Earnings Call: H1 2021

Sep 1, 2021

Ladies and gentlemen, thank you for standing by. I'm Mirtel, your Chorus Call operator. Welcome and thank you for joining the Bank of Cyprus conference call to present and discuss the Group's financial results for the 6 months ended 30th June 2021. At this time, I would like to turn the conference over to Mr. Panikos Nicolaou, Chief Executive Officer Ms. Elisa Livavlioto, Executive Director, Finance and Mr. Dimitris Dimitrio, Chief Risk Officer. Mr. Nicolaou, you may now proceed. Thank you. Good morning, everyone. Thank you for joining our first half twenty twenty one financial results conference call. I'm joined by Elisa Livagniodu, Executive Director of Finance Dimitri Dimitriou, Chief Risk Officer and Anita Pavlov, Manager IR. After my introductory remarks, Elisa will go into more detail on our financial performance and then we will turn to Q and A. Slide 4 summarizes the key highlights of the Q2. I will briefly go over these. During the Q2, Faltus experienced strong recovery in economic activity against the backdrop of increasing vaccination coverage and the relaxation of restrictions. Around 80% of the adult population in Cyprus has been vaccinated with the 1st dose and 74% have completed their vaccination regime on track with the government target. GDP grew by 12.9% in the 2nd quarter, significantly better than expected earlier in the year, Underscoring our commitment to continue to support the country's return to growth, we extended a further €407,000,000 of new loans in the quarter, reaching €894,000,000 of new loans in the first half of the year, an increase of 30% compared to the same period last year. Now turning to our performance this quarter. Leveraging on the stronger economic environment in the quarter, our strategy begins to deliver results, demonstrated by the improvement in our performance before non recurring items, which nearly doubled on the prior quarter. During the quarter, we generated total income of BRL152,000,000 up 11% quarter on quarter and a positive operating result of BRL57,000,000 dollars up by 28% versus the previous quarter. Our cost of risk reduced by a further 14 basis points to 52 basis points. We delivered a profit after tax and before non recurring items of $34,000,000 which is double the $17,000,000 of the first quarter. After reorganizing non recurring items, the overall result for the quarter was a loss after tax of $7,000,000 dollars and a profit of $1,000,000 for the 1st 6 months. This strong quarterly increase in total income helped drive a 2 percentage point reduction in our cost income ratio despite 7% increase in total operating expense. The advanced capital position remains good and comfortably except of our regulatory requirements. As of the end of June, our capital ratios on a transitional basis were 19.2 for the 12 capital ratio and 40.2 for 61. Following the successful refinancing of our Tier 2 capital notes in April 2021, we proceeded with the natural issuance of $300,000,000 MREL compliant senior prepared notes in June 2021, thereby early achieving our interim regulatory and regulatory requirements. The volume around balance sheet increased in the quarter by 3% to $16,800,000,000 The process of balance sheet repair continues. In June 2021, we completed Felix II and derecognized EUR 1,300,000,000 of NPEs from our balance sheet. We also organically reduced NPEs by $170,000,000 in the first half of the year. The stock of NPE amounted to €1,600,000,000 and the NPE ratio stood at 14.6% and 6.4% on a net basis. Overall, since the peak in 2014, we have now reduced the stock NPE by BRL 13,400,000,000 or 89% and the NPE ratio by 48 percentage points. We continue to work towards further accelerating NPE reductions to additional sales and remain on track with Anchovy a single digit NPE ratio. At the same time, we continue to closely monitor the performance of loans which had been granted payment deferrals in the previous year. As of mid August 2021, 96% of performing loans whose payment deferrals have expired presented no earlier. This is a better performance than expected now nearly 8 months after turning the tariffs and bode well for future trends. Slide 5 provides an overview of macroeconomic conditions. As I mentioned in my opening remarks, the economy recorded a strong rebound in the Q2 with GDP growing by 12.9%. The strong consumption and business activity in the 1st 5 months of the year, as evidenced by the upward trend of several leading economic indicators, pave their way for a strong economic recovery in 2021. Another current sign is a strong pickup in tourist activities starting from late June and continuing to date. The July tourist arrivals recorded a significant year on year increase and reached 64% of 2019 levels. The dividend trend is expected for August September. And in addition, we do expect that the drilling season is likely to be extended further into the year. The Ministry of Finance currently expects a GDP growth of around 5.5% for 2021, significantly higher than the 3.6 percent growth from the previously forecast, largely at April. Going forward, the launch of projects under the recovery resilient plan of up to RUB 1,200,000,000 over the next year is expected to further support domestic activity and employment through higher investment and to enhance growth potential via reforms. Finally, the €1,000,000,000 government guaranteed scheme recently approved by the European Commission is expected to further support the economic recovery. Slide 6, new lending. New lending remained strong since the same quarter and amounted to €407,000,000 making a total of €894,000,000 of new loans in the first half of the year, up 30% year on year. The demand for positive loans remains strong in the context of the government interest subsidy scheme, have already approved 220,000,000 loans under the scheme and will continue to have a strong pipeline of over 100,000,000 as of mid August. New lending to corporates amounted €152,000,000 for the quarter, up 64% year on year as economic activity continues to improve. New LNG, of course, continues to be carefully considered against our partner segment in Siberia. We have high quality in nature by our prudent and deriving standards, and we make strong assessment of the impairment capability of our customers. Turning now to Slide 7 to 10 where we provide an update of the performance of loans that Guaranda expired having deferred. The performance of the Moratore portfolio remains strong as it is invested unexpected nearly $800,000,000 after the deferral expiry and bode well for future trends. As shown on slide 4,900,000,000 longer than 95% of the performing loans are under expired moratorium are installment due by mid August. 96% of these performing loans present no arrears, of which around €500,000,000 have been in production, mostly concentrated in the 30 30. Restructures have always been a very positive part of how we manage credit risk. We also targeted the expansion of the settlement of the impairment activity aiming to alleviate pandemic related short term cash flow burden. And our track record here is outstanding. Over recent years, more than 90% of proprietary transaction loans presented no arrears, and we expect that to be the case as we go forward. Areas remain low at some percent and about 95% of these are in areas of less than 30 days. It is important to note that the inflow from the maritime portfolio in the first half of twenty twenty one amounted to $116,000,000 Slide 8 provides an overview of the non legacy loans to private individuals. As of the end of June, non legacy loans to private individuals amounted to €4,200,000,000 of which over 83% relate to housing loans. This segment is well collateralized with 2 thirds of customers having a loan to value ratio below 50%, and normally 7% of the portfolio has an LTV more than 100%. Other loss to private individuals amounted to $700,000,000 as of late of June, the majority of which is secured. We are very encouraged by the trends we see in our performing gross loans to private individuals under the prior term in December. Nearly the entire book has installments due by mid October and 92% continue to present no arrears. Moving now to non legacy business loans on Slide 9. The non legacy business loan book as of the end of June amounted to $5,200,000,000 and is well diversified with high quality collateral. Following the outbreak of COVID-nineteen, the investor most adversely effectiveness of tourists and to a lesser extent trade, transport, manufacturing and construction. The portfolio has a low loan to value ratio with almost the cash flow portfolio having a loan to value ratio of less than 80%. 95% of the performing business loans that were under expired moratorium installments due by Midtokas and 99% presented no area, of which €470,000,000 have been restructured, relating mainly to 3 sectors. Slide 10 provides an update of our exposure to the sectors that were mostly impacted by COVID-nineteen, tools and trade. As of the end of June, our total exposure to tools and trade amounted to €1,400,000,000 and €0.91 billion, respectively. The unutilized liquidity of the tourist sector remains broadly unchanged and amounted to 0 point 34,000,000,000 at quarter end. The majority of these loans entered the crisis with significant liquidity, which has been maintained. 96% of tourism loans are secured by poverty. And hence, 93 of these loans have a loan to value ratio of below 80%. €930,000,000 of tourist related loans were under the expired pending federal scheme, of which 94% have been installed in June by mid October. Nearly the entire book presented no arrears, of which $281,000,000 have been repurchased. Our exposure to trade as of the end of June amounted to $910,000,000 of which $320,000,000 were under expired tenancy. 94% of the lease had an installment due by mid August, with 97% presented in our area, of which only 10,000,000 have been restructured. I will now hand over to Elisa to take you through the financial performance for the Q2 of the year. Thank you. So I'll start with Slide 13 on the income statement. Net interest income amounted to €76,000,000 for the Q2, flat Q on Q, of which €8,000,000 relates to NII from Helix which will fall away next quarter. This Helix 2 loss income will be partially offset by the interest income of the deferred consideration. Moving now to NIM. During the Q2, the margin was impacted by the following: the increase in the TLTRO borrowing by $300,000,000 to 3,000,000,000 the increase in customer deposits by $417,000,000 to $16,800,000,000 and the increase in wholesale funding by $400,000,000 The percentage of average interest earning assets that are shared in liquid form have increased to 50%, which has had a dilutive impact on the net interest margin, reducing it to 1.49 for the 2nd quarter. When adjusting for the impact of the 3,000,000,000 TLTRO funding, the NIM amounts to 1 point 66% for the 2nd quarter. Non interest income for Q2 increased to €76,000,000 compared to €60,000,000 in the prior quarter. The increase is driven mainly by the higher net fees and commissions, higher net insurance income and higher valuation gains on financial instruments. We shall discuss this further on Slide 15. Total operating expenses increased €59,000,000 for Q2, up 7% on a Q on Q basis, mainly due to seasonally lower operating expenses in the previous quarter. Total loan credit losses for reasons and impairment amounted to €24,000,000 in Q2 compared to €26,000,000 in Q1, and our cost of risk improved by 14 basis points in the quarter to 52 basis points. Profit after tax and before nonrecurring items was at €34,000,000 in the quarter €51,000,000 for the 6 months. We achieved a return on tangible equity before non recurring items of 8.1% for Q2 and 6.1% for the half year. Advisory and other organic restructuring costs amounted to €15,000,000 for Q2, including €12,000,000 relating to the tender offer for the existing Tier 2 capital notes. After recognizing exceptional costs of €26,000,000 relating to 20 sales, of which €14,000,000 related to the completion mechanics of Helix II and is expected to unwind over time to NII. The overall result was a loss after tax of €7,000,000 for Q2 and a profit after tax of €1,000,000 for the 1st 6 months of the year. Now moving to the drivers of NIM on Slide 14. As I mentioned before, our NIM in the quarter decreased to 100 and 49 basis points and was negatively impacted by the increase in liquid. It's important to understand the impact of the CLTRO funding, of course, on NII and margins. In June, we increased our TLTRO III borrowing by €300,000,000 bringing it to a total of €3,000,000,000 The bank has exceeded the benchmark net lending threshold, and hence, we recorded our NII benefit of €7,000,000 for the 12 months to June 2021 over the respective period in the income statement. The potential MII for the period after that, being June 21 to June 22, has now increased to EUR 15,000,000 based on current ECB rates and provided that the bank needs the new net lending threshold. The benefit of the TLTRO borrowing is reflected in the 4 basis point improvement of the yield of the liquid shown on the top right graph. Performing book yields reduced to 87 basis points Q on Q, mainly due to a nonrecurring cash of adjustment of 7 basis points. Performing book yields remain under pressure mainly due to the sustainable interest rate environment and competition pressure. We believe that the reference rate of pricing is reaching its end, and we are aiming for higher credit spreads in the post COVID environment. Finally, the cost of funding continued to decrease as it plays down the cost of deposits. Our funding cost is also positively impacted by the significantly lower coupon of the Tier 2 note issued in April and the MREL debt issuance in June with the full impact as of Q3. Now moving to Slide 15 on noninterest income. In the 2nd quarter, noninterest income increased to EUR 76,000,000 up 26% Q on Q, reflecting higher net fee and commission income, higher net insurance income and higher evaluation gains on financial instruments. Net fee and commission income increased to €45,000,000 in the 2nd quarter, up by 18% Q on Q, mainly due to the extension of liquidity fees to a wider customer group, the introduction of a revised price list in February 2021 as well as higher volume of transactions in 2Q. Fees in the quarter also include a $2,000,000 civil aid interest specific client transaction. Net fee and commission income for the 1st 6 months increased €24,000,000 up 18% year on year and includes an amount of €5,000,000 relating to MP sales related servicing fees for a transitional period currently expected to end in early 4th quarter. Net insurance income increased €15,000,000 up by 36% on the previous quarter, driven by a €2,000,000 better quarterly performance of investments, notably lower claims and improved pricing in the life insurance business as well as growth in premiums, lower claims and seasonality in the general business. I will provide more info about the insurance businesses in the following slides. Net effects and other income increased to €9,000,000 up 40% Q on Q, driven by higher evaluation gains on financial instruments. Revenue gains increased to €4,000,000 in 2Q compared to €2,000,000 in the previous quarter. And I remind you that revenue sales remain volatile. Moving now to insurance on Slide 16. Net insurance income for our Life business, Euro Life, amounted to €13,300,000 for the 6 months compared to €16,300,000 for the same period last year and contributing 14 percent to total non interest income. NeuroLife remains market leader in the life insurance business with a market share of 25%. However, we believe it can do more. We are making good progress on the various initiatives we have undertaken, aiming to grow Euro Life's other regular income by over 13% in the medium term compared to 2019 levels. Moving now to the next insurance slide, Slide 17. Net insurance income of our general business amounted to BRL 12,800,000 for the fixed amount and remained roughly flat year on year, contributing 9% to total noninterest income. General insurance is also making good profit on the various initiatives, aiming to grow the gross written premium by more than 50% in the medium term. Looking now at expenses on Slide 18. Total operating expenses in the Q2 were up 14% compared to Q1 at €39,000,000 mainly reflecting seasonality in the previous quarter. Despite the Q on Q increase, our costincome ratio for 2Q fell by 2 percentage points to 58%, reflecting a higher Q on Q increase in total income compared to the Q on Q increase in total operating expenses. Gas costs were €51,000,000 in the quarter, nearly flat in Q1, while operating expenses increased to €38,000,000 compared to 30 €2,000,000 in Q1, again due to seasonally lower marketing, consultancy and professional fees in the prior quarter. Note, however, that the cost to income ratio adjusted for the loss income from Helix II was at 61% in the second quarter. As a reminder, our cost income rate is expected to be in the mid-60s in 2021 as revenues remain under pressure and operating expenses increased due to higher IT and digitization costs. Beyond this year, however, we expect our cost to income to decline through specific initiatives, including exit solutions to and Also over the medium term, we are expected to reduce this the capital income is expected to reduce to mid-50s. During the quarter, we renewed the collective agreement with the sub union for years 'twenty one and 'twenty two, which a new pay grading structure linked to the value of each position of employment is introduced as well as the performance related pay component as part of the annual salary increase. This renewal is expected to increase staff costs for 2021 2022 by 3% to 4% per annum. This is in fact in line with the impact of renewals in previous years. However, when taking into consideration the impact from the various efficiency initiatives, the group's medium term guidance, which includes maintaining annual total operating expenses below EUR 350,000,000 remains unchanged. Now turning to capital on Slide 22. Our CET1 ratio and total capital ratio as of June stood at 14.2% 19.2%, respectively. During the Q2, we have generated 50 basis points of organic capital to operating profit, around 20 basis points from the reduction of risk weighted assets and 10 basis points from CILIC to completion. These were offset by expected loan target losses and impairment of around 10 basis points and the previously flat revenue also prudential charge of 40 basis points and fee sales related losses of another 10 basis points and 30 basis points from other capital actions as of the cost of the tender offer of the existing Tier 2 and the ACI coupon payment. Our CET1 ratio on a fully loaded basis was at 12.9% as of June. With regards to our MREL requirement, formally successful refinancing of our Tier 2 in April this year, we proceeded in June with the issuance of EUR 300,000,000 of senior preferred notes, thereby early achieving our January 2022 interim MREL requirement. Now moving to asset quality, starting from Slide 25. Following the completion of Helix 2 in June, we direct recognized $1,300,000,000 of loan from our balance sheet, reducing our NPE ratio by around 10 percentage points to 14.6%. In completion, we received €165,000,000 in cash with the remaining amount of the total consideration of €560,000,000 dollars being payable in 4 installments up to December 2025 and without any conditions attached. Overall, Silic 2 is capital accretive. The capital impact uptrend, including LIBOR's completion, including the impact in full year 2020, is a negative 48 basis points. Upon the full payment of the deferred consideration and without accounting for any positive impact from the earnout, the sale is expected to have a positive capital impact of 64 basis points on the group's CET1 ratio on the basis of 30 June figures. Moving now to Slide 26. During the Q2, gross and fees were reduced by €1,400,000,000 to €1,600,000,000 and €600,000,000 on a net basis. The reduction was driven by the completion of Helix 2 relating relating to $1,300,000,000 gross load with the remaining reduction of $112,000,000 achieved organically. Following the completion of Helix II, the gross NPE ratio dropped to 13 point 6% and 6.4% on a net basis. The bank NPE coverage ratio increased to 60% and when taking into account tangible collateral at fair value, NPEs are fully covered. The coverage of reperforming NPEs is relatively low at 19%, reflecting the lower risk associated with this stock of NPEs, where coverage of core NPEs increased to 66%. As a reminder, Slide 28 gives a longer term perspective on our NPE journey and targets. We have a clear path to reduce our NPE ratio to single digits by 2022 and to around 5% in the medium term. Our target cost here has been excellent, reducing NPEs by almost 90% over the past 6.5 years, the vast majority organically. We have a highly experienced and highly effective team in place, and we expect NPE reductions to continue in 2021 through both organic and inorganic action. In fact, we continue to work with our advisers towards further accelerating the NPE reduction through additional NPE sales. We expect to have a higher coverage of over 50% in the medium term, excluding earned collateral. Now moving to Slide 29. As shown on the left graph, almost 2 thirds of our loan book is classified in Stage 1 and 20% in Stage 2. The coverage ratio of these two stages was at 1.3% and 2.6%, respectively, whilst the coverage of Stage 3 loans was maintained at 50% post completion of Helix. As Anikos mentioned earlier, we are pleased with the performance of the moratorium book as only €16,000,000 has migrated to Stage 3 during this quarter. In addition, during the Q2, there was an overall net count of EUR 23,000,000 of loans from Stage 2 to Stage 1, arising as follows: Firstly, €480,000,000 from Stage 2 to Stage 1, of which €190,000,000 relates to moratorium loan and secondly, a transfer of $457,000,000 alone from Stage 1 to Stage 2, mainly due to forbearance and applied overlays. Now moving to Slide 30 on cost of risk. The annualized cost of risk for the Q2 was further reduced to 52 basis points of gross loan and included a reversal of 25 basis points, driven mainly by the migration to Stage 1 of around EUR 300,000,000 non moratorium exposure that were previously in Stage 2 due to specific overlays previously applied. We are encouraged by the trend in the 1st 6 months of the year, and we remain committed to our indication that the expected cost of risk for 2021 will be significantly lower than the 2020 levels. Finally, as a reminder, interest from LNG is not received in cash, it's fully provided for, which in the Q2, represented 17 basis points out of the 52 basis points cost of risk. Let's have a look now at our asset disposal and green revenue on Slide 31. Revenue sales are recovering following the relocation of restricted measures. Asset disposal continue across all property classes. As shown on the slide, lending sales for the 1st 6 months were at €85,000,000 compared to €27,000,000 in the same period last year. In addition, there is a strong sales pipeline of BRL 85,000,000 at the end of the quarter, of which more than half relate to signed FPA. Now moving to Slide 32. This illustrates our achievement and ongoing actions regarding incorporation of ESG factored into our business. We are looking to give some optimization with a clear strategy to quantify effective corporate government aligned within ESG priorities. We have set up a dedicated executive committee, the sustainability committee, to oversee our ESG agenda, review the evolution of our ESG strategy, monitor the development and implementation of our ESG objectives and embed our ESG priorities in our business targets. And with that, I'll hand back to Vanikos for his closing remarks. Thank you, Alisa. Moving now to Slide 3435. Slide 34 provides a summary of our journey and our priorities going forward. I will not spend too much time on this since this period of course haven't changed and have previously discussed this in detail. I am very encouraged that we're delivering on this commitment this year and are well positioned to deliver on them over the medium term. We remain absolutely committed to our strategic initiatives of clean drinking, revenue enhancement and cost optimization in order to deliver our return on tangible equity of around 7% in the middle term. This concludes our presentation and we will now open the floor for your questions. Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. The first question comes from the line of Jose Floriani Jonas with AXA Ventures. Please go ahead. Yes. Hi, guys. Good afternoon and thanks for the presentation. I have a few questions. The first one is on new lending volumes. I think the first half numbers are quite good and probably I'll guess it's from the high end of the expectations. So just wondering now what is the outlook for the second half? I see on Slide 6 that you put some bars already for July. Is there any data you can share regarding August, taking into account there is also tends to be like a slower month. But yes, your outlook for the second half also given in mind the GDP estimates that you mentioned in the presentation that Finance Minister going for around 5.5% and then look at your assumptions for the plan which are below 4%, right? So just wondering how that links each other. Then the second is on the NPE side, asset quality. Just wondering what is the latest on your potential NPE trade and if you can expect something for 2021. If that's the case, I remember in the previous call, we discussed that your base case is always for at least a capital neutral transaction. So if you can also confirm that. Then my third question is in relation to your cost of risk. I think even if you adjust for the one offs and for the reversals and COVID charges, it looks like the underlying cost of risk is running below your expectation or even the market expectation. So are you I take your comments that your 2021 cost of risk expectation is significantly lower than 2020. But if we're indeed into a good strength here, are you ready to change your guidance lower, especially the medium term guidance that now sits at 70% to 80%, which seems to be out of sync for the last two quarters? And just finally, a question on capital. So in the scenario that you go ahead with an NPE transaction this year or you can report a single digit NPE ratio by year end or even pro form a single digit NPE by year end. And this transaction, as we discussed before, it's done done in a capital neutral way. Are you already considering any capital returns to shareholders, also in light of the prohibition that you've been going through? So if there's anything you can share on that, it will be great. Thanks. Okay. So thank you, Jonas. I will take the questions on the Ingolenti and team and dividend distribution, and then I will hand over to the Chief Executive Officer to answer the cost of risk related questions. So new lending volume, we are very glad on what we see. I mean, we are 30% up versus previous year. We previously guided, as you remember, of materially better than 2020. This continues to be the case. And we do expect a good time of how they are on lending because of the pipeline we have, especially on the retail side. So new lending will be strong in 2021 and we'll be approaching the 2019 level. This is the outlook we have as of today. In terms of NPE, as you know, we are and as you already mentioned, we have started working on a new trade. There are recent good momentum on the new trade. Timing, of course, is still depending on market conditions. But our target is to complete the trade by year end. So this is the optimum. And seeing that the new NPE the very low new NPE flows because of the very good performance with the moratorium and the continued good performance on the organic NPE outflows, we do feel comfortable with what we have guided to the market before. In terms of, as you rightly mentioned, our we have done a number of trades in the past, and it has been proven to be broadly at risk Cabriaglia and Nusa. Nuzza. We don't have any reason to believe that the Hill 3, I would call it, will not be the same. And yes, you know that our overarching priority is to start delivering results to returns for our shareholders. And we expect that by reaching a single dividend duration and prove that we have a sustainable business model able to deliver organic profitability as you can experience as you have seen in Q2. We do expect that it will be the right time to initiate discussion with the regulator for lifting the dividend per division. Dimitri, if you want to ask a comment on the cost of this question, please? Yes. Thank you, Juanjo. Jonas, you're right that the GDP market data published is better than expected, but I have to say that unemployment data in line with our expectations and our provision models are more sensitive to unemployment data. As we previously said, because of the moratorium and the uncertainty underlying, we are cautioned with our cost of risk guidance and we will remain so, taking also into consideration that there will be the gradual lifting of the government support measures at some point in time. Now, of course, we are encouraged by the strong performance 8 months after the expiry of the moratorium. And we may achieve our cost of risk target earlier than originally expected. For now, what we will do is that we will confirm what we previously said, but 2021 cost of risk is expected to be slight to be significantly lower than financial year 2020, which stood at 120 basis points. And we will keep you updated. Thank you. The next question comes from the line of Quinn Dara with KBW. Please go ahead. Hi, good afternoon. Thanks for taking my questions. First question on NPEs, maybe just if you could provide a little more color around the 4% of the payment deferrals that are in arrears and the 10% that are in restructuring, how do those amounts impact or will impact NPE inflows over the coming quarters? Or will it just be absorbed within kind of moving from stage 1 to stage 2? And then a second question on margins on the core loan book. So still seeing pressure there. Want to just give an update on your outlook. Do you expect that pressure to continue? Will that be impacted as well by the loan guarantee program? Will that imply lowering of margins in the future? If you could just give an update on that, that would be great. Thanks. Okay. I will start with the NPE question, and then I'll hand over to Elisa for the NIM and marketing question. I will just start by saying that the 4% in arrears or the 10% in restructurists are not an indicator of future NPEs, and this has been proven to be the case in the first half of the year. We don't have any reason to believe that this will not be the case on the second half of the year. I'll just comment by saying that the 4% that we see in arrears, almost 95% relates to early arrears. And what do we mean early arrears? It's arrears less than 30 days. So these are arrears that actually are getting they are not sticky, and they are getting paid a few days after their installment due date. On the restructuring, Dara, you know that this bank has been restructured for years now. I mean, by having 10% restructuring on the whole Bouygues Demoratorium, we consider this to be a huge success. And for those of you that you follow our story, you should have noticed that more than 90% of the restructures have come this year have been proven to be very, very successful and are not in our areas as of today. When we do restructurings and the restructurings refer to the tourist sectors, we offer solutions. We design flexible installment and repayment CapEx and on the assumption that the industry may recover will recover until 2024. So if and when this will recover in a quicker way, then this will be captured through cash sweep repayment. So we are comfortable on the restructuring part and on the area part because it has been there for 8 months. It has only resulted in any new NPE inflows. So I will hand over to Elizabeth to comment on the margin question. Thank you. So on margin, we did see a bit more pressure this quarter. However, the underlying pressure of the reduction in performing loan yields was effectively as higher. And it includes a 7 basis points hedge up, which is non recurring. So the underlying through year on loans is at 2.94 basis points, which is a level we expect to be continuing into the next quarter. We did start in Q1 and Q2 from the consuming job of the Uniball and the reference rate of a few basis points, which is what's coming through. We also had a negative impact coming from the mix effect of housing loans, on increased housing loans, which you might remember benefits from a government subsidy on the interest from the 1st full year. So the combination of this is what led us to the 294 adjusted yield. We believe that this is this can be run rate. It will be run rate based on what we currently see in terms of forward rate. As regards to currency, the loan has not yet been enacted. It's come through from the European Commission, but it's not yet been enacted. So yes, there are price cuts in the legislation, which are still not yet finalized. However, we don't believe that it will materially impact the yields and the NIM. Given the short amount of time that we will have in our disposal, actually give out this loan. It's already end of August for 1st September, so we've only got 4 months to go. But we don't expect a material impact coming from that. Perfect. Thanks. So sorry, just on the NPEs. So the guidance was still for organic net reduction in NPEs in 2021? Yes. In net of yes, for a net organic reduction in NPEs. You've already seen 2 answers to being net negative net reduction of SEAS. I mean, the SEAS 170,000,000 is net of The next question comes from the line of Lukov Chav Alexeyev with Bank of America. Please go ahead. Good morning. Thank you very much for the call and thank you for your very good performance. This quarter has had a challenging and you still managed to deliver profit. My questions are on the macro side. You cited some very interesting numbers. One number is about building permits, 35% year on year and above 2019. So I was curious what's going on in Cyprus, why building activity is so strong. And another question is about tourism arrival, 54%, honestly, sounds very low. Of course, it has nothing to do with Bank of Cyprus. So what's happening on the macro side? Is the government too restrictive with the admitting tourists? Honestly, I expected that Cyprus would be performing much stronger than other Mediterranean countries because it allows the tourists not only from the EU, but also from Eastern Europe, from Russia. And historically, you've been receiving a lot of tourists from Britain and Russia. They're 2 main sources of tourists. So and we see in other countries, which have independent of the Schengen era forces like Croatia, very strong arrival. So what's going on in Cyprus? Why arrivals are so low in 2021? I will start by saying that based on our, let's say, as I said before, we do expect to reach the 2020 we have conservative on tourist prediction, so we expect to reach the 2019 level in maybe 2023 2024. So I don't consider the I mean, the July is under 50 more percent, it comes with no contribution from U. K. Because as you know, the lifting from U. K. Happened in late July. So this was mainly to its arrival coming from Eastern Europe, mainly Russia, and from our Continental Europe. So as I said, this is something that the twist is uncertain will continue, and we do expect this performance and slightly better to continue. So I will disagree with you in the sense that this is a tough performance. I do consider this to be a very busy performance given that this is the 3rd year of gradual recovery of Turin sector. So our initial estimations were actually worse than the actual numbers that we see today. On the BT panels, I mean, there has been a BT and TV inside of China, okay, the 35% up year on year is sometimes closely led also with the low number of business tenants that we are issuing here in 2020. But there is a huge demand from logos on real estate investments. And this is kind of a reflection of the ample liquidity that we're adding in the market and especially coming from locals and Cyprus. So all in all, the macros are and the macros, including Turis, in my opinion, point to the right direction of strong recovery of the economy of the island and better than ourselves and the needs of unexpected in our previous call in May. I see. A quick follow-up. You mentioned arrivals from Britain were a halt until July. Was it because of restrictions on the IPR side or because of the British side? We don't have any restrictions on I mean, we don't have any in SARS. I mean, those that have been vaccinated, who vaccinated can enter the country. So the restrictions run mostly related from Britain. And those that you know what happened there. I mean, there was I think in late July, there was a kind of lifting the restriction, meaning that those that were visiting countries like Cyprus, which is on the upper list of the on big terms, they can go now back to U. K. Without the need of self guarantee for a week or so. So this was the reason of, let's say, low numbers of Brits to reach in July. But we have started in the numbers going up in August September. Okay. Thank you very much. Sorry, just to add, if I may also, you shouldn't forget that there was a very low percentage of Cyprus traveling abroad. So a lot of I mean, when you look at the colorectal cancer, for example, in the summer months, it was higher than the equivalent of the 54% because of the local tourists effect, which partly compensated for the loss foreign revenue and have a fixed GDP and it's always happened last year. Ago. And if you combine this with the performance of the 3rd portfolio, which is present no arrears, then they maintain $300,000,000 of unutilized liquidity and only 30% of this have been go through a dealer repayment schedule as from the pre pandemic event indicates that this sector is well positioned to overcome the pandemic related shocks. I think the portfolio has been balancing at the both parties. Okay, fantastic. Thank you very much for this. Ladies and gentlemen, there are no further questions at this time. I I'll now turn the conference over to Mr. Nicola for any closing comments. Thank you. Thank you all for your participation and for taking the time to listen to our presentation and making questions. Myself and the team will be more than happy to take any questions offline and arrange 1 to 1 calls with anyone of you. Thank you very much. Have a nice day.