#1Republic of Cyprus Investor Presentation July 2019#2Disclaimer This document and its contents may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose. This presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. This presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Republic of Cyprus in any jurisdiction or an inducement to enter into investment activity in any jurisdiction. Neither this presentation nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Any decision to purchase any securities of the Republic of Cyprus should be made solely on the basis of the final terms and conditions of the securities and the information to be contained in the prospectus or equivalent disclosure document produced in connection with the offering of such securities. Prospective investors are required to make their own independent investigations and appraisals of the financial condition of the Republic of Cyprus and the nature of the securities before taking any investment decision with respect to securities of the Republic of Cyprus. The prospectus (or equivalent disclosure document) may contain information different from the information contained herein. The information contained in this presentation has not been independently verified. The information in this presentation is subject to verification, completion and change without notice and the Republic of Cyprus is not under any obligation to update or keep current the information contained herein. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the presentation and the information contained herein and no reliance should be placed on such information. This presentation and the information contained herein does not constitute and should not be construed as an offer to sell or the solicitation of an offer to buy securities in the United States as defined in Regulation S under the US Securities Act of 1933 (the "Securities Act"). Securities of the Republic of Cyprus may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. The Republic of Cyprus has not registered, and does not intend to register, any portion of any offering in the United States or to conduct a public offering of any securities in the United States. This communication is directed solely at (i) persons outside the United Kingdom, (ii) persons with professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the "Order"), (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iv) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities of the Republic of Cyprus or any member of its group may otherwise lawfully be communicated or caused to be communicated (all such persons in (i)-(iv) above being "relevant persons"). Any investment activity to which this communication relates will only be available to and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this communication. This presentation contains "forward-looking statements" which include all statements other than statements of historical fact. Such forward-looking statements can often be identified by words such as "plans," "expects," "intends," "estimates", "will," "may," "continue," "should" and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Republic of Cyprus' control that could cause the actual results, performance or achievements of the Republic of Cyprus to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions. By their nature, forward- looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speak only as at the date as of which they are made, and none of the Republic of Cyprus or any of its agents or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained herein to reflect any change in the Republic of Cyprus' expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice. This presentation includes certain forecasts. These are official forecasts of the Ministry of Finance of the Republic of Cyprus, however, they are based on a number of assumptions. Such assumptions may not prove to be correct, and such forecasts will be subject to constant review and may from time to time be revised based on the macroeconomic and other conditions prevailing at the time. There can therefore be no assurance that any forecasts will be correct or realised. 2#3Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 3#4The Republic of Cyprus Key facts • Political system: Presidential Democracy • Legislature: House of Representatives • Population: 956.800 (est. 2017) • Geographical size: 9.251 km² • Currency: Euro ⚫ GDP per capita in PPS¹: 87% of EU-28 (2018) • Human Development Index: 32nd out of 189 (HDR², 2017) • Main economic sectors: Services (84% of GVA³ in 2018): business and financial services, tourism, shipping, real estate, retail trade - Industry (14% of GVA in 2018): manufacturing of pharmaceutical and food products, construction • International memberships: EU, Eurozone, Council of Europe, United Nations, IMF, World Bank, Commonwealth, World Trade Organisation et al. Source: Cyprus Statistical Service, Eurostat, United Nations Notes: 1. Purchasing Power Standards; 2. Human Development Report; 3. Gross Value Added Finland Sweden Estonia Latvia Ireland United Kingdom Denmark Lithuania Nether- lands Poland Belgium Germany Czech Luxembourg Rep. Slovakia France Austria Hungary Romania Slovenia Croatia Bulgaria Italy Portugal Spain Malta Greece Cyprus 4#5Strong institutional framework and effectiveness • Cyprus is in upper range of Worldwide Governance Indicators of the World Bank. • The Republic of Cyprus has a presidential system of government with divisions of authority in the executive, legislative and judicial branches. The constitution vests executive power in a president who is elected for five years. Legislative power is exercised by the House of Representatives and judicial power lies with the courts. • Next scheduled elections: Parliamentary (2021), Local (2021), Presidential (2023). • Government effectiveness shown by track record of correction of imbalances with swift improvement of public finances in the years 2006-2008 and 2013- 2015. • Cyprus' legal system is modelled on the English legal system and European Law; also practises Common Law. Worldwide Governance Indicators for Cyprus (2017) Control of corruption Government effectiveness Regulatory quality Political stability and absence of violence/terrorism Rule of law Voice and accountability 0-10th percentile 50-75 percentile 10-25th percentile 75-90th percentile 67 62 78 80 81 80 60 83 25-50th percentile 90-100th percentile Source: The World Bank 5#6Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 6#7Solid near-term growth outlook 2016 2018 2020f 2022f • Growth momentum of recent years continued over 2018 at a rate of 3,9% and Q1-2019 of 3,4%. Economic growth remains strong despite deceleration attributed to a less favourable external environment. Growth is broad-based and derives from higher demand in the sectors of tourism, construction, business services and retail trade. The positive developments are partly attributed to the gains in price competitiveness recorded in recent years. The only sector recording negative growth rate is financial services due to its deleveraging. On the expenditure side, consumption has been the main driver attributed to higher employment level and disposable incomes. Additionally, mainly foreign-financed private investment has boosted growth with high value added projects in the tourism, energy and education sectors. Real GDP growth (% change) 6,0 4,0 2012 2014 2,0 0,0 -1,3 -2,0 -2,9 -4,0 -6,0 -5,8 2,0 GDP (Index, 2000=100) 250 200 150 100 50 4,8 45 4,5 3,9 3,6 3,2 3,0 3,0 Actual MoF forecast Cyprus Euro Area 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Cyprus Statistical Service, Ministry of Finance Note: "f" denotes forecasts by the Ministry of Finance, as of April 2019. All forecasts are based on assumptions and there can be no assurance they will be realised. 7#8Moderate inflation and rapid reduction in unemployment Low inflationary pressures Subdued inflationary pressures despite growth owing to exogenous factors. CPI inflation at 1% in the first half of 2019 with core inflation excluding energy and seasonal food at 0,3%. Respective figures in 2018 were 1,4% and 0,4%. • Fast correction during crisis years reflecting the wage flexibility of the labour market which led to an internal devaluation and improvement in price competitiveness. Rapid decline in unemployment • Labour Force Survey unemployment in monthly seasonally adjusted terms decreased to 6,5% in May 2019 compared to 8,3 % in May 2018. Flexibility of labour market and strong economic activity contributing to normalization conditions. 6,0 5,0 4,0 3,0 2,0 1,0 0,0 -1,0 -2,0 -3,0 % 18 16 14 12 8 of labour 10 youth Encouraging signs of de-escalation in unemployment while long-term unemployment is correcting faster than total. 6 Source: Cyprus Statistical Service, Eurostat Jan-11 Jan-11 Annual % change Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Seasonally adjusted unemployment rate Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 8 Jan-15 Jul-15 Inflation (CPI) Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19#9Moderate current account deficits • Cyprus presents small to moderate current account deficits, within sustainable levels • Companies statistically registered as Special Purpose Entities (SPEs) in Cyprus, have strong balance sheets relative to the size of the economy but minor real economic activity in the domestic economy. Exclusion of SPES provides a more accurate picture of the external position. Current account balance (% of GDP) 4 2 0 -2 -4 -6 -4,5% -2,7% -3,3% -8 -10 2014 2015 2016 2017 2018 -7,0% 2019-q1 Current Account Current Account excl. SPES Main trade partners (% of GDP) 1 Russia UK 10% 5% 0% -5% -10% -15% ■Goods balance Trade balance, EUR mn Greece Germany China Services balance Tourism Shipping Financial Services IT & Telecom. Energy products Food & Beverages Vehicles Textiles & Footwear Machinery Trade Balance -1.000 -600 -200 200 600 1.000 1.400 1.800 Source: Central Bank of Cyprus, Cyprus Statistical Service, Eurostat Notes: (1) Based on 2017 figures 9#10A diversifying service-based economy Whilst financial-business services, tourism and shipping services have been traditionally the main sectors of Cyprus, the economic activity has recently diversified in IT& Telecoms and pharmaceuticals manufacturing Structure of Economy in 2018 (Current prices, % of GVA) Professional, scientific and technical activities Real estate 9% 10% Finance and insurance 10% Secondary sector Tertiary Sector 84% 14% Primary sector 2% Source: Cyprus Statistical Service Information and communication 5% Various 6% Accommodation and food service activities 7% Wholesale and retail trade 11% Education 7% Human health and social work 4% Public administration and defence; social security 9% Transportation and storage 7% 10#11Significant international business activity Competitive advantages in business and financial services Registration of new companies, thousand Investment Firms and Fund Management 500 16,0 14,6 13,6 13,7 14,0 400 11,3 11,3 12,0 10,0 300 8,0 6,4 བ 200 6,0 4,0 2,0 20 0,0 2014 2015 2016 2017 2018 6m-2019 >300% 187 257 100 AUM 1 €6,7 BN 129 0 2012 2019Q1 Investment Firms ■Fund Management Companies • Cyprus is a regional Business and Financial Services Centre with strong regulation and supervision and a reliance on a well balanced portfolio of services. • Cyprus maintains a modern, consistent and simple tax system with a broad tax base, limited exceptions or credits, and low tax rates and a significant network of Agreements for Avoidance of Double Taxation (65 as of today). Cyprus is a Common Law country and has a well-developed professional services industry with more than 20 years presence in the international financial markets and over 500 organisations supporting international business. Source: Department of Registrar of Companies and Official Receiver, Cyprus Securities and Exchange Commission. Note 1: Assets Under Management 11#12Tourism: a long-standing contributor in economy Tourist arrivals, million Revenues from tourism, EUR million 4,0 3.000 3,5 2019 3,0 2017 2,5 2015 2,0 2013 2019 2.500 2017 2.000 2015 2013 1.500 1,5 1.000 1,0 500 0,5 0,0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • Arrivals and revenues in the first months of 2019 at similar levels as the respective period of 2018. • Arrivals in 2018 reached an all-time record of 4 million persons. Efforts to enhance the tourism sector including through prolonged seasonality period and better flight connectivity contributed to the increase in inbound tourism. • The origin of tourists has diversified over time with tourists from the UK representing 34% of arrivals in 2018, down from 56% of arrivals in 2005. The second largest origin market in 2018 was Russia with 20% of arrivals. • Revenues have increased at a lower rate than the increase in arrivals due to travel characteristics such as length of stay and forms of travel eg. all-inclusive packages. Source: Cyprus Statistical Service 12#13An internationally renowned shipping centre • Cyprus has a strong maritime tradition and has combined strong geographical, institutional and commercial advantages to become: A leading Ship Registry (IHS Maritime & Trade, World Fleet Statistics 2017) One of the largest third party ship management centres worldwide Home to a total of around 60 ship management companies operating from Cyprus, including leading names in the global shipping industry. • Cyprus was the first "Open Registry" with an EU- approved Tonnage Tax regime, which covers the three main maritime transport activities: ship owning, ship management (crew and technical management), and chartering. • The size of the ship management sector in terms of turnover represented 5% of GDP in 2018. World merchant fleet size by flag, 2017 1. Panama 2. Marshall Islands 3. Liberia 4. Hong Kong (China) 5. Singapore 6. Malta 7. Bahamas Source: Deputy Ministry for Shipping, Central Bank of Cyprus, IHS 8. China 9. Greece 10. Japan 11. Cyprus 22 Gross tonnage (millions) 13#14Natural Gas Exploration and Exploitation Prospects for Cyprus as an energy producer and exporter ■ Noble Energy International announced the first natural gas discovery ("Aphrodite") in Block 12 in January 2012, which was declared commercial in 2015. Current estimated natural gas resources are in the order of 4,5 trillion cubic feet (best estimate). The regional pipelines option seems to be the optimal monetization alternative, under the current economic and commercial conditions. ■ The "Aphrodite" field project opens up new investment opportunities, including a subsea pipeline connecting Cyprus and Egypt. An Intergovernmental Agreement between Cyprus and Egypt has been signed. ■ The Noble Energy International / BG Cyprus / Delek Drilling consortium is working on the development of the "Aphrodite" gas field. ■ Other discoveries are: "Glaucus-1" in Block 10 by ExxonMobil/QP for which preliminary estimates are of 5 trillion to 8 trillion cubic feet; "Onesiphoros West 1" in Block 11 by TOTAL/ENI (technical discovery), and "Calypso- 1" in Block 6 by ENI/TOTAL under evaluation. Offshore exploration licenses of Republic of Cyprus CYPRUS Eni Kocas 2 3 Eni Kocas Eni 4 5 6 7 Eni 8 9 Eni Kocas ExxonMobil 10 TOTAL Eni 11 12 Aphrodite ne noble energy قطر للبترول Qatar Petrolam HYDROCARBONS SERVICE Ministry of Energy Commerce and Industry Genad Bathymen Chair of the Organ TGFBC (OPA National Centers for Environmental intomation CE Natural Earth In 2017 exploration licences were awarded to ENI / TOTAL for Block 6; ENI for Block 8 ; and ExxonMobil / Qatar Petroleum for Block 10. Other active exploration licences are held by ENI/KOGAS for Blocks 2, 3 and 9 and by TOTAL / ENI for Block 11. 14#15Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 15#16Public finances in a solid surplus position • The government policy is for a growth-friendly fiscal stance safeguarding the maintenance of robust primary surpluses supporting a sustained reduction of public debt. The budget reflects a continuation in the employment policies adopted by the government and places emphasis on reallocation of expenditure towards growth-enhancing activities. • Since 2016 the fiscal position is positive peaking at 3,2% surplus in 2018. In the next years both government revenue and government expenditure are expected to increase primarily due to the introduction of the national health system. The budget surplus is expected to fall marginally mostly due to increased expenditure associated with the gradual abolition of wage cuts. • The budget is designed to achieve the medium term objective of a balanced fiscal position in structural terms. Source: Ministry of Finance Evolution of main fiscal indicators, % of GDP 8 6 4 5,7 4,3 5,3 4,8 4,4 4,1 2 2,6 2,7 3,0 3,2 3,0 2,6 0 0,3 1,8 2,4 2,2 -0,3 -0,4 -2 -1,8 -4 Primary balance Fiscal balance -5,1 -6 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f Note: The budget outcomes of 2014-15 and 2018 exclude government contributions for the Cyprus Cooperative Bank Note: "f" denotes forecasts by the Ministry of Finance as of April 2019. All forecasts are based on assumptions and there can be no assurance they will be realised. 16#17Strong fiscal performance continues during early 2019 • During Jan-Apr 2019 the fiscal position continued to be in surplus at 2,5% of GDP compared to 2,0% of GDP of the corresponding period of the previous year. • Government budget was in surplus in 2018 at 3,2% of GDP compared to 1,8% the year before. • The revenue side increased by 7,7% vis-à-vis the corresponding period of 2017. This improvement can be attributed to higher income tax receipts reflecting primarily indirect tax revenue and secondarily, tax revenue on income and wealth. The expenditure side increased at a rate of 2,3% vis-à- vis 2017. An increase was recorded in compensation of employees, attributed to higher employment in education, health and security sectors. Intermediate consumption increased mostly due to expenditure relating to water supply and pharmaceuticals. Budget revenue breakdown, EUR million 10.000 8.278 7.671 8.000 6.976 7.087 6.000 4.000 2.000 3.088 3.290 0 2015 2016 2017 2018 Jan-May 2018 Other Social contributions Direct taxation Jan-May 2019 Indirect taxation Budget expenditure breakdown, EUR million 10.000 7.038 8.000 7.028 7.328 7.542 6.000 4.000 2.000 2.672 2.773 0 2015 ■Capital Expenditure Interest 2016 2017 2018 Others Jan-May 2018 Jan-May 2019 Social Transfers Consumption Source: Cyprus Statistical Service, Ministry of Finance ■Compensation of Employees Note: The budget outcomes of 2014-15 and 2018 exclude government contributions for the Cyprus Cooperative Bank. 17#18Positive public debt dynamics • Public debt peaked over 2015-2016. After a one-off increase in 2018 due to the placement of government bonds as part of the partial sale of Cyprus Cooperative Bank, the decline is expected to resume and progress steadily to 78% by 2022. • Debt dynamics are favourable due to growth, positive fiscal balance and low interest burden. • The debt sustainability analysis, introducing various shocks to the macroeconomic parameters, indicates that the debt ratio continues to exhibit a declining path albeit at a slower pace. • The current policy followed is for liquid assets to cover gross financing needs of the following 9-month period on a rolling basis. Evolution of gross and net general government debt, % 120 110 100 80 108 108 106. 103 103 96 104 102 101 96 98 91 94 89 83 78 90 80 80 79 66 70 56 60 50 ཐ 56 62 62 Gross Debt/GDP Net debt/GDP 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f Debt dynamics, % of GDP 0 -2 -4 -6 -8 2019f 2020f 2021f 2022f Primary balance Interest rate-growth differential Inflation Source: Cyprus Statistical Service, Ministry of Finance Note: "f" denotes forecasts by the Ministry of Finance as of April 2019. All forecasts are based on assumptions and there can be no assurance they will be realised. 18#19Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 19#20A consolidated, capitalised and liquid banking system The banking system has refocused its operations and renewed its corporate governance. The regulatory framework has been reformed and modernised. Decisive actions have been undertaken for the tackling of NPES. Banking sector shrinks by half to 4x the GDP and reaches EU average International investors obtain majority holding of Hellenic Bank and Bank of Cyprus Capital controls lifted • Successful stress test results • ECB assumes supervision of systemic banks • Legislation on Foreclosures, Insolvency and Sale of Loans enter into force Emergency Liquidity Assistance repaid Deposits on upward path • Decline in interest rates • Provision of new credit increases • Non performing exposures mark first reduction . . Bank of Cyprus listed in London Stock Exchange and returns to bond capital markets Hellenic Bank and Bank of Cyprus outsource management of NPEs and real estate portfolios to independent servicing companies Sales of non-performing exposures Partial sale of the Cyprus Cooperative AMC for residual entity Bank to Hellenic Bank; state owned • Banking sector at 3x the GDP Enhancement of laws on foreclosure, insolvency and sale of loans; Introduction of Securitisation law • Introduction of scheme for NPE burden sharing among state, banks and borrowers 2013-2014 2015-2016 2017-2019 20 20#21Solid capital base International investors hold majority of shareholding and board composition in systemic banks. Since 2013 the banks' capital position has been consistently strengthened, due to increase in common equity and deleveraging, resulting in key ratios of systemic banks to be above the thresholds specified by the supervisor. Aggregate banking sector capital position, % 20 20 15 16,6 17 16,3 17,5 15,3 13,5 10 7,3 15,9 16,1 14,2 14,9 15,0 11,7 5 4,5 0 2012 2013 2014 2015 2016 2017 2018 ■Tier 2 Solvency Ratio (%) Banking system balance sheet (% GDP), Q4-2018 Core Tier 1 (%) Additional Tier 1 Systemic Banks CET1 capital ratio, % EU average 14,7% 23,4 300 Other assets 250 Investments Interbank deposits Corporate 25 20 20 200 deposits 15 150 Loans 100 Household 10 18,5 deposits 14,9 50 5 Cash 0 Equity 0 Source: EBA, Central Bank of Cyprus, systemic banks publications. Bank of Cyprus Hellenic Bank Russian Commercial Bank Data as at Q1-2019 for BoC, HB and EU average; 2018 for RCB 21#22Sharp reduction in NPEs during 2018 • Reduction by 50% in NPES over 2018 due to sale by Bank of Cyprus (Project "Helix") and the Cooperative Central Bank carve-out. • Remaining reduction attributed to (i) cash repayments, (ii) successful restructurings reclassified as performing facilities, (iii) write-offs as well as (iv) settlement of debt through swaps of immovable property with the ultimate aim the property sale. Non performing exposures 30 25 20 15 10 CCB carve-out 6.9 bn Helix 2.7 bn 5 Feb.19 NPEs 10 bn 0 Q1-2014 Q1-2015 Q1-2016 Q1-2017 Q1-2018 Q4-2018 Gross loans breakdown, Feb. 2019 Gross loans breakdown, Feb. 2019 60% 100% Performing not restructured 50% 80% Provisions 52% 40% 63% Performing & restructured 60% 30% Non-performing & NPES 31% 20% 40% restructured 6% Non-performing not 10% 14% 20% 2% restructured 0% Provisions 15% 52% of NPES Terminated (Est.) Q1-2014 Q1-2015 Q1-2016 Q1-2017 Q1-2018 Q4-2018 0% Source: Central Bank of Cyprus, Ministry of Finance 22 22#23Non performing exposure management • The banks' governance, and the regulatory and supervisory framework have been reformed to introduce incentives for borrowers and lenders: - Enhancement of banks' capacity: Centralized arrears management systems and dedicated recovery units have been implemented throughout the banking sector, whereas the largest banks have proceeded with outsourcing of NPE management; Legislative measures: Legislation has been enhanced to facilitate a more streamlined and less time consuming asset recovery process: property foreclosure, insolvency, sale of loans, swift transfer of property title deeds and loan securitisation. • Under the ESTIA scheme, which tackles NPEs collateralised by primary residence, the state will provide fiscal support to non-performing borrowers that meet certain eligibility criteria. The scheme will become operational during September 2019. • Property prices mark a first increase albeit from a low base. Source: IMF, Ministry of Finance, Central Bank of Cyprus Auction sales, no. of properties 21 2016 247 2018 Years to foreclose (est.) Residential Property Price Index 120 100 BASIS Q1-2010 100,0 80 60 60 40 40 Q1-2006 Q1-2007 Q1-2008 10 2 2014 2018 Q1-2009 Q1-2010 Q1-2011 Q1-2012 Q1-2013 Q1-2014 MIN Q2-2016 73,2 Q3-2018 75,6 Q1-2015 Q1-2016 Q1-2017 Q1-2018#240% 50% 100% Dec-14 Mar-15 Jun-15 150% Liquidity Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Liquidity and funding position continues to improve Low-cost deposit-funded banking sector • Deposit increases in the domestic depositor base reflecting strengthened confidence and a stronger domestic economy. The increase in deposits relates mostly to higher deposits by companies while households record a more modest increase. The Liquidity Coverage Ratio more than double the EU-average while the two largest banks report comfortable Net Stable Funding Ratios. 70 Evolution in deposits, EUR bn 10 5 0 -5 60 50 40 2622° 30 20 10 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 Nov-18 Mar-19 -10 -20 152122 Dec-16 Mar-17 Jun-17 Sep-17 Liquidity Coverage Ratio (RHS) Loan to Deposit ratio Source: Central Bank of Cyprus, EBA; Note: LCR data not available prior to Dec. 2016 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Total Non-domestic residents Eurosystem funding, % of assets Domestic residents Annual growth rate % (rhs) 16 400% 14 300% 12 10 200% 8 6 100% 4 0% 2 1,4% 0 14 15 Mar Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- 13 13 14 15 16 16 17 17 18 Central Bank funding as % of assets 18 24#25Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 25 25#26Public debt overview Public debt structure, May 2019 (p) General Government Debt General Government Debt/GDP Of which liquid assets/GDP • Short term debt €23,1 bn 106% f 14% 1% • Resident holders (estimate at issuance) 21% • Domestic currency 97% • Fixed interest rate 66% • 57% Private sector holdings (at issuance) Evolution of investor base by type Public debt by instrument, May 2019 (p) ■Treasury Bills (1%) ■Domestic Bonds (17%) ■Retail Securities (3%) ■Foreign Bonds (36%) Official Loans (43%) Evolution of investor base by geography 100% 100% 14% 22% Central Banks- Official institutions Rest of world 80% 22% 19% 19% 20% 22% Other 80% US 27% 40% 7% 40% 10% 2% 15% 37% 60% 8% 9% 34% 38 Insurance/Pension 60% 12% 34% ■Cyprus 21% 40% Banks/Private Banks Other Europe 40% 60% 51% 45% 62% 42% 55% 55% 12% 14% 27% 34% 27% Hedge Funds Germany/Austria/ 20% 20% Switz. 54% 62% 28% 28% 22% Fund Managers 19% UK 22% 0% Jun 2014 CYPGB2019 Jul 2016 CYPGB2023 0% Feb2019 CYPGB2034 May2019 CYPGB2049 Jun 2014 Jul 2016 Feb2019 CYPGB2019 CYPGB2023 CYPGB2034 May2019 CYPGB2049 Source: Public Debt Management Office Note: "f" denotes forecast by the Ministry of Finance as of April 2019; "p" denotes provisional figures 26 26#27Debt portfolio cost-risk indicators improving Weighted average maturity of debt, years 10 8,0 7,4 Cost of public debt, % 4,5% 8 - 7,0 6,4 4,0% 4,2% 9 4,5 4 22 5,9 4,9 4,3 3,0 2,7 3,5% 3,0% 3,0% 2 2,5% 2,6% 0 2,4% 2,3% 2,3% 2012 2014 Total debt 2016 Marketable debt 2018 May-2019 2,0% 2,2% 2012 2013 2014 2015 2016 2017 2018 Interest rate distribution of debt, % Evolution of government liquidity buffer, EUR mn 4000 ▲ 133 150 120 90 ▲ 60 ▲ 63 60 52 44 41 30 100% 12 3000 80% 42 46 46 38 34 12% 2000 60% 88 40% 58 62 66 54 1000 88% 20% 0% 7 0 2012 2013 ESM-IMF loans Other 2012 2014 2016 2018 May-2019 Floating-rate debt Fixed-rate debt Source: Public Debt Management Office; Note: "e" denotes estimates by the Ministry of Finance 2014 2015 0 2016 2017 2018 Next 12 months debt redemptions ▲ Next 12 months debt redemptions cover ratio (rhs) % 27#28Public debt maturity structure Active management of debt aims to smooth out maturities further Debt maturity profile May 2019, EUR mn 2500 2000 1500 1000 500 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Domestic Bonds Retail bonds Source: Public Debt Management Office EMTNS Loans 2048 2049 Scheduled early repayments during 2019 28#29Liquidity covers the budgeted financing needs up to Q3-2020 Annual Funding Plan 2019 • Main financing actions for 2019 have been completed through issuance of three international benchmark bonds with 5-year, 15-year and 30-year maturities. • Complementary financing through Treasury Bills, retail bonds and loans. ⚫ Yields at the local Treasury Bills market have been in negative territory throughout 2017-2019. • Liquidity at year end to cover the financing needs of the first 9 months of 2020. EUR bn Financing needs 2,9 Debt Redemptions 2019 Treasury Bills 0,3 Domestic Bonds 1,1 EMTNS 0,2 Loans 0,7 Prepayments 2020-2021 1,3 Fiscal needs, cash basis -0,7 Financing Sources 2,9 Treasury Bills 0,2 EMTN 2,3 Loans 0,3 Retail bond 0,1 Source: Public Debt Management Office 29 29#30Public Debt Management Strategy Cornerstones in Public Debt Management Strategy 2016-20 Target Smoothening of debt maturity profile and increase of marketable debt maturity Maintaining liquid funds for at least the next 9-month period Risk mitigation via reduced exposure to foreign currency and interest rate risks Building of international bond yield curve Progress On course: Average maturity of marketable and total debt extended On course On course: new issuance completed in EUR, fixed rate format only On course: at least one benchmark issuance per annum achieved; Yield curve extended up to 30-year tenor • Strategically, the international bonds will continue to be the main financing instrument to achieve the medium-term objectives such as the extension of international bond yield curve and increase in debt maturity. The domestic market will continue to serve as a complimentary financing source. ⚫ The current Debt Management Strategy covers the period 2016-2020 focusing on longer-term, fixed-rate, euro denominated issuances to assume low new risk into portfolio. Progress to date is evident in all targets. • Issuance of at least one benchmark bond per year and liability management transactions have contributed to the attainment of strategic targets. On course: higher Enhancement relations and of investor expansion of investor base diversification and larger orderbooks recorded in primary issuances 30 30#31-15 Jan-11 -10 Jan-12 -5 5 Restoration of investment grade status Credit rating history and current status Notches above investment grade • High levels of public and private debt 0 • Banking sector asset weakness 0, Stable Fitch Moody's Jan-13 Jan-14 Jan-15 Jan-16 Standard & Poor's Jan-17 Jan-18 Jan-19 DBRS 0, Stable 0, Stable Ratings' summary 1 Rating strengths • • High income per capita, strong institutions and governance Fiscal policy space Highly skilled labour force Concerns -2, Stable • Strong fiscal policy management • Robust and resilient growth • Progress Material reduction in the stock of NPES Government financing buffer Note: 1. Non-exclusive list, as indicated in publicly available opinions of the Credit Rating Agencies reports. Please see full reports for more detail. 31#32Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 32#33Looking Ahead Main indicators 2018 2019 f(1) 2020 f 2021 f 2022 f Real GDP (% change) 3,9% 3,6% 3,2% 3,0% 3,0% Unemployment rate 8,4% 7,0% 6,0% 5,5% 5,0% Public debt (% of GDP) 103% 96% 89% 83% 78% Fiscal Balance (% of GDP) 3,2% (2) 3,0% 2,6% 2,4% 2,2% Source: Ministry of Finance (1) "f" denotes forecasts by the Ministry of Finance as of April 2019. Forecasts are based on assumptions and there can be no assurance that any such forecasts will be realised. Forecasts are subject to revisions from time to time. (2) Excluding impact from the sale of Cyprus Cooperative Bank 33 33#34Key credit highlights Prudent fiscal policy Robust and sustainable economic growth Consolidated banking sector Improved debt risk indicators Strong institutions and legal system Upside risks in services and energy sector Government prefunding Political stability Economic resilience 34#35Contacts Public Debt Management Office Ministry of Finance, Republic of Cyprus 0035722601182 www.mof.gov.cy/pdmo Tel.: Web: E-mail: Fax.: 0035722602749 [email protected] Other sources of information Ministry of Finance www.mof.gov.cy • Ministry of Foreign Affairs www.mfa.gov.cy • Ministry of Energy, Commerce, Industry and Tourism www.mcit.gov.cy • Central Bank of Cyprus www.centralbank.cy . Cyprus Statistical Service www.mof.gov.cy/cystat Cyprus Investment Promotion Agency www.investcyprus.org.cy 35