Earnings Call: H2 2018

Mar 4, 2019

Ladies and gentlemen, thank you for standing by. I am Gail, your Chorus call operator. Welcome and thank you for joining the Bank of Cyprus Conference Call to present and discuss the preliminary group financial results for the year ended 31st December 2018. All participants will be in a listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session. At this time, I would like to turn the conference over to Mr. John Patrick Hurricane, Group Chief Executive Officer Ms. Elisa Lissaviotu, Group Finance Director Mr. Nick Smith, Director of Restructuring and Recoveries Mr. Michalis Afanasio, Group Chief Risk Officer and Ms. Anita Pavlou, Manager, Investor Relations. Mr. Hurricane, you may now proceed. Thank you very much, operator. Good morning, everyone, depending where you are. Before getting into our commentary on the full year results and balance sheet, I want to deal with one other matter. Last evening, I informed the Board that I will leave the bank in 6 months' time to take up a commercial opportunity in the UK. By the time September comes, Ohio has spent 6 years in Cyprus and this is a long time to be so distant from a young family. The bank's bank has made huge strides in its recovery during the last 5 years. And today, we present a bank with the strongest capital position it has ever had, strong liquidity, a clear plan to improve and invest in the business model and a clear focus on finishing the job. The delivery has been done by a team. It's been a team effort and the executive team at the bank is both capable of executing the next steps and is focused on doing so. I will, of course, be driving with the same level of enthusiasm that I always have over the course of the next 6 months. And this is a good moment, I believe, in any case, to be thinking about the Chapter 2 for the Bank of Cyprus. Our results for the full year reflect continuing delivery against our core objectives of balance sheet repair. This was accelerated through the agreement of the sale of nonperforming loans in Project Helix, which was announced back in August, but of course has taken some time to execute physically. Slide 2 of our presentation is where I'll start, shows the key highlights for the year end 31 December 2018, and I'll just briefly touch on the key messages from this slide. Our capital position has strengthened significantly as we enter into 2019. As at the 31st December 2018, our CET1 ratio and total capital ratio stood at 15.4% CET1 and 18.3% for total capital. These are pro form a for the deferred tax conversion or credit conversion, which Elisa will talk about and for Project Helix, which is imminently executing. Last Friday, the Cyprus Parliament adopted legislative amendments allowing for the conversion of the deferred tax assets into deferred tax credits. These amendments, when they enter into force, will result in a more efficient capital treatment of these assets, resulting in a 170 basis point uplift in our CET1 pro form a as at December. The completion of Helix will also improve the balance sheet by 160 basis points on CET1 by reference to capital. And I'd remind you that we in executing and taking the accounting pain for Helix in 2018 had the detriment of the deal in 1 year, which will then be repaired in this year by the release of capital. We continue so following the SHREP process performed annually by the ECB, we expect the minimum capital ratios to remain unchanged into 2019 when ignoring the phasing in of the Basel buffers to be at 10.5% for CET1 and 14% for total capital. We continue making good progress on balance sheet repair. This was the 15th consecutive quarter of material organic NPE reduction. Since the peak in 2014 and including Helix, we have reduced the stock of NPEs by almost 70% to $4,800,000,000 And these are covered by provisions today at 47%. Our NPE ratio reduced to 36% pro form a for Helix. It is always an irritation for management that the ratio doesn't come down further. But as we shrink our balance sheet and make good progress in our NPE reduction, the ratio doesn't move proportionally. We have a clear strategy for continuing the improvement in asset quality of the bank and to further deal with the residual 4,800,000,000 dollars This includes Astia, the government scheme that you're all familiar with, which deals in the resolution of NPEs backed by lower value primary residences. This is expected to launch during March, which will potentially cover $900,000,000 of the NPEs. During last year, we announced 3 corporate actions that collectively unlocked value for our shareholders and derisked our bank. First, we agreed to sell $2,800,000,000 of gross loans, of which $2,700,000,000 were NPEs in Project Helix. 2nd, we performed the sale of the U. K. Subsidiary, which was completed in November 2018 for a consideration of $120,000,000 and that added 70 basis points to our capital. And third, we issued $220,000,000 of AT1 secondurities, which added 140 basis to our total capital ratios. The bank has very significant liquidity surpluses of $4,400,000,000 pro form a for Helix after the abolition of the add ons that we have frequently discussed on this call on the 1st January 2019. During the Q4, our deposits in Cypress remained stable and our loan to deposit ratio remained steady at 72%. At the quarter end, and pro form a per Helix, it will be 65%. We remain focused on reducing the cost of deposits and indeed the level of deposits in light of the changing shape of our balance sheet and the ongoing derisking and opportunity to lend. Our performance in 2018 reflects the continued derisking and generated total income of €781,000,000 with a positive operating result of €381,000,000 The underlying result for the year is a profit of €140,000,000 The rapid derisking of the bank has resulted in a partial impairment of the deferred tax asset by $79,000,000 This is recorded in quarter 4 and following the legislative amendments that I mentioned earlier, it is expected to be fully reversed during the Q1 of 2019. The impact of Helix amounted to a loss of $150,000,000 in 2018, but this will be reduced to $105,000,000 by completion as the time value of accounting money unwinds. The combination of these actions resulted in a loss after tax of $104,000,000 for the full year 2018. Slide 3 presents the significant improvements in key financial indicators at a glance. Our pro form a balance sheet is $8,000,000,000 smaller than it was in 2013. We have deleveraged through selling off non core operations, I'm reminding you, in Russia, Ukraine, Romania and elsewhere, and more importantly to reducing the stock of non performing loans. Post the delivery of Helix, NPEs are expected to have reduced by over $10,000,000,000 since the peak. NPE ratios pro form a for Helix dropped to 36%, 27 percentage points better than the ratios in 2014. Our capital position is also significantly stronger. As at 31 December 2018, the CET1 ratio and total capital ratio stood at 12.1 and 14.9, respectively, but these when adjusted for the BTC and Helix rise to 15.4% and 18.3% pro form a. The capital slides provide more detail regarding the bank's capital levels and Alisa will walk through those later. Our deposits increased by 6,000,000,000 dollars since 2014. And as I mentioned earlier, we are now focused on further reducing the cost of deposits and ensuring that our deposit base has an appropriate shape to maintain compliance with liquidity requirements. And with that, I'll hand over to Alisa who's going to talk through the capital slides. Thank you, Don. Hi, Sanjay. It's Sue. So starting from Slide 4 on capital. As John mentioned, the bank is now well capitalized. During the Q4 of 2018, we have generated 50 basis points of organic capital in operating profits, and this was offset by provisions and deferred tax asset impairment. Pro form a for DTC and Helix, the CET1 standard, 15.4% and total capital at 18.3%. These figures assume SRT, significant risk transfer approval by the ECB, which is required in order to release the Helix capital benefit. The DTC conversion will positively impact capital by 170 basis points. Our average risk weighted asset intensity is on a decreasing trend at 63% post Helix, reflecting the further derisking of the balance sheet mix. Overall, the average risk weighted asset intensity has reduced by 22 percentage points since 2016. Now moving to Slide 5 on the SREP requirements for this year. These will be are expected to be effective as of of March, as of this month, based on the pre modification of the SREP we received in February. The minimum phase in CET1 capital requirement is expected to be at 10.5%. And as you will see on the slide, the buffer to this pro form a based on pro form a capital is almost 5 percentage points. A similar picture is on the total capital where the minimum requirement will be at 14.0 percent due to the phasing in of the buffer, but our pro form a ratio stands at 18.3%. We are more than 4 percentage points above the required capital levels. Now moving to Slide 6. There, I want to cover the deferred tax assets or deferred tax credit conversion, which we've been talking about in the earlier slides. So last Friday, the Cyprus Parliament has adopted certain legislative amendments, which result in the recharacterization of our deferred tax asset to deferred tax credit. These amendments impact the losses transferred from Laiquis Bank in March 2013, and which had a 15 year carry forward horizon from 2013. The introduction of CRD4 and the subsequent phasing in have led to a very capital intensive treatment of this deferred tax asset for our bank. These recent amendments reverse this onerous capital treatment and result in a $250,000,000 CET1 uplift or 170 basis points as of 31 December 2018. This benefit is even larger as from 1st January 2019 due to further phasing in of buffers and stands at EUR 285,000,000 or 190 basis points. As of 31 December 2018, however, the year end recoverability of our deferred tax assets in accordance with the requirements of IFRS has resulted in a reduction of the EBITDA value by €79,000,000 This is in line with our announcement earlier or late in February. This €79,000,000 had no material impact on the group's regulatory capital, and this impairment is expected to be reversed in 20 19, and this reversal is included in the numbers that I discussed earlier. So the whole reversal of prior period impairment expected in 2019 amounts to EUR 108,000,000 Now moving to Slide 7. Here, we summarize the main core productions that we've implemented in the last year and a bit. So last August, we did announce the sale of €2,800,000,000 of gross loan Project Helix at €0.48 on gross book value. Overall, this transaction is 80 basis points capital accretive to both CET1 and total capital. However, this was split with the loss being recorded in 2018 and the benefit the capital benefit being pro form a now and expected to be completed soon. The accounting loss from Project Helix amounted to EUR 150,000,000 and is expected to decline to EUR 105,000,000 by completion at time value of money and wine. And again, as John mentioned, we've achieved good progress in towards the completion of Project Helix, and we expect to legally complete it around the end of Q1 or early Q2. Finally, our participation in the senior tranche for Helix has been syndicated down to €50,000,000 from the initial €450,000,000 APAC class focus, significantly de risking the bank's residual exposure to the portfolio sold. The second cost reduction action undertaken was the sale of BOC UK, which was completed in November 2018 for EUR 120,000,000 as consideration and had a 70 basis points capital positive impact. The next item is the issuance of the 81 bonds in December. This is an issuance of EUR 220,000,000 81 secondurities, which added 140 basis points to our total capital. Moving on, in November 2018, we signed an agreement for the disposal of our shareholding in the Syringe Fund. This is a fund that comprises real estate properties with book value of €158,000,000 The revaluation loss of €14,000,000 a revaluation loss of EUR 14,000,000 was recorded in the Q3 of 2018 relating to both the properties and other receivables. And completion of this sale is subject to regulatory approval and is expected in early Q2. Finally, the last transaction is Project Velocity. This is a transaction where the bank in December 2018 agreed to sell a portfolio of primarily retail unsecured exposure with a contractual balance of 245,000,000 euros and gross book value of €34,000,000 This portfolio comprised 9,700 heavily delinquent borrowers, including 8,800 private individuals and 900 SMEs. The transaction is P and L and capital neutral. Completion is expected in the Q2 of 2019 upon the receipt of regulatory approval. So in the corporate actions we undertook resulted in a stronger, safer and focused bank serving the future economy and maintaining its position as the number one banking institution in the country. And with that, I'll hand over to Nick on Asset Quality. Thank you, Alisa. I think John has covered off many of my comments on Slide 8, but it's worth repeating. In 2018, the bank continued to deliver strong organic NPE reduction with NPEs reducing by $1,300,000,000 or 15%. Since 2014, the organic NPE reduction was $7,500,000,000 or 50%. Pro form a DMPs reduced by a further $2,700,000,000 in 2018, leading to a total reduction of over $10,000,000,000 since peak in 2014. The NPE ratio pro form a for Helix improved to 36%. Write offs were a more substantial component of 2018 NPE declines, representing approximately half of NPE outflows achieved in the year. We continue to expect that the proportion of Rytoks in a given quarter will be volatile, driven by, firstly, the volume of heavily delinquent terminated cases resolved in that quarter and secondly, the level of natural NPE curing achieved. Turning now to Slide 9. The pace of NPE outflows presented in the top chart remains reasonable and in line with our guidance. NPE outflows for Q4 amounted to $370,000,000 Inflows in the 4th quarter amounted to $190,000,000 dollars and is mainly the result of unlikely to pay criteria affecting the retail side of the NPE book. Overall, 2018 NPE outflows were $2,000,000,000 leading to $1,300,000,000 net organic NPE reduction. Let's move to Slide 10. Here, we present the bank's view on what we describe as core and noncore NPEs using consistent approach in line with previous results presentations. These two pools have materially different characteristics in terms of cash generation and risk. And therefore, we continue to believe it is worth considering them separately. Pro form a for Helix noncore NPEs totaled $1,000,000,000 at 31 December, representing 8% gross loans and 21% of the total NPE stock. Coverage on these loans, pro form a for Helix is relatively modest at 18%, reflecting the lower risks associated with this stock of NPEs. Around 60% of these are available for NPE exit by the end of 2019, subject to continuing to meet all relevant exit criteria. Again, pro form a for Helix core NPEs totaled $3,800,000,000 at 31 December, representing 29% of gross loans and with 55% provision coverage. Turning now to Slide 11. Continuing to tackle the bank's loan portfolio is of utmost importance for the group and our stakeholders. The group has been successful in engineering restructuring solutions across the spectrum of its loan portfolio and expect this to continue in the coming quarters at a pace of €200,000,000 per quarter. As the portfolio size and business line mix change materially after Helix. Simultaneously, the bank will continue to explore other structured solutions to accelerate balance sheet derisking. In addition to the noncore NPE exits expected in the forthcoming periods, we intend to continue to take specific actions to tackle the core NPEs of €3,800,000,000 Firstly, the Astea scheme proposed by the government in July that aims to help address NPEs collateralized by lower value primary residences. Based on the bank's available data, the scheme is expected to positively impact up to 900,000,000 dollars of stickier retail core NPEs, which represents around 1 quarter of the remaining core NPE stock. This is subject to eligibility criteria and participation rates. The criteria relate primarily to the open market value of the residents, total income and net wealth of the households. These will act as a clear definition of socially protected borrowers, acting as an enabler against strategic defaults. Secondly, retail non Astea eligible loans of around 1,400,000,000 dollars These will continue to receive additional focus from management, which continues to be aided by a refocused servicing support from Peppa and enhanced new products. Project Velocity has also removed volume from the current stock of delinquent retail loans, freeing internal capacity. We will again continue to explore a number of alternatives to accelerate derisking, including further disposals of NPEs and other noncore assets. Thirdly, SMEs and corporate loans of around $1,500,000,000 Our plans prioritize realizing collateral using write offs to incentivize quicker cash or debt for asset swap solutions or via foreclosures or other enforcement routes where borrowers are not willing to cooperate. This will continue to be facilitated by onboarding assets into revenue at conservative 25% to 30% discounts to open market value. Lastly, I'd mention foreclosures. Foreclosures continue to be the enabler for nonprofitable borrowers across the book. Law amendments last year, which were designed to expedite the efficiency and robustness of the process, are proving to be successful. The bank has strengthened the foreclosure team during 2018 and is continuing to make further enhancements to capacity during 2019. Turning now to Slide 12, Astea. On the slide, we provide an update on the scheme. And according to the scheme, eligible loans have to be restructured to the lower of contractual loan balances and open market value of the principal private residence. The government will subsidize onethree of the ongoing capital and interest payments, provided certain eligibility criteria are met and borrowers continue to honor their repayment obligations. The scheme is expected to be launched, as John mentioned, around the end of Q1 2019, but is dependent on ongoing government procedures. While the bank is seeking to execute restructurings for eligible borrowers during 2019, the NPE benefit will not occur until borrowers have demonstrated adherence to the new loan terms and have met the regulatory requirements for NPE exit. Given current timing expectations for the scheme, we expect this will not materially occur before late 2020 or indeed 2021. Even though Astea is not officially launched, we have undertaken certain actions in order to assess eligibility and build a book prior to the launch of the scheme. We have identified the sphere perimeter based on the information available to the bank, and we have developed an industrialized process to handle large volumes of applications in short time frames. The progress so far is encouraging as there appears to be a generally positive acceptance of the scheme by the market. This is evidenced by the fact that 98% of potentially eligible borrowers contacted by us have expressed interest to participate in the scheme. Moving now to Slide 13, foreclosures. As mentioned earlier, foreclosure is an important tool in ongoing NPE reduction, and the changes in the foreclosure law that were approved in the summer have strengthened the framework supporting realization and disposal of collateral. Overall, since January 2016, foreclosures have commenced on just over 3,000 properties with a value of €964,000,000 And importantly, around 70% of these borrowers have engaged in active negotiations with the bank following the commencement of the process. 7.92 assets have been resolved and additional 600 properties are in the pipeline for repossession. Going forward, we expect to increase the volume of foreclosures, particularly in respect to non Astea eligible retail delinquent borrowers. And lastly, for me, turning to Slide 14. The bank's NPE coverage ratio remains at 52 percent at the quarter end, in line with our previously disclosed expectations and 47% based on pro form a results for Helix. The bank stands today above the European average coverage ratio of 44%. And total coverage, including tangible collateral, is 122% or 117% on pro form a results. Our cost of risk for the 4th quarter stands at 1%, again, in line with our guidance. And with that, I'll hand back to Alisa. Thank you, Nick. So moving on to revenue. In the 3 years since the sale of revenue in 2016, we have signed or have sold or signed SPA for more than 1,000 properties with profits in excess of BRL 1,000,000,000. During 2018, revenue signed or sold or signed SPAs for properties with value of just over €500,000,000 including this hybrid that I've mentioned earlier. Revenue organic sales in 2018 reached €344,000,000 and generated a €33,000,000 P and L gain. Prices remained good with sales prices at 96% on average, and 96% refers to the selling price as a percentage of independently assessed open market value. Net profits are now stand at 120 percent of book value. As seen in previous quarters, land sales continued to be the largest component by volume, representing more than half of 2018 sales. Revenue pipeline remains strong, and we are optimistic that the sales pace will continue into 2019. Budget statistics remain encouraging. Residential property prices rose by 1.7% in the year and sales contracts deposited at the land registry, excluding bank related contracts, increased by 6% year on year by volume. Moving to new lending. Our new lending in 2018 reached EUR 1,900,000,000 exceeding the level of 2017 by 13%. Corporate lending continues to be a strong component of total, representing 61% of overall loan originations. And we know that in the Q4 of the year, we had a significant increase in mortgage lending, reflecting the improved underlying macro recovery. New lending continues to be carefully considered against robust assessment criteria. Default rate on new lending provided in Citrus since the beginning of 2016 continued to be low at 3%. Now turning to funding and liquidity on Slide 17. Local deposits were maintained at stable levels in the 4th quarter. The trend observed in previous quarters of a change in deposit mix being more biased towards local deposits continued into Q4. And of the deposits in Cyprus, approximately 2 shares represent deposits whose ultimate beneficial owners are Cyprus, while only 5% are Russian. Now on liquidity ratio compliance, the liquidity requirements for the LCR add on were abolished on the 1st January 2019, resulting in a significant liquidity surplus of EUR 3,100,000,000. This surplus will shortly increase by a further EUR 1,300,000,000 through the completion of Project Helix, bringing the total surplus to EUR 4,400,000,000. These levels of liquidity continue to put pressure on NIM as the excess liquidity is placed with ACV at negative rates. Going forward, we plan to focus on the liquidity buildup in order to optimize this level and its management. Now moving to Slide 18. As explained in the past, the continuing balance sheet rerisking is resulting in a smaller but lower risk loan book. Overall, net loans have reduced by 29% since 2015, driven by the legacy book deleveraging and the sale of the UK bank. The performing book in Cyprus experienced a moderate reduction of €200,000,000 Q on Q due to a transfer of loans between retail and RRD. The interest income on loans was reduced by €4,000,000 in the 4th quarter and amounted to €139,000,000 due to the reduction of the interest income on legacy loans. Excluding Project Helix, the interest income on loans was reduced Q on Q at EUR 118 €1,000,000 The legacy book interest income, excluding Helix, was at €30,000,000 in the quarter, down by €6,000,000 on a q on q basis. Interest income of the legacy book is inherently volatile and this affected by the timing of cash collections. While the accelerated de risking of the legacy book will result in further pressure on interest income, this should have little impact to the bottom line as most of this interest income is provided for. The performing book interest income, excluding Helix, was maintained at similar levels Q on Q, but remains under pressure due to competition and the sustained low interest rate environment. Now moving to Slide 19, apologies. This should be having a slide from previous quarters. It provides a breakdown of the components of interest income on loans between the legacy and the performing books illustrating the interplay between interest income provisions and risk weighted assets. So starting first with legacy, as I mentioned, you can see that the interest income recognized in this book has less to bottom line profitability compared to the performing book due to higher provisions. The risk adjusted yield of this book year to date spans at 3.21 percentage points or 3.21 percent rather compared to 3.31 percent for the performing book. The key point is that as the performing book increases as a percentage of the total loan book, the overall NII and margin will be negatively impacted despite this being an entirely positive development and one which confirms the health of our customer franchise. Our impairment charge, however, is expected to also be positively impacted and the same on the risk weighted asset intensity. Now moving to Slide 20. As explained in previous quarters, NIM has come under pressure as a result of a number of actions we have taken, which has a positive impact on capital and liquidity. However, we remain confident given the strength of the underlying customer franchise, but this is not reflected in margin as NIM is volatile for the banking recovery. So NIM has dropped by 8 basis points in the Q4, reflecting the removal of high margin yet high risk assets and the increase in liquid assets, which have a carry a negative yield. NIM is a multidimensional KPI and is affected by the dynamics of its constituent parts. And these are, firstly, liquidity buildup in this interest rate environment. Liquid assets continued to increase and stand at EUR 6,400,000,000, up 20% year on year. They now account for 31% of interest bearing assets. These are very low or these are these carry or they are very low or negative rates, and we make a negative spread on them considering our funding costs. We intend to actively deploy our liquid assets subject to market conditions. The second component is the higher yielding, higher risk legacy loans, which are reducing as we successfully exit NPEs and will do so even more visibly post Helix. The 3rd component is the yield from the performing book. These are more resilient at around 4% despite modest market pressure. Our customer franchise is in good shape and is yielding a spread of 3.4%. And finally, our funding cost, this is decreasing and the impact is increasingly visible. We continue to aggressively price our deposit book down. The cost of our deposits in Cyprus declined by 8 basis points this quarter and by 35 basis points year to date. The overall cost of funding is down by 7 basis points. More funding cost reductions are currently underway. The combination of the above factors is expected to continue in the coming into the coming quarters post the completion of Project Helix. Now continuing to Slide 21 on non interest income. In the 4th quarter, this increased €24,000,000 compared to the previous quarter, which in the previous quarter included EUR 14,000,000 revaluation loss from the disposal of the tiered. Recurring income was at $58,000,000 in the quarter, up 4% Q on Q and includes commission income of around EUR 3,000,000 relating to the Helix servicing fee. Net commission income for the quarter stood at 22% of total income. Now turning to costs on Slide 22. Our cost to income ratio, excluding levies, stood at 48% for 20 18, and this compares to 47% for the 9 months or 42% in year 2017. Our operating expenses are a clear focus area going forward for the bank. During the Q4, other operating expenses amounted to EUR 44,000,000 and they were higher than the Q3, mainly due to the completion of projects ahead of the year end relating to digital transformation and other professional services. Staff costs increased by around 10% in the Q and amounted to €59,000,000 However, €4,000,000 of the delta relate to prior quarters and non recurring transactional costs. Renewal of the collective agreement for 2018 remains under discussion. Now moving to Slide 23. As you can appreciate, our P and L has suffered from a lot of volatility during the year. So in this slide, we set out the reported 2018 numbers on a pro form a basis for Helix and deferred tax. I will take you through the full P and L on the next page. But before I do this, let me share the 2018 numbers on a pro form a basis, I. E, excluding the impact of Helix as if Helix has been removed since the beginning of 2018 and also excluding the impact of the DTA impairment of €79,000,000 So on that basis, which is the highlight column on the slide, our profit after tax would be €83,000,000 and the earnings per share would amount to around 0 point 1 $8 The net interest income on this basis stands at 2.14%, reflecting the removal of high margin yet high risk CREX assets. Our cost to income ratio would be in the high 50s, reflecting the removal of Helix ahead of any meaningful reduction in costs. Now turning to the full income statement on Slide 24. Net interest income remained broadly flat at €112,000,000 and while total income increased to €196,000,000 from €179,000,000 in the prior quarter, and costs were higher on a quarterly basis. Provisions amounted to €60,000,000 and cost of risk was at 1%. The operating results from organic operations was at €14,000,000 and corresponds to quarterly EPS of €0.031 €5,000,000 by completion at time value of money unwind. So to help you better understand the shape of the group after Helix, Slide 3132 in the appendix gives indicative numbers of key balance sheet and profit and loss items. As mentioned earlier, the Q4 included a DTA impairment of €79,000,000 is expected to be reversed in 2019. The organic net result in the quarter, excluding the DTA impairment, is at €14,000,000 and is probably in line with prior quarters. For the full year 2018, the organic net result is EUR 140,000,000. With that, I'll hand back to John. Thanks, Alisa. We're coming to the end now, so you can you'll be pleased to know we're not going to talk at you for very much longer. The I'll focus on Slide 25 with a few concluding messages and then take your questions. This has been an important year in the transformation of the bank and one in which we have made, I think, significant progress on a number of fronts against our objectives of balance sheet derisking and refocusing the business in support of the growing Cypriot economy. We remain fully committed to accelerating derisking on both organically and inorganically. We now have a strong capital position allowing us to accelerate risk reduction and recalibrate our cost base. We are cognizant that the derisking leads a smaller balance sheet and a smaller revenue base going forward, but a higher quality of earnings from that balance sheet. We are focused on the careful deployment of our liquidity buildup as this impacts our ratios in the near term. We are also conscious that we have surplus deposits, and we need to take action to ensure that we perhaps price some of those away. We remain as focused as ever on making this bank stronger, safer, Cypress focused and capable support the local economy. We are in an advanced stage of delivering the digital agenda, which will help us deliver the other objectives. And indeed, despite last night's announcement and this morning's announcement, the management team remains fully focused on delivering the agenda for our shareholders and indeed at the same tempo as we have been doing in the past. And with that, operator, I'll hand it back to you to take any questions there may be. The first question is from the line of Puluguriza Alexandros with Wood and Co. Please go ahead. Yes, hello. Thank you for the presentation. A quick clarification on the DTA and DTC that you mentioned. Is that similar to the DTC in the Greek case? And does this imply that if you are loss making, for example, in 1 year, it would lead to issuing shares in favor of the state in the scenario of loss making, obviously? Is it applicable to the case or is it something different? That is the first question. And the second regarding some visibility for 2019, Maybe if you could give us a bit more clarity on net interest margin or on cost of risk for 2019. What should we expect going forward after the new the book on the completion of Helix? Thank you. I'll hand that to Alisa. Okay. Look, on VPC, we actually did a lot of work, Alex, looking into what other jurisdictions have done. We ended up hoping to the extent we could the Spanish President. So our DTC is more akin to the Spanish DTC in Rotterdam, the Greek one. All of them have similarities, but ours is much more Spanish related. It was a government initiated process. Of course, we helped out in the regulatory side and the to make sure that it works and it's applicable, relevant for us. But if you look at any of the Spanish banks, that's the more we have. Effectively, what that does to us in normal DAU terms, it means that this CTC will be monetized one way or another in 10 years, in the space of 10 years in almost equal installments. And it also provides protection or an acceleration in case of loss making years or in case of default. We have CRR requirements, not expecting to use any of those clearly. So this was effectively a way of us raising almost €300,000,000 of equity without any dilution to shareholders or regular sorry, capital rather, not any dilution. It's obviously positive, But I was wondering what is the you said it will be monetized. But if you're loss making, what does the government get in the end? In the Greek case, if you're loss making, you get shares. In the Spanish case, you're not familiar. Okay. The way it works is you can use it to pay off income tax, corporation tax. If there is no corporation tax, for example, in a lot making year, you can then use it as currency to pay other taxes. And then and even if you cannot monetize it that way, you can then have a claim against the government. So it's cash or cash equivalent. The fact this is what I mean by monetization. Yes. Let me just add to that. In the Greek case, you when you make losses, you the government is effectively receiving equity in the institution. That is not the case here. There is no risk of dilution to the shareholders, which I think is the key question that you're asking. Yes, exactly. Yes. Apologies, I didn't I went down a different path. Yes. So this by the way, very importantly, that this is something that's been under discussion for a very long period of time. It relates to the resolution and this slide that Alisa put there is worth studying. But it fundamentally makes the capital base of the bank more efficient and recharacterizes an asset that was intended as an asset at the beginning of this recovery plan back into something which is not damaging capital. So this is a, I think, a hugely positive development, should give our shareholders comfort. And there is, and I would repeat this, no risk of dilution to the shareholders in the event of the assets being used in a loss making environment. Fully agreed. And this is because in 2013, our shareholders have a time paid money for this asset, the 18% consideration to And the 2019? Now in 2019, we're conscious we haven't given out guidance. We have given pro form numbers without Helix for you to try and model on the back of. We are conscious of the need from the market to provide guidance going forward as soon as we have better clarity of the shape of the P and L and the balance sheet. Very high level on NIM. I expect a bit more pressure coming down as liquidity as the high level of liquidity continues before we can get a chance to really manage it and also as Project Helix completes, which will add to liquidity. And on the cost of risk, we do expect it to be lower than the Q4 level, which was at 1%. I don't think we should guide beyond that. At this point, yes. At this point, yes. Look, I've given you a lot of information in these slides to form your own view and the extent to which we deploy inorganic acceleration techniques either to fix our cost base or to accelerate de risking on the balance sheet will actually play with a little bit the delivery in 2019. So if you could spend a bit of time studying that and then the IR team will and the finance team will spend a bit of time with the analysts because we would like to try and get our analysts reflecting a consistent view of where we expect to be. The next question is from the line of Quinn Dara with KBW. Please go ahead. Hi. I had a question regarding the outlook for NPE reduction and post Helix here. What is your view on the pace of organic reduction in NPEs that you're expecting? And when can we see or what kind of additional bulk sales will you be considering for the core NPEs? Thanks. Look, I don't want this, Nick. I don't want to comment any further on potential corporate finance activity around sale of loans, which I've said in my commentary that it's something that we're actively exploring. I think the perspective for me is that we'll try, but we're not promising, as we said, pre Helix. And we'll look at you at the time that it's appropriate to do so if those plans develop into something executable. I think in terms of pace, I think we're seeing the shape of the pace. It's been 2 quarters post Helix now, and they've both been reasonably similar in the way that they've been formed at between €300,000,000 €400,000,000 of NP exits in the quarter and between €100,000,000 €200,000,000 of reentries in both of those quarters. That was that's exactly in line with what I thought back in the summer given the change substantial change in mix with the Helix portfolio. Obviously, it's worth noting that work is still going on in terms of restructuring activity with the Helix portfolio. Cash is being delivered. Debt for asset swaps are being delivered and restructuring settlements being achieved. But you don't see that in the pro form a numbers, which is reasonable from an accounting perspective. So I think the last couple of quarters is a good indication of the next few quarters, And that's where I'm guiding you to for 2019. Organically. Organically, yes. Perfect. Thank you. The next question is from the line of Novakik Andree with Please go ahead. Thank you for the presentation. My question is on the cost outlook. What do you expect from the forthcoming renewal of the collective agreement? And in light of this, plus the ongoing investments in digitalization, what can be done to reduce the cost base? Right. This is John. Look, there it is clear that this bank when it started with 63% of its balance sheet nonperforming, giving rise to the pretense that there was a very nice cost income ratio in it, we have actually unveiled a higher level of cost per unit of crew and real revenue stream. And it is we started investing in digital 2 years ago in order to be able to create the conditions to replatform and make the bank a more efficient business. We have, as you already know, taken 500 people out of the business a couple of years ago. And actually, in the combination of the 2 banks, both like E and Banca Fibers back in 2013, we are 40% down on the workforce of the combined banks in aggregate. We have to begin to have conversations in the future about a further contraction of the employee base. We don't want to disrespect our own employees and our discussions with the unions by having that over the phone on a full year earnings call, but you can expect that we will begin to have those conversations at an appropriate time as the digital agenda starts to deliver an ability to cope with a smaller level of staff complement. And that's something we will start to have conversations about towards the back end of this year, I think, is probably the right way to guide it rather than the front end. But so we are focused on that. When you encourage a reduction in the staff complement, you have a consequential impact on other complements as well. So you will that is something we will guide later in the year on, but not at this point. And I think it would be unfair for the first time of a plan to be discussed with on a full year earnings call. So you need to watch this space on that one. But the collective agreement that renewed this year was effectively a 3% or thereabouts of increase in the average staff costs. There have been a couple of other issues. The NHS is costing us another couple of percentage points. So you'll see about a 5% from Q1 of last year to Q1 of this year increase in the staff costs run rate, but we would expect to deal with that later through some planned actions, which we need to get agreement from the employee representatives, etcetera, on. But that's not going to be in the early part of the year. That will be a discussion that will take place later in the year. Thank you. And on deposits, how would you describe the competitive situation in the deposit market currently? Is there a risk to you letting some of those deposits go? Or can you just do it? Okay. So let me say something, and then Mikaelus, who's our Chief Risk Officer, will say something as well. The first thing I'd say is that if you looked at our deposit base and completely excluded our nonresident deposits, we have enough funding to fund the Core Sop Cypress business. We are paying 0 today for all nonresident euro deposits in the bank, and they are still with us. So what they are costing us is 15 basis points levy for deposits in the country, and they are costing us 40 basis points on average at the margin for ECB liquidity. So the cost of holding on to deposits where we can't deploy them other than where we need them for liquidity compliance and that's a mixture of NSFR and LCR and maturity ladders and mismatches and a variety of things. So we do have to hold some level of liquidity. That's costing us 55 basis points on average at the margin. We think there's more room to price down, and we will do that judiciously and carefully with an intention to protect, 1st and foremost, the Cypress gathered resident deposit base and focus more on whether or not the non dollar euro deposit base from the international business is in fact valuable at all. But we have to do this carefully. You'll see that we've been marching it down carefully and judiciously during the course of this year. And the Asset and Liability Committee of the bank is fundamentally focused on trying to ensure we do the right thing, while ensuring we have an appropriate shape of liquidity that meets stressed requirements as you'd expect any bank to be looking at. But Carlos, do you want to add to that? Well, I mean, the actions we took in 2018 actually demonstrate that we are willing to reprice deposits appropriately where the market should be pricing them. This did not lead to any deposit outflow from the bank. On the contrary, I think there is the way we look at it is that there is still room to reprice the balance sheet even lower. This is something that as John said, ALCO committee of the bank will be focusing on this year, and we'll be taking further actions. Yes. I can't say anything more than that. This is an area we're very focused on. The other question, which is a follow on question from that is, well, why are you not buying government bonds all around the world and deploying the liquidity to create return? I think we all know the answer to that is that risk return criteria and the you expose your capital base to a lot of volatility if you make the wrong choices on that. So we are extremely careful about where we deploy your surplus liquidity because it actually exposes the capital base of the bank to, I think, at this moment in time, risk that is not paid for. Thank you very much. The next question is from the line of Hart Gerard with Letter 1 Capital. Please go ahead. Good afternoon, John, everybody in Cyprus. I have three questions, if I may. The first one is just a clarification really and that's that the unwinds, the DTI, DTC, dollars 108,000,000 and the circa dollars 50,000,000 from the terminal value unwinds, that they both go to the profit after tax line. The second question is really on the €50,000,000 participation in Helix down from the very original €450,000,000 and I think €250,000,000 or so at the Q3. Given the I guess relatively speaking, the yield on that loan relative to the substantial surplus liquidity you have, I'm surprised that it's down at the €50,000,000 number because I don't really think that getting SRT approval, it matters whether it's €50,000,000 or €200,000,000 or €250,000,000 or €300,000,000 At least that would be my view on that. And then lastly, it's on the share price and the basic listing in London. I guess, John, given your sort of personal announcement, that puts off the premium listing for quite some time. And as I look at the basic listing in London, I don't really see it adding very much value. I mean, we all know the liquidity on the stock is terrible. And to me, the only thing the basic listing allows is for people to short the stock, which of course you cannot do in Cyprus. Now of course, I don't know where the shorts are right now. They've gone below the 0.5% threshold. But I'd be very interested in your thoughts, John, as to sort of maybe a legacy to your successor if you were to pull the basic listing in London, particularly as the premium listing requires a full offering circular in prospectus. Generally, what your thoughts are on that basic listing? And if indeed you're still positive on it, what's your thoughts now are on the premium listing? Thanks very much. Okay, Gerard. Let's take those in order. The first one, I didn't actually understand, so I'm looking at it, Elyse. I'll go. On DTA, in Q4, we had a €79,000,000 impairment through the P and L through the tax line actually of the provision loss account. This will unwind plus a bit more of prior period impairments to a profit relating to the deferred tax credit law, let's call it, of €108,000,000 combined. So it's €79,000,000 plus from other impairments in the past. So there will be a P and L positive of around EUR 108,000,000 in Opry's past. The second question, I think, was about the Helix hand wave, if I'm not mistaken. That €45,000,000, is that right? No. The €50,000,000. Jerome, it's Nick. Right, the point you raised is valid, and it was a Board choice of whether we want to hold or sell down. I think there are 2 important considerations here in the decision that was taken which is to sell down. Number 1 is about retaining future firepower. So that increases optionality for the bank as it considers alternative trades. Number 2 is that one of the objectives from Helix, given the very positive reaction we got to the deal, was to develop a credible 3rd party senior finance market internationally, which could be directed at future transactions of this kind of nature within Cyprus. And I think it's hugely beneficial to the bank and that optionality that today, we've demonstrated that there is real appetite for senior financing in such trades, and it's the first time in recent history that it's occurred in Cyprus. When we look elsewhere outside of Cyprus, we know because we can see that others are struggling to find such independent third party capital to senior financing. So I think that was a really, really key benefit that we wanted to focus on, which, again, with an eye to potential alternative transactions, increases optionality. Yes. Look, and then I'll come out of the share of the premium listing now. But I just want to add to Nick's point is that this is a pioneering transaction. And almost everything we've done has been pioneering with a supervisor that hasn't necessarily had the confidence that this is an easy trade to support, etcetera, etcetera. We're all the way through that now. And the proof that Nick has done in creating that sort of senior financing market is critical to basically having an ease of next process where we don't have one. So I'm much as I might like to have kept the income and had it treated in a favorable way from a capital perspective, I think strategically what we've done is smarter. So even though we don't see the benefit of holding large chunks of our own risk going forward. So Gerald, I think we just you have to trust us on them. We think we've done the right thing on balance for the value of the company and the future finish up job of the company in doing what we've done. And much as I might like to have held all the debt and have the yield, I think it's been it's smarter for us to hold a minority position in this and have a much larger pool of capital to access for any future trade. Now if I come on to the last point, look, I still believe I think it would be wrong for us to delist from London and to have this entirely in a cybers market where €1,000 is capable of moving the value of your investment. I think this is a hold your nerve discussion. I actually believe that we should stay focused on the premium listing. We should stay focused on doing all the things necessary to attract index capital at a point. And my advice to anyone stepping into this shoes is to basically prosecute the finish. We need to finish the job on the balance sheet. We've got 18.3% total capital heading into this discussion. We are advanced in our digital replatforming of the bank. We're advanced in our discussions on what we need to do to ensure the cost base against the revenue going forward makes sense. We're advanced in our discussions on how we're managing liquidity. And we will and I believe that all of that comes together in a Chapter 2 where you get to prosecute a finish, which is the step up to premium. So look, I think we are frustrated ourselves that the goalposts that have naturally moved around Europe as things have changed. But I believe we continue to be on a correct path in moving the bank from standard to premium at a point in the future, which the faster we go, the faster we can get that done. Okay. Thank you. The next question is from the line of Lin Anhik with Zestan. Please go ahead. Hi, thanks for taking my question. On the DTCs, can I just clarify, did they only relate to DTAs from the Laike acquisition? Or do they relate to kind of all DTAs for you and also for other banks in the country? They relate to DTAs acquired during resolution status. So as far as we are concerned, they relate to the LITE acquisition. And as far as I'm aware, they no one else would have a benefit out of this legislative change. Okay. Well done on getting it. Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Horkin for any closing comments. Thank you. I would just say thank you very much for taking an hour of your time. We recognize there was a lot of data and detail in this presentation. The team is available to any of you who need clarification on any matters going forward. Thank you very much, ladies and gentlemen. Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant day.