#1Republic of Cyprus Investor Presentation October 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 Denmark Lithuania Kingdom Nether- lands Poland Belgium Germany Czech Luxembourg Rep. Slovakia France Austria, Hungary, Romania Slovenia Croatia Bulgaria Italy Portugal Spain Malta Greece Cyprus 4#5Solid 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 (2018) 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 74 65 7 78 81 76 81 10-25th percentile 75-90th percentile 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 • Growth momentum of recent years has recently slowed down from 3,9% in 2018 to 3,2% over H1- 2019, albeit remaining at above eurozone levels. The deceleration is attributed to a less favourable external environment affecting the European economy. • 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) -1,3 2014 2,0 4,8 4,5 3,9 3,2 2,9 2,7 2,7 2016 2018 2020f GDP (Index, 2000=100) 250 200 150 100 50 Actual MoF forecast 2022f 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 September 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 0,4% in the first eights months 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 6,8% in August 2019 compared to 8,3 % in August 2018. • Flexibility of labour market and strong economic activity contributing to normalization of labour conditions. • Encouraging signs of de-escalation in youth unemployment while long-term unemployment is correcting faster than total. Source: Cyprus Statistical Service, Eurostat Annual % change 4,0 3,0 2,0 1,0 0,0 -1,0 -2,0 -3,0 18 16 14 12 10 8 6 % Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Seasonally adjusted unemployment rate Jan-17 Jul-17 Jan-18 8 Jul-18 Jan-19 Jul-19 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Jan-19 Jun-19 Inflation (CPI)#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 -7,0% -10 2014 2015 2016 2017 2018 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 Tourism Shipping Financial Services IT & Telecom. Energy products Food & Beverages Vehicles Textiles & Footwear Machinery Services balance - 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) Secondary sector 14% Tertiary Sector 84% Primary sector 2% Source: Cyprus Statistical Service Professional, scientific and technical activities Real estate 9% 10% Finance and insurance 10% 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#112014 Significant international business activity Competitive advantages in business and financial services Registration of new companies, thousand Investment Firms and Fund Management 2015 14,6 13,6 13,7 11,3 11,3 2016 2017 2018 6m-2019 6,4 2012 +350% 200 2 253 AUM 1 €6,8 BN 129 Investment Firms ■Fund Management Companies 2019Q2 • 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 economy pillar • Arrivals and revenues in Jan-Aug 2019 reached similar levels as the respective period of 2018. • Arrivals in 2018 reached an all-time record of 4 million persons. Efforts including prolonged seasonality period, investment in capacity and better flight connectivity contributed to the increase in inbound tourism. • Revenues have increased at a lower rate than arrivals due to change in travel characteristics such as length of stay and forms of travel eg. all-inclusive packages. Geographical diversification over time Tourist arrivals and receipts 5000 4000 3000 2000 1000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Arrivals (thsd persons) Revenues (€ mn) Seasonal diversification over time in arrivals 600.000 +54% in high season (Q2,Q3)) +102% in shoulder months (Q1,Q4) 500.000 2008 52% 8% 11% 5% 6% 18% 400.000 300.000 200.000 2018 34% 20% 7% 5% 5% 6% 24% 100.000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec UK Russia Scandinavia Germany Greece Israel ■Others 2014 2018 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 2018) 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, 2018 1. Panama 2. Liberia 3. Marshall Islands 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. (Shell) ■ The Noble Energy / Delek Drilling/ BG Cyprus consortium is working on the development of the "Aphrodite" gas field. ■ The active exploration licenses within Cyprus EEZ are held by ENI/KOGAS/TOTAL for Blocks 2, 3 and 9, by ENI/TOTAL for Blocks 6 and 8, by TOTAL/ENI for Blocks 7 and 11, and by ExxonMobil/Qatar Petroleum for Block 10. Offshore exploration licenses of Republic of Cyprus CYPRUS 9 5 6 7 8 En EgenMob 10 11 Aphrodite 12 M HYDROCARBONS SERVICE Ministry of Energy Commerce and industry 0 0 Ene 2 3 Currently, there are four gas discoveries in Cyprus, including "Aphrodite" in Block 12, "Onesiphoros West 1" in Block 11 (technical discovery), "Calypso-1" in Block 6 under evaluation, and the "Glaucus-1" in Block 10 by ExxonMobil/QP that encountered a gas bearing reservoir with preliminary estimates of approximately 5 trillion to 8 trillion cubic feet. The "Glaucus" field is currently under appraisal. 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. • Over the past few years the fiscal position has been positive and is expected to peak in 2019 at a surplus of 3,8% of GDP. In the years 2020-22 the budget surplus is expected to fall marginally mostly due to increased expenditure associated with the gradual abolition of wage cuts, and the introduction of the national health system. In 2018 Cyprus recorded the largest fiscal surplus in the EU. • The budget is designed to achieve the medium term objective of a balanced fiscal position in structural terms. Evolution of main fiscal indicators, % of GDP 6,2 5,7 5,1 4,8 4,3 4,5 3,8 3,4 3,0 2,7 2,7 2,5 2,3 1,8 0,3 -0,3 Primary balance Fiscal balance 2015 2016 2017 2018 2019f 2020f 2021f 2022f Budget balance 2018, % of GDP 2,4 2,0 1,7 1,5 1,1 0 -0,5 -0,5 -0,6 -1,5 -2,1 -2,5 -2,5 3,4 Cyprus Luxemburg Malta Germany Netherlands Greece Ireland EA Average Portugal EU Average Italy France Spain Source: Ministry of Finance 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 September 2019. All forecasts are based on assumptions and there can be no assurance they will be realised. 16#17Strong fiscal performance continues during 2019 • During Jan-Aug 2019 the fiscal position continued to be in surplus at 3,2% of GDP compared to 2,4% of GDP of the corresponding period of the previous year. • The revenue side increased by 12% vis-à-vis the corresponding period of 2018. This improvement is attributed primarily to revenue collection due to the introduction of the national health system, as well as EU-related grants. The expenditure side increased at a rate of 9,6% vis-à- vis the corresponding period of 2018 with the increase attributed to national health system contributions and expenditure as well as increases in payments for wages and salaries. • Structurally, 2019 marked the continuation of the gradual reversal of wage cuts, the increase in social security contributions, and most importantly, the introduction of the national health system. Budget revenue breakdown, EUR million 6.976 8.278 7.671 7.087 5.874 5.246 2015 2016 2017 2018 Jan-Aug 2018 Jan-Aug2019 Indirect taxation Other Social contributions Direct taxation Budget expenditure breakdown, EUR million 7.038 7.028 7.328 7.542 4.513 4.950 2015 2016 2017 ■Capital Expenditure Interest 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. 2018 Jan-Aug 2018 Jan-Aug2019 Others Social Transfers ■Consumption 17#18Budget revenue reflects strong economic activity • Corporate tax revenue in steady increase over the past years reflecting corporate profitability and recovery of nearly all sectors of the economy. Personal income revenue has recorded increases, albeit at lower levels than corporate tax revenue, relating to the improvement in the labour market both in terms of higher employment and wage increases. • VAT collections record strong increases primarily from trade and construction sectors. • Budget revenue at 39,9% of GDP with EU average being 45% in 2018. Budget revenue, EUR million 2.545 2.074 1.789 1.691 629 677 745 803 445 459 500 555 558 400 1.648 2015 2016 2017 2018 Jan-Aug 2019 Personal Income Tax Corporate Tax VAT Budget revenue, % change y-o-y Source: Cyprus Statistical Service, Eurostat, Ministry of Finance 16 10 8 4 23 20 11 13 6 9 8 2' 3 2 2015 2016 2017 2 2018 Jan-Aug2019 Corporate Tax Personal Income Tax VAT 18#19Budget expenditure grows moderately • Expenditure growth has remained below the medium term GDP growth rate. • Wages and salaries have been increasing at contained rates, and less than the increase in nominal GDP. The year 2018 marked the start of the reversal of wage cuts imposed during the crisis with a view to restoration by 2023. • Interest payments are expected to evolve broadly stable in 2019 vis-à-vis 2018 despite the increase in the public debt recorded in 2018 owing to debt refinancing at lower interest rates. • Despite expenditure increases, budget expenditure as a share of GDP was 36% in 2018, below the EU average of 45,6%. Budget expenditure, EUR million 1.833 1.763 1.684 1.707 1.521 1.558 1.573 1.623 11931136 2015 2016 2017 2018 Jan-Aug2019 ■Social Security Payments Wages & Salaries Budget expenditure, % change y-o-y 9,9 5,8 4,0 3,3 1,4 -1,1 3,2 2,4 1,0 -2,5 2015 2016 2017 Wages & Salaries Source: Cyprus Statistical Service, Eurostat, Ministry of Finance Note: The budget outcomes of 2014-15 and 2018 exclude government contributions for the Cyprus Cooperative Bank. 2018 Jan-Aug2019 Social Security Payments 19#20Fiscal risks • Introduction of the NHS: in the first years of the system the government is expected to cover the deficits of autonomised public hospitals until a level of productivity and cost efficiency is reached so that their expenditure is covered through revenues from NHS participation. Expenditure pressure on the government budget is mitigated by the global budget of the NHS structure with frequent changes in unit prices allowed to absorb fluctuations in demand. • Judicial proceedings pending before the courts and relating to the Law on the reduction of emoluments and pensions was deemed unconstitutional by the Administrative Court in March 2019. The Government submitted an appeal before the Supreme Court. In the event of ratification of the original decision, the total net payments are estimated at EUR 0,8 bn for a period of four years. • The fiscal surplus allows buffer for absorption of potential new expenditure. • Upside risk: revenues from the state owned asset management company. 20 20#21Positive public debt dynamics • Public debt peaked over 2014-2015. 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 81% 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 declining rate remains resilient albeit at a slower pace. Evolution of gross and net general government debt, % 120 108 108 106 110 103 96 103 104 99 97 100 102 101 98 91 94 86 90 80 81 80 79 66 70 56 60 56 50 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 • The current policy followed is for liquid assets to cover gross financing needs of the following 9-month period on a rolling basis. -2 -4 -6 -8 2019f 2020f 2021f 2022f I 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 September 2019. All forecasts are based on assumptions and there can be no assurance they will be realised. 21#22Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 22 22#23A 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 Bank to Hellenic Bank; state owned AMC for residual entity 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 borrowers state, banks and 2013-2014 2015-2016 2017-2019 23 23#24Solid 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, % 15,3 16,6 16,8 16,3 17,5 15,6 15,9 14,2 14,9 15,0 2014 2015 2016 2017 2018 Core Tier 1 Additional Tier 1 Tier 2 Solvency Ratio Banking system balance sheet (% GDP), Q1-2019 Systemic Banks CET1 capital ratio, % 300 Other assets 250 Investments Interbank deposits Corporate 200 deposits 150 Loans EU average 14,7% 23,4 100 Household deposits 18,5 14,9 50 Cash 0 Assets Equity Liabilities Source: EBA, Central Bank of Cyprus, systemic banks publications. Hellenic Bank Russian Commercial Bank Bank of Cyprus Data as at Q1-2019 for BoC, HB and EU average; 2018 for RCB 24#25Sharp 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, EUR bn 30 25 20 15 10 Helix 2,7 bn Gross loans breakdown, Apr. 2019 CCB carve-out 6,9 bn 5 0 Q1-14 Q1-15 Q1-16 Q1-17 Q1-18 Q4-18 Non performing exposures and provisions Apr.19 NPES 10 bn Apr-19 60% 100% Performing not restructured 50% 80% 40% 64% Performing & restructured Provisions 53% of NPES 60% 30% ■Non-performing & 20% 40% restructured NPES 31% of Gross Loans 5% 14% Non-performing not 10% 20% 2% restructured 0% Provisions 15% 53% of NPES Terminated (Est.) Q1-14 Q1-15 Q1-16 Q1-17 Q1-18 Q4-18 Apr-19 0% Source: Central Bank of Cyprus, Ministry of Finance 25 25#26Non 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 Auction sales, no. of properties 21 been measures: has Legislation 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 became operational in September 2019. • Property prices mark a first increase albeit from a low base. Source: IMF, Ministry of Finance, Central Bank of Cyprus 2016 247 2018 Residential Property Price Index 120 110 100 90 80 70 60 50 40 Q1-2006 Q1-2007 BASIS [Q1- 2010] 100,0 Q1-2008 Q1-2009 Q1-2010 Years to foreclose (est.) 10 2 2014 2018 Q1-2011 Q1-2012 Q1-2013 Q1-2014 Q4-2018 75,7 MIN [Q2-2016] 73,2 Q1-2015 Q1-2016 Q1-2017 Q1-2018 26 26#27Comfortable liquidity position Low-cost deposit-funded banking sector • Steady deposit increases in the domestic base reflecting the stronger domestic economy whilst reduction recorded in non resident deposits due to proactive risk mitigating practices by banks. • The Liquidity Coverage Ratio more than double the EU-average while the two largest banks report comfortable Net Stable Funding Ratios. Evolution in deposits, EUR bn 5,6 7,7 7,6 5,9 4,2 3,6 6,7 6,5 6,4 6,6 6,3 6,5 4,0 3,6 3.5 3.3 3,5 4,1 29,0 28,9 30,6 32,9 33,7 34,6 Liquidity 150% 100% 50% 90 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Liquidity Coverage Ratio (RHS) Loan to Deposit ratio Source: Central Bank of Cyprus, EBA; Note: LCR data not available in Jun-19 400% 300% 2014 2015 2016 2017 2018 8m-2019 ■Residents-EUR Residents-FX Non Residents-EUR Non Residents-FX Share of cash balance and liquid assets, % of assets 5% 200% 73% 100% 6% 54% 0% 10% 11% 16% 21% Dec-14 Mar-19 Cash Debt securities ■Loans Other 27#28Loan impairments main driver of profit/loss evolution Main banks record profits in Q2-2019 • Volatile profitability due to impairments and one-off events relating to the sale of Cyprus Cooperative Bank and legislative changes to convert Deferred Tax Asset to Deferred Tax Credits. Main banks record profits in Q2-2019 as de-risking of balance sheets continues. • Interest income in decline along net interest margin. Fees and commissions form the largest component of non-interest income. Income structure, (%) Net profit, EUR mn 147 107 -473 -464 2014 2015 -214 2016 -721 2017 2018 Q1-2019 Net profit/loss main components, EUR mn 21,6 18,8 24,7 29,3 32,8 78,4 81,2 75,3 70,7 67,2 2014 2015 2016 Net interest income Source: Central Bank of Cyprus 2017 Net non-interest income 1748 1619 1400 1381 1394 10491128 951 One-off events 586605 2018 2014 2015 2016 2017 2018 Operating Profit Impairment Negative Goodwill 98 98 Q1-2019 Tax Income 28#29Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 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 New Public Debt Management Strategy 2020-2022 • Strategically, the international bonds will continue to be the main financing instrument to achieve further extension of yield curve and increase in debt maturity. The domestic market will continue to serve as a complimentary financing source. • Focusing on longer-term, fixed-rate, euro denominated issuances to assume low new risk into portfolio. • • Enhancement of the secondary market functioning. Enhancement of investor relations and expansion of investor base in order to reduce further the cost of debt. Share of international bonds in total debt stock, % 55 60 60 55 65 64 61 49 40 38 28 On course: higher 24 22 Enhancement relations and of investor 18 expansion of investor base diversification and larger orderbooks recorded in primary issuances 13 14 2013 2014 2015 2016 2017 2018 Sep-19 Foreign bonds Official loans 30 30#31Public debt overview Public debt structure, Sep. 2019 (Þ) General Government Debt General Government Debt/GDP Of which liquid assets/GDP • Short term debt €21,3 bn 99% f 6% 1% . Resident holders (estimate at issuance) 22% • Domestic currency 97% • Fixed interest rate 63% • Private sector holdings (at issuance) 57% Evolution of investor base by type Public debt by instrument, Sep. 2019 (p) ■Treasury Bills (1%) ■Domestic Bonds (17%) ■Retail Securities (3%) ■Foreign Bonds (38%) ■Official Loans (40%) ■Private Loans (1%) Evolution of investor base by geography Rest of world US 37% 38 34% 34% Cyprus 21% Other Europe 12% 14% 27% 34% 27% ■Germany/Austria/ Switz. 54% 62% 28% 28% 22% 19% ■ UK 22% 22% 14% Central Banks-Official 22% 19% 20% institutions 22% Other 19% 27% 40% 7% 40% 10% % 15% 8% 9% ■Insurance/Pension 12% Banks/Private Banks 51% 45% 60% 62% 42% 55% 55% Hedge Funds Fund Managers Jun 2014 Jul 2016 CYPGB2019 Feb2019 CYPGB2034 May2019 CYPGB2049 CYPGB2023 Source: Public Debt Management Office Jun 2014 CYPGB2019 Note: "f" denotes forecast by the Ministry of Finance as of September 2019; "p" denotes provisional figures.. Jul 2016 Feb2019 CYPGB2023 CYPGB2034 May2019 CYPGB2049 31#32Debt portfolio cost-risk indicators improving Weighted average maturity of debt, years 7,7 7,5 4,5 5,9 4,9 3,0 2,7 2012 2014 2016 Total debt 4,3 43 7,3 6,3 Cost of public debt, % 4,2 3,0 2,9 2,7 2,3 2,3 2,2 2,2 2018 Sept. 2019 2012 2014 2016 Marketable debt Interest rate distribution of debt, % 12 37 37 42 46 2018 Evolution of government liquidity buffer, EUR mn 3500 133 3000 2500 2000 11% 1500 1000 ▲ 52 ▲ 41 500 7 89% 0 Dec 2012 Dec 2014 Dec 2016 88 58 54 83 63 663 Other 2012 2014 2016 2018 ■Floating rate debt Sept. 2019 ESM-IMF loans Fixed rate debt Source: Public Debt Management Office ; 140 120 100 ▲ 85 80 do 6220 20 60 40 Dec.2018 Sep. 2019 Next 12 months debt redemptions ▲ Next 12 months debt redemptions cover ratio (rhs) From year 2018 onwards, debt redemptions refer to 9 month period 32 32#330 500 2019 1000 1500 2020 2000 Source: Public Debt Management Office 2500 2021 3000 Public debt maturity structure Active management of debt aims to smooth out maturities further Debt maturity profile Sept. 2019, EUR mn 2022 2023 2024 2025 2026 2027 2028 2029 III Treasury Bills Domestic Bonds ■Retail Bonds EMTN 2030 2031 Loans 2032 2033 2034 2035-2049 33#34Annual Funding 2019-2020 Financing needs and sources 2019 EUR bn 2020 EUR bn Financing needs 2,8 1,7 Debt Redemptions 2,3 1,6 Treasury Bills 0,2 0,2 Domestic Bonds 1,1 0,8 EMTNS 0,2 0,5 Loans 0,8 0,1 Debt prepayments 1,2 0,7 Fiscal needs, cash basis -0,7 -0,6 Financing Sources 3,2 1,7 Treasury Bills 0,2 0,3 EMTN 2,6 1,25 Loans 0,3 0,1 Retail bond 0,1 0,1 Source: Public Debt Management Office • Main financing actions for 2019 have been completed through the issuance of three international benchmark bonds with 5-year, 15-year and 30-year maturities in the first half of the year, and re-openings of the 15-year and 30-year in the last quarter. • Complementary financing through retail bonds, treasury bills and loans. The yields of 3-month Treasury Bills in negative territory since 2017. • Liquidity at year end to cover the financing needs of the first 9 months of 2020 and respectively of 2021. • Lower financing needs over 2020 due to lower debt redemptions. Majority of financing is expected to be completed within the first quarter of 2020. 34#35-10 -8 Jan-14 -6 -4 -2 0 Jan-15 2 Restoration of investment grade status Notches above Credit rating history and current status investment grade • S&P Fitch BBB- (Stab) BBB- (Pos.) • DBRS BBBL (Stab) Moody's Ba2 (Pos.) Fitch Moody's Standard & Poor's DBRS Jan-16 Jan-17 Jan-18 Jan-19 . Ratings' summary Rating strengths 1 High income per capita, strong institutions and governance Fiscal policy space Highly skilled labour force Concerns . High levels of public and private debt • Banking sector asset weakness • Capital market access for banks Progress • Material reduction in the stock of NPES • Strong fiscal policy management . Robust and resilient growth 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. 35#36Contents I. INTRODUCING CYPRUS II. STRONGER MACROECONOMY III. SOUND PUBLIC FINANCES IV. REFORMED BANKING SECTOR V. ACTIVE PUBLIC DEBT MANAGEMENT STRATEGY VI. LOOKING AHEAD 36#37Looking Ahead Main indicators 2018 2019 (1) 2020 f 2021 f 2022 f Real GDP (% change) 3,9% 3,2% 2,9% 2,7% 2,7% Unemployment rate 8,4% 7,0% 6,0% 5,5% 5,0% Public debt (% of GDP) 103% 97% 91% 86% 81% Fiscal Balance (% of GDP) 3,4% (2) 3,8% 2,7% 2,5% 2,3% Source: Ministry of Finance (1) "f" denotes forecasts by the Ministry of Finance as of September 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 37#38Key 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 38 38#39Contacts 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 39