Bank of Cyprus Holdings

Ladies and gentlemen, thank you for standing by. I am Yota Yokoro's call operator. Welcome and thank you for joining the Bank of Cyprus conference call to present and discuss the first quarter 2026 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 the 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 Design Conference call for the quarter ended 31st of March, 2026. As always, I am joined by Lidia Libaviodou, Executive Director of Finance, and Anita Bablou, Managing Strategy, IR and ESG. After my introductory remarks, Elisa will go into more detail on our financial performance for the quarter and then we will be happy to take your questions both during this conference call and afterwards. I would like to start with slide number 5 and our investment case. Today, the bank is in very good shape with a strong domestic franchise. demonstrated by our diversified and efficient business model, holding leading positions in banking, insurance, and payment solutions. And we operate in an economy that is expected to grow faster than the Eurozone average in 2026, notwithstanding geopolitical tensions. An economy that is flexible and resilient to external shocks. We are one of the most well-capitalized banks in the Euro area, have strong capital generation, which enables us to build up an attractive distribution track record, supporting a payout ratio of up to 90% for 2026 profitability and up to 100% annually for 2027 and 2028. Slides 6 and 7 give a brief overview of the microeconomic environment. Since we last spoke to you in March 2026, the microeconomic landscape has evolved as a result of the conflict in the Middle East. resulting in heightened uncertainty and volatility. We entered 2026 with strong economic tailwinds that characterized the Cypriot environment in 2035, when the economy grew by 3.8 percent. Reflectional pressures were contained and the government's fiscal position stood out in the European context. While the global backdrop has led to modest economic downgrades, recent official forecasts suggest GDP growth for 2026 in the range of 2.7 to 2.9%, level which is expected to continue to significantly outpace the forecast growth for the Eurozone average. Despite the current ceasefire agreement, geopolitical tensions continue to pose risk for the European and global economies. Clearly, we are not immune to this. The Cypriot economy will be battered through weaker tourist activity and elevated energy prices. At this stage, the full impact of the conflict on the Cypriot economy remains uncertain and depends largely on its duration. We have faced many periods of macro- and geopolitical volatility in the past. Cyprus is a small, open, flexible economy that has shown it is resilient and quickly recovers from crises. Additionally, the Cypriot governor's robust fiscal position enables it to support affected sectors. The government has already introduced a package of over 200 million financial support to both households and businesses. Let's now turn to slide number 8, which shows a snapshot for the first quarter performance. For another quarter, we delivered a strong profitability at 121 million. This performance was the outcome of stabilizing NII at 181 million. low cost-income ratio of 77% and a positive cost of risk, reflecting a cut-off specific release and strong underlying asset quality, partly offset by some I-509 driven overlays. Slide 9 shows our performance along the shareholder value creation. Our ROI from Q1 2018% corresponded to 26.5% ROI based on 50% CQR ratio and will deliver yet another quarter of strong organic current generation of over 100 basis points, while our tangible value per share is up around 5% year-to-date. Let's now turn to slide 10. At our investor update in March 2026, we outlined our strategic priorities to continue to generate sustainable and resilient profitability as well as attractive sustainable shareholder returns.

Our financial targets for 2026 to 2028 are for eroding the mid-teens, translating into

eroding over 30%, based on the 15% CPM ratio, and are cutting capital generation in the range of 350 to 400 basis points per annum. These targets are supported by remaining focused on cost and underwriting discipline. And we remain committed to a meaningful distribution with a total payout ratio reaching up to 90% for 2026 and up to 100% annually for 2027 and 2028. These distributions are of course subject to market conditions as well as the outcome of the group's ongoing capital and liquidity planning strategy at the time. And as you can see, our current performance is striking well against our 2026 targets, giving us confidence that we will deliver on each metric. Clearly, the world has evolved since we shared our guidance, and many key variables such as value prices, interest rates, and global growth remain uncertain and volatile. Our Angaidas is built on robust internal assumptions, and given the information we have today, we are confident on delivery on our target. I will now hand over to Elisa, who will run through our full year results in more detail.

Thank you, Panikos, and good morning from me too. Let's now turn to slide 11 and the summary of our key highlights. These include strong volume growth with €829 million of new lending, translating into a 2% increase in the loan book since the beginning of the year. Flat deposits. Our asset quality remains solid, with a mentee ratio declining further to nearly 1%, and a net release of 17 basis points in cost of risk, driven by a customer-specific reversal. and we've had a very healthy organic capital generation of 114 basic points and ended the quarter with a TT1 ratio of 20.7% and a total capital ratio of 25.5%. As a reminder, in March 26, we announced two targeted bottom acquisitions to diversify further our business model and accelerate our balance sheet growth. a minority stake in Wealthyhood, a pan-European tech company which allows us to provide retail customers with digital access to stocks and ETFs, and the agreement to acquire the performing loans along with the deposits from the Cyprus Development Bank amounting to €150 million and €500 million respectively. Let's quickly turn to slide 12. This is our registered income statement. I will not go through each line as we will discuss them later, but you can see that our operating profit on a quarterly basis remains flat at €159 million. And this was despite the fact that we had some notable positive items in the fourth quarter affecting largely our non-interest income line. In a nutshell, these were a €5 million relief on premium tax of life insurance, a €2 million insurance reimbursement, and €10 million coming from elevated revenue sales. When disregarding these items, our recurring non-interest income amounted to €65 million, higher by 8% on strong insurance income, whilst the Q&Q reduction reflects seasonality in the fee and commissioning. Additionally, effective from 1 January 2026, the corporate taxing cycle has increased to 15% from 12.5% previously, and this is now reflected in the Q1 results. Now moving to slide 13. The structure of our balance sheet is simple and is characterized by high liquidity. Our deposit base is nearly twice the size of our loan book, with the liquidity gradually being deployed to loan growth and investment in the fixed income portfolio. And as a reminder, on the lending side, over 40% of loans are linked to Euribor. Slide 14 and net interest income. Our NII in the first quarter has stabilized, as expected, at €181 million, corresponding to a net interest margin of 281 basis points, broadly flat Q and Q. Against the prior quarter, net interest income was affected by fewer calendar days in the quarter, while the contributors of NII stayed strong. loans grew by 2% Q on Q, our fixed income portfolio rose by 5%, and both deposit balances and pricing remain stable compared to Q4. Our 2026 NII outlook remains unchanged. We continue to expect NII to stabilize at approximately 720 million euro, with an net interest margin above 270 basis points based on the underlying assumption of a 2% ECB deposit rate. Moving on now to our hedging activity on slide 15. Our significant hedging efforts undertaken over the last couple of years have reduced our NII sensitivity to a 25 basis point RRI shift in interest rates to 15 million euro, half the level it was in December 22. Our hedging level increased by half a billion euro in the first quarter, taking the total to 12.6 billion euro, covering almost half of the group's interest earning assets. And we improved the yield of our new interest rate swaps to 2.44% in Q1 from 2.25% in the previous quarter. We will continue the dynamic management of our balance sheet, subject of course to market conditions. On slide 16, you can see more details of our deposit trends. Total deposits of €22.3 billion were flat Q and Q supported by strong inflows at the end of this period. We have seen deposit costs stabilizing at 27 basis points in the first quarter, while the share of term deposits remained broadly unchanged on the prior quarter at 31%. The well-managed deposit costs and mix mainly reflect the very liquid Cypriot banking sector as well as our strong franchise and market position. And the brace on our deposit base at the bottom left chart shows that more than 80% of our deposits are from Cypriot residents. Let's now turn to slide 17 and new lending. During the first quarter, we granted new loans of 829 million euro, close to the historical high levels of Q1 2025. Of course, we have and we will continue to ensure prudent underwriting standards and we will not sacrifice the quality of our loan book for growth. As a reminder, 99% of new exposures since 2016 remain performing. Looking now to slide 18. We are pleased to see our loan book grow by 2% since the beginning of the year to €11.1 billion, with growth observed across all business lines. Yields on loans remain broadly flat, Q on Q, at 431 basis points. And we remain confident that we will be able to deliver loan growth of over 5% in the full year 26, supported both by domestic demand and careful expansion of the international loan. Slide 19 shows our progress on the fixed income portfolio. Our portfolio stood at 5.4 billion euros, representing 19% of the group's total assets. The fixed income portfolio comprises of high-quality assets with average maturity of three to four years and is highly diversified. The majority of the portfolio is measured at amortized cost and is held to maturity, hence no mark-to-market impact is recognized in the income statement or equity. The mark-to-market of this portfolio as of 31st March was around 48 million euro loss or 45 basis points of CC1 reflecting interest rate rises as a result of market volatility. Slide 20 shows that non-interest income of 69 million euro was flat on an annual basis. Let me try to unpack and share how we look at this important source of revenue that underlines our diversified business model. we have what we consider high-quality revenues, which is our area of focus. This includes the fee and commission income, the net insurance result, and VFX customer-related fees. All together, this grew by 8% year-on-year, primarily driven by higher net insurance income, reflecting the acquisition of FMEG insurance cycles and better claims experience. Other non-NII items include revenue gains, gains losses on financial instruments and other incomes, and these are volatile profit contributors. In Q1, this line was impacted by a lower mark to market on equity financial instruments. Overall, non-NII remains an important contributor to profitability and covers 76% of Q1 operating expenses. Our insurance businesses are a valuable and recurring revenue stream for the group as presented on slide 21. In summary, our net insurance results amounted to 17 million euros in Q1, up 41% year-on-year, mainly reflecting the contribution of ethnic insurance titles, better claims experience, lower losses in on-the-root contracts in life insurance, as well as higher new business in non-life. Overall, the net insurance results contributed 24% of total non-interest income, and insurance remains highly profitable, contributing 11% of the group's total profitability. Slide 24 provides an overview of operating expenses. Our cost-to-income ratio in Q1 stood at 37%, reflecting continued cost specifically. On a manual basis, total OPEX increased by 4%, reflecting mainly the accrual on the variable pay. Overall, staff costs remained flat year on year, as the salary increments and the cost of living adjustment of around 4%, which typically takes place at the beginning of the year, were offset by the completion of the voluntary staff exit plan in the fourth quarter, where around 110 employees left the group. Other operating expenses were also flat year on year. On a quarterly basis, other OPEX was reduced, reflecting mainly quarterly reasonality. Turning now to slide 25 and asset quality. Our underlying credit quality is strong and we are not seeing any signs of deterioration, evidenced by the low NP ratio at 1.1% and the coverage ratio exceeding 100%. The cost of risk saw a net release of 17 basis points for Q1, driven by a customer-specific reversal. We took overlays of 21 basis points in the quarter on the back of revised macro assumptions, which assume lower GDP growth and higher inflation compared to the Q4 assumptions, reflecting the ongoing geopolitical environment, whilst underlying provisions continue to reflect the benign credit trends from 2025. Given the current geopolitical volatility, we are regularly monitoring the loan portfolio and we are not seeing any signs of concern. The tourist sector has seen two consecutive record years, remains cash-rich and is coming from a position of strength to withstand this headwind. The renminbi-possessed stock decreased further to €362 million after 31 March. We continue to manage our revenue stock prudently as it's carried on the balance sheet at below 70% of the current open market value. Now let's move to slide 26 and capital. The bank's capital position remains strong. We continue to build organic capital generating 114 basis points this quarter. Our CC1 ratio and total capital ratio stood at 20.7 and 25.5% respectively, reflecting the accrual for the ordinary dividend at a 70% payout ratio, as well as modest RWA growth. Our 70% dividend accrual represents the top end of our distribution policy for ordinary dividends. I will draw your attention to our intended payout, which is unchanged. 70% ordinary dividend and up to 20% TOBA to be decided with the final 2026 results. Consequently, we plan to accrue a 70% payout during the quarter and any TOBA will be accrued at the time it's announced. Also, in March 26, we announced the agreement to acquire the performing loans and deposits of the Cyprus Development Bank amounting to €150 million and €500 million respectively. The consideration was nearly at par and the capital impact is expected to be modest at around 35 basis points. I would now like to hand back to Aniko for closing remarks.

Thank you Elisa. While global geopolitical uncertainty is ongoing and the associated economic impact is unclear, we at Baro Cyprus are well positioned to navigate this period leveraging on our cross-trends. Our efficient business model and strong trade under agriculture means we have strong license defense for this uncertain environment. Combined with our proven ability to successfully execute our strategy give us confidence today in our ability to deliver on our targets.

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 the 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 Ben Myhair with KPW. Please go ahead.

Hi, morning everyone. I've got three questions, please. The first one is just on the impact of the CDB acquisition on NII this year and in 2027. The second question is just with any volume trends. that you've observed in April, you know, across both loans, deposits, and also fees. And then finally, the cost of risk guidance for this year in light of the RFRS model update and the client reversal you mentioned as well in the slides. Thank you.

Okay. Thank you. Thank you, Ben. On CDB, I will say that we expect the transaction to be completed by year end. any impact will be probably shown on the 2027 as onwards and just to remind you that we have not included CDB in our guidance that we have given out to the market in early March. On the second question about April I will say that the trends either on fees or pipeline are as usual we have not seen any slowdown and so far, so all things are on track of how we expect them to be. On the cost of risk, I think the cost of risk, okay, the cost of risk is, I would say, I would start by saying that the underlying performance of the portfolio continues to be very strong. We are not seeing any change in the underlying credit metrics, so I would like to remind you that the 40 to 50 best points is fundamentally the cause of risk throughout the cycle. Having said that, this quarter was kind of unique. We have the release coming from a casual reversal of a legacy client plus a charge because we updated macros and took more conservative stance on the weights on each scenario. So as things done today, if you simply do the math, the cause of risk for the year expected to be a little lower than the lower end of the 40 to 50 basis points. However, given that situation, we all understand and agree that it's fluid. We will not change our guidance. We will review as we move towards the next quarters. And anyway, the numbers are really small.

And if I may just add then to your first question on CBD, I think you asked the impact. We expect NII impact to be around, to be nearly 10 million on an annual basis, based on calendars, of course.

Sorry, how much is that? I just missed it. Okay, thank you.

The next question comes from the line of Alexandros Boulogouris with Europe Securities. Please go ahead.

Yes, good morning. Thank you for the presentation. A quick question on NAI regarding the first quarter. If you could tell us a bit the impact of the calendar days that you mentioned, and also even the first quarter trend and the strong loan growth, and we see Euribor also ending upwards, I think it's 2.2 now. Do you think that there is an upside risk also on NAI? You mentioned a bit on provisions as well, even the reverse of That's my first question. And the second regarding the long growth pipeline. How do you see the trend in, let's say, April, early May? I mean, do you see any slowdown or you're confident with this more than 5% that you already mentioned? Growth rate. Thank you.

Thanks, Alex. I'll start with the NII question. So the number of days impacting Q1 is estimated to be around 10.5 million euros on a daily basis. On Uribor, there was an increase in the later days of March after the war started, but the impact is modest. Anyway, I remind you that our guidance back in March, early March, was on the above 2.2% average Uribor for the year and 2% EDP rate. so the impact in the course of UIGOR was modest. The sensitivity, we are very transparently disclosing at 15 million euro for every 25 basis points. And just preempting the next question, we're not regarding at this point on NII, exactly because the situation remains fluid, so we chose to be transparent on giving you the sensitivity on rate.

On long growth, I think that pipeline remains strong. We have not seen so far any slowdown. So the 2% growth in the first quarter give us the comfort to achieving our target for this year, which, as a reminder, is more than 5%. So, of course, we remain vigilant and monitor the developments. But so far, we have not seen any slowdown in our pipeline.

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

Good morning. Congratulations on the results. I've just got a couple on asset quality and on capital. The 6 million related to changing macro assumptions, can you just maybe talk about how many how much you have in reserve in total, so the £6 million plus whatever you have. And then could you provide a bit more information on the release? You mentioned related to a specific client, anything you can say there would be interesting. And then finally on capital, I guess you can see that you're accruing and you flagged that payouts might be increased. Your capital position is very strong and your earnings are great. Is there any reason why you wouldn't increase that payout and anything we should be watching out for and anything you'd flag specifically? Thanks.

So David, on the 6 million euro or the 21 basis points equivalent of macro impact, that's actually not an overlay. It's a model impact. So there is no port, let's say, which covers a bigger number. It's just how the PDL-GDP models are calibrated. And this is the impact of the recalibration because A, the GDP growth was lower. modestly reported, and B, we increase the relative weight of the adverse scenario given the chocolate without risk. And it's on slide 61, the scenario for the analysis.

And on capital, on payout ratios, I would say that what we said in early March remains unchanged. So what we said is that ordinary dividend payout ratio of 70%, plus top-up dividend up to 20% for 2026, and up to 30% for 2027 and 2028 for the reason that was played in the investor phase. So what we said early March remains a change as of today.

Thanks. Anything you can say on that corporate release?

On the release, it was a cash repayment of a legacy corporate client. Thanks.

The next question comes from the line of Alexander Kantarovic with Roma Capital. Please go ahead.

Yes. Can you hear me?

Yes.

Yes. Looking at your non-core income, which dropped sharply in the quarter, I presume this was due to the trading result. Can you quantify it, please?

I guess you're referring to non-NII the lines other than season commissions, the non-recurring items.

Yes. So actually we don't have any trading books or we shouldn't consider that there is a hit from that. I would say that year on year actually the recurring non-NII was 8% up. So, and the guidance for the full year is to be 4% CAC per year until 2028. So, actually, the recurring NII was up 8% year-on-year. Now, how is that? The NII, the full NII, there is some seasonality between corporate and someone else. So, I think that's why we focus on the recurring NII, which was 8% up year-on-year and was due mainly to the insurance performance. So there is no trade in booking mode after to have a hit, if this was a question as well.

Okay, understood, thank you. And also, as regards salary expense, because the separation scheme is done and salary has moved higher, shall we expect for the next couple of quarters the same run rate of this salary expense?

Yes, so the way the payroll works is that that costs go up on the 1st of January and they stay at that level throughout the year. This year increase when you compare to 421 is less than what would have been the case on a on a mathematical basis because of the Star Exit Plan, we did the small one that we did in Q4. So you should assume that Q1 is more or less a run rate for this year.

Right, right. Last question. It was pretty decent. There was pretty decent loan growth in Q1, 2%. and for the full year you expect 5% and a change. Is there upside to the annual number or shall we expect a slowdown in the last three quarters of the year?

No, I would start by saying that we expect more than 5% for the year and this guidance was out before the war. So, since then, okay, things have changed, but the performance for QR, which is 2%, plus the strong pipeline we see, we stand by this more than 5% and it is too early to reconsider guidance because it's still early in the year and it's still too soon versus the last time we guided in early March so let's assume the more than 5% that is currently out for the time being more to come during the second quarter I appreciate your answers, thank you

The next question comes from the line of Miguel Diaz with The Wooden Coal. Please go ahead.

Hi, Ana. Thank you for giving me the presentation. Most of my questions have been answered already. Just one left. If you could please comment on the special levy on deposit and other levy and contributions. You booked 14 million this quarter. The fourth quarter was 13 million. Could you please confirm that this is not the new run rate? Thank you.

Thank you. So, on this, you're right, actually, to ask the question, because the charge in the P&L is not linear through the year, just because of how the accounting works. So, it has two main components, this line. One is the special levying deposits. that's 15 basis points on the stock of deposits. Based on 31st March, it would be around 33 million. So assuming, I mean, depending on when, where deposits land during the year, you can calculate it. And there's also another component, which is a deposit guarantee scheme fee. This is five million euro every six months. And it started in the first half of last year. So you should expect 10 million roughly in the year. So a five million increase compared to last year's annual in this year. So last year's annual charge of around 42 million, you should add another five roughly. And that's what we expect this year's charge to be, assuming deposits flat, because the deposit levy is formulaic. Just remember, it's not linear through the quarter. So Q1 is not hungry. You should work on the annual number.

Okay, understood. Thank you so much.

As a reminder, if you would like to ask a question, please press star and one on your telephone. We have a follow-up question from the line of Ben Mayher with KPW. Please go ahead.

Sorry, just another quick one. On M&A, would the CDB acquisition keep you busy, or are you still open to, would you still bang it, do you think, to look at other potential options this year? Thank you.

Bang CDB acquisition is a small transaction, and a restructuring in a way, so that it is easily integrated. I mean, buying a portfolio rather than the bank, So, no, the question is that do we still have an appetite for small-bottle acquisitions, especially on the non-NII side? So, it seems to be a small-bottle action for us, and it's easily integrable.

Okay. Thank you. Thank you.

Mr. Neher, are you done with your questions?

Yes, thank you.

As a final reminder, if you wish to register for a question, please press Start 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. Nicolaou for any closing comments. Thank you.

Okay, thank you all for your participation. As always, we are available to take your questions and provide more clarifications offline. Thank you very much.