Ladies and gentlemen, thank you for standing by. I'm Myrtle, your Chorus Call operator. Welcome, thank you for joining the Bank of Cyprus conference call to present and discuss the group financial results for the year ending 31st December 2019. At this time, I would like to turn the conference over to Mr. Panicos Nicolaou , Chief Executive Officer, Ms. Eliza Livadiotou , Executive Director Finance, Mr. Demetris Demetriou , Chief Risk Officer, Mr. Panicos Mouzouris , Executive Director, RRD, Ms. Anna Sofroniou , Executive Director, Real Estate Management Unit, Mr. Nick Smith, Executive Director, Corporate Finance Solutions, and Ms. Annita Pavlou , Manager, Investor Relations. Mr. Nicolaou, you may now proceed.
Thank you, Myrtle. Good morning, everyone. Thank you and welcome to the 2019 Bank of Cyprus full year results. I hope everyone is safe and healthy. Under normal circumstances, our team and I will start presenting you the results of what has been an important year for the bank, with significant reduction in NPE, active cost management through staff reduction, branch closures, and increase in the digital engagement of our clients. COVID-19 has changed the economic and social landscape in an unprecedented way and in a very short time span. This morning, we will be focusing mainly on our role in addressing the crisis, focusing on a few topics as we navigate this environment.
Towards the end, Eliza will briefly review our 2019 results, and of course, both of us, along with the team, will be happy to answer your questions. On slide three, the bank's priorities under these unprecedented times are clear: to protect the health of our customers and colleagues, to support them in the wider Cypriot economy, and to provide liquidity to businesses and households affected by the crisis to help alleviate their short-term cash flow burdens. We are determined to help all our stakeholders confront this challenge. As a management team, we have considerable experience in managing challenging circumstances. We have a robust pandemic plan in place which ensures that all our operations and service coverage remains uninterrupted.
Our investment in our digital transformation program has not only strengthened our operational resilience, but more importantly, has enabled us to quickly respond to the changing landscape and fully deploy our digital service channels to our customers. The increased digital engagement level of our customers during this period is impressive and now stands at 70% as of end of March 2020. We expect further increases in the near future. The bank enters these uncertain times with good capital, strong liquidity, and funding position. We have a capital well in excess of our regulatory requirements. As at 31st of December 2019, our total capital ratio stood at 18% and our CET ratio at 14.8%, with a CET buffer of 380 points.
Deposits were broadly flat at EUR 16.7 billion, and we continued to operate with over EUR 3 billion of surplus liquidity. As at the end of December, our loan to deposit ratio stood at 64%. Turn me to slide four now. We are pleased to see the Cypriot government taking all the necessary measures early in the pandemic curve and successfully managing to contain the spread of the pandemic in our country. Statistics are very encouraging. The sample testing per 100,000 population is amongst the highest within EU. At the same time, the confirmed cases are amongst the lowest. The daily reported cases have stabilized and remain consistently low, enabling the government to consider the gradual uplift of the restrictions, which are expected to be phased out as from early May.
Of course, for a full opening of our economy and tourist industry, we recognize that we will need to see international progress as well. Let's now move to slide five. We at Bank of Cyprus have as our top priority the health of our staff and of our customers while ensuring the operational resilience of the bank. We are actively managing the situation and have undertaken a set of measures in accordance with the guidance and recommendations from the Ministry of Health to protect the health of our employees. A committee was established to monitor new developments, trace potential issues within the bank, and provide regular updates and guidance to our staff. We have fully deployed our pandemic plan, and with now more than 40% of our people, excluding branches, working from the safety of their homes, taking advantage of our technological infrastructure and digital solutions.
Our branch network continues to operate on a rotation basis as a precautionary measure. The staff of the critical functions have been split in separate locations. Our digital channels provide alternative solutions for customers to perform their daily banking transactions online. As I mentioned earlier, 70% of our customers are digitally engaged. Let me now go to slide six, which provide a summary of the measures taken by the regulators for mitigating the COVID-19 impact. These measures are unprecedented and have already been put in place. The purpose of this measure is to help banks as much as possible provide the necessary support for their customers. Specifically, the measures announced provide flexibility with regards to capital and liquidity requirements, as well as providing guidance on the application of IFRS 9.
Starting with the relaxation of the capital requirements, the regulators allow the banks to temporarily dip into the P2G and capital conservation and countercyclical buffers. Note that the countercyclical buffer for Cyprus is currently set at zero. Morever, the ECB front-loaded the ability to use lower-quality own funds to meet Pillar 2 requirements. In April 2020, the Central Bank of Cyprus decided to delay it by 12 months to January 2022, the phasing in of the 50 basis points of our O-SII buffer. With regards to liquidity, the ECB is allowing banks to temporarily operate below their LCR requirement. Although note that we are at double that level. It launched a new Pandemic Emergency Purchase Programme, which entails net asset purchases of EUR 750 billion until the year-end. Moving [inaudible], the ECB will exercise temporarily flexibility regarding their unlikely-to-pay assessments.
In addition, the regulator will exercise full flexibility when discussing with banks the implementation of their NPE reduction strategies. Finally, the ECB is encouraging financial institutions to avoid procyclicality in models to determine expected credit losses. The ECB will actually provide central macroeconomic scenarios to support banks in applying IFRS 9 provisioning policies, while banks should also give a greater weight to their long-term outlook when estimating expected credit losses. In addition to the ECB measures, we have the EBA guidelines which cover the following key points. The COVID-19 moratorium does not automatically trigger increased credit risk. Banks are expected to distinguish between borrowers for which the credit standing will not be significantly affected by the current situation in the long- term from those that would be unlikely to return to creditworthiness. This distinction will help institutions to mitigate any potential cliff effect from transfer between stages.
The general COVID-19 moratorium does not trigger automatic reclassification due to forbearance. The COVID-19 moratorium extends 90 days past due deadlines via the modified payment schedule. Finally, the EU stress tests have been postponed to 2021 to allow banks to prioritize operational continuity. All the above are indicative of the capacity being provided to the banking system to proceed with all the necessary actions in order to help borrowers. Moving now to slide seven, I will spend some time on discussing the measures taken by the Cypriot government, which are also important in addressing the consequences of the crisis. In response to the outbreak of COVID-19 in Cyprus, the government quickly introduced fiscal measures which accounted for 5.4% of Cyprus GDP, aimed at providing liquidity to businesses and simultaneously preventing a sharp rise in unemployment.
The package announced by the government is perceived to be one of the most generous among EU members. During April, the government has successfully raised $3 billion of funding from the international local market in order to cover the measures undertaken to confront the economic impact of the COVID-19 outbreak and to strengthen credit reserves, bringing thus a strong mode of confidence to the Cypriot economy. Turning to the measures in detail. First, the parliament voted for the suspension of loan repayments of interest and capital for nine months remaining until the end of the year for all eligible borrowers with arrears less than 30 days as at the end of February 2020. In addition, the government is promoting a government guarantee program of EUR 2 billion for the provision of low-priced loans to companies and self-employed.
250 million has been set aside to be used for the subsidy of the interest. The program has been approved by the Council of Ministers and is pending parliament's approval. According to the terms of the program, as of today, and as approved by the Council of Ministers, the government will guarantee 70% of the loan amount. Furthermore, the government introduced additional liquidity-supporting measures such as the suspension of VAT and delayed additional triggers of contributions for the [General Healthcare System]. Finally, the government has introduced income support schemes for companies impacted by COVID-19 to protect jobs and avoid layoffs. It is estimated that over 50% of private sector employees and approximately 40,000 self-employed will benefit from the wage compensation schemes. Cyprus will also benefit from the measures taken by the Eurogroup in early April.
More specifically, Cyprus has access to EUR 400 million funding for companies with a focus on SMEs through the European Investment Bank, a loan facility of EUR 150 million with favorable terms for the protection of layoffs during crises, and finally, three years pandemic crisis support through enhanced condition credit line of EUR 440 million. Moving now to slide eight. In 2019, the Cypriot economy grew by 3.2%. Whilst clearly COVID-19 has caused a deterioration of the short-term prospects of the Cypriot economy, it is an open, more flexible economy, which has demonstrated historically that recovery from economic crises can be quick. The spread of COVID-19 is expected to have a significant impact both on the global and Cypriot economy, at least for the third half of 2020. The impact on the Cypriot economy will largely depend on the duration and the intensity of the pandemic.
The sectors most adversely affected initially by COVID-19 are expected to be tourism, trade, and construction. As the pandemic is still unfold, it is not possible to assess the full likely impact. The decisive actions announced by the government along with the coordinated monetary, fiscal, and regulatory measures announced by the European authorities are expected to mitigate the impact of this external shock. However, there will clearly still be an impact. Moving to slide nine now. We are cautiously optimistic for the resilience and the recovery capacity of the economy. The government measures provide a liquidity injection accounting to almost a quarter of the country GDP for the support of the EUR 23.2 billion of performing loans in the banking system. More specifically, the government guarantees approved by the Council of Ministers will provide approximately EUR 2.5 billion liquidity to affected business and self-employed.
Furthermore, an additional amount of EUR 400 million is available for the funding of business through the European Investment Bank, with a focus on SMEs. Support will also be provided through the loan moratorium as it estimated that it will provide cash relief to business and individuals of approximately EUR 2.3 billion. In addition, it is important to note that the banking industry and that of Cyprus, in particular, has an expertise to offer this liquidity in a timely and effective way to affected business. This is very important and very high in our priorities. To summarize, the measures taken by the authorities and the government are comprehensive and far-reaching for the support of the performing business and the economy to withstand the consequences of the pandemic. Turning now to slide 10.
On slides 10 to 13, we will discuss our exposure to the most affected sectors of the economy and our strategy to mitigate the impact on our customers and effectively the bank. The group has a well-diversified performing loan portfolio amounting to EUR 9.2 billion as at 31st of December 2019. We will continue to closely monitor the book, a set of strategies to prevent asset quality deterioration. The extensive travel bans, the slowdown in production, as well as the regime change in demand and effectively the consumption stemming from the strict lockdown have an adverse impact on tourism, trade, and construction sector in the economy. The exposure of our performing group to tourism and trade each amount to EUR 1 billion, while the exposure to construction is lower than that, $500 million . As of the year-end, the bank had no exposure to aviation.
Of course, any prolonged outbreak of COVID-19 will eventually impact all sectors to some extent, with a few exceptions. We are setting up targeted and efficient strategies for each client segment and industry. We are in close contact with the impacted customers in order to primarily to assess the full extent of the COVID-19 economic side effects, and secondly, provide relief in the form of payment deferrals and restructuring as appropriate. We provide liquidity to affected customers to help alleviate their short-term cash flow burden through the government guarantee facilities and other lending products from the bank. It's worth remembering that the government guarantee facilities have been approved by the Council of Ministers, but are still pending through the Parliament. On slide 11, we provide information about the loan moratorium included in the government measures.
The loan moratorium was started on 30 of March 2020, and offers the suspension of both capital and interest for loans, overdrafts, and credit cards for a period until the end of the year. This measure is available to all customers, both private individuals and business, who have less than 30 days past due as at the end of February 2020. The loan terms will be extended so that the loan repayments will continue as per the existing schedule. During the moratorium, interest will continue to accrue. It is important to note that as per the measures announced by the regulators, the COVID-19 moratorium does not trigger automatic reclassification to NPE status due to forbearance. As at 23rd of April 2020, we have received approximately 21,000 applications for EUR 5.2 billion of gross loans accounting for 56% of the performing loan book.
Applications from businesses amount to EUR 3.4 billion or 66% of the performing book, whereas applications received from private individuals amount to EUR 1.77 billion or 45% of the performing book. I would like once again to emphasize that during the moratorium period, we will continue to closely monitor the creditworthiness of our customers who apply for this scheme, and support them from the day after in order to effectively and timely address any potential worsening of their credit quality following the end of the moratorium. Moving on to slide 12. As at the end of 2019, performing loans to private individuals amounted to EUR 3.94 billion. It is expected that over 35% of total employment in Cyprus will remain unaffected from the COVID-19 crisis, as this workforce is employed in government, semi-government, and other financial sectors.
In addition, measures announced by the government include an employment compensation scheme for businesses impacted by COVID-19 to protect jobs and avoid layoffs until mid-June 2020. The scheme provides for the compensation for 50% of the wage cost for up to 60%-90% of the workforce, depending on the extent of lost turnover and number of employees. It is important to note that a requirement of the scheme is that no employee will be fired since 1st of March 2020. The government expects that over 5,000 private sector employees and around 40,000 total employees will benefit from the employment compensation scheme. As previously mentioned, the moratorium applications received from private individuals amounted to EUR 1.77 billion from the EUR 3.94 billion we currently have in our books that are driven by mortgages and personal loans. Moving now to slide 13.
Let us now go through a deep dive through our exposure to the most affected sectors, tourism and trade. As at 31st of December 2019, our total exposure to tourism amounted to EUR 1.01 billion. 6% of this relates to food services that are in better position to manage social distancing through takeouts and drive-through facilities. The accommodation sector is expected to be under the most significant pressure. Most customers in this sector entered the crisis though, with significant liquidity following strong performance in recent years. Specifically, the unutilized liquidity of the sector as at the end of March 2020 amounted to EUR 340 million, most of them being deposits in the account of the client. 88% of our tourism exposure already applied for payment deferral. Our exposure to trade is similar as at the end of December.
28% of this is in lower-risk, essential retail services not materially impacted by COVID-19, such as supermarkets and pharmacies. The unutilized liquidity of the sector amounted to EUR 840 million as at the end of March 2020. For this sector, 53% applied for payment deferral. Slide 14. During this unprecedented time, the Bank continued to operate smoothly, supported by its digital transformation program. The Bank's digital infrastructure initiatives provide a timely solution to our customers to carry out their daily banking transactions. Today, 70% of our customers are digitally engaged, up six percentage points since December 2018. It is evident that following the outbreak of COVID-19, the ratio of online banking transactions to total transactions increased by 15 percentage points to 45%. The Bank has launched various initiatives aiming to provide better, faster, and safer service to customers.
Such initiatives include, amongst others, the issuance of debit cards free of charge until the end of May 2020. Additionally, new customers can receive a free subscription to internet banking. New customers that open an account via the Bank website receive a debit card free of charge and other measures. I will now hand over to Eliza to take you through the highlights for the full year 2019 on slide 15. Eliza, the floor is yours.
Thank you, Panicos. Hi from me. I only intend to take you through the headline slides for full year, in compliment of the timing of the issuance of our full year numbers. If we start with slide 15, our capital position remains good. Total capital and CET1 ratios stood at 18% and 14.8% respectively, well in excess of our regulatory requirements. The de-risking of our balance sheet continued in 2019. The organic gross NPE reduction in the fourth quarter amounted to EUR 205 million, bringing total organic reduction for the year to EUR 889 million, ahead of our guidance of around EUR 800 million reduction for the year. Since we peaked in 2014, our gross NPEs declined by 74% to EUR 3.9 billion or EUR 1.8 billion on a net basis. Our gross NPE ratio was reduced to 30%, and exposures are 54% covered by expected loan credit losses.
Due to the prevailing market and operational conditions arising from the outbreak of COVID-19, the NPE sale is currently delayed and will take longer than anticipated to complete. During the quarter, our deposits increased marginally Q- on- Q by 1% at EUR 16.7 billion, whereas the loan-to-deposit ratio stood at 64%. In March 2020, liquidity fees were introduced to strategic customer groups. In the fourth quarter of 2019, we also successfully completed our voluntary staff exit plan, resulting in an annual gross saving in staff costs of 13% or EUR 28 million, and the reduction of the full-time employees by 11%. The one-off cost of the VRS scheme was at EUR 81 million and was recognized during the fourth quarter. Also, the number of branches were reduced by 18%, facilitated by the ongoing digital transformation.
As Panicos mentioned earlier, the percentage of digitally engaged customers increased to 70% as at the end of March 2020. New lending for the fourth quarter amounted to EUR 443 million and EUR 2 billion for the year, up 9% as compared to the prior year. New lending for the full year 2019 is at its highest level since 2016. In the fourth quarter, we generated total income of EUR 166 million and a positive operating reserve of EUR 53 million. Our cost of risk was at 0.9% for the fourth quarter, remaining broadly flat Q- on- Q. The underlying results for the quarter was a loss after tax from organic operations of EUR 6 million and a profit of EUR 36 million for the full year.
During the fourth quarter, there was a provision to net loss of NPE sales of EUR 86 million, which included, as previously announced, loan credit losses within the context of IFRS 9 at EUR 75 million for the anticipated balance sheet de-risking through NPE sales. Following the one-off cost of the VEP of EUR 81 million, as well as the net loss of the NPE sales of EUR 86 million, the loss after tax was at EUR 186 million for the quarter and EUR 70 million for the full year. Now turning to slide 16, a few key points on our liquidity metrics. Our deposits are stable year-on-year at EUR 16.7 billion, and we continue to operate with significant excess liquidity of EUR 3.2 billion as at 31st December 2019. Our loan-to-deposit ratio at the end of the year stood at 64%. Finally, our cash balances increased to EUR 5.1 billion.
We also note that the ECB allows banks to temporarily operate below the LCR requirement of 100% in order to allow the deployment of readily available liquidity during this period of market stress. In addition, the updated TLTRO terms are significantly more generous, and the June 2020 subscription has now been breached with weekly tenders of TLTRO facilities. Finally, the ECB launched a new Pandemic Emergency Purchase Programme for an amount of EUR 750 billion, and purchases will be conducted until the end of this year. Now moving to slide 17 on capital. We have a good capital position well in excess of our regulatory requirements. As at 31st December 2019, our total capital stood at 18.0% and our CET1 at 14.8% with a CET1 buffer of 380 basis points.
The front-loading of the ability to use AT1 and Tier 2 to meet Pillar 2 requirements gives us an additional CET1 buffer of 131 basis points. The temporary relaxation of the capital conservation buffer also provides a further additional CET1 buffer of 250 basis points. Summing it all up, the bank's CET1 buffer increases to 761 basis points. Finally, as mentioned earlier, in April 2020, the Central Bank of Cyprus decided to delay by a year the phasing in of by 50 basis points of the O-SII buffer until January 2022. Slides 20 to 42 provide a lot more detail of our performance in the fourth quarter, and we can discuss both at the Q&A session and in bilateral calls with all of you across English. With that, I hand back to Panicos for closing remarks on slide 18.
Thank you, Eliza. COVID-19 is a health crisis presenting an unprecedented external economic shock. The current economic uncertainty means that we cannot at this stage have clear visibility of the future impact of COVID-19 on the group's operations and financial results, as these particulars principally depend on the rate and extent of the spread of the virus, the direct and indirect impact on customers, and the effectiveness of the regulatory and fiscal measures taken to support the economy and mitigate the impact of the virus. We have good capital and strong liquidity position as we enter the crisis. The government has taken all the right measures to contain the virus and provide significant injection liquidity to businesses and private individuals. However, we acknowledge the deterioration of the short-term prospects of the Cypriot economy.
We will update the macroeconomic assumptions underlying the IFRS 9 calculation of loan credit losses for Q1 2020 in line with the relevant regulatory guidance. We anticipate that this may result in increased organic provisions in Q1. The exact quantum of any such increase is as yet unknown. We are currently seeing lower transactional income and lower demand for loans, the ongoing economic effects mean that we do not have sufficient visibility about the likely future impact on the group's operations or financial results. We are therefore currently not in a position to provide guidance for the current financial year. We are confident that the Bank's good capital base and strong liquidity position us to be able to support our clients through this period of extreme volatility, playing our part in limiting the impact of the pandemic in Cyprus.
Our medium-term strategic priorities remain clear, with a sustained focus on strengthening our balance sheet and improving asset quality and efficiency in order to continue to play a vital role in supporting the Cypriot economy. This concludes our presentation, and we are now open for questions. Thank you very much.
Thank you. The first question comes from the line of Floriani Jonas with AXIA Ventures. Please go ahead.
Morning, guys. Thanks for the call. I have a few questions. Starting on the NPE side of things, I was looking at slide 25, I was just wondering if you could share some color on how do you see your tools and ability to deliver outflows of NPEs in 2020? I understand that what's going to happen on the upper part of the slide in terms of inflows, defaults, et cetera, it's a big unknown. How confident you are that you're able to deliver the actions you delivered in 2019 as similar to the bottom part of the slide? This is question number one, the question two relates to that. I think we've heard some earlier comments from Cyprus regarding a potential bad bank. Just wondering if there's any latest discussion on that, if there's anything you can share.
Finally, I will end with new lending expectation for 2020. You had a very good volume of new disbursements in 2019. I was just wondering now that you have all of this support and ability to support viable customers, if you see a major change in the volume of disbursements in 2020 versus 2019, right? You closed 2019 with EUR 2 billion. I was looking if you could share a volume expectation for 2020. I'll leave it there, and then if there's anything else, I'll join that.
Okay. Thank you, Floriani. I will provide some short answers, and then I will give the floor to Panicos and Nick to comment on the NP. On slide 25, I just want to mention that for 2020, and because of the moratorium, the moratorium does not trigger any automatic NPE inflows, but its effective value will be, as we said, a continual assessment of the portfolio. Once we will consider that there is a signal of unlikely to pay in the long- term, yes, this will be triggering an NP. The moratorium is kind of providing time and cover so that we avoid NPE entries. This is my, let's say, the answer on this, but I'm sure that Nick and Panicos can say much more on this.
On the potential bad bank, yes, we have seen this in the news, both on the European level and also on the local press. It's something that is on the very early stages, we don't know any details about this, I cannot comment further. On the new lending for 2020, the new lending in this year will probably deal with providing liquidity support to our performing clients. I do expect lower volumes than 2019, I also do expect, because of the moratorium, lower repayments to our performing book. As you may have noticed in the previous years, despite the significant new lending, we haven't seen our performing book growing too much. Because of the significant repayments we had in the previous years of this book as well.
There will be lower volumes than the 2019, but at the same time, there will be low repayments on this book as well. Nick, can you be more specific on the NPs on slide 25, or Panicos?
Yes. I can start on NPE for 2020 by saying that delays on the deals that were planned to be executed. In Third Zone, we have a very strong pipeline. We are expecting NPE reduction to continue at a slower pace in 2020, mainly because most of the government services are not fully operational at this point in time. As soon as economic conditions normalize, we expect to resume our efforts to improve asset quality position by seeking solutions both organic and inorganically. If we look into our current NPE book and we put on one side the portfolio that is for sale, the remaining NPEs are broadly separated into four categories. There is a separate strategy for each one of these categories.
I will continue by saying that the remaining NPEs are separated into four categories, and I will give you some more color on the categories that we are working on. We've got the [NPE] that we are working on, a new strategy, depending on whether the client have applied for the scheme or it's a strategic defaulter or we are speaking about sensitive cases. We've got a plan there how to resolve the [NPE] portfolio. We are still having some large groups in the portfolio, but we have a clear leverage plan for each of them. We've got a restructured portfolio that we are monitoring close so that it will exit NPE status in the near future. We've got a core portfolio, which with a mixed strategy will be applied depending on the category of the client.
That means that whether there is a client that we have a cash flow with, if we are speaking about clients which are strategic defaulters or clients for which a restructuring plan is under its way. I will say that we have for our existing NPE book an action plan that we are committed to deliver. We have shown the last five years that we have delivered EUR 11 billion NPE reduction, 75% of that was organically. We have the knowledge and the experience to continue delivering sufficient NPE reductions for 2020 as well. Nick, can you comment on the trade, please?
Sure. Look, I've spoken about this before. As you know, it's part of our thinking and part of our focus and has been for some time now. We've talked about it on probably the last two or three quarterly calls. I think we've made good progress in developing that solution. You know it's an area we've got a strong track record in. We've delivered three previous trades, and all have been value-enhancing to the bank and our shareholders. I think that naturally you'd expect, given the current circumstances, both practical and financial people are taking a short pause, to be frank, sort out their own issues. I'm fully expecting beyond that short pause to pick up that story. I think we've previously guided you into our hope. We weren't promising it, but our hope that we would deliver transactions during the first part of 2020.
That's clearly been delayed by the current pandemic, and I'm focusing now more tentatively on the second half of the year. Obviously, we'll have to keep that under review because there are many, many uncertainties outside of our control right now on that issue. It's still there, and it's still being actively developed.
Thank you, Nick.
Okay, thank you guys. Just a quick follow-up. Do you have any update both on the NPE flows but also on lending as of Q1 already?
For NPE, we do. We don't think this is the right time to discuss this. We will shortly reach in Q1 results. Just to your question, Jonas, on new lendings, we are guiding lower demand for new loans from here, from Q2 to Q4. The volume of loans actually will probably not vary that much from where it was at year-end because of the moratorium. Given the significant levels of moratorium take-up, as we've seen here, this means that the loan book will actually remain broadly flattish, the performing loan book, I mean.
Thank you.
The next question comes from the line of [Novak Djokandzic] with HSBC. Please go ahead.
Thank you for the call. Can you provide an update on state guarantees, please? When do you expect the law to be approved, and what impact do you think this will have on not just the lending volumes, but also profitability of those new loans even, and over what time period? My second question is, what is the latest on the relaxation of lockdown restrictions? In particular, what are the scenarios here for hotels reopening and when? Thank you.
Okay, I will take this and Eliza can jump in. On state guarantees, actually, we said that this has been approved by the Council of Ministers, but not yet passed through the parliament. Our information is that this will happen next week, but as you know, politics will never be sure. As of today, the percentage of each loan guaranteed by the state is 70%. I don't know if this will change, because there is discussion that this may go higher to certain sectors of the economy, maybe up to 80% or 90%. Actually, the rates are lower, as you may imagine. Given the cost or given the state guarantee, so it requires more capital from the bank. I think the returns, depending on which rate we end up in the end, will be sufficient enough.
We believe that within the next action or two weeks, we're going to see this going through the parliament, because it's something that both the Minister of Finance over there is discussing with some political parties so that he secures the majority that is needed. In terms of relaxation, actually today we expect an announcement from the president about the relaxation in phases. We expect the first phase to begin on Monday on certain categories like construction or certain retail sectors. I don't want to go and, let's say, replicate what is presented in the press. It's obvious that, let's say, hotels are on the last phase of the relaxation, which is positioned in June or early July. Eliza, you maybe want to say something on the state guarantee?
On the relaxations more, Panicos.
Okay.
If I may add, the government is talking to the press over the last few days about their plans to push hard to make sure that hotel occupancy, within the remaining restrictions that will be in place at the time, will start picking up from late June and early July, as Panicos said. They're talking about forming a pact with other countries that have similar low COVID incident ratios like Greece and Israel, in order to promote these destinations as safe and good options for touring. This is a plan that's currently out being developed, and I think with Q1 numbers in the next few weeks, we will be able to talk more about it, once it is clear about it as the government unveils it to the market.
Also, Eliza, extend the tourist season, let's say for the remaining of the year, from September to November and December. As we know, Cyprus has a very seasonal tourist, and a good weather even until December, another thinking of extending the tourist season from September to November, and maybe then ending December and January. As Eliza said, we probably come up to, say, later in May, when we will announce the Q1 results.
Also on profitability and time period of the government guarantees, although we haven't seen the final version of the law or the latest available, we understand that the intention is that they have up to six-year loans.
The headline NII profitability net of the state guarantee fees will be lower than a normal commercial loan, but the ROE remains reasonable. Because of the government guarantee and the zero risk weight from the portion of the loans that's guaranteed. We are supportive of this scheme. It's also, we think, a very good tool which will enable customers It will hedge against defaults in the future. It will provide good and low-value liquidity. The one thing I do want to mention is that the crisis is actually, from an NII perspective, is actually an opportunity to review and revise, where possible, the pricing of the existing portfolio as customers require further assistance from the bank on a liquidity level. This is one of the strategies we want to pursue as soon as some sort of normality comes back to the market.
Further on the state guarantee scheme, because after the existing draft law, it's an allocated amount per Bank of Cyprus, so we estimate to be allocated around 30% of this amount of the EUR 2 billion.
Okay. Thank you very much.
The next question comes from the line of Cunningham Corinne with Autonomous Research. Please go ahead.
Good morning. Can you hear me okay?
Yeah.
Perfect. Couple of questions. Have you actually given a date for your Q1 reporting yet?
No, we haven't. We will confirm it closer to the time. It's all contingent on operational ability as well. We should be able, in the next few weeks, to issue an announcement on the date.
Okay. My next question was on liquidity. Your liquidity position currently looks very favorable, but if you start to factor in non-receipt of interest, non-receipt of loan repayments, and possible drawdowns under the government-guaranteed loan scheme, what's your tolerance for the liquidity position? What do you think that would look like going towards the end of the year?
Okay. We've actually-
Eliza?
Yeah. Sorry. We've actually run multiple scenarios covering on this, including 100% or near 100% acceptance of the moratorium in the extreme, we are nowhere near the 100% MCR ratio actually in our scenario. The moratorium, with all installments, if this is 100% payable moratorium, it's roughly EUR 1 billion of inflows that will not come in, our surplus liquidity from a regulatory perspective is at EUR 3.2 billion. This will be partly offset by lower new lending, as I said before, in any case. We're not worried about liquidity. We are clearly monitoring it and managing it's not at levels where we need to take action. The other point to say that all the ECB relaxations are there in case we need them, the TLTROs, the collateral rules, our covered bond remains available if we need to use it to borrow.
We have a lot of backup liquidity as well if we need it.
Thank you.
The next question comes from the line of [Stuart Robb] with Tusker Fund Asset Management. Please go ahead.
Hi, good morning, guys. Thanks for the opportunity. Just quickly, can I just follow up on the cost point? I appreciate the movement given the VEP that happened in Q4. I was just wondering if you think about that EUR 28 million run rate, I think, savings on cost. I was wondering if there was a bit of a better way of looking at in terms of the net saving when you consider the renegotiations, et cetera. How should we think about that going forward, please?
Eliza?
Okay. [Robb], as we've mentioned before, we did plan for another round of staff cost reductions down the road. The timing of this now needs to be discussed again. It may or may not change. It depends on how things evolve. It wasn't an immediate next phase. It was planned a few quarters down the road. Having said that, we are also rethinking about everything else, all the non-staff costs, and we are back at the drawing board to identify more savings to the ones that we have planned in any case, especially for 2020, and then, of course, for the following year. This is work in progress because COVID is only just for a short number of weeks. We will be able to give more color on this, I think, as time goes by.
I think, Eliza, the number probably necessary is close to EUR 23 million after accounting for the collective agreement with the union.
For the RS, yes.
Yes. This is EUR 23 million, sir. We had our three-year cost reduction plan, which is there, and it's becoming even more important given the crisis and the reduction in, let's say, revenues at least for 2020. Yes, it's becoming more important, and we'll be more aggressive versus our original plan.
Okay, thank you. Just if I think about 2020, the cost base compared to roughly EUR 400 million underlying last year, can you keep that flat? Or can that still come down by an amount as part of the plan of actions after the VEP?
The EUR 23 million that Panicos mentioned, we should assume it's a net reduction of staff costs.
As I said, on the non-staff costs, we are trying to find more savings to even our plan. What I should mention, [Robb], is two things. One is that we started incurring Deposit Guarantee Scheme costs, and the other is that we expect to have to incur incremental fees for the different tax credit law that went through last year. There was a EUR 12.5 million charge in 2019, and we expect roughly EUR 6 million or thereabouts annual charge going forward as an increased fee for this benefit.
Net of this, we should assume or you should expect savings compared to 2019.
Right.
Yes. Both in staff cost and both in the remaining operating expenses, which actually is a significant amount.
Okay, thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolaou for any closing comments. Thank you.
As I said, this is a period that is of uncertain times, and going through this period, the bank has, as we said, good coverage, and we will continue to support our clients. We will be in a better position to provide more visibility on the 2020 numbers together with our announcements of our Q1 results later in the year, let's say. Thank you all for your time. Of course, we will be willing to take any questions offline from anyone that wants to see in deep dive on our accounts and on our presentation.
Neither I'm sure that both myself, Eliza, and the remaining of the team will be willing to have a call with everyone that wants to have more visibility or more clarification or questions on our 2019 accounts and also in how we see things moving forward in Cyprus and in the particular portfolio of the Bank going forward due to the COVID-19 crisis. Nothing else from us. I thank you all for your time, and I hope you will stay healthy for the remaining of the year. Thank you.