Investor Presentaiton
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC (continued)
In response to concerns raised by the European Commission with regard to the provision of state aid arising out of the
treatment of such tax losses, the Cyprus Government has proceeded with the adoption of modifications to the Law, including
requirements for an additional annual fee over and above the 1.5% annual guarantee fee already provided for in the Law,
to maintain the conversion of such DTAs into tax credits. In May 2022 the Cyprus Parliament voted these amendments
which became effective since then. As prescribed by the amendments in the Law, the annual fee is to be determined by
the Cyprus Government on an annual basis, providing however that such fee to be charged is set at a minimum fee of 1.5%
of the annual instalment and can range up to a maximum amount of €10 mn per year, and also allowing for a higher amount
to be charged in the year the amendments are effective (i.e. in 2022).
The Group since prior years, in anticipation of modifications in the Law, acknowledged that such increased annual fee may
be required to be recorded on an annual basis until expiration of such losses in 2028. The Group estimates that such fees
could range up to c.€5 mn per year (for each tax year in scope i.e. since 2018) although the Group understands that such
fee may fluctuate annually as to be determined by the Ministry of Finance. An amount of €4.8 mn was recorded in FY2022.
B.2.2 Regulations and Directives
B.2.2.1 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for further amendments to the Capital
Requirements Regulation (CRR), CRD IV and the BRRD (the "2021 Banking Package"). Amongst other things, the 2021
Banking Package would implement certain elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package is subject to amendment in the course of the EU's legislative process; and its scope and terms may
change prior to its implementation. In addition, in the case of the proposed amendments to CRD IV and the BRRD, their
terms and effect will depend, in part, on how they are transposed in each member state. As a general matter, it is likely to
be several years until the 2021 Banking Package begins to be implemented (currently expected in 2025); and certain
measures are expected to be subject to transitional arrangements or to be phased in over time.
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states shall apply the
BRRD's provisions requiring EU credit institutions and certain investment firms to maintain a minimum requirement for own
funds and eligible liabilities (MREL), subject to the provisions of the Commission Delegated Regulation (EU) 2016/1450.
On 27 June 2019, as part of the reform package for strengthening the resilience and resolvability of European banks, the
BRRD II came into effect and was required to be transposed into national law. BRRD II was transposed and implemented
in Cyprus law in early May 2021. In addition, certain provisions on MREL have been introduced in CRR II which also came
into force on 27 June 2019 as part of the reform package and took immediate effect.
In February 2023, the Bank received notification from the Single Resolution Board (SRB) of the final decision for the binding
minimum requirement for own funds and eligible liabilities (MREL) for the Bank, determined as the preferred resolution point
of entry. As per the decision, the final MREL requirement was set at 24.35% of risk weighted assets and 5.91% of Leverage
Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31 December 2025. Furthermore, the binding interim
requirement of 1 January 2022 set at 14.94% of risk weighted assets and 5.91% of LRE must continue to be met. The own
funds used by the Bank to meet the Combined Buffer Requirement (CBR) are not eligible to meet its MREL requirements
expressed in terms of risk-weighted assets. The Bank must comply with the MREL requirement at the consolidated level,
comprising the Bank and its subsidiaries.
The MREL ratio of the Bank as at 31 December 2022, calculated according to the SRB's eligibility criteria currently in effect
and based on the Bank's internal estimate, stood at 21.42% of risk weighted assets (RWA) and at 10.13% of LRE. The
MREL ratio expressed as a percentage of risk weighted assets does not include capital used to meet the CBR amount,
which stands at 3.77% since 1 January 2022 and is expected to increase to 4.02% on 1 January 2023. Throughout this
announcement, the MREL ratios as at 31 December 2022 include unaudited/preliminary profits for FY2022.
The Bank will continue to evaluate opportunities to advance the build-up of its MREL liabilities.
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