Bank of Cyprus Holdings Public Limited Company

Good morning, everyone. Thank you for joining our financial results conference call for the quarter-ended 31st of March, 2025.

I am joined by Eliza Livadiotou, Executive Director of Finance; and Annita Pavlou, Manager, IR and ESG. After my introductory remarks, Eliza will go into more details on our financial performance and then we will be happy to take your questions both during this conference call and afterwards.

I would like to start by briefly reminding you of our powerful equity story and our core strengths on Slide number 4. We are the leading financial group across banking in Cyprus, which is a highly liquid and concentrated banking sector.

And we operate in a supportive macroeconomic environment. Global uncertainties have increased, and I will go over this in more detail, but the important message is that Cypriot economy remains strong, has proven in the past it is flexible, resilient and able to outgrow Europe, which is likely to continue and underpin our equity story.

We are managing the headwinds from the normalization of interest rates while simultaneously investing in new growth initiatives, leveraging on our key strengths under our control. Our diversified business model, our robust asset quality and our strong capital position all support our commitment for attractive shareholder returns by continuing to deliver sustainable high-teens ROTE on a 15% CET1 ratio in a normalized 2% interest rate environment.

Slides 5 and 6 show an overview of the macroeconomic environment. We operate in a strong, diversified, mainly service-based economy that exhibits continued growth.

The economy expanded by 3.4% in 2024, and the projection from the Ministry of Finance made in March expected over 3% growth for this year. More recent forecast by the IMF downgraded growth to 0.8% for the Euro area.

For Cyprus, forecast for economic growth remained robust and above Eurozone average despite a modest downward adjustment due to trade tensions between 0.1% and 0.3%. The Cypriot economy has proven resilient over recent years, outperforming the Euro area every year since 2018 with low unemployment, low inflation and strong public finances.

This is supported by strong touring activity with revenues from tourists in the first two months of this year, up 35% from the same period last year. Public debt to GDP further declined to 69% as of the end of 2024 and remains well below the Euro area average.

Combined with surplus fiscal balances, the sovereign is in a good position to support the economy. This strength of the Cypriot economy is reflected in its credit rating, with recent sovereign rating upgrades by the major rating agencies to three notches above investment grade.

Clearly, the current environment is uncertain. On Slide 7, you can see that Cyprus is very well positioned to cope with the current economic uncertainty given that trade and tourism with the U.S.

is very limited. And Bank of Cyprus is similarly well positioned with a well-diversified loan portfolio, very strong capital liquidity and a strong track record on risk management.

Slide 8 shows the snapshot for the first quarter performance. Driven by a gradual decline in net interest income, reflecting the lower interest rates, our profit declined from this time last year, although it was up on the prior quarter.

Our cost-to-income ratio remains among the lowest of any bank in Europe and our cost of risk remains slightly below our full year guidance, despite reflecting more conservative macroeconomic assumptions. Moving now to Slide 9.

The first quarter saw the continuation of significant shareholder value creation. Our ROTE was over 18%, delivering over 100 basis points of organic capital generation in the quarter on a pre-distribution level, while our tangible book value per share was up 15% year-on-year.

Last year, we distributed €241 million to our shareholders. And for 2025, our distribution policy will be a 50% to 70% payout ratio.

The Board will also consider the introduction of interim dividends this year. Looking at Slide 10, you can see how our Q1 performance compares to our 2025 targets we announced in February 2025.

On every metric, we're exceeding our expectations, and we are confirming our full year guidance for this year despite lower than previously expected interest rates, as Eliza will explain later. Let's now turn to Slide 11, which shows how Bank of Cyprus is placed at the center of this economy supporting the wider ecosystem.

We are the leading bank in Cyprus with around 3/4 of the population being customers of the bank. We have a leading market position in both loans and deposits with market share of 43% and 38%.

We have a profitable life and non-life insurance subsidiaries with high market shares, and we hold a 75% stake in the leading payment solutions provider, indicating our diversified business model and holistic offering. Turning now to Slide 12.

In April, we announced the planned acquisition of Ethniki Insurance Cyprus for €29.5 million in cash. Subject to regulatory approvals, we expect the transaction to be completed in the second half of this year.

The acquisition is entirely consistent with the group's strategy of developing further our presence in the important insurance market and increasing the contribution from non-net interest income sources. We look forward to welcoming our new colleagues from Ethniki Insurance Cyprus to the Bank of Cyprus.

I will now hand over to Eliza, who will run through our Q1 results in more detail.

Thank you, Panicos, and good morning from me, too. Let's turn to Slide 13 to start with a summary of our key highlights in the first quarter of the year.

This includes record new lending of €842 million, driving a 3% rise in our performing loan book since December '24, a strong return on tangible equity of 18.3% and low cost-to-income ratio of 34%, further improvements in our asset quality with our NPE ratio remaining below 2% and cost of risk of 39 basis points, strong capital ratios and capital generation, including a distribution accrual at the top end of our 50% to 70% range and a clear commitment to shareholder distributions. Together, these give us confidence in our outlook both for the remainder of this year and beyond.

Let's now discuss net interest income on Slide 16. Our NII for the first quarter stood at €186 million, corresponding to a net interest margin of 3.13%, down 21 basis points on the previous quarter.

The quarterly reduction mainly reflects the repricing of liquid assets and variable rate loans at lower rates with the cost of deposits modestly lower at 33 basis points. Overall, our NII evolution suggests a controlled decline as the rate cycle normalizes.

As already mentioned by Panicos, we confirm our NII targets expecting net interest income to decline in 2025 to below €700 million and in 2026 to stabilize at over €650 million. We are taking -- we are taking into account latest market rate expectations for ECB deposit rates, averaging 1.8% for 2026, some 20 to 30 basis points lower than previously expected.

There are some positive offsets such as the better depositor behavior and higher deposit volumes and better asset pricing, including our hedging activities during this volatile period. Now moving to our hedging activity on Slide 17.

Here, I want to remind you of our significant hedging efforts undertaken over the last couple of years that have reduced our NII sensitivity to 100 basis point parallel shift in rates by €52 million since December 2022. We have added around €0.8 billion of hedging in the first quarter of the year, adding to a total of €9.7 billion or 40% of the group's interest-earning assets.

These hedging actions include the receipt of fixed interest rate swaps and further investment in fixed rate bonds. In Q1, hedging was carried out at an average yield of 2.8%, meaning that hedging is already a net revenue contributor.

In total, for 2025, we plan for a €1 billion hedging activities through IRSs, subject to market conditions. Simultaneously, about 1/4 of the group's loan portfolio is linked with the bank's base rate, which provides a natural hedge against the cost of deposits.

It is in part for these reasons that we remain confident in our NII guidance. On Slide 18, you can see that our deposit base continues to increase, up 1% on the prior quarter and up 7% on the prior year to €20.7 billion.

Also, we are encouraged that the proportion of time and notice deposits remained flat on a quarterly and annual basis at 33% of the total. And if you look at the breakdown of our €20.7 billion deposit base, you can see on the bottom left chart that 80% of our deposits are from Cypriot residents.

Additionally, we have seen deposit costs declining from the peak in 2024 and now stand at 33 basis points for Q1. And overall, the well-managed deposit costs reflect the very liquid Cyprus banking sector, cautious depositor behavior as well as our strong franchise and market position.

Moving to Slide 19 on lending activity. The group extended record new lending of €842 million in the first quarter, which is usually a strong quarter, representing an increase of 16% on the prior quarter and 25% on the prior year, driven mainly by corporate, housing and international demand.

The gross performing loan book was up 3% Q-on-Q to €10.45 billion, tracking in line with the 4% growth target for the full year. We are pleased to see our international loan book expanding by 34% year-on-year to €1 billion, in line with our strategic plan to reach €1.5 billion in the medium term.

Of course, we have and we will continue to maintain strong underwriting standards and therefore, 99% of new exposures written since 2016 remain performing. Slide 20 shows our progress on the fixed income portfolio.

As of 31st March, our fixed income portfolio stood at €4.5 billion, up by 21% on the prior year, representing 17% of total assets. The majority of the portfolio is measured at amortized cost and is held to maturity.

Hence, no mark-to-market impact is recognized in the income statement or equity. The portfolio comprises of high-quality assets with average maturity of three to four years and is highly diversified.

We aim to grow the fixed income portfolio further in the years to come so that it comes to represent around 20% of our total assets in the medium term, subject to market conditions. Slide 21 now provides a summary of noninterest income.

In the first quarter, non-NII expanded by 10% year-on-year, reflecting higher non-transactional fees and higher contribution from the insurance companies driven by positive claims experience of non-life insurance and increased new life insurance business volumes. Noninterest income was broadly flat on the prior quarter, reflecting seasonally lower fees, partly offset by higher insurance and positive revenue contribution.

Overall, noninterest income remains an important contributor to group profitability and covers almost 80% of Q1 OpEx. I would also like to remind you that both FX and revenue gains are volatile profit contributors.

Separately, our insurance businesses remain a valuable and recurring revenue stream for the group. More details about our insurance results can be found in the next pages.

In summary, Eurolife recorded a net insurance result of €6.8 million in the quarter, an increase of 17% compared to the previous year, driven by increased new business. In Non-life, net insurance result was at €5.1 million, up 27% year-on-year.

In total, the net insurance result contributes 17% of the group non-NII. Insurance is an important driver of our diversification.

And as already mentioned, we have further strengthened our customer franchise and market position with the Ethniki Insurance Cyprus acquisition. Moving now to operating expenses on Slide 27.

Our cost-to-income ratio of 34% in Q1 was higher than last year, reflecting the impact of falling net interest income. Staff costs were up 5%, both on a quarterly and an annual basis, mainly reflecting step-up adjustments, which typically take place in the first quarter of the year, including salary increments, cost of living adjustments and higher employer contributions.

Other OpEx rose by 14% year-on-year, reflecting inflation, higher IT and other professional expenses. The year-on-year growth of other OpEx is expected to slow down in the second half of the year.

Against the prior quarter, total operating expenses were down 14%, mainly reflecting seasonally lower other OpEx. Turning now to Slide 28 and cost of risk.

Our underlying credit quality remains strong with NPEs remaining low. In response to the current global economic uncertainties, however, we have recognized conservative macro assumptions with the most material adjustments applied on the adverse scenario of our cost of risk calculation, which resulted in a cost of risk of 39 basis points for Q1, up by 7 basis points on the prior quarter.

Additionally, we incurred impairments of €10 million in Q1, in line with the revenue disposal acceleration strategy. Now moving to capital on Slide 30.

The bank's capital position remains robust. Our regulatory CET1 and total capital ratios stood at 19.7% and 24.8%, respectively.

When including quarterly profitability and post the distribution accrual at the top end of our distribution policy in line with commission delegated regulation, our CET1 and total capital ratio improved further to 19.9% and 25.0%, respectively. As I mentioned at the full year, in the first quarter, the CRR3 became effective.

The result was a positive impact of around 100 basis points on CET1 by a reduction in our operational risk-weighted assets. The 19.9% CET1 ratio is after a distribution accrual at the top end of our 50% to 70% distribution payout range.

Let me remind you that as usual, this level of distribution accrual does not constitute a decision by the bank with respect to distribution payments for 2025. Finally, the acquisition of Ethniki Insurance Cyprus is expected to have a negative impact of around 15 basis points upon completion.

Moving now to Slide 31 and asset quality. As of 31st March, the group's asset quality remains healthy with an NPE ratio at 1.8% and a coverage ratio above 100%.

NPE inflows remain limited. And moving to Slide 32 on our real estate management unit.

Revenue is our engine to manage the stock of properties acquired from defaulted borrowers. As you can see, the revenue stock decreased to €634 million as of 31st March, and we carry our revenue stock at conservative valuation.

Overall, this is carried on the balance sheet at 71% of the current open market value. We note that in April, we have completed the sale of a large plot of land, further reducing the revenue stock to €575 million.

We are very pleased with our sales performance to date, which positions us well towards achieving the year-end target of around €500 million. It is important to note that we continue to sell on average close to independently assess open market value and above book value.

I will now like to hand back to Panicos for his closing remarks.

Thank you, Eliza. Moving now to Slide number 33.

The global uncertainties have increased. But we are in a strong position to face them.

Our priorities remain unchanged, being centered on prudent capital management, driving new growth initiatives focused on loan book growth, noninterest income diversification, maintaining cost discipline while reinvesting in the business and protecting the fundamentals of our asset quality. This is to ensure we maintain a strongly capitalized and highly profitable organization, generating high-teens ROTE of 15% CET1 ratio and delivering attractive returns to shareholders.

This concludes our presentation, and we will now open the floor for your questions.

I have three questions, if I may. The first is regarding Ethniki Insurance Cyprus.

If we could have a bit of color on what kind of contribution it could give, I assume more in 2026, given that it will be completed later in the year in your fee line? And what kind of impact should we expect?

The second question is regarding the prudential assumption that you mentioned in the first quarter. Is that a one-off?

Could we expect more later in the year? Or was that related to the macro environment and the uncertainty that you took a one-off prudential provision?

That's the second question. And the third regarding the NII sensitivity, a quick question.

Is that linear, the sensitivity? So if rates move lower than 100 bps that you mentioned, so from -- they go below 1%, would it be a similar sensitivity or it increases the higher the decline in rates?

Thank you, Alexandros. On Ethniki Insurance, this is a small strategic acquisition.

We expect to increase our premium by 15% and the net insurance results, which is included on the non-NII by 10% coming from the insurance business. And as you mentioned, this will be reflected most probably in 2026 results.

On Prudential, if I understand well your question, you're referring to cost of risk, right?

Yes, yes.

Yes. So generally, the cost of risk, I would say that the 39 basis points overall are still lower than our guidance, which is 40 to 50 basis points.

The asset quality is very robust, nothing of concern. Cypriot economy, as you know, is outperforming EU consistently since 2018.

So -- but given geopolitics, we adopted a more conservative macro assumptions on our adverse scenario, which resulted in 7 basis points one-off for this quarter and to 39 basis points. If we exclude the 7 basis points, -- the cost of risk is 32 basis points, which is the same as we had in Q4 last year.

On NII sensitivity, the sensitivity of the balance sheet as it is, so a static sensitivity, Alex. Now in the scenario where there is a very steep shift either way, the sensitivity applies beginning to end.

But in the interim, there may be a difference in how quickly this comes through because of the mismatch of -- not mismatch, the time lag needed for deposit repricing and loan repricing also. So the sensitivity is linear on a static basis -- on a like-for-like basis.

And by the way, sorry, just one last point to add that because our loans are floor to zero, it decreases significantly when it reaches zero -- when rates reach zero.

Congratulations for the results. I have a follow-up on your NII comments.

Considering how your moving parts are, how much of the loan book has already been repriced so far? And how much positive impact would you expect from the deposits ahead because there might be a difference in the timing for the repricing.

And on top of that, -- do you expect the term deposit mix versus current to start declining soon because we've seen that's been pretty stable so far. And on another issue on capital, we see a strong capital generation in the quarter above probably the target.

Would you expect to beat your full year guidance for capital generation? And moreover, could this lead to increasing capital distribution given the large buffer that you have versus capital requirements?

Thank you, Alfred. Starting from the last question about capital.

Yes, it's high capital is a good thing, especially under a certain -- especially this combined also with high returns. So I will start by saying that as a bank, we have a track record of increasing payouts.

And this gives you an indication of our approach. However, our current policy, which we have disclosed in February assumes 50% to 70% payout ratio.

As we already said, we want to go to the high end of this ratio of this range as soon as possible. And we're also considering introducing interim dividends later in the year.

So other than that, nothing changed. We can, of course, say more and be more transparent about capital later in the year.

On the deposits, I will say that, yes, reality is proven better than what we expected in both in terms of volume and cost. Our basic assumption is that deposit costs will remain flat for the year despite the fact that we just -- we've seen a drop in Q1 2025.

Of course, this is positive for us, but we want to wait a little bit until we validate and verify the deposit behavior before we renew our assumptions on this matter. But definitely, we expect deposits both in volume and cost to be a positive contributor to our NII and better than initially projected.

On the loan side, on the repricing, as a reminder, 42% of our loan book is linked to EURIBOR. And most of the EURIBOR repricings were actually taken in by 31st March.

Those that were -- when you compare the actual rate versus -- 31st March versus the loan book, there were only a handful of basis points to go. The rest of our book is not -- it reprices immediately.

So 23% is on the bank base rate, which reprices every time there's a base rate change. 11% that's on the ECB rate, again, on ECB and €1 billion of loans, another 10% or so on -- are fixed rate and therefore, don't reprice -- taking all of this into consideration and also what Panicos mentioned earlier on the deposit mix and the deposit cost, we have -- we are reconfirming today despite the materially lower rates for the rest of the year, we are reconfirming our guidance on NII and on ROTE for both this year, by the way, and next year.

Sorry, a follow-on on this. Given that, could you be considering that NII is close to bottoming up?

No, no. There is more to go.

The EURIBOR dropped further in April. So when I said it was fully recognize, I meant the rates as of 31st March, there were further drops after the U.S.

cost volatility in April. Those will come through in Q2.

I expect that to come through in Q2. In line with our guidance, which is already baked in all of this, based on ECB rate cuts, they will come through as the rate cuts happen.

I have a couple, please. The first is on the term deposits or the share of term deposits.

You mentioned that they've been stable for the past few quarters. Do you expect the share of these to decline going forward?

Do you see that happen next quarter? Or is that more towards the end of the year and into next year event?

The second question is on the interim dividend. I was just wondering if you could give some color on how the mechanics of that are going to work or it's too early to say perhaps?

And then just on capital, do you expect any regulatory headwinds this year? So we had a big benefit from Basel IV this quarter?

I'm sorry, just one final one, and it's already quite a few, but the final one just on loan growth, it's very strong. It's growing above guidance.

Do you see much scope to raise? Or do you expect kind of volumes to slow down towards the second half of this year?

Okay. Thank you, Ben.

On deposit mix, the basic assumption is that the mix will remain the same, right, the current assumption. And as I said before, we wait to see the deposit behavior before we review and renew our guidance on the matter of deposit.

But definitely, we are running better than initially projected. On loan growth, yes, we have a very good quarter, 3% up Q-on-Q, driven mainly by corporate and international.

As we said in the past, international, it will support the growth of our loan book. And it has been obvious today that year-on-year, international is up 34%.

We are already to €1 billion, and we are moving fast to the €1.5 billion, which is our medium-term target. Saying that, it's true that we are running better, but we are not guiding today.

We think it's too early in the year to change our basic assumptions. And this is something that we'll consider later in the year depending on how the market goes.

On dividend and Basel IV, so as a reminder, we got 100 basis points of positive Basel IV impact coming through in Q1 on the 1st of January. As you know, Ben, we've always been delivering and overdelivering on our dividend guidance and plans.

We were the first to pay. We were the first to reach the 50% guidance last summer.

Now this year, including this Basel IV positive impact, we are aiming to dose as high as possible within our distribution policy range of 50% to 70% as fast as possible. So although, we are not yet being -- we cannot yet be specific, we are increasingly confident given our capital ratios and our Basel IV benefit that came through.

And just as a reminder, we also indicated that we plan to consider the commencement of interim dividends also starting from this year, so from the Q2 results.

A couple of questions, please. The first one, just on the Basel IV impact.

Because it's operational risk, is this -- do you see this as permanent? Or is there a possibility that this unwinds a bit further down the track?

So I guess, I'm asking what's the fully loaded impact there? And then the second question on NII.

Do you assume that rates start to rise again in 2026 in coming up with your sort of €650 million guidance or that it's loan growth that keeps you above there? Perhaps you can just give us a bit of an idea on the moving parts to maintain that €650 million in 2026.

Thank you, Corinne. On NII, we don't assume rates to go up in 2026.

In fact, on Slide 58, you can see the revised curves and our basic assumption for 2025, it ECB rate to be at 1.5% by the end of the fourth quarter. Average rate in 2025 is 2.1% and average rate in 2026 is 1.8%.

So there are -- so these are the basic assumptions. And based on these assumptions, we are reconfirming our existing NII guidance for 2025 and 2026 despite the lower assumptions for the rates.

Of course, there are some positives is the stronger-than-expected loan growth, better deposit volumes, better cost hedging. So these are the basic parameters on NII.

And on Basel IV.

On Basel IV, it's permanent because it came from operational risk and the way the formula works doesn't erode that into the future. In fact, dynamically, the benefit when you compare Basel II, III to Basel IV is even bigger.

But this 100 basis points remains as a positive benefit.

Congratulations on strong results. If I may ask, you guide average growth of loan book at 4% for this year and '26, '27.

And yet your loan intake in Q1 was 2.7%, if I see it correctly. So this implies upside to the full year guidance for 2025.

Can you comment on this?

Yes, I have already commented earlier. As I said, we have a strong quarter, 3% on this year.

The basic assumption is 4%. Yes, we are running better than our initial assumptions, but we are not -- currently, we don't -- it's too early for us to change the assumptions.

So the basic guidance for 2025 is 4%. This is the assumption that we guide for 2025 and 2026.

When we will see -- monitor the progress later in the year, and we may come back with a revised update. But for the time being, the basic assumption is 4% for the year.

Congratulations for the results. Just a couple of housekeeping questions, please.

I see that the special levy on deposits is down quarter-on-quarter and year-on-year significantly despite deposits going up. So, if you can comment on that.

And the same also for credit losses on loans, they're up quarter-on-quarter and year-on-year, but the NPE flow remains negative. So maybe if you can comment on these 2.

Okay. The difference on the levy is the deposit guarantee scheme contribution.

We didn't have one this year. We don't have visibility for the future, but this is what driven the drop this year versus last year.

On credit losses on the loans, I mean, we have said in the previous question that there is one-off charge of 7 basis points coming from adopting more conservative assumptions on our adverse scenario in respect of the matter of the country. But as you already said, and you have seen the asset quality is very strong NPE flows are close to zero.

So nothing of course there. This is mostly a modeling macro assumption because of the geopolitics and this one-off for Q1.

Thank you all for your questions for participating in the call. As always, we are available for one-to-one discussions and clarifications for those of you that you think so you need that.

And we'll probably see a lot of you to the upcoming conference later in the quarter. So thank you very much.

Thank you all. Have a nice day.