Earnings Call: H1 2020

Aug 28, 2020

Ladies and gentlemen, thank you for standing by. I'm Rodel Gokors, operator. Welcome and thank you for joining the Bank of Cyprus conference Call to present and discuss the Group Financial Results for the 6 Months Ended 30th June 2020. All participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session. At this time, I'm glad to turn the conference over to Mr. Panikos Nicolaou, Chief Executive Officer Mr. Liz Eli Vaziottu, Executive Director of Finance Mr. Dimitrios Dimitrios, Chief Risk Officer Mr. Panikos Mujoris, Executive Director, RRD Ms. Anna Sofranio, Executive Director, Real Estate Management Unit Mr. Nick Smith, Executive Director, Corporate Finance Solutions and Ms. Anita Pavlou, Manager, Investor Relations. Mr. Nicolas, you may now proceed. Thank you. Good morning, everyone. Thank you for joining us. I hope everyone remains safe and healthy. Our results for the Q2 show that despite the lockdown, we have continued to deliver on our strategic priorities while supporting our customers, colleagues and the community through COVID-nineteen. Slide 4 summarize the key highlights for the quarter. I will briefly go over this. In the second quarter of the year, we faced what we very much hope will be the current peak of the health pandemic crisis in Cyprus, which was followed by the gradual easing of the restrictive measures leading to increased economic activity. The global impact from the pandemic, however, continues to affect the economy and our second remains. We are aware of the key role of our bank have to play in the recovery of the future economy, and we continue to support our customers to alleviate their short term cash flow better. Despite the challenging market conditions, we reached an agreement from the sale of NPE 0.9000000000 NPEs in Project CIVIC II earlier this month. We executed our NPEs organically by a further 279,000,000 in the first half of the year, and we completed the sale of RMB 133,000,000 in Project Velocity 2. All these combined divestitures have reduced NPEs in the 1st 6 months of 2020 by EUR 1,300,000,000 to EUR 2,600,000,000 and EUR 1,100,000,000 on a gross and net basis, respectively. The gross NP ratio reduced to 22% to 11% on a net basis. Coverage, and this is important, has been maintained following the impact of Release 2 with exposures now covered by 58% with long term losses. We remain committed to further derisking of the balance sheet, and we will continue to seek solutions, both organic and inorganic, to achieve this. At the same time, we are working with our clients to prevent future asset quality deterioration while moratorium period and other government support schemes come to an end. The bank's capital position remains good and in excess of all our regulatory requirements. As of 30 June 2020, our total target ratio was 17.9%, and our CET1 ratio was 14.4%, both pro form a for Helix II. We continue to operate with a significant liquidity surplus of EUR 3,900,000,000. The improvement of our operational POC remains a key priority for us. Our cost to income ratio stood at 57%. Our total operating expenses for the Q2 of the year declined by 18% year on year, in large part enabled by customer switching to digital. New lending for the 2nd quarter was below our usual run rate at €238,000,000 due to the lockdown, which covered most of the 3rd quarters. We expect loan demand to pick up in the second half of the year, especially for housing loans in the context of the government schemes for interest subsidy. The underlying result for the quarter was a profit that passed from organic operations of $4,000,000 while the overall result for the quarter was a loss of $100,000,000 including the loss of Project Helix II of EUR 68,000,000 and a loan credit losses of EUR 21,000,000 for potential future NPE sales. Turning to Slide 5 that presents a short summary of Helix 2. As mentioned earlier, despite the economic challenges prevailing from COVID-nineteen, we announced in early August the agreement for the sale of 886,000,000 gross NPEs known as TLX2. The transaction is expected to be completed during the first half of twenty twenty one. The consideration translates to $0.46 of gross book value, of which 35% is payable on completion and 65% is deferred and paid in installments over 48 months from completion without any conditions attached. The consideration can be increased through an earnout arrangement depending on the performance of the portfolio. The sale reduced our NPE ratio by 6 percentage points to 22%, and combined with the other organic reductions, reduced net NPEs to €1,100,000,000 down 89% since peak. The accounted loss recorded in the 2nd quarter was €68,000,000, resulting in a capital impact of minus 48 basis points on situation. At completion, the transaction is expected to have an impact of minus 36 basis points on situation and will eventually turn to positive 10 basis points capital benefits upon the full payment of the deferred consideration. As shown on Slide 6, the 4 NP sales we have completed have delivered a combined NP reduction of EUR 3,800,000,000 As I mentioned earlier, we continue to assess opportunities for balance sheet derisking through and digital NPE sales in the future. Moving now to Slide 7. Overall, since 2014 gross NPEs reduced by more than €12,000,000,000 or 83%, of which EUR 8,600,000,000 have been through scanning actions and EUR 3,800,000,000 through NPE trades. It should be emphasized, and this is important, that this is an net reduction over and above the healthy inflows we had during this period, which were significant, and I can explain later with reference also to 2021. The gross NPE ratio reduced to 22% and 11% on a net basis. Overall, our NPE ratio reduced by 41 percentage points since the peak in 2014. Turning now to Slide 8. The Cyprus government has taken decisive steps early on and is managing the health crisis well. As shown on the graph, the 14 day moving average of used cases per 100,000 population for cycles remains well below the European average. Following the gradual open economy, new cases are closely monitored through extensive sample testing, and this is part of extensive sample testing. And the government remains vigilant to prevent a second wave of infection. New measures completed July 2020 for the management of the recent increase in credit following the relaxation of the travel restrictions. Moving on to Slide 9. The Ethiopian economy recorded a GDP drop of 11.9% in the 2nd quarter compared to 15% reduction in the euro area, reflecting the lockdown. Public projections under the main basin, I will continue to anticipate the typical economy, which shrink by up to 7% in 2020 and then grow by 5% to 6.1% in 2021. 1. The secular economy has started showing negative signs of recovery post lockdown, and economic sentiment is starting to improve, driven by improvement in nearly all sectors. Unexpected international tourism arrivals during the summer were weak, although these were partly offset by the domestic tourism. It is important to note that the impact of the revised macroeconomic estimates has been fully incorporated in the expected cellulosic of the month during the first half of twenty twenty. Turning to Slide 11. Throughout this health crisis, we have prioritized keeping our people safe and healthy while at the same time providing all the support our customer needs in order to overcome their short term cash flow burden. Illustrating the access of our responsiveness on Slide 11, currently, we have implemented a demo actually of around EUR 6,000,000,000 to performing borrowers. At the same time, a total amount of EUR 689,000,000 of new loans have been dispersed in the 1st 6 months of the year. We're participating in the government schemes aiming at providing liquidity to impact the business and private individuals. During technology during the sorry, during the lockdown, technology and digital banking have been instrumental in changing customer behavior. It is very encouraging to know that this increased digital usage is a pain post lockdown. In fact, 72% of our customers are currently digitally engaged, and 80 6 percent of total transactions are performed through digital channels. Finally, we at Parocerciptus created a network known as Safpot CY. We aim to contribute to government efforts in the fight against COVID-nineteen. Approximately 500,000 have been distributed so far to the for the purchase of medical equipment and support of educational activities. On Slide 12, we provide an update on the loan moratorium. As of June 2020, then of the application period, we have granted payment deferral to $25,000 for $6,000,000,000 of gross loss. As you probably know, the moratorium launched in March was very generous and comprehensive. And for many of the customers, this was considered as a benefit without any cost. Business loan moratorium amounted to EUR 3,901,000,000 or 76% of the non legacy loan book, and prior individual amount to EUR 2,090,000,000 or 53% of the non legacy loan book. For business, under moratorium, individual assessment of customers was initiated in May, starting with the high risk customers. The 3rd largest business under moratorium amounted to 1.70 €5,000,000,000 or nearly half of all the business loans under moratorium. We have so far completed the review of over 70% of this without triggering a change in value TP status, and this is very important to note. Individual assessments of private individuals under moratorium have also commenced with priority to individuals with low credit scoring and employed in high risk industries such as Turf. In addition, around 1 quarter of Thai individuals under the moratorium have paid at least 1 stone until the end of June, giving us confidence that the permaculture has not deteriorated. And this happened just after the moratorium and during the lockdown, which is the 1st 3 months of the moratorium. We'll continue to closely monitor the credit worthiness for our customers. We are in regular contract with many of these customers to apply all these schemes and support them in order to respectively and timely address any potential their credit quality following the end of the moratorium. Moving now to Slide 13. Coming to the crisis, the group had a well diversified non legacy portfolio, amounting to EUR 9,150,000,000. We continue to closely monitor the book, a set of strategies to prevent further asset quality deterioration. We continue to expect that the tourist sector will be the most impacted, representing 12% of the non legacy book. Around 15% of the non legacy portfolio is expected to have a medium impact, including sectors of trade and manufacturing, due to the impact of the 3rd lockdown of the previous month. Construction is expected to be only moderately impacted by COVID-nineteen, and its operations expected to experience a moderate impact. Finally, around 40% of the loan of the non legacy book is expected to experience a low impact, including sector like education, real estate and care. We are setting up targeted and efficient strategies for each client segment and industry. We are in close contact with our customers in order to primarily to assess the full extent of the COVID-nineteen pandemic side effects and secondly, provided leads in the form of payment deferral restructurings and liquidity assistance to our Vivo clients should their brand and leverage their short term cash flow better. Turning now to Slide 14. As of 10 June, non legacy loans to car individuals amounted to EUR 4,000,000,000, representing 43% of the total non legacy loan portfolio. Over 80% of the prior individual loan portfolio is housing loans. This segment is very well collateralized with low loan to value ratio. Around 65% of these loans have an LTV below 60%, 50% of the portfolio has an LTV over 80%. Other loans to private individuals amounted to €700,000,000 as at the end of June, 61% of this portfolio secured, of which €59,000,000 by property and the remaining 41% by adding type of collateral. As previously mentioned, around 1 quarter of loans to private individuals paid at least 1 installment by the end of June. Moving now to Slide 15 that provides a breakdown of the non legacy business portfolio and our assessment on the impact of COVID-nineteen. The non legacy business loan book as of the 30 June 2020 amounted to EUR 5,180,000,000 and is well diversified with highly quality collateral. Following the last crisis, we now have higher quality originations due to prudent underwriting standards. We make strong assessment of the repayment ability of our customers. To put this in context, 98% of our new exposure since 2016 we are performing at the start of the moratorium. Finally, there is an effective foreclosure law in place following amendments that took place in recent years. 89% of the business portfolio is secured, of which 79% by COVID. Overall, the business portfolio has a loan to value ratio. Around 70% of the portfolio has loan to value ratio less than 18%. Moving now to Slide 16. As I mentioned earlier, the sectors mostly impacted by COVID-nineteen are tourists and trade. As of June 2020, our total exposure to tourists amounted to EUR 106,000,000,000. The unutilized liquidity of the sectors remained broadly unchanged and amounted to EUR 31,000,000,000 as at 10th June, around 95% of our true exposures are underpayment deferred. Our exposure to trade amounted to EUR 1,000,000,000, Around EUR 29,000,000 of this is in lower risk and central retail services nonmaterial impacted by COVID-nineteen for the supermarkets and pharmacies. The utility of these sectors amounted to BRL880 1,000,000 as of the end of June. Around 60% of our debt exposures are currently under payment deferrals. Turning now to Slide 17 on new lending. New lending for the term cost debt, as expected, amounted to EUR 258,000,000, down 47% of total cost debt, reflecting the lockdown that was in place during most of this quarter. The demand for new lending is expected to pick up in the second half of the year, especially for housing loans in the context of the government scheme for subsidy of interest. Past our 21st August, there was a strong pipeline for new housing loans that amounted to EUR 65,000,000. We expect to utilize all available tools to support our customers. At the same time, we will continue to apply through the underwriting standards and make strong assessment of the repayment capability of our customers. Moving to Slide 18. During the lockdown, technology and digital banking have been instrumental in changing customer behavior. It is very encouraging that the increased usage of digital channels has been sustained post lockdown. As shown on Slide 19, the statistics demonstrate that we continue to make solid progress on digital transformation. 72% of our customers are currently digitally engaged, and 83% of total transactions are performed through digital channels. We expect the increased digital engagement of our customers to support our efforts to improve further our business. I will now hand over to Elisa to take you through our performance for the second quarter. Thank you, Vanessa. Hi, and good morning from you as well. So starting from capital actually on Page 21, during the Q2, we have generated 40 basis points of organic capital operating profit and another 20 basis points of capital from the decrease in risk weighted assets. These were offset by expected loan credit losses and impairments of around 30 basis points. Helix II has reduced capital by around 48 basis points in the 2nd quarter. And on completion, the cumulative capital impact is expected to improve by 12 basis points to minus 36 basis points, with a further capital benefit equivalent to 46 basis points upon full repayment of the deferred consideration. The recent amendments in capital regulation have resulted in a benefit of around 70 basis points for the bank, 50 of which were actually recorded in the 2nd quarter numbers. One final comment is that the ECB has completed an on-site inspection on the value of the group for closed property. The findings of this inspection relate to a possible prudential charge of up to 50 basis points of capital and are currently being renewed by the bank's joint supervisory team. The size and timing of any charge remain uncertain and depend in part on the bank's profit in delisting its balance sheet. Now moving to the income statement on Slide 26. Net interest income has decreased EUR 33,000,000 in the 2nd quarter, mainly due to higher interest cash collections in the 3rd quarter, offset by lower cost of deposits. The net interest margin has decreased to 1.88%. Noninterest income amounted to $60,000,000 for the quarter and is probably flat on a Q on Q basis. Credit expenses reduced to EUR 87,000,000 compared to EUR 93,000,000 in Q1 due to COVID related lower staff costs and seasonality of the deferred currency fund contribution. Loan credit losses for the 2nd quarter amounted to €23,000,000 reflecting a cost of risk of 76 basis points. During the quarter, we recorded additional impairments of €20 5,000,000 on specific large illiquid revenue properties. Provisions and net losses relating to 20 sales amounted to EUR 1 104,000,000 in the quarter, including the yield to loss of EUR 68,000,000 and the loan credit losses of €21,000,000 for potential future NPE sales. The overall result was a loss after tax of €100,000,000 for the quarter and a loss after tax of EUR 126,000,000 for the 6 months. Now starting from net interest margin on Slide 27. As already mentioned, our NIM in the quarter amounted to 188 basis points. Yields in the performing book increased to 3.38 basis points. And despite the competitive pressure, an effort to improve credit spread is currently underway. The cost of funding decreased to 25 basis points as the reduction of cost of deposits continued. The cost of deposits deposits declined by 3 basis points in the second quarter. Finally, the EUR 1,000,000,000 take up in the TLTRO 3 has a potential annual benefit of €5,000,000 for net interest income. Turning now to Slide 28 on noninterest income. In the 2nd quarter, this was partly flat at around EUR 60,000,000. Net share commission income amounted to EUR 33,000,000 this quarter, down 15% on a Q on Q basis, clearly negatively impacted by the COVID lockdown implications. Specifically, as previously indicated, transaction fees amounted to EUR 12,000,000 for the 2nd quarter, and they were 22% down on a Q on Q basis, mainly due to lower volumes of transactions. Transaction fee volumes are expected to recover to pre COVID-nineteen levels as the citrus economy continues to recover in parallel. Net insurance income amounted to EUR 18,000,000 in the quarter compared to EUR 11,000,000 for the Q3, primarily due to a change in the valuation rate and lower motor vehicle insurance claims. Overall, recurring income for the quarter was at €51,000,000 compared to €49,000,000 in the 1st quarter as the higher net insurance income has offset the reduction in the fees and commissions. The introduction in liquidity fees to a broader group of corporate clients that was delayed due to COVID-nineteen is currently under consideration and will be introduced once market conditions allow. Finally, fees and commissions review is also currently underway. Now finally, moving to costs on Slide 30. Our cost to income ratio, excluding bank deliveries stood at 57% in the quarter compared to 58% in Q1, principally reflecting the lower total operating expenses. Total operating expenses of $81,000,000 for the second quarter were down 3% on a Q on Q basis and 18% on a year on year basis. Specifically, staff costs reduced to EUR 47,000,000 relating to mostly one off cost savings from special annual leave to vulnerable groups and suspension of the NHS contribution during the lockdown period. Other operating expenses for the Q2 amounted to €34,000,000 and are probably flat on a Q on Q basis. The special levy and contributions to the single resolution fund and deposit guarantee fund for the quarter were at €6,000,000 And as a reminder, as from 1st January 2020 until July 2024, the group is subject on a semiannual basis of the contribution to this deposit guarantee fund in Cyprus. With that, I hand over to Vinikris to take you through asset quality and cost of risk. Thank you, Elisa. Good morning to all. I will start from Slide 32 on our IFRS nine staging and coverage. As shown on the left graph, pro form a for Helix 2, around 61% of our loan book is classified in Stage 1 and 70% 17% in Stage 2. The coverage of these two stages, pro form a for Helix 2, stood at 1.5% 2.5%, respectively, while coverage of Stage 3 loans was maintained and amounted to 52%. During the Q2, there was a one off migration of around EUR 360,000,000 of gross loans from Stage 2 to Stage 1 due to enriched data availability. Turning to Slide 33 and the cost of risk. The annualized cost of risk for the first half of twenty twenty was 1.39% of gross loans, of which 59 basis points reflect the initial Excluding this COVID-nineteen rated charter, the cost of risk for the first half of Excluding this COVID-nineteen rated charter, the cost of risk for the first half of twenty twenty stands at 80 basis points. The cost of risk for the 2nd quarter has benefited from a release in provisions of 76 basis points, out of which 59 basis points relate to one off items. Excluding the one off reversal effect in the COVID-nineteen related charge of 30 basis points, the underlying cost of risk for the 2nd quarter amounted to 105 basis points and is broadly in line with the respective Q1 charge. In addition, during the Q2 of 2020, we recorded an accounting loss for Helix II of 68,000,000 dollars 21,000,000 loan credit losses for anticipated future NPE trades and the impairment of 25,000,000 on specific glass and liquid credit products. Finally, as a reminder, interest on net NP not received in cash is fully provided for, which in the Q2 represented 58 basis points cost of risk. Moving to Slide 34. Tackling the bank's loan portfolio is of utmost importance for the group and our stakeholders. Today, the bank's SEK 2,58,000,000 of gross NPEs pro form a for Felix 2 fall into 2 buckets. Firstly, reperforming NPEs totaling €300,000,000 As a reminder, reperforming NPs are loans that have been restructured, have no areas, are still classified as NP, but are expected to exit the NPE definition over time. Most of the re performing NPEs are under the moratorium. Secondly, core NPEs amounted to SEK 2,280,000,000. We will continue to seek organic solutions, including the realization of collateral via consensual and nonconsensual foreclosures. In parallel, we continue to assess potential opportunities to accelerate the decrease in NPEs through faster NPE trades in the future. At the same time, we don't lose sight of the fact that arresting any asset quality deterioration is of paramount importance, and we are working with clients to this effect. Moving now to Slide 35 on NPE inflows and outflows. The NPE reduction continued in the 2nd quarter at similar levels to the 1st quarter. NPL outflows for the 2nd quarter amounted to EUR 145,000,000, only modestly lower to the 1st quarter levels despite the lock down and other such measures as the freeze of foreclosures, while as expected, inflows in the 2nd quarter were limited due to the moratorium. Write offs for the quarter amounted to €24,000,000 representing 58% of organic growth and fee reduction. As we have previously explained, we continue to expect that the proportion of Ryals will be volatile in an given quarter. Now turning to Slide 36 on coverage. The bank's NPE coverage ratio increased by 2 percentage points to 58% at the quarter end pro form a for Helix 2. The bank stands today above the European average coverage ratio of 46%, and total coverage pro form a for Helix 2, including tangible collateral, increased to 125%. Coverage of corn thieves also increased to 63%. With that, I hand over to Alrikos for his closing remarks on Slide 39. Thank you, Dimitris. Our results with quarter show that we'll continue to deliver on our strategic priorities by supporting customers, colleagues and the community through COVID-nineteen. We will continue to support the recovery of the future economy. At the same time, our key strategic focus remains the improvement of the asset quality and efficiency of demand, And this is something that we constantly deliver all this year with a proven track record even under the worst active study like this cost during the COVID-nineteen lockdown. This concludes our presentation. I will now open for questions. Questions. The first question comes from the line of Floriani Jonas with Axia Ventures. Please go ahead. Hi, good morning guys. Thanks for the presentation. I have a few questions. The first one is on expected volume of new lending in the second half. I acknowledge that you mentioned that most of the cut is expected to come from mortgages. But what about corporate and SMEs, anything you can share in terms of your expectations for those guys in the second half? The other question is on NPEs derisking. I'll take your comments that you're still continuing to pursue opportunities for transactions whenever that is possible. Is there anything now in the pipeline? I mean, are you in active conversation with investors to some parts of your portfolio? I think I remember that the initial expectation for Alextel was for a bigger amount, so maybe there is something that is in more advanced stages at this point in time. So if you can share something on that, that would be great. And then finally, just wondering if there's any guidance for the year you can share, more specifically your views on NIITs, expenses and also level of impairments going forward? And maybe something on expectation for MT flows. I mean, I think at this point in time, it's probably very difficult to assess or to have a view on next year. So if you have something for the short term to share, I think it will be Sorry to interrupt, Mr. Floriani. We'll have lost connection to the conference room. So just hold on your line and the rest of you please bear with us for a second, so we'll reconnect the presenters. Thank you. Okay. Hello, everyone. The management is back on the line. Mr. Florent, if you could please repeat your last question. Thank you. Sorry, I would Hi, guys. I mean, why did you stop your aim and did you get my first question? That's your first question about the expected you lend me on the second part. How we noted that? And what is the second one? So yes, the second was on the risk of the balance sheet. I see the comments that you mentioned that you continue to look for inorganic opportunities on the NPE side. I think it's just assumed that the original expectation for Helix II was probably higher for a bigger portfolio. So I was just wondering if there's any advanced stages of interactions between you and potential investors for what could come next on NPEs? And then finally, the third question was on expected guidance for 2020. Anything you can share in terms of income statement and balance sheet would be great. Okay. Related to your first question about the new lending, expecting new lending for the remaining of the year, we expect to be higher than what we have presented in Q2. It will be fast in between our Q2 number and our usual run rate, which was around $450,000,000 $500,000,000 per quarter. So I mean, yes, you're going to see increase in the housing loans plus utilization of approved loans for Liquidia, Cisabela provided to our clients. So it will be higher, but as you know, this is kind of the timing of the utilization because new LEM is not the approval, it just is the utilization of the new LEM. So it cannot be, let's say, very specific on the amount, but it will be higher than Q2. On the risk of the balance sheet in relation to future R and P, I will ask Nick to answer the question. Nick? Hi, guys. Hi, Floriana. Hi, thanks for the question. Look, you're right, the original targeted Helix 2 side was largely than we ultimately ended with, as you commented on. I think right now, I mean, we're super pleased that we managed to get a transaction concluded at the sluggish end of the timing window that we guided you to over the last couple of investor calls despite the sort of obvious challenges of trying to get deals done in a post COVID environment. So we've seen that around the market. So we'll see the deals we've got done. I think in terms of what comes next, yes, you're right. We flagged in the presentation that we will continue to assess all options to derisk the NPLs, including exploring the options for future trades. I described where we are on that is right at the start of that journey again. If I call it just for now a sort of 3rd index trade, then we're exploring options. And I think that will continue for some time actually before we embark on the board's preference in terms of how we structure any targeted follow on trade. Look, my personal view is that's most likely to be a next year issue, but look, let's keep that with the revision as we go through the exploration of the options. And then Elisa, on the On guidance. The kind of for this year? For MII, I would say that Q3 and Q4, we expect them to be broadly in line with Q2, net of the new lending, the moratorium, which means that our repayments are lower. So net net and given the fact that the Helix portfolio of IFRS, 865 continues to accrue interest. If you look at it pro form a, you need to remove the NII that comes from that book, and there are numbers in the pack to guide you on that. On fees, the guidance we gave last quarter actually continued to rephrase. We were expecting around 20% drop in transactional fees. You'll see that we are totally there this quarter. And we expect with minus 20 to gradually reverse in line with GDP GDP trajectory. On costs, I would say that Q1 is a more representative quarter, but Q2 did benefit from the fiscal incentives, which 5,000,000,000 of bank and also benefited from lower OpEx because of the lockdown. So I would say that moving to Q3 and Q4, I used 2 analogs of guidance in Saipur. Offices are now open. So actually, OpEx is more or less back to a normal quarter, I would say. And on cost of risk, Dimitri? Yes. On cost of risk, as I indicated during my speech, the 2nd quarter has been impacted by 1 off reversal of 59 basis points, which is related to data quality improvements. If we are to adjust for this and for the COVID impact for the Q2, the cost of risk is calculated at 105 basis points, which is broadly in line with our COVID adjusted cost of risk of Q1, which was 112 basis points. All in all, for the half, the run rate of the cost of risk without the COVID effect is around 110 basis points mark. And our expectation is that this would be the COVID adjusted run rate for the remainder of the year. I remind you here again that out of this, almost half relates to interest on NPEs not received in cash. Now from what we see today, one can conservatively assume that the COVID effect in the following quarters will also be at the at similar or lower levels to our Q2 COVID effect. The next question comes from the line of Bodo Boris Alexandreux, Wood and Co. Please go ahead. Good morning. I have three questions, if I may. The first one is regarding the losses you booked in Q2 regarding the real estate unit. I think it's about €25,000,000 impairments. Should we expect more going forward in the next quarters? This is my first question. And maybe if you could clarify a bit more on that. The second is on the Helix II, just to understand a bit the accounting treatment with the deferred payments because you booked a loss of €60,000,000 if I'm correct in Q2, €60,000,000 68,000,000 But there will be a capital a negative capital impact of 36 bps, which then turns into a positive 10 bps with a full payment of the deferred consideration. Accounting wise, will there also be some capital gain that you will book in the following quarters? Because of that, just to understand that. And when should we assume that sorry, this closing of the deal? I mean, you mentioned that in the presentation, but that's also another question. And the third question, if I may, regarding the moratoriums, which are due to end on the end of December. Do you would you expect any extension of that, maybe on the sectors that have been more heavily impacted like tourism? Okay. I will start with myself with the last two questions about the moratorium. And this is an opportunity to make sure a couple of things about the moratorium because it's important for everyone to understand how we think about that. So just as more reminders, you understand and you remember that Discover Memorial, it was launched in March. It was very generous and very comprehensive. And for many of our customers, taking advantage of the moratorium, it was just a benefit with no cost. And for most of them, it was not even a sign of distress. So it's important to mention this. And as I already mentioned earlier in my presentation, we have already go through individual assessment of many of our clients and especially the top 30 business units. And almost 70%, 30% of this have been reviewed as they have in 3 year earning UTP status for these years and for the next year as going forward. So it's important to understand because having in mind that this has, let's say, this significant amount of loan market provides some creates some questions, certainly, for the future. And it's important for us to and for you to understand what this means under the local sector perspective. So regarding the specific question about the extension, This is something that we don't have any specific knowledge if this is going to happen or not. As a bank, our result, the moratorium was generous and the effect in the that was created because of this highly pickup of the moratorium is not a beneficial for the bank, not a beneficial for the economy. So we are not talking of an expression of the moratorium. At the same time, we are not excluding any and this is something that the Central Bank and the Ministry of Finance will look into. We are not excluding any, let's say, short extension of any monitory on a specific segment, for example, like tourists. But I don't expect to see the same kind of monitory with no criteria and no payments at all. So if this will happen, which we don't know, it will be a small part of the existing moratorium. I mean, the capacity has around €12,000,000,000 of moratorium now. If this happens, let's say, for the tourist industry, it will be in the ratio of €1,000,000,000 or €5,000,000,000 But I don't expect to be, as I described, a benefit with no cost. It will be based on certain criteria. And we would include also payments, interest plus part of the capital. So this is my view. But as I said in the beginning, I mean, it's something that the Minister of Finance and the Central Bank will limit trade. We don't know that based on the existing Iberos, any new molecular authority has to be decided and concluded by end of September this year. And this is related information we have. So I will pass to Alisa to talk about the MHN2 question about the Helix to account treatment and the losses on the real estate. Okay. Thank you. So Alex, on the EUR 25,000,000 impairment we had this quarter, around half of it relates to a specific property, the large property, which had very disemcarinic issues and which property is in very advanced stages of being sold. So it's a very case specific. The other part of the impairment, the other half, again, related to some illiquid legacy properties, which were at least at reasonably high, relatively high percentage of OMV and which because as I have been held for a large number of years, we are taking some more prudent haircut on their valuation. We do not expect a repetition of this amount. There may be modest minor drops, again, as some of these older progress before are becoming older, but very modest. We don't expect the reading material to come through in the next short number of quarters. I do want to remind you that the properties on the balance sheet are sales at an 80% on average, at 80% of their open market value. So we do have a 20% buffer from any potential price reduction in the market. We don't expect, and by the way, our projections and indicators of real estate titles to not indicate any drops. But even if there was to be a drop, there is a 20% buffer before that keeps our balance sheet. Maybe Arnaud could give us some guidance or some color on the real estate market and how we see it. Yes. The real estate market is holding up for the amidst COVID-nineteen breakthrough. Has started to recover post lockdown, and this is evidenced by land registry transactions. Main investor activity is fueled by local demand. As far as our IR group is concerned, we have a healthy, I would say, fixed pipeline, both in terms of contracts that are signed in excess of $53,000,000 and access to the offers. Okay. And on the accounting treatment of the deferred payment. Now this deferred payment carries or attracts 100% risk weight. As it gets repaid, it will be releasing clearly, there is that the RWAVE that's attached to the lease repayment. And also in accounting terms, it will be interest bearing at between 3% 4% yield accounting yield. It's an unwinding of the discount in accounting terms. So there will be an NII net positive from this. And there is current stock up from next year. How about that? Yes. So it's an interest bearing on the balance sheet. Thank you. Very comprehensive. The next question comes from the line of Novakikhandari with HSBC. Please go ahead. Good morning. I have a couple of follow-up questions on the NII outlook. Would you say that the Helix II loans are representative of your legacy portfolio in terms of yield and maybe cost of risk as well? And therefore, the foregone NII should be somewhere in the vicinity of 13,000,000 paren perhaps. Also on NII, that's 5,000,000 NII potential from the TLTRO that you mentioned, that's based on EUR 1,000,000,000. Can this increase beyond EUR 1,000,000,000? And lastly, is there the potential to reduce cost of funding, specifically on customer deposits? Thank you. Liza, on the right side. So NII, the Helix II, I would say, is representative of the rest of the NPL portfolio. Remember, NPL's yield interest income on their net loan balance, net of provision. So on a net basis, I would say that it is representative. On the TLTRO, the EUR 5,000,000,000 the EUR 5,000,000,000 rather, and NII benefit on an annual basis is expected to start to come through the P and L from Q3. The TLTRO application was in June or drawdown. We've applied for €1,000,000,000 We do have the capacity to increase that €1,000,000,000 more. However, the decision was to go for EUR 1,000,000,000 because there is also a risk under the TLTRO rules that this NII pickup does not come through if net new lending doesn't meet the milestones, the threshold. So we want to monitor a bit more the behavior of the performing loan book before we decide whether we are going for additional transfer. So at the moment, we've decided for the EUR 1,000,000,000 I wouldn't guide for anything higher, but there is a possibility down the road may apply for more. On cost of funding, it's gravitating towards 0. There is a possibility to reduce it a bit more. And as I mentioned also in the script, we are considering to introduce what we call liquidity fees, which is the way that we have applied negative rates effectively to a fee arrangement down the road once market conditions allow us to do this. We have we were planning to read earlier. COVID has delayed us So it's probably a 2021 P and L benefit, I would say, early to mid-twenty 21. Again, subject to market conditions here in Cyprus. Thank you, Anita. The next question comes from the line of Mehmetrokh Luzman with Ambrosia Capital. Couple of questions on my side. First, on the big picture macro side, do you think the government measures so far are adequate? Would you expect them to introduce these things from a sport perspective? Then on the second one, you did comment on the moratorium. I was just wondering if you could give us a bit more color on maybe what percentage of these loans, I understand most of them don't even need to be in North Korea, but if you could give us any color of what percentage would you think would turn to be problematic maybe as early as next year? And then on the NPE reduction with all these moving parts, where do you see the NPE ratio declining at the end of 'twenty one? How should we envision your actions on that front next year? Okay. Thank you, Usman. On the measures of the Garden, I will say that so far has been proven at Segway. And currently, most of the measures expire in October. But as we see this happening usually before the measures expire, usually, the minister usual situation and usually, they expect. So this is our current expectation as of today. On the moratorium, okay, it's very hard. I will answer both questions on the market. On the NPE, let's say, with one comment. And I will not provide you any specific numbers. But I would say that you need to know that this bank is kind of is not a bank that we developed P and C bank with an all stock on legacy stock. I mean, we said earlier in our presentation that we have managed to decrease RMP from EUR 15,000,000,000 to EUR 2,600,000,000. Dollars This is $12,400,000,000 on a net basis. During this period, we have more than EUR 3,000,000,000 new NPE entry. So we are used to have NPE entry because we have been leading the crisis for many years now. And we have managed on a net basis to continue to decrease. So for next year, yes, we do expect to have some to have NPNs. We wouldn't be prudent from our side to say that we will not have NPNs. But we expect that the old legacy book, the accounting reduction of the old legacy book, it will offset any new NPSs from the COVID-nineteen effect. And over and above our mixers, we are looking to explore our options for another trade. We are to give this market relative confidence will be an additional reduction in R and D. So we expect a decline on the IP hosted return to us. Got it. That's very helpful. Thank you. And okay. And for the remainder of the year, I mean, we expect some declining on our The next question comes from the line of Dean Spenny with Goldman Sachs. Please go ahead. Hi there. Thank you for taking my question. One quick question from me. On Slide 33 of the presentation, you mentioned a one off for the cost of risk in the 3rd quarter. Could you please elaborate on what that relates? Yes. Carlos, anything further question? With the interaction of iPad S9, there was a significant part of the portfolio, which was in Stage 2 because of data quality issues. The main data quality issue we had was rating at origination. I remind you that the part of the portfolio was transferred to Bank of Cyprus from like Ebank in 2015 and there was data missing at the time. These data quality issues have been we have been working on these data quality issues through various exercises we have done over the last couple of years. And at each, let's say, milestone of the exercise, a significant part of the portfolio we got the data that we acquired. We did program grading of the portfolio, and a part of that has been transferred to Stage 1. This reversal mainly relates to that. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolas for any closing comments. Thank you. Thank you, Gustav. As a summary of what we have just said is that I would like to highlight the fact that this was a significant this was the lost on quarter over the outside because for most of this quarter, all business were closed, including the airports. And we are an island. We are actually kind of isolated. So despite that, for the Panos side, we did use a quarter of significant and material reduction in our NPE, while at the same time, we increased our coverage on the NPE. We maintained our calculation without even getting the NSE of the expense of NPP. With our domestic base pension will be gradually other part coming on during the next couple of years. We haven't seen any actually, a little more increase in our double digit profit on cost. The liquidity is strong as you it's easy to understand. So at the same time, we'll continue to reduce our cost operating expenses 18% year on year. On digital, digital run of the good outcomes from the lockdown because we have seen this big picture. And we see increases in our PGL engagement and our PGL transaction. And this is something that we'll hear about mining, gas, stock and our efficiency going forward for the remaining of the for the next couple of years. So we consider this to be a good profit for the bank. And we are looking forward to have more information to give you on Q3. Because that kind of time, we'll provide more information about, let's say, for 2021, about moratorium, what is next and how we see our credit portfolio performing credit portfolio for 2020 half 2022. So thank you all for participating in the call. Usually, all that in summer is actually difficult to have many people on the call, but thank you all for taking your time. Both my health and sales management and, of course, the investor level teams at Amiga will be more than happy to have Embiologa and the customer unit and provide you with more details on the results and on the future.