Bank of Cyprus Holdings

Ladies and gentlemen, thank you for standing by. I am Gailey, your chorus call operator. Welcome and thank you for joining the Bank of Cyprus conference call to present and discuss the group financial results for the quarter ended 31st March 2022. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Panikos Nikolaou, Chief Executive Officer, Ms. Elisa Livadiotou, Executive Director, Finance, Mr. Dimitris Dimitriou, Chief Risk Officer. Mr. Nikolaou, you may now proceed.

Thank you. Good morning, everyone. Thank you for joining our first quarter of 2022. Financial Results Conference Call. I'm joined by Elisa Libaviodou, Executive Director of Finance and Legacy, Dimitris Dimitriou, Chief Risk Officer, and Anita Bablou, Manager, IR and ESG. After my introductory remarks, Elisa will go into more detail on our financial performance, and then we'll turn to Q&A. Of course, we remain available for questions both during this conference call and afterwards. I will start by highlighting some of the key messages for the quarter on slide four. First, we see healthy loan growth momentum and extended a record of 618 million of new loans. Our net performing book grew by further 2% this quarter and reached 9.55 billion compared to 9 billion 15 months ago. Second, we delivered a healthy profit after tax before non-recurring items of $27 million, with an underlying return on tangible equity of 6.7%, converging to our medium-term target of over 10%. A main component of this performance is our non-interest income that amounted to $75 million in the first quarter, representing over 50% of total income, driven by higher fees and commissions and higher insurance-related income. Our insurance business recorded a 24% increase year-on-year, and is a key contributor to income growth. Third, our capital position remains robust. As of the 31st of March, our capital ratios on a traditional basis were 20.3% for total capital and 15.2% for CT1. Both perform for trade and remain well above our targets of maintaining a capital at the rate of 13.5% to 14.5% for the period 2022 to 2025. Fourth, the process of balance sheet risk is now largely complete. During the quarter, we reduced our pro forma NP ratio to 6.5% and to 2.7% on a net basis. We remain well on track to achieve our target NP ratio of 5% by the end of this year and to less than 3% By 2025, our quarterly cost of risk increased modestly to 44 basic points in the quarter, but remained well within our normalized target range. And finally, as we look ahead, the group has set the foundations to enhance its organizational resilience and ESG agenda and continue to work towards building a forward-looking organization with a clear strategy supported by effective corporate governance aligned with ESG agenda priorities. In 2022, the company received a rating of AA by MSCI and we are working hard to improve this rating further. Our transformation plan is already in progress and aims to enable the shift to a modern banking organization. The banks' digital infrastructure initiatives provide alternative solutions to our customers to carry out their daily banking transactions. Our active digital users continue to increase. Since the beginning of the year, active digital users have increased by 3% to 393,000, whilst our active mobile users have increased by 5% to 335,000. Moving now to slide five, clearly, A lot has changed since we communicated our medium-term guidance in February this year, and so I wanted to share with you our thoughts on how this will likely impact the bank. As you are all aware, the macro environment is one of the high inflation and some slowdown in near-term growth, offset by a large positive change in the shape of most interest rate curves. For Bank of Cyprus, the net effect is positive for both earnings and capital. Our income will clearly benefit from higher net interest margins from next year, more than offsetting an expected slowdown in volumes and fees. Higher inflation may lead to modestly higher costs, albeit there are already plans in place to mitigate the impact. In the near term, we expect some upward pressure on cost of risk, but the normal cost of risk target remains unchanged to 40 to 50 basis points. Together, however, we expect this to add to our ROT per annum, which in turn means we now expect to reach double-digit ROT a year earlier in 2024. Higher levels of profitability will be positive for our CT1 ratio, which we expect to be further boosted by next year following the implementation of IFRS 17. Specifically, we estimate the adoption of IFRS 17 in January 2023 to have a day-one benefit on group tangible equity of circa 50 million, enhancing group situation by 15 basis points. The above put us in a stronger position from which to build a sustainable dividend. We are increasingly confident in resuming meaningful dividends earlier, subject, of course, to regulatory approvals. Moving now to slide six, which provides further details for our performance in the quarter. I will briefly go over this. The CPU economy had a strong start for the year with GDP growing by 5.6% in Q1. However, it is clear that the events in Ukraine will have an impact for the whole 2022. We expect the economy to grow by 2.7%. During the first quarter of the year, we generated a total income of $163 million, up 7% year-on-year, driven mainly by a 13% year-on-year increase in net fee and commission income and higher insurance-related income, partly offset by 7% lower NII reflecting the impact of NP tax. Despite inflationary pressure, we have managed to keep our total operating expenses, excluding levies and contributions, broadly flat in the quarter at 86 million, reflecting our ongoing efforts to contain costs. The cost-to-income ratio stood at 59%, one percentage point down year on year. The reported result for the quarter was a net profit of 21 million compared to 8 million a year earlier. Deposits increasing by 1% to $17.7 billion and will continue to operate with a significant liquidity surplus that now totals $6.4 billion. Slide 7 provides an overview of microeconomic conditions. The escalating geopolitical risk following the outbreak of the Russian-Ukrainian war, the sanctions imposed on Russia, have profoundly changed the global microeconomic outlook and increased uncertainly in a very short time span. In Cyprus, GDP continued to grow in the first quarter by 5.6%. However, the growth is now anticipated to slow down, and the Ministry of Finance recently downgraded GDP forecast to 2.7% in 2022. before accelerating again in 2023, underpinned by the implementation of the recovery and resilience plan that is expected to support the domestic activity and employment. As in many other countries, consumer inflation in Cyprus has accelerated significantly from the third quarter of 2021 as a result of supply chain disruptions and higher energy and other commodity prices. In April, inflation accelerated to 8.6% after rising by 5.7% in the first quarter. Russian and Ukrainian tourists accounted for just over a fifth of tourist arrivals in 2019, the last pre-pandemic year, but despite the loss of tourists from these countries, other tourist arrivals in 2022 are expected to be higher than the 2021 level. Now turning to slide eight, Slide 8 provides an overview of the direct and indirect effects of the Russia-Ukraine war. The direct impact of the group is expected to be limited as the group does not have any banking operations in Russia or Ukraine following their sale in 2014 and 2015, respectively. The group has only a very small net exposure of 5 million in Russia, which is being run down. We have no exposure to Russian bonds or banks, which are subject to sanctions. In terms of assets, again, the group has limited direct exposure to loans related to Russia, Ukraine, and Belarus, representing only around 1% of net loans as of the 31st of March 2022. The net book value of this portfolio is around 100 million, out of which 90 million are performing. The portfolio is granular and secure mainly by real estate property in Cyprus. Customer deposits related to Russian, Ukrainian and Belarusian customers account for 6% of total customer deposits as of 31 March. This exposure is not material in the context of the group's strong liquidity position. Finally, only around 3% of our net fee and commission income is derived from Russian, Ukrainian and Belarusian beneficial owners. Focusing now on the internal exposure, we are aware of the challenges that the current economic landscape entails and the increasing uncertainty. However, at this stage, it is considered that the main impact on the Cypriot economy is expected to come from high inflation and a consequential slowdown in economic activity with the tourist sector to be likely most impacted. Cyprus is not an importer of Russian oil or gas. although, of course, it is indirectly affected by the intensifying rising pressures in the international energy markets. Cyprus mainly imports oil from other countries, such as Greece, Italy, and Netherlands. Professional services account for around 10% of GDP, of which some relate to Russia or Ukraine, and thus expected to be adversely impacted. There is, however, no crediting exposure, and the sector is not levered. While Russian gross FDI flows in and out of Cyprus may be quite large, these are often reflecting the typical setup of special purpose entities with limited actual impact on the Cypriot economy, hence likely to have a limited impact on domestic activity levels. Shipping in Cyprus is mostly German dominated, hence it is expected that there will be no impact on these sectors from any sanctions on Russian ships. Overall, the group expects limited impact from its direct exposure, while any direct impact will depend on the duration and severity of the crisis and likely reflect European and global trends. The group will continue to closely monitor the situation, taking all necessary and appropriate measures to minimize the impact on its operation and financial performance, as well as to manage all related risks and comply with the cost with all applicable sanctions. Turning now to slide nine of new lending. As I have mentioned earlier, new lending granted in Cyprus reached a record of 618 million for the first quarter, up by 31% on the previous quarter and 25% year-on-year, reaching higher levels than the equivalent period pre-pandemic. The quarterly increase is driven by increased activity essentially across all sectors, mainly shipping and international and corporate. New learning continues to be carefully considered against robust assessment criteria and 99% of new exposure in Cyprus since 2018 is performing. We have high quality origination supported by prudent underwriting standards and we make meticulous assessment of the repayment capability of our customers. As at the 31st of March, the outstanding performing loan book grew by a further 2% in the quarter to $9.55 billion. Only 11% of this loan book is restructured. I will now hand over to Elisa to take you through our financial results for the year. Elisa?

Thank you, Banikos, and Kai from me, too. So starting from slide 11 on the income statement, net interest income was broadly flat this quarter at 71 million euros and down 7% year-on-year, reflecting mainly foregone interest on the MPE sale, what we call Helix 2, which amounted to around 7 million euros per quarter, as well as the trends which here seem close to stabilizing. Non-interest income for the first quarter amounted to 75 million euros, compared to €81 million in the previous quarter, impacted mainly by higher revaluation gains in financial instruments in the prior quarter. Total operating expenses, €86 million for Q1, down 2% Q1-Q, and up 4% year-on-year, despite higher levels of inflation. Provisions and impairments for the quarter of €17 million, comprise loan credit losses of €12 million and impairments of €5 million. Provisions and impairments decreased by 26% from the fourth quarter, mainly due to higher impairment losses on revenue properties in the fourth quarter of 2021. Cost of risk increased by 9 basis points Q&Q to 44 basis points following the update in the macroeconomic outlook to reflect the geopolitical risks. Compared to Q1, our cost of risk was down 22 basis points due to lower COVID-19 related charges. Profit after tax and before non-recurring items amounted to 27 million euros for Q1, with an underlying return on tangible equity of 6.7%, both similar to the prior quarter. Restructuring and other costs of 4 million euros for Q1 include 3 million relating to a small voluntary staff exit plan in a subsidiary entity. The overall result was a profit after tax of 21 million euros for the quarter, compared to $10 million in the previous quarter and $8 million in Q1 2021. Now moving to slide 12 on the drivers of NIM. Our net interest margin in the first quarter decreased slightly to 132 basis points, still negatively impacted by the reduction in NII following the NP phase. We are encouraged by the non-legacy loan income evolution, which is stabilizing, with yields of 292 basis points, stable over the past two quarters and volumes growing over recent quarters. Our interest expense decreased in this quarter following the redemption of the old Tier 2 notes of 43 million euros, which had a coupon rate of 9.925 in January 2022. Our Tier 3 borrowing stands at 3 billion euros. Approximately 15 million potential NII benefit is being recognized in the income statement over the period June 2021 to June 2022. While, as you can see, individual category spreads were relatively stable, the largest driver of the overall decline in net interest margin was the changing mix of our balance sheet towards more liquid assets. Let's now turn to slide 13, where we discuss in more detail our gearing to higher interest rates. As shown on the graph, we have used conservative interest rate assumptions in setting our business plan back in mid-February 2022. We expect to observe an immediate NII benefit from the increase in ECB deposit rate as our balance sheet is highly geared to liquid assets. Specifically, around €9.3 billion is held in cash balances with the ECB. Based on current market forward rates, the ECB deposit rate is expected to increase from minus 50 basis points to plus 65 basis points in 2023, significantly higher compared to our planning assumptions of minus 40 basis points at the same period. However, as approximately 35% of net loans as of 31st March are floored to zero, the NII benefit when rates turn positive is expected to be even higher. This benefit is expected to be partly offset by higher wholesale funding costs and assumed partial pass-through to deposit, including the reduction in liquidity fees. Overall, the rising interest rates facilitate faster growth in net interest income with an overall net NII uplift potential of 80 to 100 million per annum starting in 2023. It's important to flag that this uplift incorporates assumptions about the pass-through of the increasing rates to deposit, including this liquidity fee. Slide 14. In Q1, non-interest income amounted to 75 million euros, down 8% Q1Q, mostly impacted by lower FX and other income, as well as lower med insurance income, and up 24% year-on-year, as Q1 was impacted by the lockdown. Q1 of 2021, that is. Net fee and commission income was flat at 44 million this quarter, and net fee and commission income was driven by the introduction of revised price lists in February this year and the extension of liquidity fees to a wider customer group in March 2022, offset by seasonally lower transactional volume. Net insurance income amounted to 16 million euros, down 11% on the previous quarter, impacted by a lower level of positive changes on invalidation assumptions, and seasonally lower premiums, partially offset by lower insurance claims. Net effects and other income was reduced to 10 million euros, down 33% Q and Q, mainly due to higher revaluation gains from financial instruments in the previous quarter. Now moving to insurance on slide 15. The underlying operating performance of our insurance companies continued growing into the first quarter. Net insurance income for our life insurance company, EuroLife, amounted to €9.6 million for the first quarter, up 29% year-on-year. And for our general insurance business, net insurance income amounted to €6.7 million for Q1, up 17% Q&Q. Both increases were driven by higher growth rates and premiums, partially offset by increased costs and claims. Overall, the insurance business is a valuable and growing revenue stream for the group, as net insurance income contributes more than 20% of the group's non-NII. However, we believe it can deliver more. We are aiming to enhance its value by growing the business even further, supported by digitization and our lean operating models. Based on current expectations, the IFRS 17 implementation on the 1st of January 2023 is expected to have a positive impact of around 50 million euro on the group's tangible equity and has enhancing the group CT1 ratio by around 50 basis points. Moving now to costs on slide 16, total operating expenses for the courser amounted to 86 million euro down 2% Q and Q. Staff costs were broadly flat Q and Q and year on year, resulting from the combined impact of the small targeted voluntary staff exit plans in the previous quarter and the renewal of the collective agreement and despite Q1 inflation. Other operating costs for the quarter stood at 36 million euro, down 3% Q and Q, mainly due to lower marketing costs and up 11% year on year, reflecting subdued spending during Q1 2021 lockdown. The cost-to-income ratio, excluding the special levy on deposits and other levies, for the first quarter was at 59%, compared to 57% in the fourth quarter and 60% in Q1 2021. The Q and Q increase of 2 percentage points was driven by the Q and Q increase in total income. Branch footprint rationalization continues, facilitated by the ongoing digital transformation of the bank. We're aiming to achieve a 25% reduction compared to December 21, as more of our customers become digitally engaged. By the end of July, the branch network will be almost half the size it was in 2018. Additionally, in 2022, we aim to substantially streamline our workforce with a target to reduce the number of employees by approximately 15%. Now moving to capital on slide 19. Our CT1 and total capital ratios at 31st March stood at 15.2% and 20.3% respectively, both from pro forma for loans held for sale. During the first quarter, we have generated around 50 basis points of organic capital through operating profit, which was largely offset by expected loan credit losses and impairment of around 20 basis points and other movements of a further 20 basis points. The phasing in of IFRS 9 reduced the opening ratio by around 60 basis points. Our CT1 on a fully loaded basis was at 13.9% as of 31st March, or 14.5% on a pro forma basis. The minimum requirement for 2022 for the CT1 and total capital ratios is set at 10.08% and 15.01% respectively. The group continues to monitor opportunities for the optimization of its capital position, including the AT1 capital. Moving now to slide 23, which provides an overview of the asset quality. The NPE ratio was reduced to 6.5% for Pharma for Health for Sale and 2.7% on a net basis. as we make progress towards our target of reaching 5% by the end of the year. The bank's NPE coverage ratio was stable at 60% pro forma for Helix, and when taking into account tangible collateral and fair value, NPEs are more than fully covered. The coverage of the re-performing NPEs is relatively low at 30%, reflecting the lower risk associated with this stock of NPEs. whereas coverage of core MPs increased to 68%. And finally, on slide 26, covering cost of risk, our cost of risk for Q1 was at 44 basis points compared to 66 basis points in the previous year, reflecting mainly lower COVID-19-related charges and normalization of cost of risk as balance sheet de-risking is largely complete. The cost of risk for Q1 of 44 basis points includes 20 basis points reflecting the update in the macro outlook and management overlays on sectors such as tourism and private individuals expected to be impacted by the crisis in Ukraine and the heightened inflationary pressures. And with that, I hand back to Banikos for his closing remarks.

Thank you, Elisa. I will close with our investment highlights and mid-term targets on slide 30. We remain confident in the key actions planned for the bank to lay down the foundations for sustainable growth and share-afforded value creation. These are building our performing loan book, growing more capital-efficient revenue, delivering on the operational efficiency while investing in digital transformation, and executing the last leg of the risk. Clearly, a lot has changed since we communicated our medium-term guidance in February this year. For Bagos Cyprus, the net effect of the changed market environment is positive for both earnings and capital. Our income will clearly benefit from higher net interest margins from next year, more than offsetting an expected slowdown in volume and fees. High inflation may lead to modestly higher costs, albeit there are plans in place to mitigate the impact. In the near term, we expect some upward pressure on cost of risk, but the normalized cost of risk target remains unchanged to 40 to 50 basis points. Together, however, we expect this to act as a ROTE per annum, which in turn means we now expect to reach double digit ROTE a year earlier in 2024. Higher levels of profitability will be positive for our CT1 ratio, which we expect to be further boosted next year following IFRS 17 implementation. who are increasingly confident in assuming meaningful dividends earlier, subject, of course, to regulatory approval. This concludes our presentation, and we will now open the floor for your questions. Thank you very much.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Gwindara with KBW. Please go ahead.

Hi, good morning. It's Dara from KBW. Thank you for the presentation and taking my questions. First question would be on your comment around the upward pressure in the near term on provisions. If you could provide maybe just a bit more colour around what kind of magnitude of upward pressure are we talking about and is that something just for the next quarter or in the second half of the year? So just You know, what kind of uplifting provisions do you think that implies? And then the second question would be around capital. You've highlighted the positive impact of IFRS 17 in 2023. And I was just wondering if, you know, in conjunction with meeting an MPE ratio of 5%, if you think there could be any downwards move in your capital requirements and is there any potential for paying dividends out of the 2022 results or is that something to be reviewed at a later stage in 2023? Thanks.

Okay. So let me take that question on dividend because it's an important question. And I will start by saying that I am fully aware how important dividends are for our investors. So as a management team, we are very focused on resuming dividends. And as we mentioned today, we expect we'll be generating a higher level of profitability and, of course, implicitly, higher capital ratios. IFRS 17, as Elisa mentioned, adds another 15 basis points to our C2R. This improved profitability and capital position is helpful for the reduction of dividends. Of course, this is, as we said, subject to regulatory approval, but our improved performance is making us increasingly confident over both for the timing of dividends and also that such dividends will be for a meaningful amount. So going back to the timing, I just want to remind you that... We have a dividend prohibition for 2022 given to us in our discussion. Our previous comment on dividends was for a payment from 2023 onwards because, as we said earlier, 2022 is still a traditional year, which in theory could mean that from the start of 2023 at the earliest, all could be based on 2023 profits. meaning a payment in the first part of 2024. But I repeat, this is all subject to regulatory approval and it's something that will be decided in 2023. Regarding the question on capital, Darak, I will highlight how important capital is for us. It's non-negotiable. The positive ROT allow us to organically generate capital, which is also very important. And the buffer in capital, it's one of the main reasons for lifting the prohibition on dividends. So, one, starting the payment of dividends. And we, of course, do a capital management and the focus of capital management is always a dynamic process. And because we know how important is a return, of shareholder value, we do not plan to sit on unnecessary capital. But first, step by step and gradually, we need to leave the regulatory restriction and start paying dividends. On the provision, cause of risk question, I think our chief risk officer is in a better position to answer this, Dimitris, and the proper guide to guide you on this. So, Dimitris, if you please, go ahead.

Yeah, thank you, Manikun. Hello, Darren. Well, let me start by saying that the cost of risk target was a medium-term target from the outset. We did indicate in the past that there could be volatility in the short term. And given the underlying uncertainties, this stands today. Now, any volatility is expected to be modest. Let me just say as well that we are confident in the quality of our credit portfolio, which has already proven resilient through the pandemic. Our analysis of our client's portfolio points out that it can absorb the higher costs due to inflation without any significant defaults. We do maintain our rigorous underwriting standards in the structure our repayment provides based on sensitized projected cash flows. which do take into account increased costs and interest rates as well. So in conclusion, we are confident that the macro changes will not disrupt our medium-term cost of risk guidance. And this is supported by the performance and quality of our portfolio. And any volatility, which again we expect will be modest due to the macro environment, We will not amend our 40 to 50 basis points medium term cost of risk guidance.

Perfect. Thank you.

The next question is from the line of Floriani Jonas with Axia Ventures. Please go ahead.

Yes, hello, Tim, and good afternoon, everyone. I also have questions on the outlook, similar to the previous questions. I was just wondering if you can also quantify a bit the comments on inflation impact on costs and also the measures that you mentioned that are going to be taken. And related to that, your 15% reduction in FTEs should be part of that cost savings, right? But that probably comes late in the year. What about the timing of the charge related to the exit scheme? And then secondly, also on the outlook, what about the comments on the decreased volumes and fees? You know, if you can quantify that, it would be helpful. And then my final question is on disbursements. It looks like the Q1 number is probably a bit ahead of the run rate expected. I was just wondering if the level you've seen in Shipping International it's recurring or there was a bit of a one-off in Q1 as well.

Thank you. Okay, thank you. Jonas, a lot of questions, so I hope I don't forget anything. We start with cost and inflation and you know that cost has been a key focus for our agenda for the last three years. We even have a dedicated chief cost officer. So, regarding the 50% reduction of staff and the 25% reduction of our branch network, this will be a one-off for the staff, one-off item for 2022 and to the extent that it happens. So, obviously, higher inflation makes the achievement of our absolute cost target harder, but we believe that we will be broadly on track to deliver the targets that we have already guided in terms of absolute number, unless inflation remains at very high levels well into 2024 and 2025, which is not in our current expectations. But of course, most importantly, you know that the most important metric is cost to income, So our target plan, target duration between 50 and 55% by 2025 and the improved revenue outlook means that we are increasingly confident to achieve that. If I go to the overall disbursement and new lending and maybe touching on the volume question, I will say that, yes, new lending is a record quarter for the bank. It's even higher than 2019 figures, than any 2019 figures. What is more important is the absolute growth. We have previously guided you that we are diversifying, aiming to 1 billion of It can come from shipping and international. You see now that we mean what we say because you see that first roughly 100 million coming in Q1. Okay, I cannot be sure whether the 100 million will be recurring, but I can be sure the achievement of the 1 billion in the period that we guided. As we said, a certainty may slow down this pace. but the current pipeline suggests much better performance than 2021. And I would say reaching 2019 level, which was more than 2 billion. We have dominant position. You see our market share there growing. We have an efficient business model in delivering lending volumes and growth. And then diversification. So I'm confident that then the combination of volume and rates, because this is what matters, is volume and rates, it would be higher capital generating, of course, because of the contribution of the higher rates. I don't know if there's any other question. I think that what I would like to mention that the ROTE, the uplift in the RODE throughout the period, not just for 2024 or 2025, starting from 2023, takes everything into account. Takes the increased volatility in cost of risk, as Dimitris mentioned earlier, takes the lower volume growth, takes the lower fees, takes even modestly higher operating expenses because of the inflation and because of rising prices. And the overall outcome of this, if we combine with the outlook on the interest rates that Elisa described earlier on flight safety, reach to this significant uplift of the ROT.

I don't know if it's... No, I think that's clear. Just a quick follow-up. I was just wondering if you could share any kind of high-level indication of data points in April and May in terms of demand for loans, payment behavior, and also demand for real estate assets. So just wondering what you've seen so far in the last month and a half, if it has changed versus Q1 already or not yet?

At least during April, we can have the results. I don't see any material change in the trend. No change. I don't know, Elizabeth. I see no material change in the trend. We are holding on.

Yeah. Okay. Good stuff. Thanks, guys.

The next question is from the line of . Please go ahead.

Good afternoon, everybody. Quick question on the NII uplift from the potential interest rate hikes that you mentioned, 80 to 100 million per year starting from 2023, just to clarify. This is based on the assumption you have on the deposit rate going to 90 bps from minus 50 in 2024, I assume. And does the 80 to 100 million is that in 2024 when you are at 90 bps or it's gradually increasing to 80 to 100 million? What should be our assumption? What is the underlying assumption here, please? That is my first question. And my second question is regarding questions made by my previous colleagues. One is on the new lending growth. My understanding is that the 600 million you posted in the first quarter, a very strong number, can be repeated in the following quarter. So we could see new disbursements of more than 2 billion, let's say, for the full year. unless there is a big slowdown or something like that. Is that something fair? And my third, I'm sorry, if you said it previously regarding the VRS and the timing and the plan on the charge, and you mentioned it previously, I think it was a question. Thank you.

I think, Alex, VRS was, as I said, the current plan is for 2022. The exact timing during 2022 is still not decided yet. On the new lending growth, as I mentioned earlier, we expect, based on the current pipeline, we expect a good year. I don't know if we can repeat the 600 million per quarter because it will mean 2.5 billion for the year. And our highest ever was 2 billion in 2019, I think. We do expect a very strong first and second quarter, at least where we have visibility, and an extremely good year, better than 2021, much better than 2021. On the NIEI uplift, I think, Elisa, the question is your territory.

True. Okay, so Alex, the uplift is an annual uplift versus previous forecast. So it's not an end number where it will be built up gradually. It's an uplift we expect versus our previous financial plan on an annual basis starting from 2023. And it's the result, obviously the curves, and you can see on page 13 here, the delta of the curve versus what we had assumed in the plan earlier in the year. And let me just remind you that this 80 to 100 million is not just the NII benefit. It's net of a pass-through assumption on deposits, a reduction in the liquidity fee and elimination, actually, of the liquidity fee in line with the rates, higher wholesale funding costs. So it's a net impact of all of the NII and liquidity fee components of the P&L.

So the 80 to 100 million is also from 2023, I assume?

Yes, yes. A large component of that, let me just remind you, is the liquid assets, the 9.3 billion with the ECB at minus 50 basis points. they would reprice immediately upon a rate hike. And the benefit is overnight as opposed to the loan book, which has a time lag on the repricing dates.

OK, very clear. Thank you.

The next question is from the line of with Autonomous Research. Please go ahead.

Hi, everyone. A couple of debt questions and then maybe a quick follow-up on the NII. On the debt side, the MREL requirement, does that phase in in a linear fashion or is it literally you've got your interim requirement for 2022 and the next big target is for the end state? The other debt type question was on the 81s, if you've had any thoughts about refinancing what form that might take and then the follow-up on TLTRO was just to I suppose confirm your likely actions when the cheap rate drops off at the end of June. Would you expect to collapse that portfolio or maintain it now with the as you mentioned with the expectation of higher rates? Many thanks.

Okay, Elisa, on the MREL side.

Okay, so our MREL target is nonlinear. Actually, let me say that again. Our MREL target is only at the end state in 2025. We only had one binding MREL target at the end of last year of 2021, and you will see on the slide that we more than met that. There are nonlinear interim soft numbers between now and and the end of the period. But all of those are not binding. Therefore, and obviously current market conditions are not conducive to each one for us. So we will monitor the market if we find opportunity to issue at rates which are, you know, acceptable or for us we will. But the numbers, the amounts that we have to issue are manageable. And therefore, we're not in a rush to issue at high rate We're not under pressure to issue under strict deadlines in expensive markets for us. On the 81, again, as you know, Corinne, there is a call option at the end of next year, 2023. We are monitoring the market. The same comment applies on our... You know, we keep all options open. Not a good market for us at the moment, but if we find an opportunity to... do something with the 81 to act upon it. We will, what that action may mean, we will need to see depending on how much the market evolves. Let me just remind you that our tier two refinancing last year was a very successful transaction for us. So, you know, we are open to handle our 81 going forward, depending on market conditions and investor appetite. On TLTRO, we haven't made decisions yet as to whether we will repay it or not. It depends on the arbitrage. As you know, TLTRO funding for us is a carry trade. We borrow from the ECB and we place it back. With them, the two legs do not reprice on the basis of the same rate. So we'll take a view as to whether there is a positive carry. If that's the case, we will keep it. If not, We will repay it, and this is a dynamic decision. It will be considered all the time, and we will be reassessing it depending on the market rate conditions.

Thank you very much.

As a reminder, if you would like to ask a question, please press star and 1 on your telephone. Once again, to register for a question, please press star and 1 on your telephone. As a final reminder, to register for a question, please press star and 1 on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. for any closing comments. Thank you.

Thank you. Thank you all for participating in the call. As always, you know that myself, Elisa, Nida, Alden, or Dimitris, the Alden Bank of Cyprus team are more than willing and available for any bilateral discussion, explanation, or presentations of the current performance, and most importantly, of the updated outlook for Bank of Cyprus. Thank you very much.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a nice day.