Bank of Cyprus Holdings

Ladies and gentlemen, thank you for standing by. I am Jota Yokoro's call operator. Welcome and thank you for joining the Bank of Cyprus conference call to present and discuss the preliminary full year 2025 financial results. All participants will be in a 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. Mr. Nikolaou, you may now proceed.

Good morning, everyone. Thank you for joining our Financial Research Conference call for the year ended 31st of December 2025. As always, I am joined by Elisa Libatiotou, Executive Director of Finance, and Anita Bablu, Manager, Strategy, IR, and ESG. After my introductory remarks, Elisa will go into more detail on our financial performance for the year, and then we will be very happy to take your questions both during this conference call and afterwards. Note that this set of financial details does not include any guidance or financial targets for the coming years as we are planning to outline our strategy and priorities as the investor after presentation scheduled on March 3rd, 2026, and appreciate your patience until then. Let me take the opportunity now to invite you to this presentation, which you may attend in person in Athens or join via hybrid format with details on the events disclosed on our website. This event will start at 3 p.m. local time. I would like to start now with slide number three. Our investment case drivers are well known. A strong economy, our dominant position in a profitable banking market, and diversified highly profitable business model and strong distributions supported by high capital ratios. Slides 6 and 7 give a brief overview of the microeconomic environment. We operated in a strong, diversified, mainly service-based economy that is growing faster than Europe. During 2025, economic growth was 3.8% in real terms, exceeding significantly the Eurozone average. This economic growth was the outcome of strong fundamentals with low unemployment, a strong fiscal position, low inflation, and regular tourist activity. Let's turn to slide 8 and the summary of our key highlights for Godwos and other exceptional years. These include strong volume growth with a $3 billion of new lending, translating to an 8% increase in the loan book year-on-year. 8% growth in deposits well exceeded our expectations. The profitability of $481 million corresponded to a tangible equity of 18.6%. supported by resilient revenues and maintains high efficiency with a cost to income ratio of 37%. Our asset quality remains solid, demonstrated with an NP ratio of 1.2% and a cost of risk of 33 basis points. We've had a very healthy organic carrier generation in excess of 400 basis points. We have declared a 70% dividend distribution while seeing continuous strength in capital ratios with 61% at 21%. On slide 9, we discussed shareholder distributions, a key focus area for us. During the course of the year, we targeted to deliver a 70% payout ratio of 20 to 85 earnings at the top end of our distribution policy, and today we have delivered on that promise, proposing a final cash dividend of 50 cents per share. Together with the interim dividend of $0.20 per share, already paid in October 2025, the current dividend amounts to $0.70 per share, or $305 million for 2025, a significant increase in both the total payout ratio and the total quantum compared to prior years. We have built a strong transferable distribution and continue to provide attractive returns to our shareholder base. Moving on to slide 10. Clearly, the last three years have been exceptional. We have averaged close to half a billion euros of annual profits and we maintain very competitive rotters despite increasing capital base. Of course, the high rates helped us historically, but I would like to highlight that during 2025 we delivered a very strong result while absorbing the normalization in interest rates. We have built a strong track record of shareholder returns, with cumulative distributions of almost 550 million over the last two years. And despite these growing distributions, given our exceptional current generation, we have been strengthening both our equity and our capital base. Finally, on slide 11, you can see how our performance for 2025 compares to the targets we set ourselves. On every metric, we met or exceeded our expectations, giving us confidence that we will remain a very profitable bank in a normalized interest rate environment. I will now hand over to Elisa, who will run through our full results in more detail.

Thank you, Paniko, and good morning from me too. Let's start with a snapshot of the quarter on slide 13. You can see the key trends for our quarterly results. We are seeing NII approaching stabilization as rates stabilize. We have maintained a very strong cost efficiency ratio despite bringing forward some restructuring costs into Q4, which I will elaborate on later, whilst our asset quality remains strong and cost of risk continues to be low. The fourth quarter net profit includes a number of exceptional items, so whilst we are pleased with the 128 million euro quarterly result, this is not the run rate to be included in your model. Moving now to slide 14. As mentioned, there are a number of noteworthy items that I want to unpick to help you with your modeling. First, I want to draw your attention to the latest tax reform. Effective from 1st January 2026, the corporate tax rate in Cyprus has increased to 15% from 12.5% previously. The group's tax charge in Q4 of 4 million euros included a regular charge on profits, but was largely offset by a one-off positive impact primarily from the measurement of the deferred tax assets from the change in the corporate income tax rate to 15%. This is non-cash and is expected to be reversed in the next year, so the higher corporation tax liability. So the impact is purely technical. In addition, as I mentioned earlier, we brought forward staffing decisions into Q4. Specifically, in Q4, we completed a voluntary staff exit plan where around 110 employees were approved to leave the group, which led to a relatively higher charge of 14 million euros in the quarter and totaled 19 million euros for the year. While such expenses are part of the normal running of the business, and we include them in the efficiency guidance we give, this quarter the number was doubled the normal run rate. Furthermore, there were a number of small positive items adding to just over €10 million that we want to flag. €5 million in insurance on the release of the premium tax, €2 million in insurance reinvestment, and finally, we benefited by a net credit of €4 million in other provisions litigation. This should be considered one-off and will not be repeated in future quarters. Lastly, as a reminder of the calculation of our dividend payout ratio, we use the group's adjusted recurring profitability, adjusted for the 81 coupon, which we show in the table to be at 434 million euro in 2025. Moving on to slide 15, we have a simple balance sheet characterized by high liquidity with our deposit base twice the size of our loan portfolio. Our balances have grown by 8% since the beginning of the year, mainly as a result of higher customer deposits, while our strong liquidity is gradually being deployed to our loan and fixed income portfolio. Slide 16 and net interest income now. In Q4, we saw our NII increase by 2% to 183 million euro, reflecting primarily very strong growth in our deposit base, which rose by 3% on the prior quarter, equivalent to an annualized growth of over 12%. Although we are pleased with this development, we would not necessarily expect this pace of growth to continue due to the seasonal timing and behavior of the deposits we collected in the quarter. We estimate that this unusually large increase has contributed around €3 million to our non-interest income. Overall, we are pleased with NII development during the year. Increased hedging activity, dynamic volumes, and depositor behavior allowed us to absorb the brand of the rate reductions. Moving now to our shedding activity in slide 17, our significant hedging efforts undertaken over the last couple of years have reduced our NII sensitivity to 25 basis points parallel shift in interest rates by 15 million euro since December 22. We added around 3.1 billion of hedging during 25, taking the total to 12.1 billion euro, covering almost half of the group's interest earning assets. On slide 18, you can see more details of our deposit trends, where, as previously mentioned, the base of €22.2 billion grew 8% year-on-year. And the breakdown of our deposit base on the bottom left chart shows that more than 80% of our deposits are from Cypriot residents. We have seen deposit costs declining from the peak in 24, and now stand at 27 basis points for the fourth quarter of the year, while the share of term deposits remains broadly unchanged on the prior quarter to 30%. The well-managed deposit costs and mix mainly reflect the very liquid Cypriot banking sector, as well as our strong franchise and market position. Now turning to slide 19 and new lending. During 2025, we have granted a record level of new loans of €3 billion, up 23% on a full year basis. We observed growth across all business lines, with a larger contribution coming from our international portfolio, primarily driven by effective pipeline execution. Looking now to slide 20, we are pleased to see our loan book growing by 8% in 2025, well ahead of our initial expectations. Our domestic loan book, representing nearly 90% of our loan book, experienced steady growth of around 4%, broadly aligned with the economic growth in Cyprus. Half of this year's growth came from the continuing build-up of our international book, where we added around €400 million of net lending. As this is a younger book, it has lower redemptions during the build-up period. Yields on loans continue to drift downwards from down six basis points on the previous quarter, reflecting large repricing to lower rates. Of course, we have and we will continue to ensure product underwriting standards and we will not sacrifice the quality of our loan book for growth. As a reminder, 99% of new exposures written since 2016 remain performing. Slide 21 shows our progress on the fixed income portfolio. Our fixed income portfolio is to that 5.1 billion Euro representing 18% of the group's total assets, growing in line with Thailand. The portfolio comprises of high quality assets with average maturity of three to four years and is highly diversified. Moving now to non-interest income on slide 22. Non-NII has increased by 14% in the prior year. Let me try to unpack and share how we look at this importance of revenue that underlines our diversified business model. We have what we consider high-quality revenue, which is our area of focus. This includes the fee and commission income, net insurance results, and the FX customer-related fees. Altogether, this grew by 4% year-on-year. During 2025, we had 15 million euros of non-recurring items, which included 10 million Euro insurance reinvestment and 5 million of release of the premium tax on the life insurance business. These are not expected to be repeated. Additionally, each year we have revenue effects and gains on financial instruments, which we consider to be more volatile profit contributors. In 2025, this totals 44 million Euro, up from 32 million the previous year. Overall, non-interest income remains an important contributor to group profitability and covers 76% of 2025 operating expenses. Our insurance businesses are a valuable and recurring revenue stream for the group as presented on slide 23. In summary, our net insurance results amount to €54 million in 2025, up 11% year-on-year, reflecting mainly the first-time contribution bias in the insurance . Overall, net insurance results contributed 18% of total non-interest income, and insurance businesses remain highly profitable, contributing almost 10% of the group's total profitability. Slide 26 provides an overview of operating expenses. As mentioned earlier, in Q4, we completed a voluntary staff exit plan, which led to a relatively higher charge of €14 million in the quarter and totalled €19 million for the year. While such expenses are part of the normal running of the business, at €14 million, the Q4 charge was around double the usual run rate. Staff costs were up 4% on a yearly basis due to the step-up adjustment which typically takes place in the first quarter of the year, including salary increments and cost of living adjustments. On the other hand, other OPEX was well contained, reflecting an annual reduction by 2%. As expected, our cost-to-income ratio of 37% for 2025 was higher than last year, reflecting the impact of falling net interest income as rates normalized. Turning now to slide 27 and asset quality. Our underlying credit quality is strong, evidenced by the low NP ratio at 1.2% and a coverage ratio exceeding 100% at year-end. As a result of these strong fundamentals, our cost of risk continues to trend below our normalized 40 to 50 basis points levels at 33 basis points for 2025. REMU is our engine to manage the stock of properties acquired from defaulted borrowers. REMU repossessed stock continues to demonstrate significant progress with the stock decreasing further to 377 million euro as of 31st December exceeding original plans to reach half a billion euro by the end of 2025. And we continue to manage our REMU stock prudently as it is carried on the balance sheet at below 70% of the current open market value. Now let's move to capital in slide 28. The bank's capital position remains strong. We continue to build organic capital, generating 436 basis points this year, well ahead of our full-year 2025 target of around 300 basis points. During the year, we had a positive CRR benefit of 100 basis points, absorbed around 15 basis points for the acquisition of Ethniki Insurance Cyprus, and had modest RWA growth. As of 31st December, our 51 ratio and total capital ratios were at 21.0% and 25.9% respectively. Let me remind you that the capital ratios are after distribution accrual at 70% payout ratio at the top of our distribution policy. And again, the proposed dividend for 2025 has no impact in these capital ratios. I will now hand back to Panikos for his closing remarks.

Thank you Elisa. As I have mentioned at the beginning of our call, we will host our investor update on the 3rd of March 2026, in which we will outline our strategic priorities and share our new financial targets for the years to come. We look forward to having you all present, either physically or virtually. This concludes our presentation. Let us open the floor for your questions. I will kindly ask you to focus on the results and please keep outlook at the new questions for the health of March.

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 comes from the line of Buluguris Alexandros with Europe Securities. Please go ahead.

Good morning. Many thanks for the presentation. Would it be possible to elaborate a bit more on the deposits and the seasonal increase? Does it reflect mostly corporate deposits? Is it retail? Could you give a bit more background on why we saw this increase? And the second question is regarding the VRS plan you took in Q4. Maybe if you could elaborate a bit further on that, how many employees it included and what cost savings we might expect from this. Thank you.

Thank you, Alex. The deposits increase across all the lines. So it's partly because of the very high liquid market, plus the strong financial market position of mango cycles. So it's not something coming from a specific sector. It's generally coming from the economy activity in Cyprus. So, regarding the VRS, yes, there was a bigger plan in 2025 versus what we had in 2024, double of size, more than 100 people exiting the bank versus 15 in 2024, and this was reflected on the Q4 results. Going forward, this will be annually assessed, but you should expect something similar most probably with their own company 2024. But this will be annual assets. You should expect small exit plans throughout the years.

Okay, clear. Thank you.

The next question comes from the line of Cruz Hugo with KBW. Please go ahead.

Hi, I have a series of questions. First of all, the loan growth is also quite strong. So if you could comment on whether the current level of growth is sustainable or could improve even, given the strong economy. Second, I've seen you increase materially the amount of interest rate swaps on non-maturity deposits. So is there any more room to grow this further? And what's the duration on the front book? Then the question, I think you didn't give guidance, perhaps I missed it, on the tax rate going forward, you know, the current tax rate, if you could clarify that, please. And then, you know, RWA density increased significantly, you know, improved significantly Q and Q. So what drove that? Is there any, you know, capital optimization measures you've taken there? And are there any plans for the future? I think that's it for me.

Thank you. Thank you. Let me start from the loan growth. Obviously, it's better than what was expected. This is partly coming from domestic economic activity in line with our strategy. Around 4% of the 8% comes from domestic activity. move faster than what was initially anticipated and contributed another 4% to the growth. Going forward, you should expect the international growth pace to reduce a little bit, but we will tell you more on the 7th of March in Athens, how we see long growth going forward. Elisa, I'm sorry.

Okay, so on the hedging, we did increase our hedging volume, you can see on slide 17, during the course there. That was the result of our volume growth. You mentioned the deposit and the loan, but especially the deposit book, which grew in the year, and especially in Q4. So that was the driver. As you know, hedging has been a very useful tool for us in managing our rate sensitivity. through the various cycles of the interest rates. And we continue to view it as a very useful tool in this respect. We have around 47% of average interest earning assets being cached. And that probably or broadly the level at which we expect to stay going forward. Again, we'll give more color on the 3rd of March, but this 47% is not far off where we would like it to be on, let's say, a steady state going forward. Let me just remind you, I said this before, we don't have cliff effect catches. In the book, we manage them throughout the years and the period. And you asked about the duration of the front book catches. The average is three years. We optimize on each specific instrument, but on average, it's a three-year duration. So you should assume, on average, three years forward rate I think that's all on the hedging. On the tax rate, there was some noise going through P&L because of the tax reform in Q4 from various components of the tax reform. You should view that as a non-recurring noise in the P&L. But going forward, the guidance we are giving is that from an effective rate of around 14% on property for tax, you should increase that to 16 or 16 1⁄2% of PDT. That's the way we think about the tax reform going forward. And lastly, on the RWA density, there was actually RWA state flat broadly, Q on Q, between September and December. And the reason was that the increase in the loan book risk credit assets was largely offset by the revenue stock reductions as well as some changes in the instruments our treasury team was using for the placement of the liquid assets and the hedging. So this was specific to this course, the treasury element. You should not assume that this will continue.

Thank you very much.

Thank you. The next question comes from the line of Alonso Alfredo with Deutsche Bank. Please go ahead.

Hello. Good morning and thank you for taking my questions. I have a couple of questions and one follow-up. On the NIN compression, it seems that it's pretty limited. It should be close to its end or are you expecting some further pressure, especially on the beginning of 26? I'm not asking for the numbers. I'm not pushing you for the capital market day for sure. And there is also something on the insurance line after all the one-offs and so on and the inclusion of the NICI. what could be considered the run rate, which is the run rate that we should be expecting. There is some recovery versus quite mild activity during the year. And finally, my follow-up on the tax impact on the one-off, could you provide the exact impact from the DTA recognition in the quarter, please?

Okay, thank you, Alfredo. Compression, I can only say that we are approaching sustainable levels. I will say more during our investor day in March. On insurance line, I will say that again, more on the future, I will say March. Sorry about that. But yeah, I mean, but you should expect, I mean, QMQ will have this kind of one-off coming from the effect of the contribution of ethnic insurance plus a lot of positive impact from premium tax reform on life insurance policy. But more on how we see insurance business growing organically, plus the full year contribution of ethnic insurance, we will be letting you know on March the 3rd.

And on tax, the DTA impact, was around 25 million, but there were other moving parts because of the tax reform. So the net impact was around 15 million in the P&L of all in the tax reform. And remember, these are non-cash primarily. They will unwind in essence through the higher tax rate in the next few years.

Perfect. Thank you very much.

The next question comes from the line of David Daniel with Autonomous. Please go ahead.

Good morning, all. Congratulations on your results. A couple of quick ones from me. Can we assume that the low point in NII has now passed? I'm not asking about guidance, but just a high-level comment would be good. The second one is just on CT1. Are there any regulatory headwinds coming, anything that you'd call out going ahead, and Looking forward, would you expect the CP1 to trend lower over time from here on? And then finally, just on issuance plans, can you maybe just talk us through what you think you'll be potentially printing in primary debt markets this year? Thanks.

Okay, so NII, again, we'll dive in March or March 3rd on the detail. We should be approaching the low rate. We did have a seasonally higher core sterone deposits, which helped by around 3 million BMI impact, but will give a lot more color on all the moving parts, because there's a few of them, in a couple of weeks' time. On CT1 headwinds, no, we are not aware of any. There was an increase in the OSI buffer for us starting 1st January, and that's in the slide in the back. of 25 basis points, but other than that, which is not actually a headwind, it's a minimum regulatory requirement point, we don't expect anything else. On the capital trending lower or not, again, this is one of the big topics we do want to cover on the March event, so you will need to bear with us on that one. And finally, on each one, we have two call dates coming up this year. The Tier 2, which we did a liability management exercise back in Q4, so that's in April. And we also have a senior call date in June. So we are reviewing our insurance plans. Our is significant, but we do want to maintain flexibility. So we haven't got plans to announce. Everything will be assessed, but we do have call dates coming up, which a natural decision point for what we do.

Thank you.

The next question is from with Ambrosia Capital. Please go ahead.

Hello, many thanks for your time and presentation. Just a few on my side. On the yield on performing loans, we see that the reduction is getting smaller and smaller. Has the repricing on the capital side just a top line comment if possible and going back to the history presentation as well you've put your rota on 15 percent set one can we assume this 15 percent set one is the meeting target has it been

Osman, apologies, it's very hard to hear you. Would you mind repeating the question?

Sorry, is this better by any chance?

Apologies.

Sorry, sorry about that. So can I, shall I repeat the first question? On the yield on performing loans, we're seeing smaller reductions every quarter. Can we now assume this is going to flatten out assuming ECB stays here? Just wondering about repricing of your loan book. That's the first question. Then on set one and ROTE, you mentioned 15% set one for your adjusted ROTE. You've done this in the past as well. Shall we assume this 15% is your management target internally? And finally, over the last few months, there have been some, ahead of elections, there have been some proposals by political parties on tax, temporary or actually not temporary, for the system. Just wondering if you have any comments, color, on that front. Thank you.

Okay. Thank you, Osman. I will start from the last question. Okay, there is always an anti-bank sentiment usually before elections, specifically with, let's say, the publications about taxing the windfall profits for banks. The discussion in the Parliament has not been started yet. It has not also been scheduled to be started. What I know is that the government and the Ministry of Finance are strongly against that. and legislation to be effective in the cycle needs to be signed by the president as well. And may also be a constitutional, but this is a different story. On the yield, I would say that we usually assume that we're approaching, let's say, a steady level, considering that the ACB will stay around 2%. But we will talk about that a little bit in more detail in our investor's day. on the ZT1, on ROTE, on capital 15% and capital allocation, payout ratios and all of that stuff. It's the main point of discussion on the March 3rd, so please allow me to defer, answer the question for another, let's say, two weeks.

Understood. Thank you very much.

Thank you.

As a kind reminder, if you wish to register for a question, please press star and one on your telephone. We have a question from the line of Mr. Katarovic-Alexander with Rome Capital. Please go ahead.

Yes, thank you. Could I please get clarity on NPE coverage? It seems like the level of 120% is excessive. So my question is, theoretically at least, does this create a scope for provision releases in the coming years?

You should see with NPE coverage, The coverage is approaching, I think it's 70%, so, Alexander, right? Okay. Okay?

Okay.

So, this is well provided, but these are the numbers.

Okay. Okay, clear on that. And just to clarify on the taxation, because the tax rate was artificially low in Q4, and I understand there are some accounts and aspects at play. So should we just go ahead with your effective tax rate on pre-tax of 16% as indicated, or there will be kind of a bulky one-off in Q1 increase in taxes?

No, you should... assume away what happened in Q4 as a one-off, I mean as a non-recurring event. All of the various components of tax, of the tax reform legislation were accounted for in Q4 because the legislation was enacted in December. So we don't expect one-offs in Q1 based on what we know at the moment. Just the effective tax rate as we discussed before, the 16 on PBT.

Okay, that's very clear. Thank you so much.

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

Okay, thank you all for your participation. As always, we will be very glad to take off like any questions on 2025 results. And most importantly, hoping to see you all during the Investors Day early March for the outlook for Banco Cyprus performance.

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