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 half 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 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 Results Conference call for the six months ended 30 of June, 2026. As always, I am joined by Aliza Libadiotou, Executive Director of Finance, and Anita Pavlou, Manager, Strategy, IR and ESG. After my introductory remarks, Elisa will go into more detail on our financial performance for the Fed's House, 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 five in our investment case. Today Embark is in a very good shape, demonstrated by our diversified and efficient business model We have a strong domestic franchise and hold leading positions across banking issuers and payment solutions. And we operate in an economy that has shown once again that it is resilient and can deliver robust growth despite ongoing global uncertainty. We are one of the best capitalized banks in the Euro area, have strong capital generation, which enable us to build up an attractive distribution track record. supporting a payout ratio of up to 90% out of 2026 and up to 100% in both 2027 and 2028. Today, we are pleased to announce an interim dividend of 24 cents per ordinary share, an increase of 20% year-on-year representing a payout ratio of 44% out of the first half 2026 earnings. Slides 6 and 7 give a brief overview of the microeconomic environment. The ongoing conflict in the Middle East and Iran continues to shape the microeconomic landscape through elevated global volatility, uncertainty and intensified inflationary pressures. Despite this, the civil economy continues to exhibit resilience to these challenges. We are seeing an all-time low unemployment rate alongside a swift recovery in the tourist sector. Following a setback in tourist arrivals in March and April 2026, where many tourist castles or temporary bookings on hold, May and June have shown strong signs of recovery, with tourist arrivals gradually returning to 2025 record levels. Note that Cyprus stands on strong fiscal ground with continuing budget surpluses and decreasing public debt to GDP to 50% by May 2026, comparing favourably with other European peers. Inflation is rising, mainly due to higher energy prices, and it is expected to reach around 3% in 2026, broadly aligned with the Eurozone average. While GDP growth is forecast to moderate to around 2.5% for 2026, based on recent projections from the central bank of Cyprus, this remains a solid level of economic growth and is significantly higher than the Eurozone average. Let's turn on slide 8, which shows a snapshot of our 2-2 performance. For another quarter, we delivered strong performance across all key metrics. Our net interest income increased to $188 million on the embark of strong volume growth. Our cost-to-income ratio remained low at 36%, supported by continued cost discipline and high revenues, and cost of risk was a net release of 6 basic points. All in all, our profitability for the second quarter increased to 151 million. Moving on to slide 9, a non-distribution track record. Today, we are pleased to announce an interim dividend of 20% per ordinary share, equivalent to 44% payout ratio. This interim dividend represents a 20% year-on-year increase and will be paid in October 2026. Slide 10 shows the key drivers of shareholder value creation. We continue to generate high-team reported ROTE, notwithstanding a high capitalized balance sheet. Our ROTE increased to over 90% in Q2, corresponding to 27.9% ROTE based on 15% Sintiwa ratio. And we continue to deliver strong capital generation of over 100 basis points in Q2, totaling 225 basis points for the first half, while our total shareholder returns is up 10% since the beginning of the year. Looking at slide 11, you can see how our first half 2026 performance compares to the 2026 target set in March 2026 at the investor update. On each metric, we exceed our expectations. Capitalizing on this strong performance as well as the high interest rate expectations, we are confident in achieving a route towards the upper end of the meeting's target range in 2026. 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. This distribution, of course, touches market conditions as well as the outcome of the Group's ongoing capital liquidity planning strategy at the time. Our guidance is built on robust internal assumptions. Given the information we have today, we are confident on delivering on our targets. 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 13 and the summary of our key highlights. These include strong volume growth translating into a 5% increase in our loan book and 3% growth in deposits since December 25. On an annual basis our loan book and deposits increased by 8% and 9% respectively. Our asset quality continues to improve with an NPE ratio declining to 1% and the net release of 12 basis points in cost of risk driven by customer specific reversals. We've had healthy organic capital generation of 225 basis points and ended the quarter with a CQ1 ratio of 20.9% and a total capital ratio of 25.8%. Let's quickly turn to slide 14 now. This is our detailed income statement. I will not go through each line, as we will discuss them later, but you can see that our operating profit was flat year-on-year at €329 million despite the lower average reference rate, while our profit after tax increased by 7% year-on-year to €252 million. Now moving to slide 15, the structure of our balance sheet is simple and is characterized by high liquidity. Our deposit base is twice the size of our loan book, with 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 16. Our NII has grown by 4% in the second quarter to €188 million. This growth reflects higher volumes in both loans and deposits, along with an improvement in margins, which rose by 4 basis points to 285 pips, reflecting the shift in the asset mix. Year-on-year, our NII is flat, despite, as I mentioned above, the lower average reference rate. Strong volume growth, effective hedging, and controlled deposit costs supported these results. We've also seen an increase in average interest-earning assets, driven primarily by a 3% year-to-date rise in deposits. The asset mix is gradually improving, with loans and the fixed-income portfolio both increasing by 3% and 4% Q&Q, respectively. Today, we are upgrading our MII outlook for 26 and we expect to deliver around €750 million compared to the previous guidance of around €720 million that we shared back in March 26, reflecting the strong volume performance in the current rate outlook. Let me unpack the main assumptions driving this upgrade. Firstly, we expect the average ECB deposit rate for 2026 to be at 2.2%, up from our initial expectation of 2.0%. We now incorporate the 25 basis points rate hike in June 26, and based on the current forward curves shown on slide 42, another 25 basis points rate hike is expected to come in Q4. Given our rate sensitivity, every additional 25 basis points increase benefits NII by 15 million euro annually. On the funding side, we've seen a 3% increase year-to-date in deposits and broadly stable pricing, both stronger than we had originally planned for. Although we are pleased with this performance and we will continue to manage both volume and cost, our business plan assumption is that deposit volumes will remain at current levels and pricing will be at around 30 basis points. Finally, while we remain very comfortable with our overall lending volume guidance, with strong growth in the first half of 5%, we will benefit from better lending balance averages in the second half. Moving now to our hedging activity in slide 17. Our significant hedging efforts undertaken over the last couple of years have reduced our MII sensitivity to a 25-bit parallel shifting rate, to €15 million, half the level it was in December 2022, or from 8% of NII back then to around 2% at present. We increased our scheduling by around €400 million in the first half, taking the total to €12.5 billion, covering 47% of the group's interest-earning assets. The yield on new interest rate swaps increased to 2.7% in the second quarter from 2.4% in the previous quarter. We will continue the dynamic management of our balance sheet subject, of course, to market conditions. On slide 18, you can see more details of our deposit trends. Total deposits of 22.8 billion euro were up 3% year-to-date and 9% year-on-year. We have seen deposit costs remaining broadly flat at 28 pips Q and Q, and the share of term deposits remains broadly unchanged on the prior quarter at 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. And our deposit base is mainly retail-funded, with the average ticket size being at around €31,000. Now let's turn to slide 19 and new lending. During Q2, we granted new loans of €812 million above the historical Q2 levels and totalled €1.6 billion for the first half. New lending was supported by housing and international corporate demand. 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. Looking now to slide 20, we're pleased to see our loan book grow by 5% since the beginning of the year to €11.4 billion, with growth observed across all business lines. Domestic corporate loans were up 4%, Cypriot retail lending was up 3%, with good momentum in both housing and consumer lending, whilst the built-up international loan book added 1.5% to the period's growth. Lending gims have been stable for a while and we know the small increase in Q2 to 436 basis points as interest rates begin to increase. And we remain confident that we will comfortably meet the loan growth guidance of over 5% in 2026, supported both by domestic demand and careful expansion of the international loan book. Class 21 shows our progress on the fixed income portfolio. Our portfolio stood at 5.6 billion euros representing 19% of the group's total assets. The fixed income portfolio comprises of high quality assets with average maturity of 3 to 4 years and is highly diversified. The majority of the portfolio is measured at our price cost and is held to maturity and no mark-to-market impact is recognized in the income statement or equity. The mark-to-market of this portfolio as of June was around a 5 million euro gain. Slide 22 shows non-interest income of €146 million for the first half up 3% year-on-year and comprising recurring non-NII of €132 million and other non-NII of €14 million. 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 to be high quality revenues and these are a key area of focus. This includes the fee and commission income, the net insurance result, and the FX customer-related fees. Altogether, this grew by 9% year-on-year, primarily driven by higher net insurance results. Additionally, net fee and commission income was up 3% year-on-year, driven both by transactional and non-transactional fees. On a quarterly basis, recurring RNI was up 3% due to the higher net fee and commission income. Other non-NII items include revenue gains, gains and losses on financial instruments and other income, which are volatile profit contributors. Overall, non-NII remained an important contributor to profitability and covered 78% of half one 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 amounted to €33 million in half one, up 35% year-on-year, mainly reflecting the contribution of the SNGI insurance cycles, better claims experience, lower losses in onerous contracts in life insurance, as well as higher new business in non-life. Overall, the net insurance results contributed 23% of total non-NIIs, and insurance remains highly profitable, contributing 10% of the group's total profitability. Slide 26 provides an overview of operating expenses. Our cost-to-income ratio for the first half of the year stood at 36%, reflecting continued cost-discipline and higher revenues. On an annual basis, total OPEX increased by 3%, reflecting the increased exit costs, which were mostly recorded in the second quarter. During the first half of 26, the group completed a small-scale targeted voluntary staff exit plan, where 51 employees were approved to leave. Staff costs in half one were up 2% year on year, reflecting the salary increments and the cost of living adjustments which typically take place at the beginning of the year. Other operating expenses remained flat year on year. For the second half of the year, other OPEX is expected to be broadly similar to the second half of 2025 levels. On a quarterly basis, both staff costs and other OPEX were flat. For 2026, we now expect the cost-to-income ratio to remain below 40% versus circa 40% for guidance on the basis of our strong revenue outlook and continuing cost efficiency. Turning now to slide 27, the asset quality. Our underlying credit quality is strong, and we're not seeing any signs of deterioration, evidenced by the low NP ratio at 1.0% and the coverage ratio exceeding 100%. The cost of risk saw a net release of 12 basis points in the first half of 26 driven by customer-specific reversals of 39 basis points. The underlying cost of risk for the first half is estimated at 28 basis points. For the second half of 26, we expect the underlying cost of risk to remain stable to the first half levels, trending below the normalized range of 40 to 50 basis points. Let me also remind you that these are very small figures. Ten basis points cost of risk is €10 million loan credit losses on an annual basis. The revenue repossessed stock decreased further to €341 million as of 30th June. We continue to manage our revenue stock prudently as it is carried on the balance sheet at below 70% of the current open market value. Let's now move to slide 28 and capital. The bank's capital position remains strong. We continue to build organic capital generation of over 100 basis points with Corsair, totaling 225 basis points in the first half. Our C-to-1 ratio and total capital ratio stood at 20.9% and 25.8% respectively, reflecting the accrual for the ordinary dividend at a 70% payout ratio, as well as modest SWA growth. Our 70% dividend accrual represents the top end of our distribution policy for ordinary dividends and hence the interim dividend at 44% payout ratio will only affect our equity and not our capital ratios. I would draw your attention to our intended payout which is unchanged. 70% ordinary dividend and up to 20% top up to be decided with the full year 26 results. We therefore accrued dividend in our capital ratios at 70% during the quarter and any top-up will be accrued at the time it is announced. Also in March 26, we announced the agreement to acquire the performing loans along with the deposits from the Cyprus Development Bank totaling around €150 million and €500 million respectively. The consideration was nearly at par and the capital impact is expected to be modelled at around 35 basis points with the completion of the agreement expected to take place towards the end of the year. I would now like to hand back to Panikos for his closing remarks.