BOC FinancialResults Audited FY2015 ENG Final
BOC FinancialResults Audited FY2015 ENG Final
BOC FinancialResults Audited FY2015 ENG Final
Audited Group Financial Results for the year ended 31 December 2015
Key Highlights
Good progress in tackling delinquent loans; During FY2015, 90+ DPD were reduced by 1,3 bn or 10%
due to restructuring activity and deleveraging
90+ DPD provision coverage boosted by 7 percentage points in 4Q2015 to 48% as at 31 December 2015,
due to elevated provision charges following assumption changes in the Banks provisioning
methodology, taking into account the on-going dialogue with the ECB in the context of SREP
Strong capital position with a CET 1 ratio (transitional basis) of 14,0% at 31 December 2015, well above
the minimum regulatory requirement of 11,75%
Customer deposits (adjusting for the disposal of the Russian operations) increased by 1,6 bn or 12%
during FY2015
Improving funding structure with the Loans to Deposits ratio (L/D) declining by 11 percentage points in
4Q2015 to 121% as at 31 December 2015
ELA has been reduced by 1,6 bn post 30 September 2015 to a current level of 3,3 bn
Profit before provisions of 624 mn for FY2015
Provisions for impairment of customer loans of 630 mn for 4Q2015, with a full year charge of 959 mn
Loss after tax from continuing operations and Loss after tax for FY2015 of 394 mn and 438 mn,
respectively
Group Profile
Founded in 1899, Bank of Cyprus Group is the leading banking and financial services group in Cyprus. The Group provides a wide range of financial products and services which include
retail and commercial banking, finance, factoring, investment banking, brokerage, fund management, private banking, life and general insurance. The Group operates through a total of
135 branches, of which 129 operate in Cyprus, 1 in Romania, 4 in the United Kingdom and 1 in the Channel Islands. Bank of Cyprus also has representative offices in Russia, Ukraine
and China. The Bank of Cyprus Group employs 4.605 staff worldwide. At 31 December 2015, the Groups Total Assets amounted to 23,3 bn and Total Equity was 3,1 bn.
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A. Summary of Audited Financial Results for the year ended 31 December 2015
The Common Equity Tier 1 capital (CET1) ratio (transitional basis) totalled 14,0% at 31 December
2015, compared to 15,6% at 30 September 2015. The reduction in the CET1 ratio reflects the losses
incurred during 4Q2015 due to the elevated provisions for impairment of customer loans following
assumption changes in the Banks provisioning methodology in relation to the on-going regulatory dialogue
1
with the ECB regarding the SREP .
The Banks funding structure is improving, with customer deposits increasing by 572 mn or 4% in
4Q2015. The L/D ratio improved to 121% at 31 December 2015, compared to 132% at 30 September
2015, and customer deposits increased to 61% of total assets at 31 December 2015, compared to 56% at
30 September 2015.
During 4Q2015, Emergency Liquidity Assistance (ELA) was reduced by 1,1 bn to 3,8 bn at 31
December 2015. Post quarter-end, ELA was reduced further by 500 mn to a current level of 3,3 bn.
Loans in arrears for more than 90 days (90+ DPD) were reduced by 668 mn or 6% during 4Q2015 and
2
3
totalled 11.329 mn at 31 December 2015, accounting for 50% of gross loans (90+ DPD ratio). The 90+
4
DPD provisioning coverage ratio improved to 48% at 31 December 2015, up from 41% at 30 September
2015.
Net interest income (NII) for FY2015 totalled 842 mn and net interest margin (NIM) was 3,79%. NII for
4Q2015 was 198 mn, compared to 205 mn for 3Q2015, with the reduction reflecting a lower yield on
loans partly due to loans restructuring and deleveraging actions. The NIM for 4Q2015 was 3,69%,
6
compared to 3,70% for 3Q2015 .
Non-interest income for FY2015 was 198 mn, with recurring income comprising net fee and commission
income of 154 mn and net insurance income of 48 mn. Non-interest income for 4Q2015 was 55 mn
(compared to 46 mn for 3Q2015), with net fee and commission income and net insurance income totalling
38 mn and 16 mn, respectively.
Total income for FY2015 was 1.040 mn. Total income for 4Q2015 was 253 mn, compared to 251 mn
for 3Q2015.
Total expenses for FY2015 were 416 mn, and the cost to income ratio was 40%. Total expenses for
4Q2015 were 119 mn, compared to 102 mn for 3Q2015, with the increase primarily relating to higher
non-recurring advisory and professional expenses and increased provisions for litigations and legal
settlements.
Profit before provisions and impairments , restructuring costs and discontinued operations for
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FY2015 was 624 mn. Profit before provisions and impairments, restructuring costs and discontinued
operations for 4Q2015 was 134 mn, compared to 149 mn for 3Q2015.
Provisions for impairment of customer loans (continuing operations) net of gains on derecognition
8
and changes in expected cash flows on acquired loans for FY2015 totalled 959 mn . Provisions for
impairment of customer loans (continuing operations) net of gains on derecognition and changes in
1
Supervisory Review Evaluation Process.
2
Loans in arrears for more than 90 days (90+ DPD) are defined as loans with a specific provision and loans past-due for more than 90 days.
3
Gross loans are reported before the fair value adjustment on initial recognition relating to loans acquired from Laiki Bank (difference between the outstanding
contractual amount and the fair value of loans acquired) amounting to 1.207 mn at 31 December 2015 (compared to 1.266 mn at 30 September 2015).
4
Provisioning coverage ratio for 90+ DPD is calculated as the sum of accumulated provisions for impairment of customer loans, fair value adjustment on initial
recognition and provision for off-balance sheet exposures, over 90+ DPD.
5
As from 4Q2014, the Groups operations in Russia are treated as disposal group held for sale and results have been presented accordingly as discontinued operations
according to IFRS 5. In September 2015, the Bank completed the sale of the majority of its Russian operations. The part of the operations not disposed of has ceased to
be classified as held for sale and its results are presented as part of the continuing operations. In addition, comparatives have been reclassified to reflect the change in
presentation of impairment losses of other financial and non-financial instruments and results from revaluation and disposal of investment properties within the
consolidated income statement. The presentation of Gains on derecognition and changes in expected cash flows on acquired loans has been changed in order to
present this adjoining to the Provisions for impairment of customer loans in the consolidated income statement. The Group considers this presentation to be more
relevant as it considers such gains and changes in expected cash flows (mainly arising from the fair value adjustment on initial recognition for acquired loans) to be credit
risk related. This change in presentation did not have an impact on the results for the period.
6
Excluding the interest income from the Laiki Recapitalisation bond, the NIM for 4Q2015 and for FY2015 were 3,55% and 3,51%, respectively.
7
Comprising provisions for impairments of customer loans and impairments of other financial and non-financial assets, net of gains on derecognition and changes in
expected cash flows on acquired loans.
8
Provisions for impairment of customer loans and gains on derecognition and changes in expected cash flows on acquired loans were 1.002 mn for FY2015 and 630
mn for 4Q2015, when including provisions for impairments of discontinued operations.
2
expected cash flows on acquired loans for 4Q2015 were 630 mn, compared to 96 mn for 3Q2015. The
elevated provisioning charge for 4Q2015 resulted from the changes in the assumptions in the Banks
provisioning methodology, in relation to the on-going regulatory dialogue with the ECB regarding the SREP.
9
The provisioning charge for FY2015 accounted for 4,3% of gross loans, compared to an annualised
provisioning charge 2,1% for 9M2015.
Impairments of other financial and non-financial assets for FY2015 totalled 62 mn and primarily relate
to impairments of overseas non-core assets as part of the Banks de-risking efforts and to a change in
measurement basis of real estate assets acquired from customers.
Loss after tax for continuing operations for FY2015 totalled 394 mn. Loss after tax for continuing
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operations for 4Q2015 totalled 509 mn, compared to a profit of 45 mn for 3Q2015.
Restructuring costs for FY2015 totalled 43 mn, comprising consultancy and professional expenses.
Loss from disposal groups held for sale/discontinued operations for FY2015 was 38 mn and mainly
relates to the disposal of the majority of the Russian operations.
Net profit on disposal of non-core assets for FY2015 was 37 mn. Net profit on disposal of non-core
assets relates to deleverage actions undertaken during the year including the repayment of a bond by the
Republic of Cyprus in June 2015 and December 2015.
Loss after tax attributable to the owners of the Bank for FY2015 was 438 mn. Loss after tax
attributable to the owners of the Bank for 4Q2015 was 512 mn, compared to a profit of 13 mn for
3Q2015.
B. Analysis of Audited Financial Results for the year ended 31 December 2015
Shareholders equity totalled 3.055 mn at 31 December 2015. The CET1 ratio (transitional basis) totalled
14,0% at 31 December 2015, compared to 15,6% at 30 September 2015 and 14,0% at 31 December 2014.
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Adjusting for Deferred Tax Assets , the CET1 ratio on a fully-loaded basis totalled 13,1% at 31 December
2015.
The Banks CET1 ratio remains higher than the minimum required ratio of 11,75% relating to the Pillar II
capital requirement.
Following the on-going regulatory dialogue with the ECB regarding the SREP, the Bank decided to reassess
its provisioning assumptions, estimates and methodologies, within the parameters of International Financial
Reporting Standards (IFRS). Consequently, the Bank proceeded with certain amendments to the assumptions
in its provisioning methodologies. These changes relate to extending significantly the recovery periods and
applying additional realisation discounts on the most stressed non performing portfolios, with both changes
being a function of the Banks strategy for recovering delinquent exposures. In changing its provisioning
assumptions, the Bank has considered its strategy for managing problem loans, as well as other available
evidence, reflecting an increased level of conservatism within an acceptable range. This resulted in an
elevated provisioning charge for 4Q2015, with the full-year charge totalling 959 mn. The Bank considers that
the assumption amendments significantly bridged the regulatory dialogue with the ECB and boosted the
Banks 90+ DPD provisioning coverage to 48% at 31 December 2015.
3
Group customer deposits increased by 1.557 mn or 12% during FY2015. Customer deposits in Cyprus
increased by 533 mn in 4Q2015 and stood at 12.691 mn at 31 December 2015, accounting for 89% of
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Group customer deposits. The Banks deposit market share in Cyprus reached 27,9% at 29 February 2016,
compared to a low of 24,6% at 30 November 2014.
Customer deposits are the Groups primary source of funding, with their contribution towards the Groups
overall funding gradually increasing. Customer deposits accounted for 61% of total assets at 31 December
2015, compared to 56% at 30 September 2015 and a low of 48% at 31 March 2014. The L/D ratio improved to
121% at 31 December 2015, compared to 132% at 30 September 2015 and a high of 151% at 31 March
2014.
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Group gross loans totalled 22.592 mn at 31 December 2015, compared to 22.863 mn at 30 September
2015 and 23.772 mn at 31 December 2014. Gross loans in Cyprus totalled 20.661 mn at 31 December
2015, and accounted for 91% of Group gross loans. The Bank is the single largest credit provider in Cyprus
with a 40,1% loan market share at 29 February 2016, compared to 39,3% at 30 September 2015. Loans in the
UK operations (1.207 mn) accounted for 5% of total loans.
At 31 December 2015, the Banks Eurosystem funding totalled 4,5 bn, comprising ELA of 3,8 bn and
European Central Bank (ECB) funding of 650 mn. In October 2015, the restructuring of retained mortgage
covered bonds resulted in a rating upgrade to Baa3 from B1. Following the upgrade to an investment grade
rating, the covered bonds have become eligible collateral for the Eurosystem credit operations and, therefore,
have been placed as collateral for accessing funding from the ECB. Through this transaction, the Bank has
raised 550 mn of ECB funding for the repayment of ELA. During 4Q2015 the Republic of Cyprus repaid a
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bond held by the Bank of an amount of 340 mn. Through the covered bond transaction, the bond
repayment and the deposit inflows experienced during 4Q2015 and early 2016, about 1,6 bn of ELA was
repaid post 30 September 2015, reducing ELA to a current level of 3,3 bn. In total, ELA has been reduced by
8,1 bn or 71% since its peak of 11,4 bn in April 2013.
31.12.2015 30.09.2015
% of gross % of gross
( mn) loans ( mn) loans
Of which:
impaired with no arrears 875 3,9% 848 3,7%
impaired with arrears less than 90 days 103 0,5% 126 0,6%
12
Based on data from the Central Bank of Cyprus.
13
See Note 3.
14
The bond was issued on 1 July 2015 to replace the outstanding amount of the recapitalisation bond of Laiki Bank that was transferred to the Bank in March 2013,
following the acquisition of certain assets and liabilities of Laiki Bank.
15
See Note 2.
16
See Note 4.
17
This ratio is calculated by adjusting both the provisions stock and the customer balances to include any unrecognised interest income due on contractual balances.
4
18
Non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) declined by
257 mn or 2% during 4Q2015 to 13.968 mn at 31 December 2015 and accounted for 62% of gross loans.
235 mn of the reduction relates to Cyprus operations. The provisioning coverage ratio of NPEs improved to
39% at 31 December 2015, up from 35% at 30 September 2015. The provisioning coverage ratio of NPEs,
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calculated in line with local peers, with reference to the contractual balances of the customer, totalled 49% at
31 December 2015, compared to 44% at 30 September 2015.
31.12.2015 30.09.2015
% of gross % of gross
( mn) loans ( mn) loans
Non-performing exposures (NPEs) as per EBA definition 13.968 61,8% 14.225 62,2%
Of which:
NPEs with forbearance measures, no impairments and no arrears 1.862 8,2% 1.462 6,4%
NPEs with forbearance measures, no impairments and arrears <90 days 551 2,4% 537 2,3%
Non-interest income for FY2015 was 198 mn, with recurring income comprising net fee and commission
income of 154 mn and net insurance income of 48 mn. Non-interest income for 4Q2015 was 55 mn
(compared to 46 mn for 3Q2015), with recurring income comprising net fee and commission income of 38
mn and net insurance income of 16 mn. The remaining component of non-interest income (comprising net
foreign exchange gains/(losses), net gains/(losses) on other financial instruments, (losses)/gains from
revaluation and disposal of investment properties and other income) for 4Q2015 was 1 mn, compared to a
net loss of 2 mn for 3Q2015. Total income for FY2015 was 1.040 mn. Total income for 4Q2015 was 253
mn, compared to 251 mn for 3Q2015.
Total expenses for FY2015 were 416 mn, of which 56% related to staff costs (234 mn) and 44% to other
operating expenses (182 mn). The cost to income ratio for FY2015 was 40%. Total expenses for 4Q2015
18
In 2014 the European Banking Authority (EBA) published its reporting standards on forbearance and non-performing exposures (NPEs). According to the EBA
standards, a loan is considered a non-performing exposure if: (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, for example in case of a write off, a legal action against the borrower, or
bankruptcy, or (ii) the exposures are impaired i.e. in cases where there is a specific provision, or (iii) there are material exposures which are more than 90 days past due,
or (iv) there are performing forborne exposures under probation for which additional forbearance measures are extended, or (v) there are performing forborne exposures
under probation that present more than 30 days past due within the probation period.
19
See Note 16.
20
See Note 6.
5
were 119 mn, compared to 102 mn for 3Q2015, with the increase primarily relating to higher non-recurring
advisory and professional expenses and increased provisions for litigations and legal settlements during
4Q2015. The cost to income ratio for 4Q2015 was 47%, compared to 41% for 3Q2015, with the increase in
the ratio reflecting primarily a 17% increase in total expenses.
Provisions for impairment of customer loans (continuing operations) net of gains on derecognition
21
and changes in expected cash flows on acquired loans for FY2015 totalled 959 mn . Provisions for
impairment of customer loans (continuing operations) net of gains on derecognition and changes in expected
cash flows on acquired loans for 4Q2015 were 630 mn, compared to 96 mn for 3Q2015. The increase in
provisioning levels reflects the assumption changes in the Banks provisioning methodology taking into
account the continuing regulatory dialogue with the ECB. The provisioning charge for FY2015 accounted for
22
4,3% of gross loans, compared to an annualised provisioning charge 2,1% for 9M2015. At 31 December
23
2015, accumulated provisions, including fair value adjustment on initial recognition , reached 5.445 mn
(compared to 4.933 mn at 30 September 2015 and to 5.140 mn at 31 December 2014) and accounted for
24,1% of gross loans (compared to 21,6% at 30 September 2015 and 21,6% at 31 December 2014).
Impairments of other financial and non-financial assets for FY2015 totalled 62 mn and primarily relate to
further impairments of overseas non-core assets as part of the Banks de-risking efforts and a change in
measurement basis of real estate assets acquired from customers. Impairments of other non-financial assets
for FY2015 amounted to 18 mn and primarily relate to impairment losses on real estate assets acquired from
customers as part of the Groups efforts to provide solutions to distressed borrowers. These losses arose from
the fact that as from 4Q2015, the Group has set up a Real Estate Management Unit (REMU) to manage these
assets with an intention to sell them and this has led to a change in the measurement basis of these
properties from fair value to the lower of cost and net realisable value.
Loss after tax for continuing operations for FY2015 totalled 394 mn. Loss after tax for continuing
operations for 4Q2015 totalled 509 mn, compared to a profit of 45 mn for 3Q2015.
Restructuring costs for FY2015 totalled 43 mn, due to higher legal and other advisors' provisions relating to
restructuring of loans. Loss from disposal groups held for sale/discontinued operations for FY2015 was
38 mn and mainly relates to the disposal of the majority of the Russian operations. Net profit on disposal of
non-core assets for FY2015 was 37 mn. Net profit on disposal of non-core assets relates to deleverage
actions undertaken during the year including the repayment of a bond by the Republic of Cyprus in June 2015
and December 2015.
Loss after tax attributable to the owners of the Bank for FY2015 was 438 mn. Loss after tax attributable
to the owners of the Bank for 4Q2015 was 512 mn, compared to a profit of 13 mn for 3Q2015.
21
See Note 8.
22
See Note 9.
23
Including the fair value adjustment on initial recognition (difference between the outstanding contractual amount and the fair value of loans acquired from Laiki Bank)
and provisions for off balance sheet exposures.
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C. Outlook
The Group continues to focus on implementing its strategic objectives aiming to become a stronger, safer
and more focused institution capable of supporting the recovery of the Cypriot economy and to deliver
appropriate shareholder returns in the medium term.
With the Cypriot operations accounting for 91% and 89% of gross loans and customer deposits respectively,
the Banks financial performance is highly correlated to the economic and operating conditions in
Cyprus and will consequently benefit from the countrys recovery. According to the Statistical Service of the
Republic of Cyprus, real GDP increased by 2,7% yoy in the fourth quarter of 2015 (when seasonally adjusted),
bringing the yearly growth to 1,6%. In 2015 the Republic of Cyprus tapped international capital markets twice
raising a total of 2 billion of funding and has exited the economic adjustment programme at the end of March
2016. The outlook for 2016 remains positive as confidence strengthens and sentiment improves. Downside
risks to growth projections relate to the high level of non-performing loans, more delays in the implementation
of structural reforms and a worsening of the external environment.
Tackling the Banks loan portfolio quality is of utmost importance and a top priority for management.
The Banks Restructuring and Recoveries Division (RRD) is making positive progress in arresting and
reversing the trend in problems loans. This is evidenced by the reduction in the 90+ DPD during the last
couple of quarters and the completion of the restructuring of a number of large lending exposures. The Bank
is intensifying its restructuring and workout activities of delinquent borrowers, increasing the pace of
restructurings and focusing on more complex and older cases. The Bank has also set up a Real Estate
Management Unit (REMU) in order to take control and ownership of real estate in settlement of certain
customer obligations. The main objectives of the REMU are to provide solutions for distressed borrowers, to
accelerate the recovery process for both the Bank and the local real estate market, to strengthen the Banks
balance sheet and to monetise such assets, as appropriate. The establishment of REMU will help manage
supply of property into a supply-rich property market.
In order to normalise its funding structure and to fully repay ELA, the Bank has stepped up its
marketing efforts to attract deposits, leveraging on increasing customer confidence towards the Bank and
improving macroeconomic conditions. The Banks strong capital position and overall improvement in its
financial position enhance its funding options and will facilitate access to the debt capital markets to
raise wholesale funding, subject to market conditions and investor appetite.
Despite the events of March 2013 and the impact on its franchise, the Bank remains the leading financial
institution in Cyprus. The significant improvements in its financial and operational position achieved during the
last two years allow the Bank to maintain its leading position in the Cypriot banking system and to be a
key player in the recovery of the Cypriot economy. The Banks strengthened capital position and its
improving liquidity underline its efforts to provide credit to promising sectors of the domestic economy
that will support and diversify further economic activity. The Bank is focusing on diversifying its income
streams by further developing its fee-generating activities, such as the international business services and
wealth management. The Bank is the leading player in the insurance business in Cyprus, with such
businesses providing a recurring income, further diversifying the Banks income streams. The Bank is also
endeavouring to reduce its operating expenses and maintain a lean operating cost structure, through targeted
non-personnel cost reductions and through a program of staff exits.
The Bank through deliberate and well time actions has managed to reduce its risk profile, to enhance its
liquidity position and to improve its capital position. The Banks remaining non-core exposures in Russia are
expected to be eliminated over time. The Bank is also actively running down its loan and real estate portfolio
in Romania and continues its efforts to dispose of its real estate assets in Greece.
7
The Banks strong capital position has contributed to increased confidence of customers and other
stakeholders in the Bank. This is evidenced by the customer deposit inflows experienced in the last few
quarters and the Banks increasing deposit market share. Going forward, the Bank will continue to ensure
that appropriate capital levels are maintained taking into account its risk profile, the high level of problem
loans, its reducing exposures to overseas non-core markets, as well as the economic and regulatory
environment.
The below table shows the Groups performance vis--vis the 2017 targets and a new set of Medium Term
Targets, including new targets relating to 90+ DPD ratio, ELA, Loans to Deposit ratio and Total Assets.
Asset Quality 90+ Days Past Due coverage 41% 48% 40%-50% >50%
Efficiency Fee and Commission income / total income 13% 15% Increase >20%
24
IFRS 9 impact, which is effective as from 1 January 2018, has not been taken into account for the purpose of the targets. Targets are set on the basis of the present
regulatory environment.
25
See Note 9.
8
E. Appendix
Losses from revaluation and disposal of investment properties (53) (12) 342% (17) (13) 33%
(Loss)/profit before tax, restructuring costs and discontinued operations (391) (114) 244% (518) 48 -
Loss from disposal groups held for sale/discontinued operations (38) (166) -77% (0) (9) -100%
26
See note 5.
9
Condensed Consolidated Balance Sheet
31.12.2014
mn 31.12.2015 27 +%
(represented)
Debt securities, treasury bills and equity investments 1.009 2.541 -60%
Non-current assets and disposal groups classified as held for sale 49 916 -95%
Non-current liabilities and disposal groups classified as held for sale 0 611 -100%
27
See note 5.
10
Key Balance Sheet figures and ratios
31.12.2015 31.12.2014 +%
Net Interest Margin 3,79% 3,94% -15 bps* 3,69% 3,70% -1 bps*
Return on average assets -1,7% -0,9% -0,8 p.p* -8,6% 0,2% -8,8 p.p*
Return on average equity -12,9% -8,5% -4,4 p.p* -62,3% 1,5% -63,8 p.p*
Basic (losses) / earnings per share ( cent) (4,92) (4,41) -0,51 (5,74) 0,15 -5,89
* p.p. = percentage points, bps = basis points, 100 basis points = 1 percentage point
Notes to the Audited Financial Results of the Group for the year ended 31 December 2015:
The Financial Results of the Group for the year ended 31 December 2015 have been audited by the Groups external auditors.
The audited Consolidated Financial Statements are available at the Bank of Cyprus Public Company Ltd Registered Office (at 51 Stassinos Street, Ayia
Paraskevi, Strovolos, P.O. Box 24884, 1398 Nicosia, Cyprus) and on the Groups website www.bankofcyprus.com (Investor Relations).
The announcement and the presentation of the Audited Financial Results of the Group for the year ended 31 December 2015 have been posted on the
Groups website www.bankofcyprus.com (Investor Relations).
28
See Note 4.
11