Good morning, everyone. Thank you for joining our financial results conference call for the nine months ended 30 September 2025. I am joined by Eliza Livadiotou, Executive Director of Finance, and Annita Pavlou, Managing Director of Strategy, IR, and ESG. After my introductory remarks, Eliza will go into more detail on our financial performance, and then we will be very happy to take your questions both during this conference call and afterwards. I would like to start by briefly reminding you of our powerful equity story and our core strengths on slide number 3. We are a leading player in a highly liquid and concentrated banking sector in Cyprus, and we operate in a supportive macroeconomic environment that is resilient and growing.
We have a diversified business model with services extending beyond banking, allowing us to navigate successfully the current interest rate cycle while investing in new growth initiatives and leveraging key strengths that are under our control. Our strong capital position and organic generation allow us to deliver attractive dividend distributions and overall shareholder returns. We confirmed our intention to distribute 70% of 2025 earnings, and in October, we paid out first-installing dividend in the past 15 years of EUR 0.20 per share. All in all, we remain confident that we can achieve a high teens ROTE on 15% CET1 ratio in a circa 2% normalized interest rate environment. Slides 4 and 5 show an overview of the macroeconomic environment. We operate in a strong, diversified, mainly service-based economy that is growing faster than Europe. The economy expanded by 3.6% in Q2 of 2025.
According to the latest projections from the Ministry of Finance, Cyprus GDP is expected to grow by 3.2% in real terms in 2025, exceeding the average growth rate of the Eurozone. If inflation is contained, the economy is operating at almost full capacity in terms of employment, and we continue to see strong results of tourism, which is set to exceed the 2024 record levels both in terms of arrivals and revenue. Cyprus stands on solid fiscal ground underpinned by significantly improved public debt to GDP, which at 62% is well below the Euro area average and is expected to drop further to below 60% by the end of this year. Slide number 6 shows the snapshot of the performance in Q3.
Turning to our financial performance this quarter, our net interest income of EUR 180 million remained resilient thanks to hedging and strong volume growth, which cushioned the impact from lower interest rates. Our cost to income ratio at 35% demonstrates good cost efficiency, while our cost of risk at 33 basis points reflects strong asset quality. All in all, our profitability remained flat on the prior quarter at EUR 180 million. Moving now to slide 7 and the key drivers of shareholder value creation. We maintain a strong growth of over 18% on a high capital base, with a CET1 ratio exceeding 20% and a low balance sheet risk, delivering another 111 basis points of organic capital generation in the quarter on a pre-distribution level. Our tangible book value per share of EUR 5.86 grew by 6% year-on-year after paying EUR 0.68 cash dividend per share during 2025.
Looking at slide 8, you can see that our 9-month performance is tracking ahead of the targets we have set in February. We are upgrading today our 2025 ROTE target to high teens from mid- teens, driven mainly by higher net interest income. Our ROTE target, based on 15% CET1 ratio, is expected to exceed 30%. Looking beyond this year, we look forward to updating you on our new financial targets and strategy during the first quarter of next year. Let's now turn to slide nine and our distribution track record. In October, we paid an interim dividend of EUR 0.20 per ordinary share, which corresponded to circa 40% payout ratio out of first half 2025 earnings. For 2025, we are reaffirming our distribution target for 70% payout ratio, which is at the top end of our policy, implying a high single-digit yield based on current share prices.
I will now hand over to Eliza, who will run you through our first half results in more detail.
Thank you, Panicos, and good morning from me too. Let's turn to slide 10 and the summary of our key highlights in the first nine months of the year. These include healthy volume growth with new lending of EUR 2.2 billion and performing loan book growing at 6% since December 2024, a strong return on tangible equity of 18.4% supported by resilient revenues and low cost to income ratio of 35%, further improvements in asset quality with the NPE ratio reaching 1.2% and cost of risk at 35 basis points. In September 2025, we successfully refinanced our EUR 300 million subordinated Tier 2 N otes at a significantly lower coupon rate and strong capital ratios of over 20%, driven by strong capital generation, including a distribution accrual at 70% payout ratio.
Moving on to slide 12, we have a simple balance sheet characterized by high liquidity with our deposit base twice the size of our loan portfolio. Our balance sheet has grown by 5% since the beginning of the year, mainly as a result of higher customer deposits, while our strong liquidity is gradually being deployed to our loan and fixed income portfolios. Slide 13 shows the net interest income headwinds moderating. Our NII for the third quarter displayed a modest decline of 1% Q-on-Q, being supported by hedging and volume growth, mitigating the impact of lower rates and the related repricing of loans. Our cost of wholesale funding is expected to decrease in the coming quarters following the refinance of our Tier 2 Notes at 4.25% coupon versus the previous coupon of 6.625%.
With rates expected to remain unchanged into year end, we expect to close the year with net interest income of around EUR 720 million underpinned by hedging activity, strong volume growth, and positive deposit trends. We'll come back to you with more precise guidance for 2026 in the first quarter of next year, but I want to observe that should rates stay at the 2% level, we should expect most of the negative headwinds to now be behind us. Moving on now to our hedging activity and slide 14, I want to remind you of our significant hedging efforts undertaken over the last couple of years that have reduced our NII sensitivity to 100 basis points, parallel shifting interest rates by EUR 58 million since December 2022. We have added around EUR 600 million of hedging in the first quarter, adding to a total of EUR 10.9 billion, or 43% of our interest-earning assets.
These hedging actions include the received fixed interest rate swaps and further investment in fixed-rate bonds. The hedging was carried out on an average yield of 2.7%, meaning that hedging is already a net revenue contributor. We will continue to manage our balance sheet dynamically and carry out hedging appropriate to the interest rate outlook evolution. On slide 15, you can see that our deposit base of EUR 21.5 billion continues to grow, up 3% on the prior quarter and up 7% on the prior year. The breakdown of our deposit base on the bottom left chart shows that more than 80% of our deposits are from Cypriot residents. We have seen deposit costs declining from the peak in 2024 and now stand at 27 basis points for the first quarter, while the share of term deposits remains broadly unchanged on the prior quarter at 31%.
The well-managed deposit cost reflects mainly the very liquid Cypriot banking sector, as well as our strong franchise and market position. Let's now turn to slide 16 and new lending. We are encouraged by the growth of our performing loan book. During the first nine months of the year, we granted new loans of EUR 2.2 billion, at 31% on an annual basis. We're pleased to see our loan book growing by 6% since December 2024, reflecting 4% growth-based domestic loan growth and the careful build-up of our international book to EUR 1.2 billion, on track to achieve the EUR 1.5 billion medium-term target. Growth in—
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Growth. As a reminder, 99% of new exposure retained since 2016 remained performing. Slide 17 shows our progress on the fixed income portfolio. As of 30 September, our fixed income book stood at EUR 4.9 billion, representing 18% of the group's total assets, achieving our 2025 target. The majority of the portfolio is measured at amortized cost and is held to maturity, hence, no mark-to-market impact is recognized in the income statement or equity. The portfolio comprises high-quality assets with average maturity of three to four years and is highly diversified. We aim to grow the fixed income portfolio further in the years to come so that it comes to represent around 20% of our total assets in the medium term, subject to market conditions. Slide 18 provides a summary of non-interest income. Our non-interest income in the first quarter benefited by an ad hoc insurance reimbursement of EUR 8 million.
Excluding this, our non-interest income decreased by 4% on the prior year, reflecting mainly the net cost of around EUR 3.5 million for the repurchase of Tier 2 Notes in September, partially offset by higher valuation gains on financial instruments. Overall, non-interest income remains an important contributor to group profitability and covers 77% of Q3 operating expenses. Our insurance businesses are a valuable and recurring revenue stream for the group, as presented on slide 19. In summary, our net insurance results amount to EUR 36 million for the first 9 months, increasing 4% on an annual basis despite the negative impact from the July 25 wildfire in Limassol of around EUR 3 million in the non-life insurance business. The yearly increase is supported by the acquisition of Ethniki Insurance Cyprus Limited and increased premiums in the life business, which helped to offset the impact from these higher claims.
Overall, net insurance results contributed 17% of total non-NII, and the insurance business remained highly profitable, contributing 11% of the group's total profitability. To update you on our recent acquisition of Ethniki, note that the legal merger with our existing insurance companies is expected to be completed around year end. Slide 22 provides an overview of operating expenses. Our cost to income ratio of 35% in the first nine months was higher than last year, reflecting the impact of falling net interest income. Staff costs were up 5% on a yearly basis due to the step-up adjustments, which typically take place in the first quarter of the year, including salary increments and cost of living adjustments. On the other hand, other operating expenses remained broadly flat year-on-year. In July, the contribution to the deposit guarantee fund increased from 0.8% to 1.25% of covered deposits.
This is paid semi-annually and hence led to a charge of EUR 5.5 million in Q3. For 2025, we expect our cost to income ratio, excluding special levies and other contributions, to remain below 40%, benefiting mainly from the stronger net interest income. Turning now to slide 23 and cost of risk. Our underlying credit quality is strong. Cost of risk was at 35 basis points for the nine months of 2025. Our expectation for the full year is for cost of risk to remain below 40 basis points, demonstrating the continued strong underlying performance of the loan portfolio. Additionally, we incurred impairments of EUR 3 million in the third quarter, relating mainly to revenue stock of properties, largely due to the aging of the stock. We also recognize provisions of EUR 3 million for pending litigation, reflecting the progress of these cases. Let's now move to slide 25 and capital.
The bank's capital position remains strong. We continue to build organic capital, generating over 100 basis points this quarter, totaling 326 basis points year to date, well ahead of our full year 2025 target of around 300 basis points. As of 30th September, our CET1 ratio and total capital ratio were at 20.5% and 25.4%, respectively. Let me remind you that the capital ratios are after a distribution accrual at 70% payout at the top end of our distribution policy, and hence the interim dividend at 40% does not affect our capital ratios. Finally, the acquisition of Ethniki Insurance Cyprus had a small negative impact of 15 basis points. Moving now to slide 26 and asset quality. As of 30th September, the group's asset quality remains healthy with an NPE ratio at 1.2% and a coverage ratio above 100%. NPE inflows remain limited.
Slide 27, revenue is our engine to manage the stock of properties acquired from defaulted borrowers. The revenue stock decreased to EUR 419 million as of 30th September, achieving early our 2025 target of around EUR 500 million, following the sale of the largest property in June 2025. Overall, we continue to manage our revenue property prudently, as it is carried on the balance sheet at 71% of the current open market value. It is important to note that we continue to sell on average close to independently assessed open market value and above book value. I would now like to hand back to Panicos for his closing remarks.
Thank you, Eliza. Turning to slide 28, our priorities remain unchanged, being centered on prudent capital management, driving new growth initiatives focused on loan book growth, non-interest income diversification, maintaining cost discipline while reinvesting the business and protecting the fundamentals of our asset quality. We remain positive on the outlook that can deliver sustainable profitability and attractive shareholder remuneration, and we look forward to updating you on our strategy and financial targets in the first quarter next year. This concludes our presentation, and we will now open the floor for your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Alexandros Boulougouris with Euroxx Securities. Please go ahead.
Good morning. Many thanks for the presentation. A question on loan growth on my end regarding the 6% we've seen year-on-year, and at a target of 4%, it looks quite conservative, and it would imply a reduction in balances in the fourth quarter if my numbers are correct. Should we assume something similar for the full year, around 6%, because I don't see that target being revised? That's my first question. My second question is regarding NII. Should we expect NII to flatten in the last quarter, given the rate environment and the loan growth you're witnessing? Because based on the EUR 720 million target, it implies another reduction in the fourth quarter. If you could clarify this. Thank you.
Okay. Thank you, Alex. Yes, let me clarify that on the loan growth, we expect to materially exceed the 4% of initial target for 2025. Yes, you are right. We expect the growth to be materially higher than 4% and probably higher than 6% as well because we have a good pipeline. Whether this will be materialized or not until the end of the year and to the extent that it will be materialized depends on, let's say, on our incredible ability to actually disburse the funds before the year-end or early next year. All in all, the loan growth for this year will be materially higher than 4%.
On NII, Alex, we do expect Q4 to be the lowest quarter, as I said in my script earlier. That's because of the tail of the repricing coming through, the rate cut in June. That said, the impact is expected to be modest or marginal, offset partly at least by volume, by better volume growth. We expect to see the tail end of the repricing, and if rates remain at the 2% level, which is the level at the moment, we expect Q4 to be the lowest point and then to move onwards from there, onwards and upwards.
Thank you.
The next question comes from the line of Hugo Cruz with KBW. Please go ahead.
Hi. Thank you for the time. I have three questions. One is, the strategy and financial update, if you could just clarify, is there going to be just the usual target slide that will be refreshed with targets for 2026, or is it going to be something more substantial? Is it going to be a separate event from the usual results calls or not? On the fees, were a little bit weaker than expected. If you could give a bit of color there, but also what trends are you seeing for Q4 for the fee income? Finally, on NIIs, the interest rate swap book, how big can it be as a percentage of your deposit book? The bond portfolio, you have a medium-term target of 20% of total assets.
If you could give a bit of color how you came up with that target, if there are any regulatory constraints or what's the rationale there? Thank you.
Okay. Thank you, Hugo, on the first question on financial taxes, I will say that we'll provide more details in due course, but yes, it will be substantially more detailed than the usual one- slide guidance that we do during the quarters. You should expect something more detailed. On the fees, I think this was your third question, right? On the fees. Yes.
Yes. On the fees, I mean, you see that we continue to cover almost 80% of our operating expenses, so we remain a diversified financial group. If you exclude some of the non-recurring items, you will see year-on-year that there is a 4% growth. Okay. With you, non-interest income as a key source of growth for us. Organically, we have some initiatives. We have Affluent Banking, Jinius, FX platform. We will start seeing the integration of Ethniki Insurance in our results, especially starting next year. If we have any opportunities organically to accelerate and top up the organic growth, we will certainly pursue that. On securities, I will say that the medium-term target is to be 20% of total assets. These are internal limits, no regulatory limits. These are numbers that we'll certainly review together with the financial update next year.
On hedging the fixed income portfolio, first of all, on hedging, our interest rate swaps portfolio hedges around half of our non-rate-sensitive deposits. From a hedging capacity, let's say, perspective, we do have the ability to increase that. That said, we are approaching our internal target in terms of the volumes of hedging. We're not there yet, but we're very close. We do expect modest increases in our hedging volumes going forward, either through our assets or through the natural evolution of the balance sheet, but they would not be huge, let's say, in quantum. On the side of the bond portfolio, the 20% medium-term target that we have out there is based on the benchmark of peer banks, especially in the Eurozone area. There is no regulatory cap. It is all a function of capital and risk appetite for us.
Okay. Thank you very much.
The next question is from Alfredo Alonso with Deutsche Bank. Please go ahead.
Hello. Good morning. Thank you for taking my questions. Yes, I have one follow-up on NII. As we've seen, quite stable in the quarter and with the positive trends, increasing the securities book that probably have not been fully booked on the NII in the quarter. How could we expect seeing still NII going down if you still see some further repricing of the deposit ahead? How much this could come from repricing, changing mix, although it's not changing much right now? It seems that there are positive trends there that could still be putting a more positive view into the next quarter than just being slightly down. That's one. The second one I have is, or actually on the deposits, we've seen the increase in the contribution to the deposit guarantee fund. Is this something that could be seen for long? Is something just temporary?
Moreover, seeing the loan-to-deposit ratio so low, do you find any way of managing this excess liquidity channeling into faster loan growth or into conversion into fee-generating product just to reduce the average size of the deposit book? Thank you very much.
Thank you, Hugo. Sorry, Alfredo. I will start with NII, our guidance on NII for the full year. Effectively for Q4, that assumes the repricing of the loan book, which we will have a full quarter impact of the rate cut in June, but it also assumes flat deposit cost. You can form your own view on the cost of deposits and the mix. Our own working hypothesis is that they, or at least for planning purposes, is that they stay flat both on volumes and on costs and in the mix, actually, as well. On the DGS, the DGS, we commented last quarter about this because we expected it. It is a fee that will be paid twice a year at roughly the EUR 5.5 million amount per 6 months, and it is due to be paid all the way until June 2030.
In a way, it's here to stay for another few years. The target of the central bank is to take the DGS stock up to 1.25% for the country. Now, in terms of liquidity.
Generally, they're both very profitable at the cost of 27 basis points versus a rate of 2%. Having said that, okay, you should expect some gradual deployment of liquidity towards growth loans and, of course, fixed income security. The key for us is to manage the size of our average interest-earning asset, which has grown 2% year-on-year, quarter on quarter, sorry, and the mix of this, and the mix towards an optimal solution for higher NII and optimal use of our capital. We will always be very liquid.
Okay. Perfect. Thank you very much.
The next question comes from the line of Alexander Kantarovich with Roemer Capital. Please go ahead.
Thank you. Hello. Hello and good results, it seems. My question is on capital utilization. Clearly, you have a very fat cushion, and on the other hand, you have lots of cash. I appreciate that your payout policy is top of the range for comparable banks, but perhaps would you consider a one-off dividend payout to reduce your capital, and that would have a material impact on your return on tangible equity? Thank you.
Okay. Okay. As I said before, we are planning to update our strategy and financial targets during the first quarter of next year, which this update will include also how we think of capital. Some of our capital allocation options include, of course, as usual, higher payout ratios than the 70% that we have today, incremental organic growth. You have seen some consumption of capital for international lending growth, and of course, strategic optionalities like the additional capital returns or some bolt-on acquisitions. Yes, we are running the bank for long-term shareholder value creation. We want to be generous with our shareholders. We are not talking about huge one-off, but we will remain generous on a sustainable basis.
Okay. I appreciate that. Can you please elaborate on your plans for the international book? I saw the news that you opened or reopened an office in Athens in Greece. How would you perhaps pursue deployment of this mountain of cash that you have within the broader Eurozone? Is there any doable angle there?
Okay. First of all, we have not opened any office in Greece. I'm not sure what the news are referring to, but generally, the international expansion for the time being is executed through the international corporate insights. International books have three pockets. The first pocket is the international corporate, which is, let's say, 5% of that, of the 10% of the international book, which is mainly Greece, but not only Greece. There is also the shipping, which is another 3%-4%, which is very selective shipping groups, 13 shipping groups, which means around EUR 25 million per group. Again, in diversified exposure there. Also, the international syndication is, I think now it's EUR 260 million, close to 3% of our loan book, which is 23 groups, around EUR 11 million per group.
I'm saying that to highlight that the international expansion, it's diversified, is not concentrated anywhere, and we have the setup in Cyprus to execute and reach our internal target, which for the time being is EUR 1.5 billion. In general, the strategy about lending growth is to go along with the growth of the GDP Cyprus, plus top up with the international loan book. We will say more on loan growth and our plans in the first quarter of next year together with general update about capital and other targets that we will share with you.
Yeah. Yeah. Thank you for your answer. I probably misunderstood the news about the office in Greece. Thanks a lot.
Thank you. Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and one on your telephone. We have a question from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hello, Minnie. Thanks for your time and presentation. Just following on loan growth and the outperformance this year, is it fair to say it's coming mostly from the international side or versus your expectations? Where are you seeing the outperformances? Also, any color for 2026? Are we seeing any pull forward, or do you still feel quite comfortable for 2026 loan growth? Thank you.
Okay. For 2025, there was a combination of good growth from the Cypriot book, 4% average, and the remaining top up 2% came from international as it was our initial plan. Going forward, we have the same strategy. It is Cyprus and international. The rate of growth of international will probably be reduced as the book becomes more mature and we start seeing some repayments. The general strategy is to have a combination of growth from Cyprus and international. Now international is mature. You have seen that we are reaching faster our internal target of EUR 1.5 billion, and it gives us a comfort to decide on the next steps and our next targets, which we will share with you early next year.
Great. Thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolaou for any closing comments. Thank you.
Thank you for your participation in the call and for your questions, of course. As always, our team and myself will be available to take any offline questions and provide any clarifications that I'm sure that you have. 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 good day.