Earnings Call: Q1 2018

May 29, 2018

Ladies and gentlemen, thank you for standing by. I am Gedi, your KARs call operator. Welcome and thank you for joining the Banc of Cyprus Conference Call to present and discuss the Group Financial Results for the Quarter Ended 31st March 2018. All participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session. At this time, I would like to turn the conference over to Mr. John Patrick Hurrican, Group Chief Executive Officer Ms. Alessandro Daviotu, Group Finance Director Mr. Nick Smith, Director, Restructuring and Recoveries Mr. Michalis Afenacio, Group Chief Risk Officer and Mr. Anita Pavlou, Manager, Investor Relations. Mr. Hirchen, you may now proceed. Thank you very much. Good afternoon, everyone, or good morning, depending on where you are in the world. We will get through this fairly quickly and get to questions. Our results for the Q1 of 2018 reflect continued delivery against our core objective of balance sheet repair. Slide 2, which you all have from the presentation we released about 45 minutes ago, Slide 2 summarizes the key highlights for the Q1 of 2018, and I'll briefly go through the highlights on this. We have continued making good progress on balance sheet repair. This was the 12th consecutive quarter of material NPE reduction. We reduced the stock of NPEs by a further €454,000,000 to €8,300,000,000 since the beginning of the year. Our NPE coverage stood at 51%, well above the EU average and in line with our medium term targets of coverage above 50%. We expect the organic reduction of nonperforming loans to continue in line with our $2,000,000,000 target for the full year. And at the same time, we continue to actively explore certain structured solutions to further accelerate derisking of the balance sheet. Although it is an obvious statement, it is important to stipulate that our results for the Q1 do not include any material impact from any accelerated asset disposals. The results of subsequent quarters may be affected as transaction execution and the financial consequences become more certain. Our capital levels remain adequate. CET1 ratio stood at 12% and the total capital ratio at 13.5%, with the organic capital generation being largely offset by the previous guided impact of the EBA CRR definition and the deferred tax asset phasing in. Capital ratios are above the TREP minimum requirements, and we retain our organic target for these to strengthen during the course of the year. Deposits increased by 1% during the quarter to $18,000,000,000 and local deposits increased by approximately €300,000,000 as the bank experienced inflows in local deposits partly due to deposits looking for greater security given the uncertainty over the ownership of the local Cyprus Cooperative Bank. At this point, I would like to again confirm and reiterate that the bank is not participating in the co op process and does not intend to acquire any of the assets of the corporate bank. We continue to be in full compliance with all regulatory liquidity requirements, both at a European level and at a local level. Our loan to deposit ratio stood at 80% at the quarter end. Our operating performance during the Q1 of the year was positive with total income of €231,000,000 which includes nonrecurring treasury gains of €19,000,000 arising from the disposal of bonds. Operating profit was EUR 125,000,000 in the Q1, whilst the results for the quarter amounted to EUR 43,000,000 corresponding to an EPS of CHF 0.10 The cost to income ratio for the Q1 was 46%. Our cost of risk stood at 1.2% as we effectively took advantage of the gains recorded in the quarter to further derisk the balance sheet. We maintain our organic earnings per share guidance of $0.40 for the full year 2018, enabling some organic rebuilds of capital. As I mentioned earlier, the pace of organic NPE reduction is expected to continue in line with our $2,000,000,000 target for the full year, whilst maintaining cost of risk at or below 100 basis points for the full year. I would again stress that all our guidance continues to exclude the impact of any accelerated asset disposals. And with that, I'll turn over to Nick to take you through the asset quality trends. Good afternoon to you all. I think for me, it's a business as usual story, and I'm going to start by focusing on Slide 4. The Q1 of 2018 has seen the bank continuing to deliver strong organic NPE reduction with NPEs reducing by $454,000,000 or 5 percent. Since 2014, NPEs have reduced by €6,700,000,000 or 44% and today represent less than half of the bank's gross loan book. The pace of organic NPE reduction continues to be on track with the guidance levels we had previously indicated, which, as you know, is around EUR 500,000,000 per quarter. Write offs were a more substantial component of Q1 NPE declines, representing 64% of NPE outflows achieved in the quarter. I continue to guide that the proportion of write offs in a given quarter will be volatile, driven by, firstly, the volume of heavily delinquent recovery cases resolved in the quarter and secondly, the level of natural NPE curing achieved. I'll turn now to Slide 5. Here we present the bank's view on its core and noncore NPEs using a consistent approach to that described in our last results presentation. As a brief recap, noncore NPEs relate to restructured cases that have no arrears and based on them continuing to meet all relevant exit criteria, could exit from NPE status over time. Core NPEs relate to delinquent borrowers that await consensual or nonconsensual solutions to deliver NPE exit. 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. Noncore NPEs totaled €1,500,000,000 at 31 March, representing 8% of gross loans and 18% of total NPE stock. Coverage on these loans is relatively modest at 18%, reflecting the lower risk associated with this stock of NPEs. Around onethree of these loans are available for NPE exit in the remainder of 2018, subject to continuing to meet all relevant exit criteria. Core NPEs totaled €6,800,000,000 at 31 March, representing 37% of gross loans and 82% of total NPE stock. Coverage on these loans has improved substantially from 36% in December 15 to 58% in March 18. As John has already referenced, the bank continues to explore opportunities to accelerate the reduction in the core NPE book via inorganic trades. I would again stress that all our guidance and regulatory commitments are based on only organic NPE reduction, and we will provide updates on this matter only when and if there is something meaningful to update. The implementation of IFRS 9 has caused some accounting implications for the mapping of quarterly trends in our traditional NPE reporting buckets. I would guide people to Slide 32 for a reconciliation. But in short, SME quarterly NPE trends are adversely affected and corporate quarterly trends are positively affected. This is expected to be a onetime issue, which you may want to adjust in your analysis of underlying NPE trends. Turning now to Slide 6. The pace of NPE outflows depicted in the top chart remains reasonable and in line with our guidance levels. Defaults and redefaults, shown in the bottom chart, have reverted to the modest levels seen prior to Q4 2017. This is reflective of continuing positive macro trends, sustained restructurings and low default rates on new lending. Turning now to Slide 7. The bank's NPE coverage ratio stands at 51% at the quarter end, in line with our previously disclosed expectations. This includes the first time adoption adjustment for IFRS 9 that came into effect on 1 January. On an underlying basis, excluding the IFRS 9 adjustment, provision coverage remains broadly flat to December 2017. The bank stands today above the European average coverage ratio of 44%, and total coverage, including tangible collateral, remains in excess of 100% at 119%. Going forward, whilst I expect there may be some volatility in coverage ratios depending on the mix of NPE resolution delivered in a specific quarter, I continue to expect the provision coverage to remain in line with the bank's medium term guidance of over 50%. Whilst our cost of risk for the Q1 stands at 1.2%, we continue to guide for a cost of risk of less than 100 basis points for the entire year. Turning now to Slide 8. New lending during the Q1 reached EUR 717,000,000, of which EUR 563,000,000 or around 80% relate to Cyprus operations. Cypriot lending was 12% up year on year. Corporate continues to be a strong component of new lending, representing 62% of overall loan originations, with SME 15% and retail 23%. New lending continues to be carefully considered against robust assessment criteria. Default rates on new lending provided in Cyprus since the beginning of 2016 continue to be low, up below 2%. Now turning to revenue on Slide 9. Revenue had another strong quarter in Q1 and like RRD, is building a consistent record of quarter on quarter delivery against expectations. Sales volumes were high. Revenue sold or signed SPAs in relation to 293 properties during Q1. This represents 11% of the volume of properties held by the bank during 1 quarter. Sales values continue to be strong with EUR 114,000,000 of sales made or SPAs signed in the year to date period, representing 9% of the value of total stock today, excluding Gulf assets. Prices remained good, with sales in Q1 on average achieving 99% of independently assessed open market value and 119 percent of book value. As we have seen in previous quarters, land sales continue to be the largest proportion of sales achieved, representing 61% of sales value year to date. Market statistics remain encouraging. Property prices rose by 1.5% year on year and sales contracts deposited at the land registry, excluding those related to bank foreclosure activity, increased by 38% year on year by volume. Sales to date exclude the EUR 175,000,000 SIREIT, which was launched in 2017. Following the incorporation of the SIREIT, properties of carrying value of 166,000,000 dollars were reclassified from revenue stock to investment properties, realizing a valuation gain of €8,400,000 upon reclassification. The marketing and execution of investor allocations in the REIT remains ongoing, but it's progressing well. During the Q1, including the above reclassification, the bank's stock at properties decreased by 5% to EUR 1,500,000,000 as at 31 March. And with that, I'll hand over to Alisa. Good afternoon from me too. So I'll move to capital on Slide 11. Our capital levels remain adequate. As of 31st March, the CET1 ratio stood at 12% and the total capital ratio at 13.5%, both on a transitional basis. The key provider of improving our capital ratios going forward continues to be retained earnings. As shown during the Q1 of the year, we generated 60 basis points of capital in operating profits, partly offset by 40 basis points of provisions and other impairments. The disposal of bonds during the quarter was not capital accretive. The cost of risk for the Q1 is higher than our full year expectation as we effectively took advantage of the gains recorded in the quarter to further derisk the balance sheet. We continue to stand by our previously disclosed guidance of less than 1% cost of risk for the full year. In addition, during the Q1, the organic capital generation of CET1 was offset by the previously guided impact of 3 additional individual items that crystallized on the 1st January. The first one was a 50 basis points impact resulting from the early adoption of the alignment of the default definition with the NPE definition. The second was a 20 basis points impact arising from the phasing mean of the deferred tax asset from 60% in 2017 to 80% up from 1st January 2018. And the 3rd was a 9 basis points impact arising from the 1st time adoption of IFRS 9. This 9 basis points impact represents the phased in regulatory capital treatment, which allows the bank to benefit from transitional arrangements whereby only 5% of this A1 impact is deducted from capital in the first year. We retain our year end target for the CET1 ratio of 13% and the total capital ratio of 15%. As we expect the organic capital rebuild from operating profitability to exceed the impact from a lower level of provisions and impairments for the remainder of the year. Our average risk weighted asset intensity increased from 73% to 77%, but this increase is exclusively due to the early adoption of the default definition, as you can see on the slide. Now turning to IFRS 9 on Slide 12. As from 1st January 2018, we have adopted IFRS 9. And the best time adoption impact on share of the equity was €308,000,000 in previous guidance. This impact was reconciled directly in equity and did not go through the provident loss account. The regulatory capital treatment of this first time adoption impact allows banks to benefit from transitional arrangements, which are allowed for phasing in. These results in only 5% of the day 1 impact being deducted from capital, which for our bank amounts to 9 basis points in 2018. This affected both CET1 and total capital ratios. The impact of IFRS 9 on capital is expected to be manageable and within the group's capital plan, also on a transitional basis and on a fully phased in basis after the period of transition is complete. Now moving on to funding and liquidity on Slide 13. We have maintained the year end high level of deposits of BRL 18,000,000,000 at the end of March, and deposits in the quarter remained broadly stable, increasing by 1%. This high level of deposits allowed us to be compliant with all regulatory liquidity requirements as of 1st January 2018. Within the Cyprus business, local deposits increased by 2% on a quarterly basis, offsetting the 4% quarterly reduction in international deposits. Of the deposits in Cyprus, approximately 2 thirds represent deposits with ultimate beneficial owners of Cypriots, while only 6% are Russian depositors. Given the relatively small percentage of our deposit base linked to Russia, the bank's business is not directly impacted by the recent U. S. Sanctions imposed on certain named Russian businessmen. The bank complied fully with the U. S. Sanctions regime as well as with all requirements of the U. S. Patriot Act where are relevant or applicable to foreign financial institutions. The bank is fully independent with no share holder or shareholding group having special rights or influence. On liquidity ratio compliance, as mentioned in the previous earnings call, the local liquidity requirements were replaced by an add on requirement on the ICR, effective from 1st January 2018, with which we are fully compliant. The elevated deposits, however, caused pressure on NIM and the marginal liquidity is placed with ACP at negative rates. At 31st March, we carried EUR 5,500,000,000 of liquid assets and had a buffer of EUR 1,700,000,000 against the CRR ratio of LCR and NSFR. I would like to remind you that at the start of this journey, we had €11,400,000,000 of ELA funding, which has all been repaid. The LCR add on requirements are expected to be relaxed to 50% of their current levels as from 1st July 2018. This relaxation will reduce the liquidity requirements by over €1,000,000,000 Solar collision is expected as from 1st January 2019. Now moving on to operating performance on Slide 15. As explained in the previous quarter, the continuing balance sheet derisking is resulting in a smaller but lower risk loan book. Overall, net loans have reduced by 16% since the end of 2015, driven by a 45% reduction of the legacy book, mainly due to increased provisions, QA and debt for asset swaps. The performing book continues to grow. This is on the back of increased lending in Cyprus, as we highlighted earlier. We expect this trend to continue in the coming quarters. The continued de risking of the legacy book results in pressure on net interest income, but most of this interest income does not flow through the bottom line as it is provided for. This secular accounting is something we have explained previously. The performing book interest income continues to be under modest competitive pressure as a result of the sustained low interest rate environment. Now moving to Slide 16, this is a familiar slide from previous quarter, and it provides a breakdown of the components of interest income on loans between the legacy and performing books, illustrating the interplay between interest income provisions and restricted assets. Now starting first with the legacy column, you can see that the interest recognized on this book has very little to bottom line profitability as most of it is provided for. The risk adjusted yield of this book is at 105 basis points. Contracting this with the performing book, this interest income contract is directed to the bottom line profitability. The risk adjusted yield of this book stands at 3.66%. Our key point is that as the performing loan book increases as a percentage of the total book, the overall net interest income and net interest 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 be positively impacted and our risk incentive is expected to decline as the delinquent book shrinks. Now I'd like to move on to net interest margin on Slide 17. As explained during the full year 2017 results call, NIM has come under pressure as a result of a number of other actions we have taken, which had 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 the accounting NIM is volatile for a banking recovery. The NIM drop in the Q1 amounted to 6 basis points, whilst the year on year drop in NIM reached 82 basis points. Now NIM is a multidimensional KPI, as we discussed last quarter, and is affected by the dynamics in its constituent parts. And I'll go through this in turn. Now firstly, there is an obvious impact of our deliberate liquidity buildup. Liquid assets increased by EUR 2,300,000,000 in the last 5 quarters, going from 17% of average interest bearing assets to 22% by year end and 28% at the end of the Q1. These are very low yielding assets of around 30 basis points on which we make a negative spread considering our funding cost is 87 basis points and we have BRL 5,500,000,000 of these. We will actively manage these assets as the LCR add on is relaxed into the second half of the year depending on market conditions. The second component of NIM is the cost of funding. Cost of funding, although it appears to be relatively stable, we do continue to reprice our deposit book down and the impact will be visible over time. These funding costs have been impacted by in the latter part of 2017 by liquidity ratio compliance, which pushed us towards a safer but more expensive deposit mix towards the end of the year. We continue to price our deposit book down and the cost of deposits in cycle declined by 70 by 7 basis points this quarter, while the overall cost of funding is down by 5 points this quarter. We're aiming to continue to reduce the funding cost during this year and should become this should become more visible in the second half of the year when the more expensive deposits are started at the end of 'seventeen are repriced and also what the local liquidity requirements are being relaxed. The first impact on NIM is the higher yielding, higher risk legacy loans, which are reducing as we successfully exit NPEs. This trend will continue, and while it is impacting accounting NIM, it is offset by the provisioning line. This yield is an accounting distortion in NIM that is eroded through the calculation to provisions that I referred to earlier. And finally, performing loan yields. On the legacy book, yields are volatile affected by the timing of cash collection. And as we exit from NPEs, the yields on the remaining book will be coming down. The yields on the performing book are more resilient at around 3.9 percent despite modest market pressure. Our customer franchise is in good shape and is yielding a spread of 3.04%. Note that there has been an adjustment in historical figures to allow for hedging. The combination of the above factors led to margin concessions on a year on year basis, which is expected to continue into the next quarter before improving in the latter part of the year. It is largely a mix issue. Now moving on to Slide 18. On non interest income for the Q1, we stood at €107,000,000 25 percent higher on a quarterly basis, driven by the nonrecurring treasury gains of €19,000,000 on the disposal of bonds. This disposal was not capital accretive. In addition, a revenue sale created a profit of €11,000,000 in the quarter. Another example of our net interest income crystallizing in another line of the P and L. Also, upon the incorporation of this hybrid, as Nick mentioned earlier, evaluation gain of €8,000,000 was recognized in line with IFRS as these properties are now measured at fair value. On the other hand, recurring income of €53,000,000 decreased by 9% on a quarterly basis, mainly due to implementation of IFRS 9 under which certain commission income types are not recognized on Stage 3 loans. Net fee and commission income for the quarter stood at 18% of total income, just below the guidance level of 20% for the year. On Slide 19, you can see here that total income is much more stable than net interest margin. And the reason for this divergence is that certain types of profits are reported on different lines of the P and L other than NII, such as the aforementioned revenue profits and the nonrecurring treasury gains. Now turning to expenses on Slide 20. Our cost to income ratio excluding regulatory levies stood at 43% for the Q1. We remind you that the income includes accounting interest on the legacy group, which has limited bottom line contribution as previously explained. We are guiding to a sub-fifty percent cost to income ratio for the full year, excluding leverage, and our focus on bottom line profitability remains. As regards expenses, staff costs stood at €58,000,000 in the Q1 of 'eighteen, down by €2,000,000 in the previous quarter due to the effect of the year end actuarial valuation in the previous quarter. Staff costs are up by 87% on a year on year basis, mainly due to the effect of the renewal of the annual collective agreement with the staff union in 2017. The renewal of the collective agreement for 2018 is under discussion. Other operating expenses amounted to €41,000,000 in the current quarter of 'eighteen. Our operating expenses, although stable, are monitored closely. We are in a very steady team and take on a multi year digital transformation program aimed at re platforming our product distribution channels and reducing over time our operating costs. The cost of regulatory EBIT was €7,000,000 similar to previous quarters. Now turning to the profit and loss account on Slide 21. Starting from the 1st quarter, NII was at €124,000,000 and total income at €231,000,000 Costs are 3,000,000 lower on a quarterly basis and provisions amounted to €58,000,000 while cost of risk was at 1.2 percentage points. We continue to start with our guidance of less than 1% cost of risk for the full year 2018. Provision for litigation in the quarter were at a modest €1,000,000 and impairment charges at €7,000,000 Profit after tax was at €43,000,000 corresponding to a quarterly earnings per share of €0.10 in line with the previously disclosed guidance for EPS of €0.40 for the full year. And with that, I hand back to John to cover targets and medium term guidance. Thank you, Rich. I'll just correct you on one point you made. Said the staff costs were up 87%. I think they're up 8%. So I think that will be a relief from all those listening. But other than that, I'll just add to just the wrap up remarks. So on Slide 23, we just reiterate our targets. Our expectation for the full year 2018 remain unchanged. We are reconfirming our EPS guidance of $0.40 for 2018. But again, and this will be a repeat refrain as we go through some work in the background, I would like to stress that our 2018 targets and guidance continue to exceed the impact of the Panini accelerated asset disposals. Taking the KPIs in turn on the page, asset quality. We expect the pace inorganic NPE reduction to continue in 2018 and are targeting, as we said before, a $2,000,000,000 reduction in line with 2017. This excludes any acceleration we may achieve through NPL trades. NPE coverage has exceeded the 50% target level, and we aim to maintain this. Cost of risk is expected to be at or below 100 basis points for the full year. This is expected to offset the pressure on NII from the continued derisking and allow organic capital generation. For capital, we maintain the guidance of 13% or above for CET1 and of 15% or above for total capital ratio, whilst accommodating the transitional impact of IFRS nine and the adoption of the EBA default definition. On profitability, total income target is still set to exceed $800,000,000 for 2018. Cost income ratio is expected to remain below 50% on a continuing basis. And fee and commission income as a percentage of total income is still targeted to remain at 20% or above. Total assets are expected to be at SEK 23,000,000,000 at the end of 2018. As a closing remark, I'd say that the results for the Q1 of the year reflect our continuing delivery against our core objectives of balance sheet repair. We are pleased with the continued momentum we are seeing in the business. And as our expectations for the full year, they remain unchanged. This concludes the presentation formally, and we will take any questions from here, operator. The first question is from Quinn Dara with KBW. Please go ahead. Hi, good afternoon. It's Dara from KBW. Just a few questions, if I may. On the loan loss charge, just if you could comment on the provisions associated with the performing loan book? And is that a reasonable level to assume going forward? I think it's around 30 basis points. Or what is your outlook for the performing loan loss charge going forward? The second question then I'm not sure, Ann, which you can comment, but maybe just your if you have any impressions on the latest market turmoil events in the rest of Europe and how they could or are impacting discussions on asset disposals in Cyprus? And then a final question on capital. You reiterated the guidance for 13% fully loaded or sorry, 13% transitional ratio for the year. Just if you've any thoughts around the fully loaded ratio taking onboard the full impact of IFRS and how you expect that to evolve during the year? Thank you. Okay. I'll turn to Mikaelus. I can ask you to take as many of those questions as you wish. Okay. I will cover the loan loss chart on the performing book with respect to what is happening now with IFRS 9. As you know, IFRS 9 now has a steady stage 1 and stage 2 components into the equation. And both those stages do attract some loan loss provisions, and those are performing part of the book. On the Stage 1, obviously, those are what we consider as a very solid part of our book, and the coverage on that part is quite low at this point in time. Actually, the coverage stands at around 1.5%. On the Stage 2, obviously, because we are talking about lifetime expected losses, there the coverage increases because depending on which segment of the book, we're talking about the probability of default to become the lifetime therefore increases. So the coverage there is as a decrease and currently starts at around 3.5%. Okay. So look, I think IFRS 9 is still bedding down. And if you look at our Stage 1 versus Stage 2 capitalization of loans, there's a high level of loans that are categorized in Stage 2. And a lot of it is because, for example, in the combination of the 2 banks, they were not rated at inception. And that's something we're working on trying to clean up. And that may or may not have a positive impact as we go forward. But look, I think the modest level of provisionings on the performance loan book is what we'd expect to continue to see going forward. Whether 30 basis points is a good guide, I think we'd like to see a couple of quarters of modeling go forward before we start to be sort of confident in that guidance. On the second point, Dara, on market turmoil in Europe, certainly interesting to watch on the sidelines. We continue to be very focused on our own market and very focused on our own sort of engagement with potential investors. I'll let Nick give a comment in a second, but I would say that our engagement continues to be as has been during the course of the last few months. And we are very much focused on making sure that we deliver what we're trying to do in our own books. So Italian government is not something I have any ability to comment And the general nervousness and twitchiness of markets around the place is something which we're looking at. So it is unlikely to be And we have no significant port exposure with sovereign assets at the moment. Yes. Look, and we took off a significant amount of our sovereign exposure during the course of the Q1, as you can see from the recycling of capital that we did. And that's something a risk decision we took deliberately at the beginning of this year, which is proven to be accurate. Nick, did you want to say anything in addition to that about market turmoil and the impact on our own discussions? No, no. I don't think for any substance, I mean, all of the discussions we're having around potential inorganic solutions are focused on the assets themselves and Cyprus itself. I haven't had any questions on wider European market turmoil in relation to that. And Dara, on the last one on the capital, we're clearly trying to find our way to 13% of that at the year end organically. IFRS 9 is a 1 January impact in any given year. It's 5% this year. It's 9 basis points. It doesn't it won't take you much mathematics to work out, but the total impact will be 180 basis points, but only 27 basis points in aggregate would be impacting 1st January 2019. So it's a 1 January 2019 next impact, and that's 15% of the transitional arrangements, which again will be 9 times 3, which is 27 basis points of capital, etcetera, is part of us. But of course, we will have moved on by then. So IFRS 9 during the course of this year presents isn't a capital sort of rollout issue. It is a one off issue in Q1 2019. The next question is from Mr. Kalouf Mohammed with Citibank. Please go ahead. Hello, everyone. Hello, James. Thanks for having us again on the call. I had a few questions. I'll just maybe go through them. In terms of the rise in RWAs, this is a one off. If I don't understand correctly, do you try first line implementation? Yes, that's the last. Okay. And then on the shift from debt to interbank, the one that we've seen capital gains on, this is in line of you trying to increase your liquid assets? Or is this something else? The gain that we registered on the disposal of bonds has to do with some holdings we had of some sovereign debt that we exposed. I mean, is there a strategy to reduce debt holdings? Or was it just Well, look, we looked at the risk return characteristics on our bond book, the sovereign bond book at the end of the year. And it was Alco's decision chaired by me that this risk return was now tight, the spread had tightened to a level where we thought we should actually crystallize the capital in our capital account. Just to remind you all that as the Southern expense move around, you get depending on where you are categorized from an accounting perspective, you get movement in your equity account, not through P and L account. And we have had during the course of last year about $40,000,000 of capital available to us through the tightening of bonds, and we decided to take some of that off. So we have crystallized half of the capital that had previously been the tightening of spreads through sovereigns and into our P and L account. So it is a deliberate strategy and so far it's proven to be correct. And if I heard correctly on the call, you don't hold any Italian debt at least at the moment or similar? No. Nothing material, no. Okay, fine. In terms of revenue sales, I think you sold 50 $5,000,000 this quarter. Is that going to pick up going forward? Or I mean, just it seems a bit low. Thanks. I think overall in terms of sales contracts in the quarter, it was 97,000,000 with an additional €17,000,000 of SBA signed, but okay, not executed in sales from an accounting perspective in the quarter. So it was EUR 114,000,000 of sales in the quarter. I think, as I mentioned in my talk, I don't want to repeat myself, but that's pretty consistent with where we've been around €100,000,000 of, if I call it, organic sales achieved per quarter. And I think the big plus this quarter was the volume, which was close to $300,000,000 sorry, dollars 300 individual assets sold in the quarter. So that's why we'd describe as the real hard yards selling very granular portfolio of properties. And Mohave, just to clarify, if you're looking at the numbers on Page 4, Q1, they are book values. And Nick is talking about sales prices and that's the outcome. So look, we're seeing recently go to that Q2 revenue sales. Okay. And on a separate topic, on fee income, it seems to be lower than the last few quarters. I mean in the last quarter, I remember you saying you're going to be focusing on non interest income. So I mean Yes, look, I'll at least talk about the IFRS 9 impact on some of the fees and commissions. So do you want to just talk about that? There's a component of IFRS 9 that's affecting the fees and commissions. It has to do with certain types of commissions on penalty charges and arrears charges on NPEs. So they are noncash. They were always noncash types of commissions, which ended up in provisions. Now under IFRS nine, we are not allowed to recognize them as previously as we did previously. So that's the biggest delta driver. Okay. Fine. I see. And lastly, one more question. On the I know you don't report 90 day DPD like you used to. I'm assuming this is an IFRS change, but can we have the numbers instead of the 90 DPD just because of the activities, if yesterday's work and we'd like to know what you're doing today in a sense? Yes. I mean, look, it is not as intensive. Actually, the concept of impaired loans have gone away in the RASK 9 and there is no way of reporting that because it doesn't exist. What we are giving, and Anita will give you the Page 36. On Page 36 Slide 36 is days past due. So it excludes the impaired components, but it's something you can track over time and you have the data series, the history data series there as well. Okay. So I mean if I can get in touch with you later just in terms of how you're doing Q on Q. Okay. Those are my questions. Thanks a lot. Okay. Thank you. The next question is from Novakik Andre with HSBC. Please go ahead. Thank you. Thank you for the presentation. I have a couple of questions. First, is there any update you can give on the accelerated MT disposal, the amounts, timing and under what circumstances do you think you'd need capital increase to conduct this transaction. My second question is on Coldbank. I have you clear about your intention not to buy any part of their assets, but how do you think the competitive landscape will change after this transaction? Thank you. We're not giving guidance on the NPE trade at this stage. As we said at the beginning, it's better. And I'll let Nick that if someone makes any remarks he wants to on that. And on the co op, look, the it depends on what happens. Your information on the co op is the same as ours. We have no inside information on what's going on with the co op. We understand that there are transaction or through in contemplation. We understand that it's a conversation about potentially good versus bad. Understand that there's potentially new investors, and we understand that it would create potentially a combination of 1 bank on the island with a component of the co op. That can only be good because Cyprus Banking consolidation has to happen. It may take some of the incentives out of the competitive pricing in the market. We're actually happy to see a strong set of competitive with us in the market and to continue the consolidation here. So we're watching from the sidelines on the corporate bank process. And I think it would be inappropriate for me to comment on what's going on at another bank or 2 on the island. But we welcome the parity and we will welcome new capital into the banking system on the island. But we're not afraid of competition. We think it may bring more rational competition in fact to the island. Nick, did you want to add anything on the NPE trade? No. The short answer, I don't think there is anything worth updating on at this point. And as I said, we will do at the point there is. Sorry, no, I can't give anything to your models there. Maybe just a follow-up question on the fee income. How much was the IFRS 9 impact? Can you quantify it? Modest single digit, small single digit. Thank you, The next question is from Mr. Hartmut Matt with Atlantic Capital Management. Please go ahead. Hi folks. Thanks for your time, especially so late in the evening over there. A couple of questions for you. First on the there was a lot of talk, I guess, a couple of months ago about a state led solution NPLs, particularly in relation to, I guess, primary dwelling or owner occupied residential mortgages. What's for us who are not in diapers, it's a little tough for her to follow the news and the sentiment on the ground. What's the latest state of play there? And what do you guys expect? And what would you like to see out of that process, if anything? And second, just on MREL, have you had any discussions with the ECB on the scale of that and timing for you guys to have dealt with or have your MREL requirements in place? And third, just on the non core NPEs, just is it possible to get a bit more granularity in terms of how those look in terms of the margins, the kind of the re default rate, whether the margins are I guess the margins are all in cash and whether or not just a second question whether for the interest on those you also have a provision against that given where you might actually be receiving that interest in cash? Thanks. Okay. So I'll take the first one. I'll take the second, please. I'll take the third one to take. Actually, with regard to the state's issues, that is not a borrower's intentions, but those people in what I'll call protected mortgage properties. And as it's something that we call for this year, it was mentioned in the presentation to note that As we understand, it is still on the government's agenda. We have been working closely with the ministry to ensure that they understand our perspective on this. And we it is not yet certain whether it will go through, but I believe it is on the register of things that the government is seriously looking at and would wish to introduce to help bring an end to the NPL issue. It would relate to approximately $1,000,000,000 of our portfolio. And it is something that is both, I think IMF supported and generally supported as the right thing to do in defining that bunch of retail that is deserving of protection. So we about onethree of our portfolio, so onethree of our retail book it relates to. And we are pushing hard to try and get the government to get a move on with it. But it is not in our hands, but we are certainly encouraging it and encouraging of it because what it does, it does 2 things for us. 1, it helps us tackle an important segment of the book, which is socially responsible to do. But it also then, as a result of that, defines what is protected and therefore, by definition, that is not protected, which allows us to engage in a different way with the rest of the portfolio. So look, we're very focused on it, pushing hard for us and doing everything we can to get the government to make faster decisions on implementation. So that's the state solution. So I think you should consider that still live and just consider it slowed in a little bit of Myers in the generality of issues being dealt with by the Finance Ministry. Nick, it is easy to argue with MREL. Okay. On MREL, we mentioned last quarter, we have no have not been given binding MREL targets for this year, similarly to other banks who are going through a recovery phase. The SRP tells us that this decision will be an annually reviewed one. So we don't know when we will be given packet and if we will be given packet this year or not. And also that no decision has been made on the timetable or the time line for adherence to the packets when we have given those. But we are being advised that in the no probability, we will get the same transition time as other banks are being given. At the moment, everyone seems to be given a maximum of 4 years. And for banks with lower with bigger cap to bridge, they utilize the full 4 years. So we would expect to begin in the 4 years, but from the time that we get the IV tracker. So what I'm saying is it's not horizontally close, but we're closely monitoring. And as we only found the SOB entirely straightforward to hear and very open in discussions to ensure that a bank in repair is not disadvantaged by the level of MREL required given its SHREP requirements and its of course, its capital intensity will be different than that of a bank that isn't in repair. Now what it does mean that we have to do is keep thinking about the tenor of the variety of liabilities we have an issue And that is something that Alisa has firmly on our agenda. But umbrella, as Alisa said, is not a near term issue for us at this stage, and we are not on the time line that other banks have been on. And Nick, just on the last point on On core, Keith. Well, let me give you an imperfect answer, but I'll give it to you on the left. On Slide 5, if we give you the our view today of the time horizon in which the EUR 1,500,000,000 of noncore NPEs rollout could rollout of NPEs over time. I would guide you to split that into 2 buckets. 2018 2019 are things that we can see. There is a contractual repayment of both interest, which margins you referenced, and capital because it wouldn't be in those buckets if we didn't think there was a prospect of it repaying adequate levels of capital over that period to exit. So that's GBP 900,000,000 of the GBP 1,500,000,000 And I'd add our track record is improving in this area. So 2017 was a year of flux with differing definitions. If I wind you back to December, we said that in 2018, euros 700,000,000 of NPEs were capable of exiting NPE status. In Q1, we exited €170,000,000 successfully. And right now, we're guiding you through Slide 5 that the balance, dollars 500,000,000 is still available for exit with 1 quarter of further knowledge than we had at that time. I'd say the second bucket is the GBP 600,000,000 which fits into 20 20 plus category. By definition, if those cases have a near and present cash flow track record of repaying capital, they fall into the 2018 2019 bodies. And therefore, they represent cases where we've made a balanced judgment of things that will happen and are likely to happen over the course of the next 12 to 18 months. But today, we're not wholly certain on. So I would classify those as higher risk in terms of cash flow repayment of interest in capital than the GBP 900,000,000 that sits in 2018 2019. That's very helpful. Yes, that's very, very helpful. Sorry, just one clarifying point. So even for the stuff in the 2018 2019 buckets where they may be making payments of either control or interest or both, are you still provisioning 100% against that even as the cash is coming in? No. No. No. Okay. We only provision noncash elements. Remember, whatever exposure is best falls down the PDLTD path. The bank has been very careful about not doing what some do. It's just to allow the interest flow through and then provide 100% against it and show announcements coverage levels. We've been very keen to keep a sensible level of suppression in the overall balances because otherwise you just end up with something that is not real. Thanks so much. Very helpful. The next question is from Mr. Linenmik with Sajunajustin. Please go ahead. Hi. Just a couple of small things. Firstly, is there much migration between your categories of core NPEs and non core NPEs? Or have you defined them in such a way that there is no migration? And secondly, and this may be related, where you split the performing book and the legacy book, if a loan within the what you defined as the performing book a few quarters ago when you first started splitting it out, if a loan goes bad, does it stay in the performing book or it gets moved to the legacy book in subsequent quarters? Thanks. Well, I'd guide you to Slide 30, which gives you the default rates or success rates in terms of restructuring. So there is a circle as things move from core into noncore. Some of them then exit noncore as they meet the exit criteria. Some fall back into core as they fail to meet the expectations set at the time of the restructuring. I would guide you right now because of the state of the book, which is much more focused on recovery style collateral realization, that the pace of ongoing restructuring work is relatively modest. So the pace of noncore moving up to core has slowed and will continue to be relatively slow compared to historic pace because we are focusing much more heavily on final solutions in the 6.8%. So realizing cash and full exits with some support from write offs and realizing physical assets through the same kind of process. So look, there is some circle, but it's relatively modest at this point in time, and I'd expect it to stay so. And your question on Tafoni and Lethati, I'm presuming you refer to Page 16 where we set out the mix of the 2 books. Actually, loans legacy refers to what Nick manages in his wealth. So loans are generally usually cured within our you are nearly cured and then shift to healthy or too performing. But this is all on a case by case basis with a lot of government around it. So I think what you'd find is that both core and non core NPEs are within mixed world along with micros who are performing upon touring. Yes, there's a little bit at the end, but we don't have anything. Between Nick and Elise, I think you have your answer there. Yes. I think yes. No, that is helpful. If I could just ask one more question. How are auctions and the auction process going these days? Is that sort of getting any more or less smooth? By auction process, I assume you're referring to foreclosure? Yes. Yes. Look, despite the noise in the market, the foreclosure process continues to be a much better process than we had prior to 2015. So we've got north now of 1600 assets live through the foreclosure process. Our statistics are showing that broadly, 8 out of 10 of those asset foreclosures are progressing in accordance with the law, if you were just a cold reader of the law looking at the steps and the timetable. That doesn't mean to say I don't experience frustration in the 2 out of 10. I don't, and I do. And I think the improvements to the foreclosure law, as have been mentioned in the press and Cypress, are an important step to closing those loopholes and closing out the opportunities for borrowers who are taking unreasonable steps, in my view, to take the necessary action against them. So I think that's an important part. In terms of where we are in the process, I think as I've referenced on previous calls, but I'll remind you, we reached an important milestone at the back end of 2017 in foreclosure terms in Cyprus, which is the first point in time where the bank was capable of credit bidding, so forcibly acquiring assets onto our balance sheet in remy via the foreclosure process. So I'm pleased to say, as I've referenced previously, that, that process, while relatively small in volume now because of the nature and the way we started the original foreclosure process, we have evidence every land registry in Cyprus that that process is being enacted in accordance with how you would expect under the law. And that's a, in my view, a hugely significant milestone for us to have achieved. So look, it's working okay. I would like, and I think Cyprus needs it to be stronger. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Horikian for any closing comments. Thank you. Okay. I think we've said everything we need to say, ladies and gentlemen, thank you for your time this late in the evening or this early in the morning in the United States. So we're happy to take any of your questions to the usual channels and to provide any clarifications that you may wish. But I hope you regard the Q1 as another quarter delivered, but a lot still to do. Thank you very much. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant