these supervisory processes, including a revision of the level of Pillar II add-ons as the Pillar II add-ons capital requirements are a point-in-time assessment and therefore subject to change over time.

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8. Other Pillar 3 disclosures

8.1 EU CR1-D Ageing of past-due exposures

Gross carrying values

< 30 days >30 days < 60 days

>60 days < 90 days

>90 days < 180 days

>180 days < 1 year > 1 year

30 June 2019 €000 €000 €000 €000 €000 €000 (A) (B) (C) Loans and advances to customers10 738,471 106,193 63,630 146,636 225,324 2,773,900

Loans and advances to customers classified as held for sale10

- - - - - 12,422

Debt securities - - - - - -

Total exposures 738,471 106,193 63,630 146,636 225,324 2,786,322 31 December 2018 Loans and advances to customers10 489,133 101,705 77,744 120,615 217,343 2,946,967

Loans and advances to customers classified as held for sale10

35,878 65,185 41,994 56,411 175,380 2,140,639

Debt securities - - - - - -Total exposures 525,011 166,890 119,738 177,026 392,723 5,087,606 The loans and advances to customers in arrear for more than 90 days (i.e. columns A, B and C in the table above) were reduced by €2.5 billion (44%). The decrease is mainly due to the disposal of the Helix Portfolio. 8.2 Non-performing exposures

The tables below disclose NPEs based on the definitions of the EBA standards. The definition of credit impaired loans (Stage 3) is aligned to the EBA NPEs definition (Section 1 ‘Credit risk’).

Additional details on the definition of NPEs are disclosed in Note 2.19.2 of the Consolidated Financial Statements for 2018. The tables below are presented using figures per the Consolidated Condensed Interim Financial Statements for the six months ended 30 June 2019 and the Consolidated Financial Statements for 2018 including loans and advances to customers at amortised cost classified as held for sale and loans and advances to customers measured at FVPL.

10 Amounts presented are before fair value adjustment on initial recognition. The fair value adjustment on initial recognition relates to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans. This adjustment has decreased the gross balance of loans and advances to customers.

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8. Other Pillar 3 disclosures (continued)

8.2 Non-performing exposures (continued)

EU CR1-E Non-performing and forborne exposures

Gross carrying amount of performing and non-performing exposures Accumulated impairment, accumulated negativefair value and adjustments due to credit risk and

provisions

Collaterals and financial guarantees received

Of which performing

but past due > 30 days and <= 90

days

Of which performing

forborne

Of which non-performing On performing exposures

On non-performing exposures On non-

performing exposures

On forborne

exposures Of which defaulted

Of which impaired

Of which forborne

Of which

forborne

Of which forborne

30 June 2019 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Debt securities 1,721,535 - - - - - - 1,304 - - - - -

Loans and advances

Central banks 5,126,108 - - - - - - - - - - - -

Credit institutions 405,064 - - - - - - 2,023 - - - - -

Loans and advances to customers11 13,081,150 33,685 996,032 4,311,521 4,311,521 4,148,473 2,289,758 167,921 31,715 1,964,227 860,983 2,161,498 2,156,248

Loans and advances to customers classified as held for sale11

12,422 - - 12,422 12,422 12,422 - - - 6,531 - - -

Off-balance-sheet exposures 2,693,153 n/a12 7,039 252,727 252,727 n/a12 4,741 412 - 21,739 - 11,155 6,619

11 Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originated credit impaired loans. 12 Per EBA guidelines no disclosure is required.

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8. Other Pillar 3 disclosures (continued)

8.2 Non-performing exposures (continued)

Gross carrying amount of performing and non-performing exposures Accumulated impairment, accumulated

negative fair value adjustments due to credit risk and provisions

Collaterals and financial guarantees received

Of which performing

but past due > 30 days and <= 90

days

Of which performing

forborne

Of which non-performing On performing exposures

On non-performing exposures On non-

performing exposures

Of which forborne

exposures Of which defaulted

Of which impaired

Of which forborne

Of which

forborne

Of which

forborne

31 December 2018

€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Debt securities 1,366,173 - - - - - - 1,430 - - - - - Loans and advances

Central banks 4,456,768 - - - - - - - - - - - - Credit institutions 473,263 - - - - - - 731 - - - - -

Loans and advances to customers13

13,158,131 47,524 1,103,180 4,768,316 4,768,316 4,607,409 2,534,368 154,267 31,594 2,082,078 821,184 2,456,743 2,455,859

Loans and advances to customers classified as held for sale13

2,851,113 5,888 54,232 2,749,301 2,749,301 2,749,301 1,437,851 50,914 28,285 1,646,091 797,692 991,924 620,995

Off-balance-sheet 2,842,535 n/a14 11,555 326,155 326,155 n/a14 8,774 3,904 - 23,781 - 28,855 10,039

The decrease in non-performing exposures of €0.45 billion is mainly due to restructuring activity, write offs of €0.26 billion, debt for asset swap (€0.14 billion), curing and transfer to performing exposures and repayments (€0.25 billion) and inflows (€0.2 billion).

13 Amounts presented are before fair value adjustment on initial recognition relating to the loans and advances to customers acquired as part of the acquisition of certain operations of Laiki Bank in 2013 and originates credit impaired loans. This adjustment has decreased the gross balance of loans and advances to customers. 14 Per EBA guidelines no disclosure is required.

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8. Other Pillar 3 disclosures (continued)

8.3 Analysis of Counterparty Credit Risk (CCR) exposure by approach

The table below shows the analysis of CCR per approach. The approach followed by the Group is the mark to market method for derivatives and the financial collateral comprehensive method for securities financing transactions (SFTs). All rows and columns that are not relevant to the Group’s activities or methods applied are not included.

Replacement cost/current market value

Potential future credit

exposure

Exposure at Default

(EAD) post Credit Risk Mitigation

(CRM)

RWA

30 June 2019 €000 €000 €000 €000 1 Mark to market 1,857 11,236 1,299 731

9 Financial collateral comprehensive method (for SFTs)

24,300 12,150

11 Total 12,881

31 December 2018 1 Mark to market 13,289 13,975 2,484 1,195

9 Financial collateral comprehensive method (for SFTs)

25,601 12,801

11 Total 13,996 The decrease in the RWA in derivative transactions under the mark-to-market method and SFT transactions under the financial collateral comprehensive method stems an overall decrease in exposure values. Exposures to Qualifying Central Counterparties (QCCPs)

The Group does not hold any initial margins or prefunded default fund contributions. The Group started clearing derivatives through a CCP in 2018. The Exposure at Default post CRM and RWA of these transactions are nil for both 30 June 2019 and 31 December 2018.

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8. Other Pillar 3 disclosures (continued)

8.4 Regulatory CVA charge for capital calculation

The table below provides a summary of the exposure subject to CVA regulatory calculations. All rows that are not relevant to the Group’s activities or methods applied are not included. EU CCR2 – CVA capital charge

30 June 2019 31 December 2018 Exposure

value RWA Exposure value RWA

€000 €000 €000 €000

4 All portfolios subject to the standardised method 25,599 6,313 28,086 8,863

5 Total subject to the CVA capital charge 25,599 6,313 28,086 8,863 The decrease in the exposure value is the result of a decrease in both derivative transactions (30 June 2019: €1,299 thousand, 31 December 2018: €2,484 thousand) and SFTs (30 June 2019: €24,300 thousand, 31 December 2018: €25,601 thousand). 8.5 EU CCR3 - Standardised approach – CCR exposures by regulatory portfolio and risk

The table below provides a breakdown of all CCR exposures, calculated under the Standardised Approach, by portfolio (type of counterparties) and by risk weight (business attributed according to the Standardised Approach). All rows and columns that are not relevant to the Group’s activities are not included.

Exposure classes Risk Weights

Total Of which unrated15 20% 50% 75% 100%

30 June 2019 €000 €000 €000 €000 €000 €000

6 Institutions 465 24,300 - - 24,765 -

7 Corporates - - - 819 819 819

8 Retail - - 15 - 15 15

11 Total 465 24,300 15 819 25,599 834

31 December 2018

6 Institutions 525 27,168 - - 27,693 -

7 Corporates - - - 389 389 389

8 Retail - - 4 - 4 4

11 Total 525 27,168 4 389 28,086 393

The allocation of exposure values among exposure classes remains unchanged.

15 Includes all exposures for which an issue/issuer or country rating (where applicable) is not available or they follow a uniform regulatory treatment under the standardised approach of the CRR.

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8. Other Pillar 3 disclosures (continued)

8.6 EU CCR5-A Impact of netting and collateral held on exposure values

The net credit exposure of Group derivative contracts, after considering both the benefits from legally enforceable netting agreements and collateral arrangements, is presented in the table below. Collateral received through the CSA agreements from counterparties as at 30 June 2019 was €1,340 thousand (31 December 2018: €12,220 thousand).

Gross positive fair value or net

carrying amount

Netting benefits

Netted current credit

exposure

Collateral held

Net credit exposure

30 June 2019 €000 €000 €000 €000 €000 Derivatives 13,632 11,777 1,855 1,340 515SFTs 24,300 - 24,300 - 24,300Cross-product netting - - - - -Total 37,932 11,777 26,155 1,340 24,815

31 December 2018 Derivatives 24,734 11,445 13,289 12,220 1,069SFTs 25,601 - 25,601 - 25,601Cross-product netting - - - - -Total 50,335 11,445 38,890 12,220 26,670

8.7 EU-CCR5-B Composition of collateral for exposures to CCR

A breakdown of all types of collateral posted or received by banks to support or reduce CCR exposures, is presented below:

30 June 2019

Collateral used in derivative transactions Collateral used in SFTs

Fair value of collateral received

Fair value of posted collateral

Fair value of

collateral received

Fair value of posted collateral Segregated Unsegregated Segregated Unsegregated

€000 €000 €000 €000 €000 €000 Cash - 1,340 21,227 30,866 - 12,361Total - 1,340 21,227 30,866 - 12,361 31 December 2018

Cash 12,020 200 - 27,947 - 14,684Total 12,020 200 - 27,947 - 14,684

Lower fair values of the outstanding derivative transactions since last reporting date, translate into higher posted amount in the case of derivatives.

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8. Other Pillar 3 disclosures (continued)

8.8 EU CR1-A Credit quality of exposures by exposure class and instrument

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by exposure class and it has been completed in accordance with the regulatory requirements. Column (c) represents the value adjustment used in the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current and the previous year calculated at exposure class level. Column (c) represents the IFRS 9 transitional specific credit risk adjustment values, calculated under article 473(a) of the CRR, which results in decreased provisions used for RWA purposes compared to the provisions reported in the consolidated balance sheet of the Group. The amounts included in column (a) represent all defaulted exposures in accordance with Article 178 of the CRR. Row ‘Exposures in default’ is an informative row which is not included in the rows ‘Total standardised approach’ and ‘Total’. Column (a) summarises the defaulted exposures that have been reported in exposure class ‘Exposures in default’ according to Article 112(j) of the CRR and it includes the defaulted exposures in all other exposure classes except for ‘Items associated with particularly high risk’ and ‘Equity Exposures’ which is included in row ‘Other’. Materiality applied: All exposure classes that do not exceed 1% of total net exposures have been included in ‘Other’.

a b c d e f g

Gross carrying values of Specific credit risk

adjustment

General credit risk

adjustment

Accumulated write-offs

Credit risk adjustment charges of the period

Net values

Defaulted exposures

Non-defaulted exposures

(a+b-c-d)

30 June 2019 €000 €000 €000 €000 €000 €000 €000 Central governments or central banks - 6,440,965 1,107 - - (181) 6,439,858

Institutions 93,996 702,149 95,772 - 93,988 1,652 700,373

Corporates 2,166,040 4,454,979 1,570,171 - 958,027 (2,929,916) 5,050,848

Of which: SMEs 1,070,590 2,761,463 775,525 - 438,084 (2,573,635) 3,056,528

Retail 2,441,031 2,659,331 1,782,890 - 934,768 (179,464) 3,317,472

Of which: SMEs 603,807 768,228 443,289 - 236,954 (50,708) 928,746

Secured by mortgages on immovable property

1,231,676 3,070,797 166,475 - 86,827 (35,449) 4,135,998

Of which: SMEs 216,369 695,957 32,959 - 15,815 (26,415) 879,367

Exposures in default 5,932,744 - 3,468,937 - - (3,127,554) 2,463,807

Items associated with particularly high risk 768,618 932,188 506,068 - 334,736 (1,523,980) 1,194,738

Other exposures - 2,243,608 9,767 - - 9,709 2,233,841

Other 49 696,303 2,716 - 567 (2,750) 693,636

Total standardised approach 6,701,410 21,200,320 4,134,966 - 2,408,913 (4,660,379) 23,766,764

Of which: Loans 6,473,633 16,278,980 4,097,958 - 2,408,913 (4,671,433) 18,654,655

Of which: Debt securities - 1,640,141 1,127 - - (169) 1,639,014

Of which: Off-balance sheet exposures 227,729 900,075 26,115 - - 1,512 1,101,689

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8. Other Pillar 3 disclosures (continued)

8.8 EU CR1-A Credit quality of exposures by exposure class and instrument (continued)

a b c d e f g

Gross carrying values of Specific credit risk

adjustment

General credit risk

adjustment

Accumulated write-offs

Credit risk adjustment charges of the year

Net values

Defaulted exposures

Non-defaulted exposures

(a+b-c-d)

31 December 2018 €000 €000 €000 €000 €000 €000 €000

Central governments or central banks - 5,412,797 1,288 - - 1,287 5,411,509

Institutions 93,631 635,503 94,120 - 93,599 (53,145) 635,014

Corporates 5,969,183 4,254,493 4,500,087 - 2,865,717 (151,115) 5,723,589

Of which: SMEs 4,368,924 2,498,139 3,349,160 - 2,145,333 (97,832) 3,517,903

Retail 2,650,774 2,584,409 1,962,354 - 1,063,717 25,829 3,272,829

Of which: SMEs 654,062 773,422 493,997 - 258,433 (19,925) 933,487 Secured by mortgages on immovable property 1,431,256 3,070,309 201,924 - 97,273 43,359 4,299,641

Of which: SMEs 378,878 654,415 59,374 - 28,304 2,570 973,919

Exposures in default 10,147,231 - 6,596,491 - - 14,976 3,550,740 Items associated with particularly high risk 2,798,700 913,564 2,030,048 - 1,365,411 70,203 1,682,216

Other exposures - 2,403,897 58 - - 58 2,403,839

Other 2,554 622,587 5,466 - 2,772 2,307 619,675

Total Standardised Approach 12,946,098 19,897,559 8,795,345 - 5,488,489 (61,217) 24,048,312

Of which: Loans 12,653,124 15,037,275 8,769,391 - 5,488,489 (38,895) 18,921,008

Of which: Debt securities - 1,338,418 1,296 - - 1,296 1,337,122

Of which: Off - balance-sheet exposures 292,807 887,870 24,603 - - (23,673) 1,156,074

The material decrease in the Gross carrying values of Defaulted exposures results mainly from the sale of projects Helix and Velocity, the decrease in the Non-defaulted exposures in exposure class “Other Exposures” is the result of the disposal of properties held for sale from debt-for-asset swaps relating to the portfolio of loans in project Helix; and the increase in the exposure class in “Central governments or central banks”. Respectively “Specific credit risk adjustments” and “Accumulated write-offs” decreased. The decrease in the Defaulted exposures was strengthened by the on-going deleveraging actions in the form of customer loan restructurings, increased provisioning and debt-for-asset swaps. On the other hand, new lending and curing resulted in an increase in non-defaulted exposures, mainly in “Corporates” and “Retail” exposure classes.

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8. Other Pillar 3 disclosures (continued)

8.9 EU CR1-B Credit quality of exposures by industry of counterparty types

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by industry and it has been completed in accordance to the regulatory requirements. Column (c) represents the value adjustment used in for the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current reporting period and the 31 December 2018 balances calculated at exposure class level. Column (c) represents the IFRS 9 transitional specific credit risk adjustment values, calculated under article 473(a) of the CRR, which results in decreased provisions used for RWA purposes compared to the provisions reported in the consolidated balance sheet of the Group. Industry ‘Other services’ includes exposures to Private individuals, Activities of extraterritorial organizations and bodies, Other services activities and Financial and Insurance activities. Materiality applied: All industry sectors that do not exceed 1% of total net exposures have been included in row ‘Other’.

a b c d e f g

Gross carrying values of Specific risk adjustment

General credit risk

adjustment

Accumulated write-offs

Credit risk adjustment charges of the period

Net values

Defaulted exposures

Non-defaulted exposures (a+b-c-d)

30 June 2019 €000 €000 €000 €000 €000 €000 €000

Manufacturing 252,227 486,154 161,818 - 88,128 (250,935) 576,563

Construction 696,507 1,048,482 370,569 - 200,087 (1,590,141) 1,374,420

Wholesale and retail trade 779,282 1,535,787 508,443 - 222,907 (540,677) 1,806,626

Transport and storage 85,884 318,372 69,881 - 47,932 (71,506) 334,375

Accommo-dation and food service activities

239,135 1,111,112 177,656 - 121,971 (372,489) 1,172,591

Real estate activities 505,847 1,878,664 313,947 - 220,193 (554,130) 2,070,564

Professional, scientific and technical activities

280,181 509,725 200,920 - 137,678 (299,180) 588,986

Administrative and supportive activities

163,917 188,014 105,739 - 54,223 (46,859) 246,192

Public administra-tion and defence, compulsory social security

6 7,064,045 3,791 - 535 (3,147) 7,060,260

Other services 3,415,618 6,417,266 2,066,911 - 1,239,244 (735,590) 7,765,973

Other 282,806 642,699 155,291 - 76,015 (195,725) 770,214

Total 6,701,410 21,200,320 4,134,966 - 2,408,913 (4,660,379) 23,766,764

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8. PILLAR 3 Disclosures (continued)

8.9 EU CR1-B Credit quality of exposures by industry of counterparty types (continued)

a b c d e f g

Gross carrying values of Specific risk adjustment

General credit risk

adjustment

Accumulated write-offs

Credit risk adjustment charges of the year

Net values

Defaulted exposures

Non-defaulted exposures

(a+b-c-d)

31 December 2018 €000 €000 €000 €000 €000 €000 €000

Manufacturing 587,673 490,080 412,753 - 234,181 29,404 665,000

Construction 2,803,579 1,096,770 1,960,710 - 1,305,120 42,296 1,939,639

Wholesale and retail trade 1,550,969 1,538,151 1,049,120 - 554,667 20,329 2,040,000

Transport and storage 169,272 298,382 141,387 - 96,431 5,799 326,267 Accommodation and food service activities 770,183 1,072,559 550,145 - 394,936 5,972 1,292,597

Real estate activities 1,305,079 1,685,534 868,077 - 494,422 (141,954) 2,122,536 Professional, scientific and technical activities 635,521 468,806 500,100 - 367,233 116,239 604,227

Administrative and support service activities 218,513 185,885 152,598 - 84,806 81,512 251,800

Public administration and defence, compulsory social security

3,177 5,649,157 6,938 - 2,973 3,863 5,645,396

Other services 4,361,742 6,778,465 2,802,501 - 1,778,821 (142,339) 8,337,706

Other 540,390 633,770 351,016 - 174,899 (82,338) 823,144

Total 12,946,098 19,897,559 8,795,345 - 5,488,489 (61,217) 24,048,312

The sale of projects Helix and Velocity resulted in a material decrease of exposures from “Defaulted exposures” across all industry sectors. Their “Specific risk adjustments” and “Accumulated write-offs” decreased respectively. The decrease in the Defaulted exposures was strengthened by the on-going deleveraging actions in the form of customer loan restructurings, increased provisioning and debt-for-asset swaps. The increase in the “Non-defaulted” Gross carrying values in “Public administration and defence, compulsory social security” relates mainly to the proceeds from the sale of projects Helix and Velocity.

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8. Other Pillar 3 disclosures (continued)

8.10 EU CR1-C Credit quality of exposures by geography

The below table analyses the on-balance sheet and off-balance sheet exposures by credit quality and by geography and it has been completed in accordance to the regulatory requirements. Column (c) represents the value adjustment used in the calculation of the RWA, while column (e) is a subset of column (c) and represents the partial and total amount of principal and past-due interest of any on-balance sheet instrument that is derecognised because the institution has no reasonable expectations of recovering the contractual cash-flows. Column (f) includes changes in column (c) between the current reporting period and the 31 December 2018 balances calculated at exposure class level. Column (c) represents the IFRS 9 transitional specific credit risk adjustment values, calculated under article 473(a) of the CRR, which results in decreased provisions used for RWA purposes compared to the provisions reported in the consolidated balance sheet of the Group. The country or geographical area in which the exposure is classified is driven by the country of residence/incorporation of the counterparty. The materiality of geographical areas has been determined using the following threshold: All EU countries that do not exceed 1% of total net exposures have been included in ‘Other countries’ and all non-EU countries that do not exceed 1% of total net exposures have been included in ‘Other geographical areas’. There are not non-EU countries that exceed the 1% threshold. ‘Supranational’ exposures are included in ‘Other geographical areas’. The sale of projects Helix and Velocity was the main driver in the material changes in the amounts in country “Cyprus” and “Other geographical areas” which includes balances held with the ECB in which part of the proceeds were placed. There is an increase in the Gross carrying value of “Non-defaulted exposures” and its corresponding “Net Values” in country “Greece” from new lending to counterparties in exposure class “Corporates”. Finally, an increase is observed in the Gross carrying value of “Non-defaulted exposures” and its corresponding “Net Values” in country “France” from increased investments in bonds issued by French credit institutions.

a b c d e f g

Gross carrying value of Specific credit risk

adjustment

General credit risk

adjustment

Accumulated write-offs

Credit risk adjustment charges of the period

Net values

Defaulted exposures

Non-defaulted exposures (a+b-c-d)

30 June 2019 €000 €000 €000 €000 €000 €000 €000

EU Countries 6,432,873 15,476,075 3,957,564 - 2,337,092 (4,646,865) 17,951,384

Cyprus 5,792,334 13,853,989 3,448,026 - 1,945,039 (4,550,882) 16,198,297 United Kingdom 306,801 275,633 212,527 - 156,650 (13,096) 369,907

France 4,286 360,979 173 - 24 106 365,092

Greece 131,280 405,518 124,483 - 100,997 (14,994) 412,315 Other countries 198,172 579,956 172,355 - 134,382 (67,999) 605,773

Other geographical areas

268,537 5,724,245 177,402 - 71,821 (13,514) 5,815,380

Total 6,701,410 21,200,320 4,134,966 - 2,408,913 (4,660,379) 23,766,764

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8. Other Pillar 3 disclosures (continued)

8.10 EU CR1-C Credit quality of exposures by geography (continued)

a b c d e f g

Gross carrying value of Specific credit risk

adjustment

General credit risk

adjustment

Accumulated write-offs

Credit risk adjustment charges of the year

Net values

Defaulted exposures

Non-defaulted exposures

(a+b-c-d)

31 December 2018 €000 €000 €000 €000 €000 €000 €000

EU Countries 12,651,108 14,796,225 8,604,429 - 5,411,507 14,155 18,842,904

Cyprus 11,887,096 13,439,008 7,998,908 - 4,995,187 130,334 17,327,196

United Kingdom 325,675 296,789 225,623 - 160,337 (26,706) 396,841

France 100 309,056 67 - 57 (635) 309,089

Greece 153,257 247,418 139,477 - 101,867 (29,650) 261,198

Other countries 284,980 503,954 240,354 - 154,059 (59,188) 548,580

Other geographical areas 294,990 5,101,334 190,916 - 76,982 (75,372) 5,205,408

Total 12,946,098 19,897,559 8,795,345 - 5,488,489 (61,217) 24,048,312

8.11 EU CR2-B Changes in the stock of defaulted and impaired loans and debt securities

Defaulted exposures are exposures that are defaulted in accordance with Article 178 of the CRR.

Contractual value defaulted exposures

30 June 2019

31 December 2018

€000 €000

Opening balance 12,945,931 12,360,502

Loans and debt securities that have defaulted or impaired since the last reporting period 148,312 1,620,193

Returned to non-defaulted status (240,702) (231,938)

Amounts written off (241,896) (954,242)

Other changes (5,910,283) 151,416

Closing balance 6,701,362 12,945,931

The gross contractual value relates to the contractual balances before any impairments made via an allowance or via a direct reduction in the carrying amount according to the applicable accounting framework. The decrease in the gross contractual value of defaulted exposures is driven at its majority by the sale of projects Helix and Velocity which is reflected in line “Other changes”. “Other changes” include to a lesser extent to normal movements in the balances such as accrued interest, repayments and withdrawals. Additionally, the inflows “Loans and debt securities that have defaulted or impaired since the last reporting period” have been restricted while the outflows “Returned to non-defaulted status” have comparatively increased.

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8. Other Pillar 3 disclosures (continued)

8.12 EU CR2-A Changes in stock of general and specific credit risks adjustment

The changes in the accumulated specific and general adjustment are as follows:

30 June 2019 31 December 2018 Accumulated

specific credit risk adjustment

Accumulated general credit

risk adjustment

Accumulated specific credit

risk adjustment

Accumulated general credit

risk adjustment €000 €000 €000 €000

1 January 2019/2018* 3,462,005 - 3,452,850 -Change in the basis of calculation of gross carrying value (IFRS 9 Grossing up adjustment)

- - 1,689,497 -

Impact of adopting IFRS 9 at 1 January 2018 - - 319,102 -

Restated balance at 1 January 2019/2018 3,462,005 - 5,461,449 -

Increases due to amounts set aside for estimated loan losses during the year 350,486 - 1,494,385 -

Decreases due to amounts reversed for estimated loan losses during the year (221,062) - (981,429) -

Write offs (246,661) - (2,666,113) - Contractual interest (provided) not recognized in the income statement 83,903 - - -

Foreign exchange and other adjustments 7,233 - (6,506) - Business combinations, including acquisitions and disposals of subsidiaries - - (3,594) -

Interest accrued on impaired loans and advances - - 164,437 -

Discontinued operations - - (624) -

Disposal of Helix and Velocity portfolios (1,602,825) - - -

30 June 2019/31 December 2018 1,833,079 - 3,462,005 -

Recoveries on credit risk adjustments recorded directly to the income statement 14,739 - 140,735 -

Specific credit risk adjustments directly recorded to the income statement 240 - 37,756 -

*Reclassification of an amount €30,926 thousand from loans and advances to customers relates to loan loss provisions under IAS 39 as at 31 December 2017 on loans and advances to customers which failed the SPPI criteria and, as a result, have been classified at FVPL. All recoveries on credit risk adjustments and specific credit risk adjustments are made via the accumulated allowance account. The above table includes credit losses relating to loans and advances to customers classified as held for sale but does not include the fair value adjustments on initial recognition of loans acquired from Laiki Bank and provisions for impairment on financial guarantees and commitments amounting to €22,151 thousand (December 2018: €27,685 thousand).

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8. Other Pillar 3 disclosures (continued)

8.13.1 EU CR4 Standardised Approach – Credit risk exposure and Credit Risk Mitigation (CRM) effects

The table below illustrates the effect of all CRM techniques applied in accordance with the CRR including the financial collateral comprehensive method.

RWA density is a synthetic metric on the riskiness of each portfolio which is calculated by dividing the RWAs by the Exposure post CCF and CRM (the sum of columns (c) and (d)). All rows and columns that are not relevant to the Group’s activities are not included in the table below. a b c d e f 30 June 2019 Exposures before CCF

and CRM Exposures post CCF and

CRM RWAs and RWA density

Exposure classes

On-balance-

sheet amount

Off-balance-

sheet amount

On-balance-

sheet amount

Off-balance-

sheet amount

RWAs RWA density

€000 €000 €000 €000 €000 %

1 Central governments orcentral banks 6,439,787 71 6,476,666 - 382,600 5.9%

2 Regional government orlocal authorities 124,623 8,790 69,661 101 1,444 2.1%

3 Public sector entities 29,636 599 29,608 38 8 0.0%

4 Multilateral development banks 111,014 - 158,686 - - 0.0%

5 International organisations 107,809 - 107,809 - - 0.0%

6 Institutions 637,396 62,971 639,248 29,648 186,584 27.9%

7 Corporates 3,238,398 1,145,472 3,073,270 220,278 3,264,470 99.1%

8 Retail 1,655,343 958,824 1,391,192 68,614 1,038,600 71.1%

9 Secured by mortgages on immovable property 2,940,515 101,966 2,839,281 49,456 1,082,376 37.5%

10 Exposures in default 2,286,286 177,521 2,262,617 39,193 2,550,272 110.8%

11 Higher-risk categories 954,588 240,150 843,745 46,669 1,335,621 150.0%

12 Covered bonds 169,557 - 169,557 - 16,956 10.0%

14 Collective investment undertakings (CIUs) 536 - 536 - 302 56.3%

15 Equity 141,071 - 141,071 - 330,203 234.1%

16 Other items 2,233,841 - 2,233,841 - 2,100,634 94.0%

17 Total 21,070,400 2,696,364 20,436,788 453,997 12,290,070 58.8%

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8. Other Pillar 3 disclosures (continued)

8.13.1 EU CR4 Standardised Approach – Credit risk exposure and Credit Risk Mitigation (CRM) effects (continued)

31 December 2018 Exposures before CCF and CRM

Exposures post CCF and CRM RWAs and RWA density

a b c d e f

Exposures before CCF and CRM Exposures post CCF and CRM RWAs and RWA density

Exposure classes

On-balance sheet

amount

Off-balance sheet amount

On-balance sheet amount

Off-balance sheet amount RWAs RWA

density

€000 €000 €000 €000 €000 % Central governments or central banks 5,411,449 60 5,449,804 - 333,243 6.1%

Regional government or local authorities 112,619 12,761 57,294 82 701 1.2%

Public sector entities 37,441 596 37,417 34 7 0.0%

Multilateral development banks 95,974 - 142,654 - - 0.0%

International organisations 107,988 - 107,988 - - 0.0%

Institutions 564,793 70,189 565,945 31,388 177,904 29.8%

Corporates 2,959,947 1,205,412 2,823,286 230,929 3,016,593 98.8%

Retail 1,575,155 965,208 1,327,376 61,529 987,312 71.1%

Secured by mortgages on immovable property 2,948,717 90,914 2,838,939 42,797 1,077,148 37.4%

Exposures in default 3,301,085 249,655 3,272,657 63,732 3,695,591 110.8%

Higher-risk categories 1,432,856 249,360 1,299,798 55,096 2,032,341 150.0%

Covered bonds 141,529 - 141,529 - 14,153 10.0%

Collective investment undertakings (CIUs) 172 - 172 - 172 100.0%

Equity 110,593 - 110,593 - 254,220 229.9%

Other items 2,403,839 - 2,403,839 - 2,220,345 92.4%

Total 21,204,157 2,844,155 20,579,291 485,587 13,809,730 65.6%

The main driver behind the overall decrease in the RWA density is the sale of projects Helix and Velocity whereby the exposures in exposure classes “Exposures in default”, “Higher-risk categories” and “Other items” which carry high risk weights decreased and respectively the exposures in exposure class “Central governments or central banks” which carry a 0% risk weight increased. The increased exposures in “Central governments or central banks” carrying a 0% risk weight, decreased the RWA density of this exposure class. Additionally, the slight decrease in the RWA density at individual class level observed in “Institutions” derives from improved ratings and decreases in residual maturities, and in “Collective investment undertakings (CIUs)” derives from improved ratings. The small increase in the RWA density at individual class level observed in “Equity” derives from increased amounts in investments in FSE risk weighted at 250%, in “Corporates” from new lending to Large Corporates which do not benefit from the SME supporting factor under article 501 of the CRR. The RWA intensity for each exposure class is further explained in table 8.14 below.

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8. Other Pillar 3 disclosures (continued)

8.13.2 EU CR3 Credit risk mitigation techniques overview

The table below presents the exposure value excluding loans and advances classified as held for sale covered by financial collateral, other collateral, guarantees and credit derivatives.

30 June 2019

Exposures unsecured –

carrying amount

Exposures secured - carrying amount

Exposures secured by collateral

Exposures secured by financial

guarantees

Exposures secured by

credit derivatives

€000 €000 €000 €000 €000

Total loans 792,853 10,156,149 9,173,543 63,042 -

Total debt securities 1,550,674 169,557 169,557 - -

Total exposures 2,343,527 10,325,706 9,343,100 63,042 -

Of which defaulted 125,865 2,230,147 2,025,074 35,742 -

31 December 2018

Total loans 679,003 10,242,783 9,096,436 63,778 -

Total debt securities 1,223,214 141,529 141,529 - -

Total exposures 1,902,217 10,384,312 9,237,965 63,778 -

Of which defaulted 123,190 2,564,951 2,260,245 30,105 -

Exposures in unsecured debt securities have increased from December 2018 to June 2019 (from a total €1,223 million as at 31December 2018 to a total €1,551 million as at 30 June 2019). The increase of €328 million during the six months ended 30 June 2019 is mainly the net result of various purchases of bonds issued by credit institutions and supranational, government and regional government bonds. Additional purchases of covered bonds also took place, leading to an increase in the exposure in secured debt securities from a total of €142 million as at 31 December 2018 to a total of €170 million as at 30 June 2019. Defaulted exposures have decreased significantly due to repayments, debt for asset swaps and write offs.

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8. Other Pillar 3 disclosures (continued)

8.14 EU CR5 Standardised Approach

The table below presents the breakdown of exposures under the standardised approach by asset class and risk weight (corresponding to the riskiness attributed to the exposure according to the standardised approach). The exposures are disclosed post conversion factors and post risk mitigation techniques. All rows and columns that are not relevant to the Group’s activities are not included in the table below.

30 June 2019 Risk weight Total Of which

unrated16

0% 2% 10% 20% 35% 50% 75% 100% 150% 250% Other Deducted

Exposure classes €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Central governments or central banks 6,074,491 - 11,284 11,384 - - - 379,091 - - 416 - 6,476,666 379,091

Regional government or local authorities 62,543 - - 7,219 - - - - - - - - 69,762 -

Public sector entities 29,607 - - 39 - - - - - - - - 29,646 -

Multilateral development banks 158,686 - - - - - - - - - - - 158,686 111,014

International organisations 107,809 - - - - - - - - - - - 107,809 107,809

Institutions 1,420 - - 598,760 - 56,826 - 8,574 28,081 - - - 693,661 -

Corporates - - - - - - - 3,272,415 21,952 - - - 3,294,367 3,248,900

Retail - - - - - - 1,459,821 - - - - - 1,459,821 1,459,821

Secured by mortgages on immovable property - - - - 2,218,347 670,390 - - - - - - 2,888,737 2,888,737

Exposures in default - - - - - - - 1,804,885 496,925 - - - 2,301,810 2,301,810

Higher-risk categories - - - - - - - - 890,414 - - - 890,414 890,414

Covered bonds - - 169,557 - - - - - - - - - 169,557 -

Collective investment undertakings (CIUs) - - - 293 - - - 243 - - - - 536 243

Equity - - - - - - - 14,983 - 126,088 - - 141,071 141,071

Other items 135,772 - - 41,473 - - - 2,038,724 - - 17,872 42,906 2,276,747 2,276,747

Total 6,570,328 - 180,841 659,168 2,218,347 727,216 1,459,821 7,518,915 1,437,372 126,088 18,288 42,906 20,959,290 13,805,657

16 Includes all exposures for which an issue/issuer or country rating is not available or they follow uniform regulatory treatment.

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8. Other Pillar 3 disclosures (continued)

8.14 EU CR5 Standardised Approach (continued)

31 December 2018

Risk weight Total Of which unrated17

0% 4% 10% 20% 35% 50% 75% 100% 150% 250% Deducted

Exposure classes €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 Central governments or central banks

5,304,909 11,560 232 - - - - - - 133,103 - 5,449,804 931

Regional governmentor local authorities 53,873 - - 3,503 - - - - - - - 57,376 -

Public sector entities 37,416 - - 35 - - - - - - - 37,451 -

Multilateral development banks 142,654 - - - - - - - - - - 142,654 95,974

International organisations 107,988 - - - - - - - - - - 107,988 107,988

Institutions 1,435 - - 523,293 - 59,590 - 7,830 32,878 - - 625,026 -

Corporates - - - - - - - 3,054,089 515 - - 3,054,604 3,054,602

Retail - - - - - - 1,388,908 - - - - 1,388,908 1,388,908 Secured by mortgages on immovable property

- - - - 2,235,078 646,658 - - - - - 2,881,736 2,881,736

Exposures in default - - - - - - - 2,617,988 718,401 - - 3,336,389 3,336,388

Higher-risk categories - - - - - - - - 1,354,894 - - 1,354,894 1,354,894

Covered bonds - - 141,529 - - - - - - - - 141,529 - Collective investment undertakings (CIUs)

- - - - - - - 172 - - - 172 172

Equity - - - - - - - 14,842 - 95,751 - 110,593 110,592

Other items 153,715 - - 37,224 - - - 2,212,900 - - 212,033 2,615,872 2,615,872

Total 5,801,990 11,560 141,761 564,055 2,235,078 706,248 1,388,908 7,907,821 2,106,688 228,854 212,033 21,304,996 14,948,057

The sale of projects Helix and Velocity resulted in substantial decrease in exposure values in exposure classes “Exposures in default”, “Higher-risk categories” and “Other items” in risk weights 100% and 150% and correspondingly increased the exposure values of “Central governments or central banks” at 0% risk weight. The law amendment of the Cyprus Parliament legislative on 1 March 2019 allowing for the conversion of deferred tax assets into deferred tax credits for regulatory capital purposes resulted in the amounts that previously carried a risk weight of 250% or were deducted from capital to be risk weighted at 100%. The impact of this amendment in the allocation of exposures is observed in exposure class “Central governments or central banks” in risk weights 100% and 250% and in exposure class “Other items” in column “Deducted”. The increase in exposure values in exposure classes “Institutions” and “Covered bonds” in risk weights 20% and 10% respectively is in line with increased investments in debt securities issued by credit institutions. The increased exposures in exposure classes “Corporates” and “Retail” represents new lending and curing during the period.

17 Includes all exposures for which an issue/issuer or country rating is not available or they follow uniform regulatory treatment.

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8. Other Pillar 3 disclosures (continued)

8.14 EU CR5 Standardised Approach (continued)

The increase in “Equity” in risk weight 250% relates to increased amounts in investments in FSE risk weighted at 250%. The amount observed in “Other items” under “Other” risk weights represents the net book value of properties held for sale which have been on boarded after a failed auction and carry a risk weight of 300% whereas previously were included in the 100% risk weight. Lastly, the implementation of article 114 paragraph 6(a) resulted in exposures to central governments or central banks previously risk weighted at 10% to be risk weighted at 25%. 8.15 Securitisation positions

Securitisation results from a transaction or scheme whereby the credit risk associated with an exposure or pool of exposures is tranched having both of the following characteristics: (a) payments in the transaction or scheme are dependent upon the performance of the exposure or pool of

exposures; and (b) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or

scheme.

“Tranche” means a contractually established segment of the credit risk associated with an exposure or a number of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in each other such segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments. BOC PCL being the originator (directly involved in the original agreement which created the obligations or potential obligations giving rise to the securitised exposures) in the Project Helix traditional securitisation transaction invested in the senior tranche of the debt securities issued whereby traditional securitisation means the economic transfer of the exposures being securitised (transfer of ownership). BOC PCL has applied the look-through approach in calculating the RWA and capital requirements for the position held in the securitisation under article 261 of the EU Regulation 2017/2401 amending the CRR.

Traditional

30 June 2019 Exposure Value RWA Capital

Requirements Bank acts as originator €000 €000 €000 Loans to corporates or SMEs (treated as corporates) 45,033 52,504 4,200

Total 45,033 52,504 4,200

BOC PCL does not hold any re-securitisation positions.

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DEFINITIONS Allowance for expected credit losses on loans and advances to customers

Allowance for expected credit losses to cover credit risk on loans and advances to customers comprises: (i) allowance for ECL on loans and advances to customers, (ii) the fair value adjustment on initial recognition of loans and advances to customers, (iii) allowance for expected credit losses for off-balance sheet exposures (contingent liabilities and commitments) disclosed on the balance sheet within other liabilities and (iv) accumulated fair value adjustments on loans and advances to customers classified at FVPL.

Cost to income ratio Cost to income ratio is calculated as the total staff costs (on an underlying basis

as reconciled in the table further below), special levy on deposits on credit institutions in Cyprus and other operating expenses (excluding advisory and other restructuring costs) (on an underlying basis as reconciled in the table further below) and (reversals of provisions)/provisions for litigation and regulatory matters divided by total income on the underlying basis (as defined below).

Gross loans and advances to customers

Comprises: (i) gross loans and advances to customers measured at amortised cost before fair value adjustment on initial recognition (including loans and advances to customers classified as non-current assets held for sale) and (ii) loans and advances to customers measured at FVPL, including accumulated fair value adjustments.

Interest earning assets

Interest earning assets is the sum of: cash and balances with central banks, loans and advances to banks, net loans and advances to customers (including loans and advances to customers classified as non-current assets held for sale) and investments (excluding equities and mutual funds).

Leverage ratio The leverage ratio is calculated as the tangible total equity (including Other

equity instruments) to total assets as presented on the balance sheet. Loan credit losses Loan credit losses comprises: (i) credit losses to cover credit risk on loans and

advances to customers, (ii) net gains on derecognition of financial assets measured at amortised cost and (iii) net gains on loans and advances to customers at FVPL.

Loan credit losses charge (cost of risk)

Loan credit losses charge (cost of risk) (year to date) is calculated as the loan credit losses (as defined) divided by the average gross loans and advances to customers (as defined). The average balance is calculated as the average of the opening and closing balance.

Net fee and commission income over total income

Fee and commission income less fee and commission expense divided by total income (as defined).

Net Interest Margin Net interest margin is calculated as the net interest income (on an underlying

basis) (annualised based on year to date days) divided by the quarterly average interest earning assets. Average interest earning assets exclude interest earning assets of any discontinued operations at each quarter end, if applicable.

Net loans and advances to customers

Loans and advances to customers net of expected credit losses (as defined, but excluding allowance for expected credit losses for off-balance sheet exposures).

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Net loans to deposits ratio

Net loans to deposits ratio is calculated as the net loans and advances to customers (as defined) divided by customer deposits. Where applicable, loans and deposits held for sale are added to the numerator and denominator respectively.

New loan originations in Directors’ Report

New lending includes the average YTD change (if positive) for credit cards and overdraft facilities.

Non-performing exposures (NPEs)

The Group, in line with the European Banking Authority (EBA) standards and European Central Bank’s (ECB) Guidance to Banks on Non-Performing Loans (which was published in March 2017), has defined NPEs as those exposures that satisfy one of the following conditions: (i) The borrower is assessed as unlikely to pay its credit obligations in full

without the realisation of the collateral, regardless of the existence of any past due amount or of the number of days past due.

(ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirement Regulation (CRR), which would also trigger a default under specific credit adjustment, distress restructuring and obligor bankruptcy.

(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past due.

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

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

When a specific part of the exposures of a customer that fulfil the NPE criteria set out above are greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer, then the total customer exposure is classified as non-performing; otherwise only the specific part of the exposure is classified as non-performing. The NPEs are reported before the deduction of allowance for expected credit losses on loans and advances to customers (as defined).

NPE coverage ratio The NPE coverage ratio is calculated as the allowance for expected credit losses

on loans and advances to customers (as defined) over NPEs (as defined). NPE ratio The NPE ratio is NPEs (as defined) divided by gross loans and advances to

customers (as defined). Non-recurring items Non-recurring items as presented in the ‘Consolidated Condensed Interim

Income Statement – Underlying basis’ relate to: (i) advisory and other restructuring costs, (ii) discontinued operations (UK subsidiary sale), (iii) profit/(loss) relating to NPE sale (Helix), (iv) loss on remeasurement of investment in associate classified as held for sale (CNP) net of share of profit from associates, and (v) reversal of impairment of DTA and impairment of other tax receivables.

Operating profit Operating profit comprises profit before loan credit losses (as defined),

impairments of other financial and non-financial assets, provisions for litigation, regulatory and other matters, tax, (profit)/loss attributable to non-controlling interests and non-recurring items (as defined).

Operating profit return on average assets

Operating profit return on average assets is calculated as the annualised (based on year to date days) operating profit (on an underlying basis) divided by the quarterly average of total assets for the relevant period. Average total assets exclude total assets of discontinued operations at each quarter end, if applicable.

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Profit/(loss) after tax - Organic

Profit/(loss) after tax - Organic is the profit/(loss) after tax and before non-recurring items (as defined above), except for the ‘Advisory and other restructuring costs – excluding discontinued operations and NPE sale (Helix)’.

Total income Total income under the underlying basis comprises total of net interest income,

net fee and commission income (on the underlying basis), net foreign exchange gains, net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates (excluding net gains on loans and advances to customers at FVPL) (on the underlying basis), insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains on disposal of stock of property and other income. A reconciliation of these amounts between the statutory and the underlying bases is disclosed in the Interim Management Report under section ‘Financial Results’.

Turnover Group turnover comprises interest income, fee and commission income, foreign

exchange gains, gross insurance premiums, gains/losses of investment properties and stock of properties, turnover of property and hotel and golf business and other income.

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RECONCILIATIONS

1. Reconciliation of Gross loans and advances to customers

30 June

2019 31 December

2018

€000 €000

Gross loans and advances to customers (as defined above) 13,071,801 15,900,427

Reconciling items:

Fair value adjustment on initial recognition (Note 29)* (289,720) (322,375)

Loans and advances to customers classified as non-current assets held for sale (Note 29) - (2,711,960)

Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale (Note 29) - (139,153)

Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale - 99,000

Loans and advances to customers measured at fair value through profit and loss (Note 16) (393,981) (395,572)

Gross loans and advances to customers at amortised cost as per the Consolidated Condensed Interim Financial Statements (Note 16) 12,388,100 12,430,367

* Including fair value adjustment on initial recognition of loans and advances to customers measured at fair value through profit and loss amounting to €60,309 thousand (31 December 2018: €60,326 thousand).

2. Reconciliation of allowance for expected credit losses on loans and advances to customers (ECL)

30 June

2019 31 December

2018

€000 €000

Allowance for expected credit losses on loans and advances to customers (as defined above) 2,144,950 3,852,218

Reconciling items:

Fair value adjustment on initial recognition (Note 29)* (289,720) (322,375)

Loans and advances to customers classified as non-current assets held for sale (Note 29) - (1,557,852)

Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale (Note 29) - (139,153)

Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale - 99,000

Provisions for financial guarantees and commitments (Note 23) (22,151) (27,685)

Allowance for ECL of loans and advances to customers as per the Consolidated Condensed Interim Financial Statements (Note 16) 1,833,079 1,904,153

* Including fair value adjustment on initial recognition of loans and advances to customers measured at fair value through profit and loss amounting to €60,309 thousand (31 December 2018: €60,326 thousand).

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3. Reconciliation of NPEs

30 June

2019 31 December

2018

€000 €000

NPEs (as defined above) 4,311,520 7,418,613

Reconciling items:

Loans and advances to customers classified as non-current assets held for sale - (2,613,603)

Fair value adjustment on initial recognition on loans and advances to customers classified as non-current assets held for sale - (135,697)

Reclassification between gross loans and allowance for expected credit losses on loans and advances to customers classified as held for sale - 99,000

Loans and advances to customers measured at fair value through profit and loss (NPE) (163,047) (160,907)

POCI (NPE) (591,974) (691,815)

Stage 3 loans and advances to customers as per the Consolidated Condensed Interim Financial Statements (Note 29) 3,556,499 3,915,591

NPE ratio

NPEs (as per table above) (€000) 4,311,520 7,418,613

Gross loans and advances to customers (as per table above) (€000) 13,071,801 15,900,427

Ratio of NPE/Gross loans (%) 33.0% 46.7%

4. Reconciliation of Loan credit losses

Six months ended 30 June

2019 2018 (represented)

€000 €000

Loan credit losses per the underlying basis 86,883 84,705

Reconciling items:

Loan credit losses relating to Helix portfolio, separately presented under the underlying basis 16,582 135,000

Loan credit losses (as defined above), reconciled to the statutory basis as: 103,465 219,705

Credit losses to cover credit risk on loans and advances to customers (Note 10) 108,911 252,953

Net gains on derecognition of financial assets measured at amortised cost (Interim Consolidated Income Statement) (5,429) (19,381)

Net gains on loans and advances to customers at FVPL (Note 8) (17) (13,867)

Credit losses per the statutory basis 103,465 219,705

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5. Reconciliation of turnover as recorded in the Interim Consolidated Income Statement

Six months ended 30 June

2019

2018 (represented)

€000 €000

Interest income and income similar to interest income 278,488 312,877

Fee and commission income 87,467 85,282

Foreign exchange gains 14,117 18,039

Gross insurance premiums 86,581 82,670

Gains of investment properties and stock of properties 4,813 11,325

Other income 15,679 11,276

Turnover as per the Interim Consolidated Income Statement 487,145 521,469

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RATIOS INFORMATION

1. Net Interest Margin

Reconciliation of the various components of net interest margin from the underlying basis to the statutory basis is provided below:

Six months ended 30 June

2019 2018 (represented)

1.1. Reconciliation of Net interest income €000 €000

Net interest income as per the underlying basis 170,147 165,846

Reclassifications for:

Net interest income relating to the NPE sale (Helix), disclosed under non-recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis

33,962 46,238

Net interest income as per the Interim Consolidated Income Statement 204,109 212,084

Net interest income (annualised) 343,114 334,441

1.2. Interest earning assets 30 June

2019 31 March

2019 31 December

2018

€000 €000 €000

Cash and balances with central banks 5,261,896 3,913,391 4,610,491

Loans and advances to banks 403,041 448,043 472,532

Loans and advances to customers 10,949,002 10,954,529 10,921,786

Loans and advances to customers held for sale (Note 19) 5,891 1,108,440 1,154,108

Investments

Debt securities (Note 13) 1,720,231 1,556,668 1,364,743

Less: Investment which is not interest bearing (13,563) (10,181) (8,606)

Total interest earning assets 18,326,498 17,970,890 18,515,054

1.3. Quarterly average interest earning

assets (€000)

- as at 30 June 2019 18,270,814

- as at 30 June 2018 18,005,292

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2. Cost to income ratio

2.1. Reconciliation of the various components of total expenses used in the cost to income ratio calculation from the underlying basis to the statutory basis is provided below:

Six months ended 30 June

2019 2018 (represented)

€000 €000

2.1.1. Reconciliation of Staff costs

Total Staff costs as per the underlying basis 111,500 102,070

Reclassifications for:

Staff costs relating to the NPE sale (Helix), reclassified under the underlying basis to ‘Profit/(loss) relating to NPE sale (Helix)’ 2,744 2,600

Total Staff costs as per the statutory basis 114,244 104,670

2.1.2. Reconciliation of Other operating expenses

Total Other operating expenses as per the underlying basis 84,398 80,775

Reclassifications for:

Operating expenses relating to the NPE sale (Helix), presented within ‘Profit/(loss) relating to NPE sale (Helix)’ under the underlying basis 12,209 -

Reversal of provisions for litigation, regulatory and other matters, separately presented under the underlying basis (2,683) (5,813)

Advisory and other restructuring costs (excluding Helix), separately presented under the underlying basis 11,463 14,783

Restructuring costs relating to the NPE sale (Helix), presented within ‘Profit/(loss) relating to NPE sale (Helix)’ under the underlying basis 7,580 12,547

Total Other operating expenses as per the statutory basis 112,967 102,292

2.1.3. Special Levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund (SRF)

Total Special Levy on deposits on credit institutions in Cyprus and contribution to Single Resolution Fund per the underlying and statutory basis

12,477 12,073

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2.2. Reconciliation of the various components of total income (as defined) used in the cost to income ratio calculation from the underlying basis to the statutory basis is provided below:

Six months ended 30 June

2019 2018 (represented)

€000 €000

2.2.1. Reconciliation of Net fee and commission income

Total net fee and commission income as per the underlying basis 74,900 80,336

Reclassifications for:

Fee and commission expense relating to the revised income tax legislation, which has been disclosed within ‘Reversal of impairment of deferred tax assets (DTA) and impairment of other tax receivables’ under the underlying basis

(6,255) -

Fee and commission income relating to NPE sale, disclosed under non-recurring items within 'Profit/(loss) relating to NPE sale (Helix)' under the underlying basis

5,867 -

Total net fee and commission income as per the statutory basis 74,512 80,336

2.2.2. Reconciliation of Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates

Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the underlying basis

26,255 41,550

Reclassifications for:

Net gains on loans and advances to customers measured at fair value through profit or loss (FVPL), disclosed within ‘Loan credit losses’ under the underlying basis (Note 8)

17 13,867

Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis (see below)

26,272 55,417

Net foreign exchange gains as per the statutory basis 14,117 18,039

Net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis 12,155 37,378

Total Net foreign exchange gains and net gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates as per the statutory basis

26,272 55,417

Reconciliation of Net interest income between the underlying and the statutory basis has been provided in the tables above.

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3. Operating profit return on average assets

The various components used in the determination of the operating profit return on average assets are provided below:

30 June

2019 31 March

2019 31 December

2018

€000 €000 €000

Total assets used in the computation of the operating profit return on average assets/per the Interim Consolidated Balance Sheet

21,887,186 21,745,438 22,075,271

30 June

2019

30 June 2018

(represented)

€000 €000

Annualised operating profit 252,152 305,362

Quarterly average total assets 21,902,632 21,417,686

The reconciliation of the various components of operating profit between the underlying and the statutory basis has been provided in the tables above.