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Report and Consolidated Financial StatementsFOR THE YEAR ENDED 31 DECEMBER 2016

COOPERATIVE CENTRAL BANK

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Report and Consolidated Financial Statements For the year ended 31 December 2016

CONTENTS PAGE

Officers and Professional Advisors 3-4

Consolidated Management Report 5-10

Corporate Governance 11-17

Independent Auditors' report 18 - 21

Consolidated statement of profit or loss 22

Consolidated statement of profit or loss and other comprehensive income 23

Consolidated statement of financial position 24 - 25

Consolidated statement of changes in equity 26 - 27

Consolidated statement of cash flows 28 - 29

Notes to the consolidated financial statements 30 - 117

The accompanying independent auditors’ report is for sole and exclusive use of the members of Cooperative Central Bank Ltd, as a body. Any redistribution made is to be 100% full, complete and unaltered in any way. Further, the independent auditors’ report is as of the date of the report and the independent auditors have carried out no procedures of any nature subsequent to that date, which in any way extends that date.


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Officers and Professional Advisors

Committee:

Christakis Taoushanis - Independent non-Executive Member (as of 29 July 2016 until 09 August 2016) - Independent non-Executive Chairman (as of 10 August 2016)

Lambros Pieri- Independent non-Executive Member (until 09 August 2016) - Independent non-Executive Vice Chairman (as of 10 August 2016)

Panikos Pouros - Independent non-Executive Member- Senior Independent Officer

George Kittos Independent Non-Executive Member

Charalambos Christodoulides- Independent non-Executive Vice Chairman – Acting Chairman (until 09 August 2016) - Independent non-Executive Member (as of 10 August 2016)

George Hadjinicolas - Non-Independent non-Executive Member (until 09 June 2016) - Independent non-Executive Member (as of 10 June 2016)

Susana Poyiadjis Independent non-Executive Member (as of 19 July 2016 until 11 April 2017)

Kypros Ellinas - Non-Independent non-Executive Member (as of 19 July 2016)

Adonis Pegasiou - Non-Independent non-Executive Member (as of 29 July 2016)

Nicholas Hadjiyiannis - Executive Member

Stavros Iacovou - Executive Member

Chief Executive Officer:

Nicholas Hadjiyiannis

Senior Management:

Stavros Iacovou - Senior Manager, Operations and Administrative Services Division

Varnavas Kourounas - Senior Manager, NPL Management Senior Division

Marios Papadopoulos - Senior Manager, Market Operations Senior Division

Lambros Papalambrianou - Chief Financial Officer

Charalambos Frantzeskos - Senior Manager , Technology Senior Division

Georgia Danou - Legal Services Division Manager

Efthimios Pantazis - Credit Sanctioning Division Manager

Charalambos Pantziaros - Company Secretary and Corporate Governance Division Manager

Yiannos Stavrinides - Strategy and Transformation Division Manager

Maria Agathocleous - Chief Risk Officer

Maria Aristidou - Chief Compliance Officer

Maria Ioannou - Chief Internal Audit Officer

Christos Koutsioupis - Head of Information Security Unit


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Independent Auditors:

KPMG Limited Certified Public Accountants and Registered Auditors 14 Esperidon Street 1087 Nicosia Cyprus

Legal Advisors:

Tassos Papadopoulos & Associates LLC Christos M. Triantafillides George Z. Georgiou & Associate LLC (until 29 March 2017)

Registered office:

8 Gregori Afxentiou Street 1096 Nicosia P.O. 24537 1389 Nicosia, Cyprus


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Consolidated Management Report

The Committee of Cooperative Central Bank Ltd (the “Bank” or “CCB”), submits to the members for approval its Annual Report together with the audited consolidated financial statements of CCB Ltd, that include the Cooperative Credit Institutions (“CCIs”) and the Companies of Trading Sector which are controlled (the “Group”) for the year ended 31 December 2016.

Incorporation

The Bank was founded in Cyprus in 1937 (registration number 88) as a Cooperative Limited Liability Company, in accordance with Article 11 of the Cooperative Companies Law of 1923 and 1937.

Principal activities

CCB is the main shareholder of the 18 CCIs while it exercises control over companies with trading activities. The principal activities of the Group, which have not changed from the previous year, are the provision of banking and financial

services and the carrying out of trading activities. All activities are carried out in Cyprus.

Review of developments regarding the position and the results of the Group

During 2016, the Cypriot economy continued growing for the second consecutive year after the recession. Most sectors of the economy are improving, high levels of unemployment are gradually declining while property market conditions are improving. Although these factors have a positive effect on the Group’s activities, the challenges continue to be particularly pronounced, exercising pressure on the financial results.

More specifically the main challenges are:

• The level of non-performing loans remains at high levels, which places pressure on interest income and the cost of credit risk.

• Increased corporate and household borrowing maintains debt deleveraging trends and hinders the healthy growth of lending and the decline in the non-performing loans ratio.

• There is continuous pressure on the net interest margin maintaining high market competitiveness, while the low-interest rate policy of the European Central Bank (ECB) leads to low returns on cash and intensifies competition further.

• The development of the regulatory and supervisory framework, which results in improving the stability of the banking system, absorbs significant resources and requires increased funds.

• Developments in technology offer significant opportunities and at the same time challenges to traditional banking activities.

In 2016, net interest income declined by 11,7% to €279,8 million compared to 2015, when the proceeds amounted to €317,0 million, while the net interest margin fell from 2,38% in 2015 to 2,09% in 2016. The decrease in net income and net interest margin is mainly attributable to the decrease in interest receivable from loans and other advances, mainly due to a decrease in the recoverable amount of loans on which interest is recognized as a result of the increased provisions. The decrease was offset by reduced interest payable, resulting from reduced deposits and decreased deposit costs. It is noted that the Group operates with a high liquidity ratio, which adds to the net interest income due to the low returns on liquid assets.

Total net income decreased by 6,0% to €326,0 million compared to €346,8 million in 2015, even though the Group benefited from profits arising on the sale of financial assets available for sale more specifically from securities held in the Republic of Cyprus and its participation interest in VISA Europe, due to the reduction noted in interest income.

Total expenses amounted to €181,3 million compared to €177,2 million due to the implementation of a second exit plan during the last three years, resulting in operating profit before provisions for impairment of €144,7 million, which was decreased by 14,7% compared to €169,6 million in 2015.

After provisions for impairment of loans of €116,5 million, the Group reported a profit before tax of €28,2 million in 2016 compared to a loss before tax of €210,8 million in 2015. The increase in profit before tax is mainly due to the reduced provisions for impairment of loans and other advances for 2016 amounting to € 116,5 million compared to provisions of €380,5 million in 2015, being the year when the Group adopted more conservative assumptions following recommendations from the supervisory authorities.


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Review of developments regarding the position and the results of the Group (continued)

Following the increased tax burden recognized based on the tax liabilities assessment and the level of deferred tax, the net profit for the year amounts to € 7,1 million against a loss of €176,5 million in 2015.

Deposits and other customer accounts at 31 December 2016 amount to €12.568,0 million, resulting in an annual decrease of €176,2 million or 1,4%. The Group’s liquidity ratio in euro as at 31 December 2016 amounted to 34,2%, compared to 29,6% at 31 December 2015.

Loans and other advances to customers net of provisions for impairment as at 31 December 2016 amounted to €8.761,6 million, recording an annual decrease of €495,8 million or 5,4%, due to receipts and repayments being higher than new loans. The net loans to deposit ratio as at 31 December 2016 amounted to 69,7% compared to 72,6% as at 31 December 2015.

The Non Performing Loans Management Senior Division (NPLMSD) has as its main priority the improvement of loan portfolio through the reduction of non-performing loans. Total restructurings for 2016 reached € 1.256,7 million compared to €1.035 million in 2015.

Non-Performing Loans (NPLs) decreased by €346,8 million during 2016 (2015: €7.563,5 million) reaching €7.216,8 million as at 31 December 2016. The Non-Performing Loans Provision Coverage Ratio amounted to 45,3% as at 31 December 2016 compared to 45,6% in the previous year.1

For the year 2016, loans past due for more than 90 days decreased by €794,6 million compared to a decrease of €99 million in the corresponding period of 2015. At 31 December 2016, loans past due for more than 90 days were €5.698,9 million (47,31% of total loans) compared to €6.493,5 million at 31 December 2015 (51,05% of total loans). The coverage ratio of loans past due for more than 90 days increased to 57,4% at 31 December 2016 compared to 53,1% at 31 December 2015.

Total equity of the Group on 31 December 2016 amounted to €1.225,5 million and the capital ratio to 15,42%.

As per the provisions of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, in 2016 the Group has identified an error in the recognition of interest income and the valuation of loans which has an impact on the presentation of prior years’ financial statements. The error was mainly due to misinterpretation and inadequate implementation of the applicable laws, which provide for the responsibilities of the lender in relation to the contractual obligations arising from loan contracts, where the base interest rate is linked to the base rate of the ECB or the Euribor. The loan contracts were substantially issued in the period from 2007 to 2011, before and after the accession of Cyprus to the Eurozone and the adoption of the Euro as from 1/1/2008. Due to the significant deviation of the cost of deposits in Cyprus from the aforementioned reference interest rates, a number of CCIs either unilaterally changed the reference interest rate stated in the loan contracts due to misinterpretation of the contractual clauses, or did not follow as they ought to have done the reduction in the reference interest rates of the loan contracts, or they increased the interest rate margin without previously satisfying the requirements set out in the applicable laws. It should be noted that in a number of cases, the borrowers were notified of the change either through an announcement in the daily newspapers or by personal notification letters or other forms of communication. The Committee of CCB, on the basis of recent legal opinions that were received in 2017, following a relevant decision of the Financial Ombudsman, has adopted the view that the abovementioned practices are not compatible with a reasonable legal interpretation of the relevant terms of the loan contracts and applicable legislation and it has decided that, based on an assessment of the circumstances and legal merits of each case, to reimburse interest overcharges to those customers that were affected from the error. The decision affects non-settled loans and loans that have been settled after 2011. The decision does not affect cases that have been decided in Court or by an Arbitrator and which will continue to be handled in the course of handling non-performing loans and advances.

The error identified has been corrected by restating the comparative amounts affected in the prior periods, resulting in a decrease in equity as at 31 December 2015 by €64,6 million. More information is disclosed in note 49. 1 Excluding the conventional interest on impaired loans amounting to €366 million for 2016, NPLs amounted to €6.851 million, while the NPL

ratio and the coverage ratio amounted to 58,66% and 42,42%, respectively.


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Strategic Objectives and Prospects

The Organization continues with the implementation of its strategic goals with the same efficiency and success, aiming for its restructuring into a viable, vital, dynamic organization. Its role for the country’s banking system remains critical, contributing to its diversity and enhancing its overall financial stability.

Key objective remains the restoration of the Organization’s robustness and the creation of value to its shareholders, customers and members.

The main strategic objectives of the Organization are:

1. Access to the capital markets through the listing on the Cyprus Stock Exchange

2. Strengthening of profitability through revenue growth

3. Improving the financial and operational efficiency of the Organization

4. Increasing financial position quality through the reduction of non-performing loans

Following a period of recession, 2016 has proved to be a key year for the economy of Cyprus as the exit from the support program was achieved in the best way possible, regaining; the reliability, trustworthiness and creditworthiness of the country. The most significant development being that Cyprus has returned to economic growth with an estimated growth rate for 2016 and 2017 approaching 3% of GDP. Cyprus has evolved into a strong economy with a new outlook, backed by strong performance from all productive sectors of the economy, such as the tourism industry, shipping industry, financial and business services as well as the construction and real estate sector.

The country’s sustainable recovery is expected to improve the Organization’s financial performance and assist in accelerating the pace for improving the NPL levels, being one of the Organization’s top priorities. The effort that has been undertaken since 2015 aiming to implement viable loan restructurings has commenced to generate results and it is expected to result in a gradual overhaul for the financial position of performing and non-performing loans. The enhanced effort resulted in material restructurings for the year 2016 amounting to €1,26 billion, an increase of 21% over 2015. Overall the achievements of 2016 include (a) the decrease of past due loans for more than 90 days by €794,6 million, corresponding to a decrease of 12,2% compared to last year and (b) the decrease of non-performing loans by €347 million or decrease by 4,6% compared to last year. As a result, the ratio of past due loans for more than 90 days as a percentage to the total loans, resulted in a historically low 47,31% rate following the 2013 crisis.

At the same time, customer trust towards the Organization is maintained at a high level with total liquidity exceeding €4 billion at the end of 2016. Moreover, in 2016, new lending has doubled to €227 million, although an enhanced effort will be needed to keep up in 2017. Lastly, it is very important to note that 2016 has a significantly increased capital adequacy ratio of 15,42%, a ratio substantially higher than the supervisory requirements.

An important and positive development for the Organization is the adoption of a resolution that provides for the legal merger of the 18 CCIs with CCB. The legal merger creates a solid and powerful foundation for the Organization to move forward in a decisively and burden free direction, free from the demanding obligations and distortions that were inevitably formed during the year 2013. The Organization is currently viewing significant positive results and broad recognition for its effort, through reports and assessments of external institutions and the position of its two shareholders who acknowledge the progress that has been achieved.

Following today’s decision, the Organization adopts an optimal structure in line with practices adopted by other contemporary European Cooperative Institutions. It unifies the functionality of the Organization and promotes transparency and parity between its staff. This will result in an improved service towards its customers/members and at the same time will serve its targets and mission. The legal merger constitutes a normal development of what has been achieved so far in relation to the operational functionality of the merger and the simultaneous transfer of personnel and non-financial assets from the CCIS to CCB.

The year 2017 will undoubtedly formulate another milestone in the history of the Cooperative Movement of our country, as the Organization will attempt to complete the listing of the Organization in the Cyprus Stock Exchange (CSE). The Organization aims to achieve a responsible ecosystem in the banking industry, with three main aspects being shareholder - member - customer. The main aspects are inherent in the very existence of the Co-operation, establishing its diversity through its Cyprus history and philosophy.

At the same time, it aims to fully develop the strategic partnership with Universal Life, to complete the legal integration and thus improve customer service levels, to technologically prepare the Organization to address the forthcoming digital challenges and to further improve the non-performing loans management with even more radical and effective solutions.


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Listing of the Cooperative Central Bank’s shares on the Main Market of the Cyprus Stock Exchange

In accordance with the 2015 Restructuring Plan as adopted by the European Commission (“EC”) on 18 December 2015 and the List of Commitments agreed between the CCB and the Republic of Cyprus on 9 December 2015 in relation to the recapitalization of the CCB, CCB should have taken by 31 December 2016 all necessary steps to secure the necessary approvals so as to allow the possible listing of its shares on the CSE no later than 30 September 2018.

The Cyprus Securities and Exchange Commission has approved on 22 December 2016 the Prospectus of CCB in relation to the application for admission of 6.036.120.911 ordinary shares of nominal value € 0,28 each in the CSE. This Prospectus was not an invitation to the public to invest in the share capital of the Bank.

The Republic of Cyprus, which owns 77,346% directly and 21,875% indirectly through the Independent Recapitalization Fund of the issued share capital of CCB, informed CCB to immediately proceed with the necessary actions for the listing of the shares of the CCB on the Main Market on the CSE within 2017.

Restructuring Plan and Strengthening of the capital base of Cooperative Credit Sector

The CCB submitted a Restructuring Plan for the Cooperative Credit Sector (“CCS”) that was approved on 24 February 2014 by the EC. As a result of the approval of the Restructuring Plan for the CCS, on 28 February 2014 the European Stability Mechanism signed an agreement (Subscription Agreement) between the Ministry of Finance and the Bank for the disbursement of €1,5 billion for the recapitalization of the CCS and the transfer of 99% of the CCS shares to the Government.

On December 2015, CCB submitted an amended Restructuring Plan with the purpose of meeting the supervisory capital requirements as assessed by the Single Supervising Mechanism of the ECB.

On 17 December 2015 the Ministry of Finance issued a Decree implementing the decision of the Council of Ministers on the 14th of December 2015, regarding the recapitalization of CCB through the increase of €175 million of share capital.

On 18 December 2015, the EC approved the new Restructuring Plan and the additional state aid of €175 million in favor of CCB and the affiliated CCIs, that was implemented prior to the end of 2015, in accordance with the EC rules for state aid. The capital injection was covered entirely from the increase of equity by €175 million and the total coverage of the increase was made by the independent Recapitalization Fund, in exchange for a shareholding in the ownership structure of CCB. The Recapitalization Fund was set up as per article 3 of the Enactment and Operation of the Independent Recapitalization Fund Law of 2015.

The additional State aid is accompanied by a series of additional restructuring measures, which will be gradually implemented throughout the restructuring period. The provisions of the restructuring plan are presented in note 3.11 of the consolidated financial statements.

In December 2016, the Management Board of CCB decided to recommend the legal merger of the CCIs with CCB as part of implementation of the strategy for restructuring of the CCS. The decision on the legal merger of the CCIs with CCB was approved by the General Meeting of the shareholders on 30 December 2016. The merger is anticipated to increase the value of the Organization and to strengthen its efforts to form a modern corporate governance framework, that will enable it to become more transparent, competitive and attractive to potential investors, in view of its forthcoming admission to the regulated market of the CSE, through which it will be possible to restore the CCS to an enlarged and domestic ownership basis.

Dividends

The Committee does not recommend the payment of a dividend.

In accordance with the provisions of the Decrees issued by the Minister of Finance for the recapitalization of CCB/Central Body as well as the List of Commitments signed between the Republic of Cyprus and the Bank during the announcement of the Restructuring Plan to the EC, the Bank is not allowed to pay any dividends for the financial years until 2016.

Future developments

As stated in notes 1.2, 3.11 - 3.17, the Group’s Committee, despite the difficult conditions that exist in the financial sector, assures its members that it will continue its efforts towards a smooth operation of both the Bank and the CCIs. Particular emphasis is given to strict compliance to the amended Restructuring Plan with the aim of retaining and strengthening the capital adequacy ratios, ensuring a healthy liquidity position and an effective management of credit risk.


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Furthermore, and as disclosed in note 4 to the consolidated financial statements, the Group intends to adopt the new International Financial Reporting Standard (IFRS9), which is effective for annual periods beginning on 1 January 2018. At this stage, the Group is in the process of preparing for the implementation of IFRS 9 by focusing on developing methodologies for calculating the impairment of loans based on expected credit losses and by assessing the impact of the standard on its consolidated financial statements. As the impairment model required to be implemented by IFRS 9 is based on expected credit losses, this may lead to an increase in the Group’s credit risk provisions and may therefore affect capital adequacy requirements. However, the assessment of the impact of IFRS 9 cannot be fully assessed at this stage. It is also expected that the supervisory authorities will determine how the impact on capital adequacy requirement will be handled.

Main risks, uncertainties and risk management

The most important risks faced by the CCB and CCIs are credit risk, market risk, liquidity risk, capital management risk, counterparty risk and operational risk. The Group has established a risk management framework, in which the reliable measurement of financial risks holds the prime position. The steps taken to manage these risks are examined in more

detail in note 44 of the consolidated financial statements.

Share capital

On 29 January 2014, a decree by the Minister of Finance was published in the Cyprus Government Gazette according to which after the recapitalization of the CCS, the participation percentage and voting rights of the Republic of Cyprus in the ownership structure of CCB is 99% and of the existing shareholders of CCB is one percent (1%). For this purpose, the Cooperative Holding Company of CCB was incorporated in accordance with article 12E of the Cooperative Companies Law, to which all existing shareholders of CCB are transferred, with a participation to its capital proportionate to the participation each shareholder had in the share capital of CCB.

On 28 February 2014 the General Meeting of the members of the Bank approved the reduction in the nominal value per share from €8,54 to €1,28 as well as the increase in the number of shares of the authorized share capital to 1.562.500.000.

On 10 March 2014 the Bank issued 1.171.875.000 shares at €1,28 each to the Republic of Cyprus, for the purpose of the recapitalization of the CCS.

On 6 May 2016, a decree by the Minister of Finance was published in the Cyprus Government Gazette according to which the nominal value of the share was reduced from €1,28 to €1,1155 and 331.431.360 shares of nominal value €1,1155 were issued to the Recapitalization Fund and the Cooperative Holding Companies of the CCIs. Following the above issue, the participating interest of the Republic of Cyprus in the ownership structure of CCB amounts approximately to 77% and the interest of the Recapitalization Fund approximately amounts to 22%.

Subsequently, according to the Decree, the nominal value of each share was divided to €0,28 by issuing to the existing shareholders approximately four shares of nominal value of €0,28 for every one share held of nominal value €1,1155.

Committee

The members of the Committee during the year and as at the date of this report are shown on page 3.

On 19 July 2016, following the approval of the Supervisory Mechanism, the Committee unanimously approved the appointment of Mrs. Susana Poyiadjis as a non-executive independent member and Mr. Kypros Ellinas as non-executive member. On 29 July 2016, following the approval of the Supervisory Mechanism, the Committee unanimously approved the appointment of Mr. Christakis Taoushanis as a non-executive independent member and Mr. Adonis Pegasiou as non-executive member.

On 10 August 2016, the Committee met in plenary session of its non-executive members to resolve for the establishment of the Committee as a Body and it was decided that Mr. Christakis Taoushanis would be the Chairman of the Committee and Mr. Lambros Pieri the Vice Chairman of the Committee.

Mrs. Susana Poyiadjis submitted her resignation from being member of the Committee, with effect from 11 April 2017.

All the members of the Committee maintain their office in view of the continuing enforcement of Restructuring of Cooperative Central Bank/ Central Body (CCB/CB), Decrees of 2013 to 2016.


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Environmental and labor issues

Within the framework of the legal merger and the transfer of all personnel under CCB, negotiations will be conducted with the Trade Unions as to conclude on a single collective agreement and the homogeneity of the benefits and salaries of personnel. At this stage, the benefits provided to the personnel are differentiated between the CCIs due to the existence of different collective agreements between Trade Unions and the various CCIs and the CCB. The majority of the collective agreements have expired.

It is noted that under the Restructuring Plan that was approved on 24 February 2014, a Voluntary Retirement Plan (“VRS”) was established in 2014, which was accepted by 232 people from the Credit Sector and 65 from the Commercial Sector (297 individuals in total). The total cost of the VRS amounted to €23,5 million.

On 16 August 2016, the Group established the second Phase of the VRS, which was terminated on 15 September 2016. The VRS was accepted by 58 people from the Credit Sector and 20 people from the Commercial Sector (78 individuals in total).

In 2016, a performance appraisal system for all personnel has been introduced throughout the CCS, based on best practices and the Organization’s strategy. Personnel training is currently established on a single and structured basis, through the Coop Academy, while a unified culture among personnel is being developed. Additionally, a single Disciplinary Code has been introduced.

At the same time, the creation of an environmental culture is adopted on all the activities of the CCS and the action plans are constructed so as to manage energy consumption on all buildings and branches, as well as to design energy consumed products. With regards to the first action, relevant studies have been completed, according to which all light bulbs need to be replaced with LED bulbs an action that is expected to reduce energy consumption to a great extent.

The development of energy products in line with the best practices adopted by European countries, has commenced in 2016 and is being enhanced on a continuous basis through the provision of incentives to the Group’s customers, using simple procedures and competitive terms, for implementing energy upgrades on private and corporate buildings. Furthermore, in 2016, with the cooperation of the Municipality of Aradippou, the program “Smart Town Aradippou”, whose purpose was the installation of photovoltaic system, was tested for implementation.

Branches

During the year ended on 31 December 2016, the Group did not operate any legal branches.

Events after the reporting period

Events after the reporting period that ended 31 December 2016 until the date of approval of the consolidated financial

statements are mentioned in note 48 of the consolidated financial statements.

Related party transactions

Related party transactions are disclosed in note 42 of the consolidated financial statements.

Independent Auditors

The independent auditors of the Bank, KPMG Limited, have expressed their willingness to continue in office.

By order of the Committee,

Chairman

Nicosia, 29 May 2017


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Corporate Governance

1 Introduction

The Committee aims to ensure that the Bank acts as a modern, transparent and competitive organization applying the optimal corporate governance practices. Corporate Governance Code (“the Code“) is defined as the system of principles, procedures and processes according to which an organization is governed and controlled and through its implementation it achieves dynamic and efficient communication between the Committee, the Management and the shareholders.

The framework of Corporate Governance determines the tasks and responsibilities of the Committee and its Committees, the Executive Committee and the other Committees of the Bank, the way Controls Functions operate as well as the cooperation and the reporting on various levels.

The corporate governance framework promotes the fair treatment of all shareholders, including minority shareholders,

as well as:

• full and appropriate segregation of responsibilities and authority,

• full transparency,

• accountability,

• continued development.

The Bank fully complies with the Directive of the Central Bank of Cyprus (“CBC”) “Directive on Governance and Management Arrangements of 2014” and with all the provisions of the supervisory directives and regulations. The Bank has adopted the Corporate Governance Code and applies all its principles. The Code, the Operation Regulation

and the practices applied contribute to maximizing shareholder value.

2 Approval Authority

The Committee of the Bank approves the Corporate Governance framework and is also responsible for its review.

3 Committee

During the enforcement of the Decree “Recapitalization of Cooperative Central Bank of Cyprus/Central Body (CCB/CB) (Amended) Decree of 2015, the members of the Committee are recommended and appointed in accordance to the Provisions of the aforementioned Decree by the Minister of Finance (RFA - Relationship Framework Agreement), as well as the Cooperative Companies Laws and Institutions and the “Directive on Governance and Management Arrangements in Credit Institutions of 2014” of the CBC.

The members of the Committee are approved by the Special General Meeting of the shareholders.

3.1 Composition of Committee

The Committee consists of people with a variety of knowledge and abilities and are sufficiently diversified as far as age, gender, educational/professional background and geographical origin to capture a sufficient wide range of experiences and skills.

The Committee in full composition is constituted by 11 members. The members of the Committee are distinguished in executive and non-executive members.

• Nine (9) non-executive members, out of which seven (7) are independent non-executive and two (2) not independent non-executive.

• Two (2) executive members, which are appointed by the majority of non-executive members of the Committee of the Bank. One of the executive members is the Chief Executive Officer (“CEO”) of the Bank.

The independent non-executive members of the Committee must comply with the Fit and Proper criteria that are in line with the “Directive on the Assessment of the Fitness and Probity of Members of the Management Body and Managers of Authorized Credit Institutions of 2014”, Directive of CCB.

All the members of the Committee upon their appointment have been supplied with information which includes among others the Operation Regulation, the main legislation, directives, policies and regulation as well as the Special Regulations of the Bank.


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Corporate Governance (continued)

3 Committee (continued)

3.1 Composition of Committee (continued)

Committee as at 1 January 2016:

Charalambos Christodoulides Vice-Chairman, Acting Chairman

Panicos Pouros Senior Independent Officer


Lambros Pieri Independent Non-Executive Member

Georgios Hadjinicolas Non-Independent Non-Executive Member

Nicholas Hadjiyiannis Executive member

Stavros Iacovou Executive Member

Committee as at the date of this Report:

Christakis Taoushanis Chairman

Lambros Pieri Vice - Chairman

Panicos Pouros Senior Independent Officer

Charalambos Christodoulides Independent Non-Executive Member


Georgios Hadjinicolas Independent Non-Executive Member

Adonis Pegasiou Non-Independent Non-Executive Member

Kypros Ellinas Non-Independent Non-Executive Member

Nicholas Hadjiyiannis Executive Member

Stavros Iacovou Executive Member

3.2 Segregation of Powers

The Corporate Governance framework aims to segregate the duties and the responsibilities between the Committee and the Executive Management.

There exists a clear and discreet segregation of duties between the Chairman of the Committee and the CEO.

The clear segregation of responsibilities and powers, ensures that all the decisions take into consideration the best interests of the Bank.

3.3 The role of the Committee

The Committee has as its primary objective the provision of strategic direction to the organization and the assurance that its obligations towards its shareholders and other partners are fulfilled.

In addition, the Committee is responsible for the constant pursuit of maximizing its long-term economic value and defending in general the interest of the CCS.

The responsibilities and powers of the Committee are determined in the Operation Regulation, the Corporate Governance Code of the organization and the relevant laws and directives of the Supervisory bodies.

All the members of the Bank’s Committee have been approved in accordance with CBC’s “Directive on the Assessment of the Fitness and Probity of Members of the Management Body and Managers of Authorized Credit Institutions of 2014”.


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3.4 Independence

The Operation Regulation of the Committee provides that at least 50 per cent (50%) of the Committee’s members rounded down plus one (1) member are independent.

The Committee’s composition with seven (7) non-executive members out of a total of eleven (11) members fulfills the demands of the Regulation.

The Committee, as at the date of this Report, considers the below members as independent:

• Christakis Taoushanis

• Lambros Pieri

• Panicos Pouros

• Charalambos Christodoulides

• George Kittos

• Georgios Hadjinicolas

3.5 Conflict of Interest

The members of the Committee are required to act with integrity and to the interest of the Bank, not to be in conflict with the Bank and to avoid any activity that creates or will create conflict between their personal or professional interests and that of the Bank.

The members of the Committee shall contribute their experience and dedicate the time required to execute their duties and take decisions.

3.6 Chairman

The Chairman presides over the Committee and is responsible for determining the daily agenda, for ensuring the appropriate planning of the meetings of the Committee, as well as the effective conduct of those meetings.

The Chairman is also responsible for ensuring that the members of the Committee receive correct and timely information and for the effective communication with all the shareholders.

3.7 Senior Independent Officer

The independent member of the Committee Mr. Panicos Pouros was appointed as Senior Independent Officer.

The Senior Independent Officer acts as the point of contact for shareholders and other stakeholders in relation to concerns that cannot be solved or that are not appropriate to resolve through ordinary communication channels. It also ensures that the Committee has a balanced understanding of the major issues and concerns of the shareholders.

Mr. Pouros has chaired three (3) Non-Executive member meetings during 2016.

3.8 Committee Meetings

The Committee meets on a regular basis to get informed and examine issues that fall within its remit and are set out in its annual program.

During 2016, thirty-nine (39) meetings were carried out.

As a rule, it is ensured that all members of the Committee receive the necessary information on each meeting, which is provided in a timely manner so as to give them the right time for study, understanding and preparation.

Participation of members in the Board of Directors of other companies is disclosed in their resume but also in their individual capacity and suitability questionnaire, which is submitted to the supervisory authorities. Members of the Committee commit themselves to the fact that their participation in other Boards of Directors is not an obstacle to devoting the necessary time to their duties as members of the Committee of the Bank.


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3.9 Annual Emoluments

The annual emolument for the members of the Committee is determined by the disclosures made in the letter sent by the Ministry of Finance dated 3 May 2016, which is as follows:

• Chairman of the Bank’s Committee - €75.000 irrespective of the number of committees involved

• Vice President of the Bank’s Committee - €55.000 irrespective of the number of committees involved

• Basic Remuneration of Non-Executive Members of the Bank’s Committee - €25.000

• Senior Independent Officer- €5.000

• Chairmen of Audit and Risk Committees - €10.000

• Chairmen of Remuneration and Appointment Committees - €5.000

• Members of Audit and Risk Committees - €7.000

• Members of NPL & Strategy Committees - €5.000

• Members of Remuneration and Nomination Committees - €3.000

3.10 Committees

The Committee establishes permanent or temporary (ad hoc) Committees to assist with its work. The Committee has assigned specific responsibilities to six (6) Committees in accordance with the relevant provisions of the Code and the relevant directives.

The Committee has decided to assign a wider range of matters to its Committees.

The link between the Committees and the Committee is necessary in order to facilitate the functioning of the Committee by providing advice and by preparing and reporting on the scope of their activities.

The following are the Committees of the Bank:

1. Audit Committee,

2. Risk Committee,

3. Remuneration Committee,

4. Nomination Committee,

5. Non Performing Loans Committee,

6. Strategy Planning and Transformation Committee.

All of the Committees have been established and are operating in accordance to the provisions of the relevant Directive of the Central Bank of Cyprus ‘Directive on Governance and Management Arrangements of 2014’ and the requirements of the Revised Restructuring Plan. The responsibilities of each committee are described in detail in their Operational Regulations.

Audit Committee

The main responsibilities of the Audit Committee are:

• The supervision of adequacy and effectiveness of the internal audit function and especially the operations of the Internal Audit and Compliance Units

• Monitoring the integrity of the financial statements,

• The monitoring of the effectiveness of internal control procedures,

• The monitoring and review of the Bank’s accounting policies and practices,

• The submission of proposals to the Committee on the appointment of independent auditors.


15



3.10 Committees (continued)

Audit Committee (continued)

As at 31st December 2016 the composition of the Audit Committee was as follows:

George Kittos Chairman

Lambros Pieri Member

Susana Poyiadji Member (from 26/07/2016 to 11/04/2017)

Adonis Pegasiou Member (from 10/08/2016)

Charalambos Christodoulides Member (from 12/04/2017)

During 2016, the Audit Committee held 33 meetings.

The Internal Audit Unit and the Compliance Unit report directly to the Bank’s Committee through the Audit Committee. Both Units, in terms of executive matters, have a reference line to the CEO.

The objectivity and independence of the Organization’s external auditors is ensured by the Audit Committee through monitoring the balance between audit and non-audit services.

The external auditors have attested the Bank in writing for their independence and objectivity.

Risk Committee

The main responsibilities of the Risk Committee are:

• Formulating and monitoring the strategy for taking risks of all types, within the broad strategy and policies of the Group,

• The development of an internal system for managing risks,

• The determination of principles governing risk management,

• The annual assessment of the adequacy and effectiveness of policies for managing risks and the suitability of limits, the adequacy of provisions and the adequacy of equity as a whole, in relation to the importance and the type of the assumed risks.

As at 31st December 2016 the composition of the Risk Committee was as follows:

Georgios Hadjinicolas Chairman

Charalambos Christodoulides Member (until 12/04/2017)

Panicos Pouros Member

Kypros Ellinas Member (from 29/07/2016)

Christakis Taoushanis Member (from 12/4/2017)

During 2016, the Risk Committee held fourteen (14) meetings.

The Risk Management Unit and the Information Security Unit report directly to the Bank’s Committee through the Risk Committee. Both Units, in terms of executive matters, have a reference line to the CEO.


16

Remuneration Committee

The main responsibilities of the Remuneration Committee are:

• the determination of guidelines in relation to the remuneration and benefits of the Executive Management,

• the formulation and monitoring of the Remuneration Policy.

As at 31st December 2016 the composition of the Remuneration Committee was as follows:

Charalambos Christodoulides Chairman (from 10/08/2016)

Christakis Taoushanis Member (from 10/08/2016 to 12/04/2017)

Kypros Ellinas Member (from 19/07/2016 to 12/04/2017)

George Kittos Member


Lambros Pieri Member (from 12/04/2017)

During 2016, the Remuneration Committee held six (6) meetings.

Nomination Committee

The main responsibilities of the Nomination Committee are:

• The determination of policies on the selection procedure and the appointment and succession of the members of the Committee of the Bank and of the CCIs

• The education on a continuous basis of the Board Members of the Bank and the CCIs,

• The assessment of the effectiveness of the Committee of the Bank, of the Committees of the Bank and of the Committees of the CCIs.

As at 31st December 2016 the composition of the Nomination Committee was as follows:

Susana Poyiadjis Chairman (from 19/07/2016 to 11/04/2017)

Kypros Ellinas Chairman (from 12/04/2017)


Georgios Hadjinicolas Member

Christakis Taoushanis Member (from 10/08/2016)

During 2016, the Nomination Committee held seven (7) meetings.

Non-Performing Loan Committee

The main responsibilities of the Non-Performing Loan Committee are:

• The review of the strategy on non-performing loans and the submission of documented proposals to the Committee for the improvement of non-performing loans,

• The supervision and implementation of the strategy on non-performing loans and all past due advancements,

• The examination of restructurings and write offs, that are within the authorization limits of the Committee and their submission to the Committee for approval.


17

As at 31st December 2016 the composition of the Non-Performing Loan Committee was as follows:

Lambros Pieri Chairman (from 10/08/2016)

George Kittos Member

Georgios Hadjinicolas Member

Kypros Ellinas Member (from 19/07/2016)

Nicolas Hadjiyiannis Member

During 2016, the Non-Performing Loan Committee held twenty-two (22) meetings.

Strategy Planning and Transformation Committee

The main responsibilities of the Strategy Planning and Transformation Committee are:

• The design of a strategic framework for CCS

• Supervising the implementation of its strategic targets, as set by the CCB Committee,

• Monitoring the implementation of the revised Restructuring Plan and compliance with the list of commitments.

As at 31st December 2016 the composition of the Strategy Planning and Transformation Committee was as follows:

Christakis Taoushanis Chairman (from 10/08/2016)

Susana Poyiadjis Member (from 19/07/2016 to 11/04/2017)


Charalambos Christodoulides Member (from 10/08/2016)


Nicholas Hadjiyiannis Member

During 2016, the Strategy Planning and Transformation Committee held nine (9) meetings.

18

Independent Auditor’s Report

to the Members of Cooperative Central Bank Ltd

Report on the consolidated financial statements of the Cooperative Central Bank

Ltd

Opinion

We have audited the consolidated financial statements of the Cooperative Central

Bank LTD (the ''Bank'') and its subsidiaries (together with the Bank, ''the Group'')

which are presented on pages 19 to 113 and comprise the consolidated statement of financial position as at 31 December 2016, the consolidated statements of profit or

loss and other comprehensive income, changes in equity and cash flows for the year

then ended, and a summary of significant accounting policies and other explanatory

information.

In our opinion, the attached consolidated financial statements give a true and fair

view of the financial position of the Group as at 31 December 2016, and of its financial performance and its cash flows for the year then ended in accordance with

International Financial Reporting Standards as adopted by the European Union

(“IFRS-EU”) and the requirements of the Cooperative Companies Law of 1985, L.

22/1985, as amended from time to time (“Law 22/1985”).

Basis of opinion

We conducted our audit in accordance with International Standards on Auditing

(ISAs). Our responsibilities under those standards are further described in the

“Auditors’ Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of the Group in accordance with the Code of Ethics for

Professional Accountants of the International Ethics Standards Board for

Accountants’ (IESBA Code), and the ethical requirements in Cyprus that are relevant

to our audit of the consolidated financial statements and we have fulfilled our ethical responsibilities in accordance with the IESBA Code. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our

opinion.

19

Emphasis of matter

Without expressing any reservation on our opinion, we draw attention to note 49 on the consolidated

financial statements in which the Group discloses the correction of error in respect of interest income recognition and loan impairment, presenting the necessary correction of the comparative amounts

affected for the previous periods.

Other Information

The Committee is responsible for other information. Other information comprises of the information included in the consolidated Management Report and the Corporate Governance Report, but does not

include the consolidated financial statements and our auditors’ report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, except as required by the Cooperative

Companies Law of 22/1985.

In connection with our audit of the consolidated financial statements, our responsibility is to read the

other information and, in doing so, consider whether the other information is materially inconsistent

with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a

material misstatement of this other information, we are required to report that fact. Our report in this

regard is presented in the “Report on other legal requirements” section.

Responsibilities of the Committee for the Consolidated Financial Statements

The Committee is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS-EU and the requirements of the Cooperative Companies Law of

22/1985 and for such internal control as the Committee determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due

to fraud or error.

In preparing the consolidated financial statements, the Committee is responsible for assessing the

Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to either liquidate

the Group or to cease operations, or there is no realistic alternative but to do so.

The Committee is responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements

as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’

report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee, that an audit conducted in accordance with ISAs will always detect a material misstatement

when it exists. Misstatements can arise from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

20

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain

professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The

risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the Committee.

Conclude on the appropriateness of the Committee’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required

to draw attention in our auditors’ report to the related disclosures in the consolidated financial

statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future

events or conditions may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial

statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a true and fair view.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities

or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group

audit. We remain solely responsible for our audit opinion.

We communicate with the Committee regarding, among other matters, the planned scope and timing of

the audit and significant audit findings, including any significant deficiencies in internal control that

we identify during our audit.

We also provide the Committee with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other

matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

21

Report on other legal requirements

Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009, L.42(I)/2009, as amended from time to time (“Law 42(I)/2009), we report the

following:

We have obtained all the information and explanations we considered necessary for the purposes of

our audit.

In our opinion, proper books of account have been kept by the Bank so far as it appears from our

examination of these books.

The consolidated financial statements of the Bank are in agreement with the books of account.

In our opinion and to the best of our information and according to the explanations given to us, the

consolidated financial statements give the information required by the Law 22/1985 in the manner

required.

In our opinion, the consolidated Management Report on pages 2 to 8, the preparation of which is

the responsibility of the Committee is consistent with consolidated financial statements.

Other Matter

This report, including the opinion, has been prepared for and only for the Bank’s members as a body in

accordance with Section 34 of the Law 42(I)/2009 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge

this report may come to.

Michalis Μ. Antoniades, FCA

Certified Public Accountant and Registered Auditor

for and on behalf of

KPMG Limited

Certified Public Accountants and Registered Auditors

14 Esperidon street

1087 Nicosia

Cyprus

29 May 2017

COOPERATIVE CENTRAL BANK LTD

22

CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the year ended 31 December 2016 2016 2015 Note €'000 €'000 (Restated) Continuing Operations Interest income 7 460.723 566.976 Interest expense 8 (180.969) (250.015) Net interest income 279.754 316.961 Income from fees and commissions 30.442 33.793 Expenses for fees and commissions (1.857) (1.623) Other net gains/(losses) 9 12.993 (11.114) Other income 10 4.647 8.789 Total net income 325.979 346.806 Staff costs 11 (99.465) (93.834) Depreciation 12 (8.792) (10.715) Other operating expenses 13 (73.058) (72.610)

Total expenses (181.315) (177.159)

Operating profit before provisions for impairment 144.664 169.647 Impairment charge on financial assets available for sale 22 - (3) Increase in provisions for impairment of loans and other advances and other provisions to cover credit risk

19,41

(116.484)

(380.457)

Profit/(loss) before tax 28.180 (210.813) Taxation 14 (19.015) 28.541

Net profit/(loss) for the year from continuing operations 9.165 (182.272) Discontinued Operations Net (loss)/profit for the year from discontinued operations

16

(2.099)

5.825

Net profit/(loss) for the year 7.066 (176.447) Profit/(loss) for the year attributable to: Equity holders of the Bank 6.866 (177.030) Non-controlling interests 200 583 7.066 (176.447) Basic and diluted profit / (basic and diluted loss) per share (€cent) from continuing and discontinued operations attributable to the equity holders of the Bank

15

0,11

(3,70) Basic and diluted profit / (basic and diluted loss) per share (€cent) from continuing operations attributable to the equity holders of the Bank

15

0,14

(3,80)

The notes on pages 30 to 117 form an integral part of these consolidated financial statements.


23

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 December 2016 2016 2015 Note €'000 €'000

(Restated)

Net profit/ (loss) for the year 7.066 (176.447)

Other comprehensive income:

Items that will not be reclassified in subsequent periods to profit or loss:

Change in the fair value of land and buildings (2.059) (15.412) Tax on other comprehensive income 14 (2.895) 3.240 (4.954) (12.172) Items that may be reclassified in subsequent periods to profit or loss:

Available for sale financial assets - Fair value gain

22

10.120

55.066

Available for sale financial assets - Gain on disposal

(27.340)

-

(17.220) 55.066 Other comprehensive (expense)/income for the year, net of tax (22.174) 42.894

Total comprehensive expenses for the year (15.108) (133.553) Total comprehensive expenses for the year attributable to: Equity holders of the Bank (15.386) (134.469) Non-controlling interests 278 916 (15.108) (133.553) The notes on pages 30 to 117 form an integral part of these consolidated financial statements.


24

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31 DECEMBER 2016

2016 2015 1 January 2015 €'000 €'000 €'000 Note (Restated) (Restated) ASSETS Cash 40 105.571 114.894 116.128 Deposits with central banks 17 3.733.233 3.084.346 417.537 Deposits with other banking institutions 18 43.656 46.195 43.359 Loans and other advances to customers 19 8.761.556 9.257.338 10.074.934 Inventories 20 2.226 14.859 38.983 Properties held for sale 21 121.825 100.338 79.582 Financial assets available for sale 22 682.526 982.211 47.570 Investments held to maturity 23 - - 2.409.781 Investment properties 24 238.650 282.560 248.157 Property, plant and equipment 25 239.427 261.710 319.184 Intangible assets 26 4.904 1.216 1.272 Investments in associates 28 - - 207 Deferred tax assets 36 38.121 46.854 16.755 Other assets 29 45.525 60.538 71.619 14.017.220 14.253.059 13.885.068 Non-current assets and disposal groups held for sale

38

83.571

-

-

Total assets 14.100.791 14.253.059 13.885.068 LIABILITIES Amounts due to other banking institutions 30 84.300 81.432 94.343 Deposits and other customer accounts 31 12.567.961 12.744.206 12.392.608 Other loans 32 21.202 21.357 21.300 Loan for the repayment of refugee deposits 33 36.534 36.534 36.534 Deferred tax liabilities 36 35.409 42.899 45.902 Other liabilities 34 118.189 85.698 94.400 12.863.595 13.012.126 12.685.087 Non-current liabilities and disposal groups held for sale

38

11.695

-

- Total liabilities 12.875.290 13.012.126 12.685.087 The notes on pages 30 to 117 form an integral part of these consolidated financial statements.


25

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) 31 DECEMBER 2016 2016 2015 1 January 2015 €'000 €'000 €'000 Note (Restated) (Restated) EQUITY Share Capital 37 1.690.113 1.515.113 1.515.113 Reserves 39 (487.856) (301.856) (343.376) Equity attributable to equity holders of the Bank

1.202.257

1.213.257

1.171.737

Non-controlling interests 23.244 27.676 28.244 Total equity 1.225.501 1.240.933 1.199.981 Total equity and liabilities

14.100.791

14.253.059

13.885.068

Contingent liabilities and commitments

41

468.927

492.798

487.090

On 29 May 2017, the Committee of Cooperative Central Bank Ltd approved these consolidated financial statements for issue. ........................................

........................................

........................................

........................................

Chairman Vice-Chairman Chief Executive Officer Chief Financial Officer



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2016

26


Share Capital

Prepaid Share

Reserve

Fair value reserve-land

and buildings

Fair value reserve-financial assets

available-for-sale

Merger

Reserve

Statutory

reserve

Dilution of

shares nominal value

reserve

Profit

available for distribution

Total

Non-controlling

interests Total

€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000

Balance at 1 January 2016 (Restated) 1.515.113 175.000 145.810 51.654 43.913 (803.956) 85.723 - 1.213.257 27.676 1.240.933

Total comprehensive (expenses)/income

Net profit for the year - - - - - - - 6.866 6.866 200 7.066 Other comprehensive (expenses)/income, net of

tax - - (4.582) (17.670) - - - - (22.252) 78 (22.174)

Transfer from fair value reserve – land and

buildings to profit available for distribution - - (1.548) - - 1.548 - - - - - Transfer of depreciation due to property

revaluation - - (9) - - 9 - - - - --

- - (6.139) (17.670) - 1.557 - 6.866 (15.386) 278 (15.108)

Transactions with owners of the Bank

Issue of Shares 369.712 (175.000) - - - - (194.712) - - - - Dilution of shares nominal value (194.712) - - - - - 194.712 - - - -

Increase in merger reserve - - - - 807 - - - 807 - 807

Transfer of profit for the year - - - - - 6.866 - (6.866) - - -

175.000 (175.000) - - 807 6.866 - (6.866) 807 - 807

Changes in ownership interests in

subsidiaries

Other transfers - - 2.150 291 - 1.138 - - 3.579 (4.710) (1.131)

Balance at 31 December 2016 1.690.113 - 141.821 34.275 44.720 (794.395) 85.723 - 1.202.257 23.244 1.225.501


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2015

27

Share Capital

Prepaid Share

Reserve

Fair value

reserve-land

and buildings

Fair value reserve-

financial assets

available-for-sale Merger Reserve

Statutory

reserve

Dilution of

shares nominal

value reserve

Profit

available for

distribution

Total

Non-

controlling

interests Total €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000

Balance at 1 January 2015 (as previously reported) 1.515.113

- 163.176 (3.129) 43.913 (579.256)

85.723 -

1.225.540

28.244 1.253.784

Restatements (note 49) -

- - - - (53.803)

- -

(53.803)

- (61.462)

Balance at 1 January 2015 (restated) 1.515.113

- 163.176 (3.129) 43.913 (633.059) 85.723 - 1.171.737 28.244 1.199.981

Total comprehensive (expenses)/income (restated)

Net (loss)/profit for the year - - - - - - - (177.030) (177.030) 583 (176.447)

Other comprehensive (expenses)/income, net of

tax -

- (12.222) 54.783 - - - - 42.561 333 42.894 Transfer from fair value reserve – land and

buildings to profit available for distribution -

- (4.397) - - 4.397 - - - - -

Transfer of depreciation due to property

revaluation -

- (747) - - 747 - - - - - - - (17.366) 54.783 - 5.144 - (177.030) (134.469) 916 (133.553)

Transactions with owners of the Bank

Recapitalization fund - 175.000 - - - - - - 175.000 - 175.000 Transfer of loss for the year (restated) - - - - - (177.030) - 177.030 - - -

- 175.000 - - - (177.030) - 177.030 175.000 - 175.000

Changes in ownership interests in

subsidiaries

Other transfers - - - - - 989 - - 989 (1.484) (495)

Balance at 31 December 2015 (restated) 1.515.113

175.000 145.810 51.654 43.913 (803.956) 85.723 - 1.213.257 27.676 1.240.933



28

CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2016 2016 2015

Note

€'000 €'000 (Restated)

Cash flows from operating activities Profit/(loss) before tax 26.707 (204.308) Adjustments for: Depreciation of property, plant and equipment 8.614 10.573 Amortization of computer software 745 776 Provision for impairment of loans and other advances and other provisions to cover credit risk 19,41 116.484 380.457 Profit/(loss) on disposal of property, plant and equipment 228 (32) Loss on disposal of intangible assets - (8) Profit on disposal of investment properties 9,24 287 8 Profit on disposal of financial assets available-for-sale (32.676) - Fair value loss on investment properties 9,24 3.065 4.584 Loss on disposal of properties held for sale 9,21 704 119 Impairment charge on financial assets available-for-sale 22 - 3 Impairment charge on properties held for sale 9 8.207 700 Impairment charge on property, plant and equipment 9 3.390 8.870 Impairment loss on the value of discontinued operations 16 8.700 Income from investments held to maturity 7 - (31.607) Cash flows from operating activities before changes in working capital 144.455 170.135 Deposits with central banks 1.535 (6.162) Deposits with other banking institutions (5.568) 6.734 Loans and other advances to customers 382.445 445.485 Inventories (1.790) 1.113 Intangible Assets (40) - Other Assets (3.583) 9.243 Customer Deposits (176.245) 351.598 Amounts due to other banking institutions 2.868 (12.911) Amounts due to other loans (155) 57 Deferred Income (8) (30) Other liabilities 21.864 (15.509)

Cash flows from operating activities 365.778 949.753

Tax paid (1.627) (2.025)

Net cash flows from operating activities 364.151 947.728

The notes on pages 30 to 117 form and integral part of these consolidated financial statements.


CONSOLIDATED STATEMENT OF CASH FLOWS (continued) For the year ended 31 December 2016

29

2016 2015

€'000 €'000

(Restated) Cash flows from investing activities Proceeds from disposal of financial assets available for sale 22 670.680 105.568 Proceeds from disposal of property, plant and equipment 609 7.456 Proceeds from disposal of investment properties 6.531 839 Proceeds from disposal of intangible assets - 79 Proceeds from disposal of properties held for sale 3.162 3.954 Income from investments held to maturity 7 - 31.607 Payment for acquisition of property, plant and equipment (13.167) (11.311) Payment for acquisition of intangible assets (4.440) (791) Payment for acquisition of investment properties (936) (180) Payment for acquisition of properties held for sale (32.743) (15.665) Payment for acquisition of available for sale financial assets 22 (360.653) (99.094) Net cash flows from investing activities 269.043 22.462 Cash flows from financing activities Proceeds from prepaid capital 37 - 175.000 Proceeds from investments - 1.523.793 Repayments of other loans 32 - - Net cash flows from financing activities - 1.698.793 Net increase in cash and cash equivalents 633.194 2.668.983 Cash and cash equivalents at the beginning of the year 3.121.274 452.291 Cash and cash equivalents at the end of the year 40 3.754.468 3.121.274 The notes on pages 30 toι 117 form an integral part of these consolidated financial statements.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2016

30

1. General 1.1 Incorporation The Cooperative Central Bank Limited (the “Bank” or “'CCB”) was founded in Cyprus in 1937 (registration number 88) as a Cooperative Limited liability company in accordance with Article 11 of the Cooperative Companies Law of 1923 and 1937. Its registered office is located at 8 Gregori Afxentiou Street, 1096 Nicosia, P.O. 24537, 1389 Nicosia. 1.1.1 The Group CCB is the main shareholder of the 18 Cooperative Credit Institutions (“CCIs”) and it also exercises control over companies with trading activities. The consolidated financial statements of the Group are prepared by the Cooperative Central Bank Ltd and are available at both the registered office of the Bank (as per note 1.1) and the website www.ccb.coop.com.cy. 1.1.2 Changes to officers and professional advisors On 19 July 2016, following the approval of the Supervisory Mechanism, the Committee unanimously approved the appointment of Mrs. Susana Poyiadjis as a non-executive independent member and Mr. Kypros Ellinas as non-executive member. On 29 July 2016, following the approval of the Supervisory Mechanism, the Committee unanimously approved the appointment of Mr. Christakis Taoushanis as non-executive independent member and Mr. Adonis Pegasiou as non-executive member. On August 10, 2016, the Committee met in plenary session of its non-executive members to resolve for the establishment of the Committee as a body and it was decided that Mr. Christakis Taoushanis would be the chairman of the Committee and Mr. Lambros Pieri Vice Chairman of the Committee. Mrs. Susana Poyiadjis submitted her resignation as a member of the Committee, with effect from 11 April 2017. 1.2 Public finance adjustment program and operating environment 1.2.1 Macroeconomic environment in Cyprus In 2016 Cyprus economy experienced growth for the second consecutive year following the recession. The commitment of the authorities to comply with the program for economic adjustment has brought significant results in various areas, with economic recovery starting in early 2015 and the high unemployment rate decreasing. Despite the above, Cyprus economy is still facing risks and the main priority of the authorities and banks remains the management of the high level of Non-performing Loans (“NPLs”). In real terms the growth of Cyprus‟ Gross Domestic Product (GDP) for 2016 has been estimated to 2,9%, according to data of the Statistical Service of Cyprus. The European Commission report states that GDP growth is expected to reach 2,5% in 2017 before it reaches 2,3% in 2018. In accordance with the data published by Eurostat, in December 2016 in the Cyprus Economy recorded inflation for the first time in the last two years. Inflation is recorded after two years of deflationary pressures, which commenced to be recorded as of December 2014. Furthermore, according to the data of the European Statistical Office, inflation in Cyprus reached 0,1% in December 2016 from -0,8% in November 2016. In December 2015 inflation amounted to -0,6%. Labor market conditions in Cyprus are expected to improve further. During December 2016, unemployment rate was stabilized, in accordance to the publications of the Statistical Service, remaining close to the lowest levels of the past four years. Unemployment of the working population declined to 13,3% in 2016, compared with an average unemployment rate of 14,9% in 2015. Positive developments in the labor market and the economy in general are expected to have a positive effect on the Group‟s results.



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1. General (continued)

1.2 Public finance adjustment program and operating environment (continued)

1.2.1 Macroeconomic environment in Cyprus (continued)

In 2016 real estate sales increased for the third consecutive year, reaching the highest levels in the last six years. Sales contracts submitted to the Land Registry Department amounted to 7.036 units compared to 4.952 units in 2015, recording an annual increase of 43%. In addition, according to the data published by the European Statistical Office and the Statistical Service of Cyprus real estate prices in Cyprus recorded an increase of 2,8% in the fourth quarter of 2016 compared to the fourth quarter of 2015. According to the Domestic Price Index of the Central Bank of Cyprus, the Household Price Index recorded a marginal quarterly increase (0,1%) in the third quarter of 2016 compared to the previous quarter. The marginal increase constitutes the first recorded increase since 2009, and it relates to both apartment prices and house prices. On an annual basis house prices fell by 1,3% in the third quarter of 2016.

In 2016, the primary general government performance improved, recording a surplus of 2,3% of GDP, with the corresponding general government deficit standing at -0,3%. According to the projections of the European Commission the primary general government surplus is projected to fall to 2,0% in 2017, while the debt-to-GDP ratio is projected to fall to 103,7% in 2017 and to decline gradually to reach 100,6% in 2018.

The public debt of Cyprus amounted to €19,7 billion or 110,6% of GDP in the third quarter of 2016, according to the published data of Eurostat. In the second quarter of 2016 public debt amounted to €19 billion or 107,6% of GDP, while in the third quarter of 2015 it amounted to €19,2 billion or 109,1% of GDP.

In April 2015, the Cyprus Government issued a seven-year government bond to foreign investors of €1 billion. The yield of issued government bonds floated at 4%. This was followed by a new issue in October 2015, of a ten-year government bond with a value of €1 billion and a yield of 4,25%, and in July 2016, a seven-year government bond was issued with a value of €1 billion and a yield of 3,8%. Worth noting is the steady decline of the Government Treasury Bills. On 3 April 2017, on the issue of 13-week Government Treasury bills, bids with a total nominal value of € 100 million were accepted with a weighted average return of -0,08%.

Economic Adjustment Program

On 7 March 2016 the Cyprus Government announced its intentions to exit the European Stability Mechanism (“ESM”) program without the need for a succession arrangement and at the same time cancelled the IMF program that was scheduled to end on 14 May 2016. In an announcement, Eurogroup supported the decision of the Cyprus Government to exit the program, while the IMF congratulated Cyprus for its achievements but noted the need of continuing the structural reforms. The ESM program ended officially on 31 March 2016. The European Stability Mechanism disbursed €6,3 billion in total to Cyprus whereas the International Monetary Fund disbursed an additional amount of €1 billion. Credit Ratings

On 22 October 2016, Fitch Ratings ("Fitch") has upgraded the long term evaluation of Cyprus in the foreign and local currency by one point to "BB-" rating from "B+" and at the same time it has assessed the prospects of the Cyprus outlook to positive. Fitch emphasizes that Cyprus continues to present positive progress following the banking crisis of 2013, while its exit from the memorandum was performed in the context of achieving the financial and economic objectives, its success in lifting capital controls, and the placement of controls over the restructuring of the banking sector. In the context of an assessment published on 21 April 2017, Fitch maintained its evaluation to “BB-“ relevant to the long term foreign and domestic currency debt, as well as the positive outlook of Cyprus, emphasizing the economic prospect and the risks associated with the private and public debt. On 16 May 2016, the Fitch noted that the exit of the United Kingdom from the EU („Brexit‟) would weigh on the economies of other EU countries. Fitch does not anticipate any immediate negative impact on the credit ratings of EU member states, however, the impact is estimated to be determined in the short term, based on the economic and political impact of Brexit. In the same report, it is estimated that Cyprus is one of the countries that will have a significant impact from Brexit, due to its large exports to the UK.

On 17 March 2017, Standard & Poor‟s (“S&P”) has upgraded the long term evaluation of Cyprus in the foreign and local currency to BB+ from BB, while confirming the short term rating to B. Prospects were downgraded from positive to steady. The international credit rating agency should upgrade its rating for Cyprus by one point in order for the country to reach the investment grade.



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1. General (continued) 1.2 Public finance adjustment program and operating environment (continued)

1.2.1 Macroeconomic environment in Cyprus (continued) Financial Sector According to data from the Central Bank of Cyprus, deposits in the banking system have increased in 2016 following three years of decline. For December 2016, a decrease of €74,9 million compared to November 2016 was noted, with total deposits amounting to €49,0 billion compared to €45.97 billion in December 2015. The deposits of Cyprus residents Cyprus amounted to €36,5 billion from €36,4 billion in the previous month and to €32,9 billion in December 2015. With regards to the amount of advances, these amounted to €55,2 billion at the end of December 2016 compared to €53,9 billion in November 2016 and €62,7 billion in December 2015. The loans granted to Cyprus residents amounted to €45,2 billion from €45,4 billion in the previous month and to €51,2 billion in December 2015. According to the data announced by the Central Bank, during the fourth quarter of 2016, non-performing loans decreased by approximately €452 million to € 23,7 billion, with the greatest reduction occurring in November and December 2016. Even though total loans increased over the same period, the ratio of non-performing loans to total loans was reduced from 48,7% to 47%. It is worth noting that from December 2014 to December 2016 there was an overall decrease in non-performing loans of €3,7 billion or 13,4%. The downward trend in non-performing loans is due to increased repayments, successful restructurings completed by the end of the monitoring period and which are reclassified into the category of performing loans, write-offs and debt settlement through real estate exchange. Cumulative provisions for non-performing loans amounted to €9,74 billion or 41,2% of total non-performing loans, compared to 37,5% in December 2015. Loan restructurings amounted to €13,4 billion in December 2016 compared to €14,2 billion in December 2015. The amount of restructured loans considered as non-performing loans amounts to €9,7 billion in December 2016 compared to €10,7 billion in December 2015. Past due loans for more than 90 days amounted to €17,3 billion in December 2016 compared to €21,0 billion in December 2015, and the percentage over total loans decreased from 36,1% to 34,3% for the same period. Other significant developments Following the exit of the Cyprus Government from the economic adjustment program on 1 April 2016, the tradable bonds issued and fully guaranteed by the Cyprus Government are no longer subject to the temporary criteria set out by the ECB for accepting these bonds as a safeguard for the acts of the Eurosystem. The temporary acceptance from ECB enabled the use of these bonds as collateral so as to raise liquidity within the framework of transaction of the monetary policy of the Eurosystem, despite the fact that the minimum requirements of credit rating were not fulfilled. From that day onwards, the minimum credit rating limits apply to these bonds held by the Bank and this results in not being accepted as collaterals. However, it is noted that, from 1 June 2016, the Central Bank of Cyprus approved the provisional inclusion in available cash, for the purpose of calculating prudential liquidity ratios, of the Cyprus Government securities acquired before 2 June 2016 or of the future exposures in Cyprus Government Securities that relate to renewing exposures of those held on 2 June 2016. In those securities a 10% valuation haircut on their market value will be applied. The internal and prudential liquidity ratios are still within acceptable limits despite the above. Legal Framework

In September 2014, the Parliament adopted several legislative proposals, together with a bill on foreclosure. The foreclosure law aims to expedite the procedure for foreclosures through private auctions in an attempt to manage NPL‟s. The specified law is effective for all loans as of April 2015. Additionally, in April 2015 the Parliament enacted the Insolvency Framework with the aim to promote restructurings of solvent borrowers.



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1. General (continued) 1.2 Public finance adjustment program and operating environment (continued) 1.2.1 Macroeconomic environment in Cyprus (continued)

Financial Sector (continued)

Legal Framework (continued)

The Insolvency Framework consists of the following five pieces of legislation following expert advice and the best international practices: (i) Introduction of the repayment plan mechanisms relating to solvent individuals, (ii) A modernized bankruptcy procedure relating to insolvent individuals, which will include the release of a bankrupt individual under strict conditions, which will prevent any abuses, (iii) Possible release of insolvent individuals who are without any income and possess very few assets and have a very low unsecured debt through the process of the Decree Discharge Debt under strict conditions, (iv) Procedures that will enable the effective restructuring of debt and operation of solvent companies (examinership), (v) Modernized procedure for liquidating companies. According to the " Imposition of a Special Tax for the Credit Institution Law of 2011", it is imposed on deposits of each credit institution as at 31 December of the year preceding the year of taxation. By amending the Law published in the Cyprus Government Gazette on 29 April 2013, the Special Tax Rate increased to 0.15% in accordance to the deposits of credit institutions in the Republic at the end of the previous year.

From 1 January 2015, the Parliament amended the Imposition of a Special Tax for the Credit Institution Law, so that the credit institution special tax is calculated quarterly based on the deposits of the credit institutions in the Republic at the end of the previous quarter, with a percentage of 0,0375%.

In September 2015, the Parliament enacted a law to facilitate the issuing of title deeds to blocked property buyers who have paid the full or a significant portion of the amount due to the land developer.

Furthermore, the Parliament enacted amendments in legislation enabling the waiver of fees in cases of transfer of credit facilities from one financial institution to another, reduction in transfer fees to 50% (where the sale of property

is subject to VAT, it is completely relieved from any transfer fees), exemption from Capital Gains Tax for properties that will be bought by 31 December 2016 and special arrangements for the recovery of mortgages. In addition, by amending the Law on capital gains tax, tax treatment of leases was established. In relation to the obligation to impose and collect real estate tax, it was abolished as of 1 January 2017, in line with the real estate tax. In November 2015, a legislative framework has been enacted, which regulates the sale of credit facilities, mostly up to €1 million, whilst at the beginning of 2016, Central Bank of Cyprus issued application guidelines.

The Parliament approved in December 2015 a series of laws aiming to expedite the restructuring of credit facilities in cases where property of the borrower is recovered from the lender against credit facilities. The amendments will expire in two years. In the case of a restructured mortgage recovered from a credit institution, any gain is exempt from tax, transfer fees or special defense tax.

In 16 December 2015 the Parliament voted five legislations aiming to create a legal framework which will provide the opportunity of recapitalizing financial institutions until the end of 2015. In particular, the aim of the first law is the establishment and operation of an independent fund, the Recapitalization Fund, which is intended for the recapitalization of financial institutions until the end of 2015 under the provisions on the Restructuring of Financial Institutions Act. The aim of the second law is the inclusion of the Recapitalization Fund to operators who will be able to purchase part or the whole issued capital, as well as other primary or secondary capital of the financial institution. The aim of the third law is the expansion of responsibilities of the introduced Management Administration Unit, so that it will be responsible for the management of the Recapitalization Fund. The purpose of the fourth law is the amendment of the Special Tax on Financial Institutions, so as the special tax on financial institutions to be calculated on a quarterly basis based on the deposits of the financial institutions in the Republic of Cyprus at the end of the previous quarter. The aim of the fifth law is the payment of an amount of up to €200 million from the non-current fund of the Republic of Cyprus for covering the expense resulting from the need of supporting the capital base restructuring of CCB, being the result of the inspection of the Single Supervisory Mechanism. An amount of €175 million for capital restructuring was allocated through the Recapitalization Fund as disclosed in note 3.11, an amount which will be recovered gradually from the contributions made from the financial institutions of Cyprus, which will be collected from 2015 until 2021 through the imposition of a special tax.



34

1. General (continued) 1.2 Public finance adjustment program and operating environment (continued) 1.2.1 Macroeconomic environment in Cyprus (continued) Financial Sector (continued) Legal Framework (continued)

On 11 February 2016, the Parliament proceeded to the adoption of two laws aiming for the harmonization with the European Directive 2014/59/EE for the recovery and redemption of financial institutions („BRRD„). The purpose of laws and regulations is the harmonization of national legislation with the provisions of the EU directive on deposit guarantee schemes and certain provisions of the Directive for establishing a framework for the recovery and resolution of credit institutions and investment firms relating to financing of Sanitation Fund arrangements. Among others, it is provided that the deposit guarantee system of credit and other institutions will guarantee the deposits covered by such system and compensation will be given within seven working days. It is also provided coverage for the deposits exceeding €100 thousand, for a specific period of time, on certain kinds of deposits that serve social purposes and harmonization of the scope and level of covered depositors within European Union and cooperation among deposit guarantee systems within the European Union. The Resolution Fund is under management of the deposit guarantee system. At the same time, financing of funds from contributions and establishing a minimum level of contributions will be required in advance. The contributions will be based on covered deposits and the risk profile of the institutions. The main provisions of the regulations govern the participation in the deposit guarantee system, determine the covered deposits, the eligible deposits, the coverage level and extent of protection provided by the system, the system activation process, the regular and extraordinary contributions to deposit guarantee funds and the target level, as well as contributions to the Resolution fund of credit and other institutions, cooperation with other systems within the EU and administrative provisions relating to the sessions of the management Committee of the deposit guarantee scheme. On 31 December 2016, the Law on "Emergency Contributions of Employees, Pensioners and Self Employed Persons in the Private Sector" aiming strengthening of public finances, ceased to be in force. In April 2016, Cyprus adopted the “Administrative Cooperation in the Tax Sector (Amendment) Law of 2016”, harmonizing its legal framework with the European Acquis through the adoption of an automated system for financial information exchange relating to tax payers of other Member States in the relevant taxed Member State, without obtaining prior consent and at regular intervals. In addition, on the basis of the tax assessment and collection (exchange of information under the agreement on the compliance of accounts abroad) Decree of 2016, the act on recognition and recovery was amended by aligning it with the obligations arising from the transnational agreement between USA and the Republic of Cyprus for the implementation of FATCA and the exchange of information between the two countries. As part of the reform of the Tax Framework governing the immovable property, on 1 June 2016 the Council of Ministers approved a series of laws that have been submitted to the House of Representatives for review and voting. One of the laws relates to the "Value Added Tax (Amending) Law of 2016", which is amended with a view to the imposition of VAT at a rate of 19% on the purchase and sale of land for the purpose of harmonizing Cyprus legislation to the Community acquis. The provisions of the proposed Law are expected to have a significant impact on existing mortgage, while affecting the required provisions and possibly the capital adequacy of banks. Additionally, the negative impact on banks‟ efforts to sell land through a divestment process or land that is in their possession due to loan restructuring is expected to be severe and immediate. The proposed legislation has not been approved by the plenary of the House of Representatives until the date of approval of the consolidated financial statements.



35

1. General (continued) 1.2 Public finance adjustment program and operating environment (continued) 1.2.1 Macroeconomic environment in Cyprus (continued) Financial Sector (continued) Legal Framework (continued) In addition, in January 2017, the House of Representatives approved a proposal for a law on the settlement of overdue debts to the Tax Department. The settlement of the debt is made in equal monthly installments, the number of which does not exceed fifty four (54) installments for a debt that does not exceed one hundred thousand euros (€100.000), provided that each installment cannot be less than fifty euros (€50), and sixty (60) installments for a tax liability exceeding one hundred thousand euros (€100.000), provided that each installment cannot be less than one thousand eight hundred and fifty two euros (€ 1.852). In February 2017, the House of Representatives plenary voted arrangements to reduce the regulatory capital requirement of domestic banks from 2.5% to 1.25%. The reserve will gradually increase to 2.5% over three years. The law includes new provision so that the capital maintenance requirements set out in the applicable legislation are formulated as follows: a. The capital conservation reserve until 31 December 2016 shall consist of a "Common Equity Tier 1 Capital" with a value equal to 0,625% of the total risk-weighted exposure amounts of the licensed credit institution incorporated in the Republic. b. The capital conservation reserve for the period from 1 January 2017 to 31 December 2017 shall consist of a "Common Equity Tier 1 capital" amounting to 1,25% of the total risk-weighted exposure amounts of the licensed credit Institution incorporated in the Republic.

c. The capital conservation reserve for the period from 1 January 2018 to 31 December 2018 shall consist of a "Common Equity Tier 1 capital" with a value equal to 1,875% of the total risk-weighted exposure amounts of the licensed credit institution incorporated in the Republic.

Finally, on 20 March 2017, the European Central Bank published the final directive for non-performing loans to banks. The Directive is in effect from the date of its publication and, although not binding, banks should explain and substantiate any discrepancies during the Supervisory Review and Assessment Process of the Single Supervisory Mechanism. The disclosures required by the Non-performing Loans Directive are expected to be implemented for reference dates from 2018 onwards. 1.2.2 Regulatory framework

The supervision of the Group has been taken over by the European Central Bank and the Central Bank of Cyprus in the context of the Single Supervisory Mechanism (“SSM”). The supervisory framework is dynamic and its requirements may be amended with potential impacts for instance on capital adequacy.

The Central Bank of Cyprus (“CBC”) having evaluated the current regulatory framework started to introduce a series of regulatory amendments. Among others during the years 2014 to 2016 CBC issued directives which cover the loan impairment policy and the impairment assessment procedures and in 2015 a revised directive for monitoring delays. In 2016 CBC issued a new revised directive, which was amended during 2017, for granting loans and proceeded with amending the anti-money laundering and financing terrorism directive.

1.2.3 Interest Rates In February 2015 the Committee of CBC announced its decision to amend the maximum interest rate for deposits, as defined in the formula for calculating the additional capital requirements of banks, with a decrease of one percentage point. In March 2015, the Committee of CCB having assessed the decision of CBC for reducing the interest rate on deposits, proceeded to a further reduction in the borrowing rates on all types of performing loans, aiming the relief of borrowers.



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1. General (continued) 1.3 Principal Activities The main activities of the Group, which have not changed from the previous year, is the provision of banking and financial services and the carrying out of trading services. All activities are carried out in Cyprus. 1.4 Turnover The turnover of the Group represents interest income, fees and commissions and other income. 2. Basis of preparation 2.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the provisions of the Cooperative Companies Law of 1985 as amended from time to time. 2.2 Functional and presentation currency The consolidated financial statements are presented in Euro (€), which is the functional currency of the Bank and its subsidiaries. The amounts presented in the consolidated financial statements are rounded to the nearest thousand unless when stated otherwise. The functional currency is the currency of the primary economic environment in which the Group operates and the currency in which the elements of the consolidated financial statements are measured.

2.3 Basis of measurement The consolidated financial statements have been prepared under the historical cost convention, as amended in regards to the fair value estimate of land and buildings, investment properties and available for sale financial assets. 2.4 Operating as a going concern Taking into consideration the recent developments in the economic environment of Cyprus, as stated in notes 1.2

and 3.1 to 3.16 of the consolidated financial statements, the Management and the Committee of the Bank have been

assured on the basis of the analysis in note 3.17, that the Group has the means to continue on a going concern basis

for the next twelve months and therefore the consolidated financial statements have been prepared under the going

concern principle.

3. Use of estimates and judgments The preparation of consolidated financial statements requires from Management to make estimates and use judgment and assumptions that influence the application of accounting principles of the Group and the related amounts of assets and liabilities, the disclosure of contingent liabilities and commitments as at the date of preparation of the financial statements, as well as the amounts of income and expenses. Despite the fact that these calculations are based on the Bank‟s Management best knowledge in relation to current conditions and actions, actual results may deviate from such estimates. The estimates and underlying assumptions are evaluated on a continuous basis. Revisions in accounting estimates are recognized in the period during which the estimate is revised, if the estimate affects only that period, or in the period of the revision and future periods if the revision affects the present as well as future periods. Information regarding estimates that have a significant risk for material adjustments within the next financial year are presented below: 3.1 Provision for impairment of loans and other advances to clients The Group examines advances to customers to assess whether the provision needs to be recognized in the statement of profit and loss and reflected in the loan impairment account. The Group examines whether there are reasonable indications of potential losses in the customer loan portfolio, both on an individual and collective basis.



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3. Use of estimates and judgments (continued) 3.1 Provision for impairment of loans and other advances to clients (continued) As an indication, the following events may be considered by the Group as being an indication for impairment. It is understood that an isolated event may not by itself be an indication of impairment nor does the absence of such a specific event exclude the existence of a potential impairment.

1. Credit facilities that are classified as being non-performing

2. Restructured exposures that are classified as performing

3. Significant and long term decrease in the debtor‟s total income/future cash flows

4. Significant deterioration in the borrower‟s lending capacity

5. Credit facilities for which a provision has been partially estimated

6. Macroeconomic indications that may affect expected future cash flows of the borrower, such as rising

unemployment and declines in property prices.

The amount of the impairment loss on loans to customers who are being individually reviewed is calculated as the difference between the carrying amount of the claim and the recoverable amount of the collateral value and the present value of the client‟s future cash flows. The value of the collateral is a crucial factor in the ca lculation of the impairment loss. Estimated future cash flows associated with the disposal of collaterals are based on assumptions on a number of factors (e.g. property price fluctuations, selling costs, sale value) and therefore the actual losses may vary. Any reductions in the fair value of these collaterals will also mean a further increase in the required impairment provisions. In cases where it can be adequately documented that the recoverable amount is greater than previously expected, a reduction in the amount of the impairment is permitted. Indicatively, such cases may consist of customers who have repaid a greater proportion of the debt than was anticipated in the customer‟s previous assessment along with the reversal of the events that had previously led to impairments.

For exposures that were individually examined and not impaired, as well as facilities that were not individually assessed, potential losses are collectively considered and evaluated. In order to determine the collective forecasts for each exposure, a standard approach is adopted and models are used. The credit portfolio is split into groups with associated credit risk characteristics (e.g. existence of collaterals, types of collateral, loan category, existence of deferred amounts) which are evaluated separately for impairment. The segmentation ensures homogeneity and presentation of similar credit behavior among customers in each category. In the calculation of the collective estimates, quantitative parameters, such as the probability of default, the loss rate in case of a loan default, the likelihood of transition to a worse situation than the existing one, as well as the likelihood of curing are computed and applied. All parameters are calculated per portfolio of similar characteristics and are based on the recent historical experience of the Group. The past experience of loss is supplemented by estimates from the Management to assess whether the current economic conditions are such that the actual level of the inherent losses is greater or lesser than that resulting from past experience.

For each segment of exposures, the probability of default, is defined as the ratio of the outstanding balance of loans defaulted in a one-year period over the balance of the total loans serviced at the beginning of the year. A similar methodology is used to calculate the roll rates and the cure rates. For the purpose of calculating the loss rate, the average of the difference between the book value of the facility and the recoverable amount resulting from the present value of the collateral and the future cash flow from the customer‟s operations is calculated for each portfolio category. The process of estimating the impairments is based on several assumptions. The main assumptions are related to the Group‟s view on the future value of the properties, the time required to realize the value of the collateral, the sale costs, the forced sale discount of the value of a property which has been put up for sale and the assumption that in some cases future cash flows will show similar behavior to those of the recent past. For the calculation of the current and future value of real estate properties, an appropriate indicator is used based on forecasts for the macroeconomic conditions as well as other factors affecting property prices. In 2015, the Single Supervisory Mechanism (SSM) conducted a supervisory review for the year 2014. Based on its own assessment of the macroeconomic conditions and the legislative framework, SSM adopted significantly stricter assumptions as to the depreciation of the property price during the liquidation of the property than those previously adopted by the Group i.e. 25% relative to the market value, as well as the time duration for the liquidation of a property, i.e. 7 years. The Group‟s Management decided in 2015 to proceed with the adoption of the key



38

assumptions that emerged from the SSM.

3. Use of estimates and judgments (continued) 3.1 Provision for impairment of loans and other advances to clients (continued)

As a result of these assumptions, the present value from possible future liquidation of collaterals decreased and the specific provisions for impairment of non-performing loans showed a significant increase. The effect on the increase of the specific provisions for impairment was partly offset by the decrease in the provision for loan advances as a result of the adoption of the relevant definition of the European Banking Authority (EBA) which governs the amounts of the provisions.

According to the assumptions adopted by the Group on the future value of real estate, a reduction of approximately 25% over the market value is applied, while the average duration of liquidation of a property is set at 7 years from December 2015. The average time duration for real estate liquidation was revised to around 6 years in December 2016.

The total amount of the impairment provision is sensitive to changes in the underlying assumption and parameters adopted. Indicatively, the changes in cumulative impairment as at 31 December 2016 are shown in the following simulations:

Simulation Impact on cumulative impairment (€)

Increase by 5% in the impairment of the value of real estate upon liquidation

-156mil.

A 5% decrease in the impairment of the value of real estate upon liquidation

+150mil.

Increase the duration of the liquidation process by 1 year +86mil.

Decrease the duration of the liquidation process by 1 year -88mil.

It is noted that the Group also provides loans and other advances secured by guarantees of the Republic of Cyprus. The Group does not recognize any provision for impairment for such advances due to the existence of these government guarantees. This Group decision is a result of judgment. On the basis of the existing evidence, the Group believes that the Government has complied with all the obligations arising from the existing agreements with the Group and therefore has not recognized provisions for this segment of loans. The total amount of impairment of loans and advances of the Group is, by nature, uncertain because of its sensitivity to economic and credit conditions as well as to the subjectivity that exists in the determination of certain assumptions. Any variations in the assumptions made may lead to changes in the amount of the provision required. The methodology and assumptions used in order to determine impairments are reviewed at regular intervals. It is likely that the actual circumstances in the next financial year will differ from the assumptions made, resulting in significant adjustments in the book value of advances.

3.2 Fair value of financial assets The best indication of the fair value of financial assets is the trading price in an active market.

The fair value of financial assets which are not traded on an active market is determined by valuation models. These models are periodically reviewed by qualified personnel who confirm their validity. To the greatest extent possible, valuation models are based on observable market data, but also include factors such as the determination of credit risk and volatility that require estimates and assumptions from Management. Changes in these estimates as well as the assumptions may affect the fair value of the relevant financial instruments.

3.3 Impairment of financial assets available for sale

Available for sale shares are impaired when the decrease in the fair value compared to the cost value is significant or prolonged. In this case, the total loss previously recognized in equity will be recognized in the consolidated statement of profit or loss and other comprehensive income. The determination of what is considered a significant or prolonged reduction requires estimates from Management. Factors taken into account in these estimates include the percentage reduction in cost or in the impaired value, as well as the net positions of the entities.

Bonds available for sale are impaired when there is objective evidence of impairment due to one or more events that occurred after the initial recognition of the investment and the loss making event (or events) impacts the expected future cash flows of the investment. Determination of impairment requires the exercise of judgement by Management. Individual assessment for impairment is performed on bonds whose fair value at the date of the



39

statement of financial position has been significantly reduced and the issuer has been downgraded. 3. Use of estimates and judgments (continued) 3.4 Impairment of investments held to maturity Investments in debt securities held to maturity are impaired when their carrying value exceeds their recoverable amount. The recoverable amount is determined based on the present value of the expected cash flows. For the determination of the expected cash flows significant judgments and estimates are required, that are related to the financial position of the issuer, the breach of the terms of the contracts and the possibility of bankruptcy of the issuer. Investments in government debt securities are assessed for impairment, considering the credit ability as reflected on the returns of the bonds, in the evaluations of rating agencies, the ability of the state to obtain funding from the markets, and whether the state has resorted to support mechanisms for financial support. 3.5 Fair value of properties The volatility that exists in the real estate market and the reduction in the volume of transactions have significantly increased the uncertainty of a correct estimation of the fair value of properties. The fair value is determined by the estimations of independent professional surveyors based on market indications regarding their current use. The estimate requires professional judgement which involves a certain degree of uncertainty due to the relatively low level of market mobility. 3.6 Impairment of goodwill and investments in subsidiary companies The procedure for recognizing and assessing the impairment of goodwill and investments in subsidiary companies is inherently uncertain because it requires Management‟s judgment on a number of estimates, the results of which are important for the assumptions used. The assessment for impairment constitutes the best estimate of Management and is based on the net position of each subsidiary company as recorded in the statement of financial position of the Bank. Any impairment of goodwill of acquired entities affects the results of the Group, while any impairment on the value of the investments in subsidiaries affects the results of the Bank. 3.7 Taxation Significant judgment is required in determining the provision for corporation tax. For certain transactions and calculations the final tax computation is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. In cases where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets arising from tax losses are recognized to the extent that it is probable that taxable profit will be available against which those losses may be utilized. More information on the accounting estimates and judgments used in the determination of deferred tax is set out in notes 5.14, 14 and 36. 3.8 Provision for obsolete and slow moving inventories The Group reviews its inventories for evidence regarding the ability to sell inventories and their respective value on disposal and the possibility of sale. The provision for inventory is based on Management‟s past experience, based on which a provision is made taking into consideration the value of inventories as well as the movement and the level of stock of each category of inventory. The amount of provision is recognized in profit or loss. The review of the net realisable value of the inventories is continuous and the methodology and assumptions used for estimating the provision for obsolete and slow moving inventories are reviewed regularly and adjusted accordingly.



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3. Use of estimates and judgments (continued) 3.9 Impairment of intangible assets The intangible assets are recognised initially at cost and are depreciated using the straight line method during their useful economic life. Regarding intangible assets arising from merger of companies, the cost of acquisition is considered the fair value at the date of the transaction. The intangible assets with unlimited use are reviewed for impairment at least once a year. This review is performed by discounting all future cash flows expected to arise from the use of the intangible assets, using a discount rate reflecting the current estimations of the market and the risks related to the asset. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable value of the cash generating unit in which the asset belongs to. 3.10 Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the liability and the amount of the liability can be reliably measured. The amounts recognized as provisions are the best possible estimate of the costs required to settle the present obligations at the reporting date. Provisions for litigation, arbitration and regulatory matters require a greater degree of judgment than other types of provisions. 3.11 Cooperative Sector Restructuring Plan

In December 2015, the Cooperative Central Bank submitted a revised Restructuring Plan with the purpose of meeting the supervisory capital requirements as assessed by the Single Supervisory Mechanism of the European Central Bank (SSM). On 17 December 2015 the Ministry of Finance issued a Decree with which the decision of the Council of Ministers on 14 December 2015 for the recapitalization of CCB through an increase of the share capital of €175 million, was implemented.

On 18 December 2015, the European Commission approved the revised restructuring plan and the additional state aid of €175 million in favor of CCB and the affiliated CCIs in line with EU state aid rules, which was implemented prior to the year-end 2015. The recapitalization of CCB was completed through the increase of existing share capital by €175 million. The coverage of the increase was realized by the independent Recapitalization Fund, in exchange for participation in the ownership structure of CCB. On 6 May 2016, it was announced in the Cyprus Government Gazette that pursuant to the provisions of the Decree issued by the Ministry of Finance, the recapitalization of CCB was completed by increasing its share capital. The changes in the ownership structure were finalized in the independent valuation report which was in accordance with the provisions of the Decree. The aforementioned Decree established the share‟s nominal value, the rights and the participation rate of each shareholder, these being the Republic of Cyprus, the Recapitalization Fund and Cooperative Holding Companies of the CCIs. Additionally, in accordance to the Decree, the percentage of CCB‟s holding in the ownership structure of each CCI amounts to 100%. According to the provisions of the aforementioned Decree:

By 31 December 2016, CCB will take all necessary actions and will receive all necessary approvals in order to be in a position for a possible listing in the Cyprus Stock Exchange by the end of June 2017. CCB will take all necessary measures in order to be ready for a possible listing in the primary market of the Cyprus Stock Exchange (“CSE”) or in the Alternative Market of CSE, should they fail to meet the prerequisites for listing in the primary market. By 30 September 2018, CCB will have to introduce for listing at least 25% of its total paid up share capital.

In the case where the issue of shares is made through a public call, the existing shareholders, except for the Cyprus Government and the Recapitalization Fund, will have the first call to buy an amount proportionate to their existing shareholding, while an amount which will not exceed 25% of the total issuance percentage will be made available to the public, and the remaining percentage to a limited group of individuals through private offering.



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3. Use of estimates and judgments (continued) 3.11 Cooperative Sector Restructuring Plan (continued) Subsequently, CCB will have to proceed with the issue of new shares, following the above procedure, as follows: ( i ) with a percentage of 25% of the paid up share capital, before the listing of CCB on the CSE, in a period of 9 months from the date of the Initial Public Offering (“IPO”) and no later than 30 June 2019, ( i i) with a percentage of 25% of the paid up share capital, before the listing of the CCB on the CSE, in a period of 18 months from the date of the Initial Public Offering (“IPO”) and no later than 30 June 2020. Following the last issue, the combined shareholding of the Republic of Cyprus and the Recapitalization Fund in the ownership structure of CCB should not exceed 25%. The Decree states that in the event where CCB generates equity deficit from December 2016 to September 2018, compared to the supervisory requirements, CCB‟s procedures for entering the CSE through the issue of new shares may commence earlier than the set date. According to the Decree, CCB will not proceed in introducing its shares in the CSE in the case where the Republic of Cyprus and the Recapitalization Fund dispose of their shares, within the aforementioned time limits until 30 June 2020, by holding a combined shareholding not exceeding 25% of the issued CCB share capital. It is clarified further that the shares held by the Republic of Cyprus and the Recapitalization Fund will be made available through private offering towards strategic investors including international financial institutions, large cooperatives or commercial banks, insurance companies, investment or pension funds, as well as to any other sizeable institutional investor in the financial service sector. In relation to the Management of the Group, the Decree states that the Committee of CCB will consist of eleven members out of which two will be executive members, two non-executive members and seven independent non-executive members. The Committee of each CCI will consist of three executive members, out of which two will be CCI‟s personnel and one from CCB‟s personnel up to the date of transfer of the CCIs‟ personnel to CCB. Following the transfer, the Committee of each CCI will consist of three executive members, which will be CCB‟s personnel. According to the Decree, the Minister of Finance with the approval of the Central Bank and of the Parliamentary Finance Committee appoints the non-executive and independent non-executive members of CCB‟s Committee. The appointment of the members of the Committee is validated through a General Meeting of CCB‟s shareholders. Additionally, the CCB‟s Committee has the power to appoint, dismiss and replace CCIs‟ Committee Members. Their appointment is subject to the approval of the Central Bank of Cyprus, in accordance with the criteria of competence and suitability that the Central Bank determines. The additional state aid is accompanied by supplementary restructuring measures which will be implemented gradually until the end of the restructuring period. Included among these measures is the centralization of Divisions/Units of the CCS, with the aim to upgrade its operations and obtain prudent management and cost efficiency, including the absorption process of SEM by CCB. Additionally, the Group will proceed with the disposal of commercial non credit participation and other non-core activities by the end of 2018, as per the revised Restructuring plan. All the personnel of the CCIs has been transferred to CCB by the 30th of September 2016. The total annual remuneration of the senior management as well as any other CCB and CCI member of personnel will not exceed 80% of the annual remuneration of the Chief Executive Officer, as defined in the respective Budget of the Republic Act. Finally, according to the Decree all the non-financial assets of CCB and of the 18 CCIs, including all their land and buildings and excluding their equipment, have been transferred to a new company which is a 100% subsidiary of CCB.



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3. Use of estimates and judgments (continued) 3.11 Cooperative Sector Restructuring Plan (continued) Progress of the implementation of the revised Restructuring Plan

Ownership structure of CCB:

According to the ministerial Decree issued by the Ministry of Finance, Article 14 on the "Restructuring of Financial Institutions Laws 2011 to 2015", on 6 May 2016, the ownership structure of the CCB was as follows:

% ownership structure of CCB after capital aid of €175 million

Republic of Cyprus 77,34%

Recapitalization Fund 21,88%

Holding Company CCB 0,78%

Holding Companies CCIs 0,00%

Total 100%

Transfer of non-financial assets of CCIs and CCB to a Special Purpose Vehicle:

A Special Purpose Vehicle (SPV) was registered on 25 May 2016 with the name “CCSRE Real Estate Company Ltd” and CCB is the sole shareholder (as per the relevant ministerial decree issued by the Ministry of Finance). By the end of June 2016, the transfer of non-financial assets of CCB and CCIs to the SPV was completed, including all immovable property and excluding the equipment.

Centralization of the Divisions/Units of CCB:

According to the CCB‟s strategy framework the CCB proceeded with the implementation of the necessary reforms in order to upgrade the operations of the CCS and obtain prudent management and cost efficiency. The centralization of the following Divisions / Units of the CCB has been completed:

Description Implementation Schedule

Internal Audit Unit 31 December 2015

Senior Technology Division 31 January 2016

Compliance Unit 31 March 2016

Risk Management Unit 31 May 2016

Credit Control Department 31 May 2016

Human Resource Division 31 May 2016

Organization and Methods Division 30 June 2016

Movable and Immovable Property Department 30 June 2016

Documentation and Administration of Credit Facilities Division 31 October 2016

Senior Finance and Accounting Division 31 October 2016

Tenders Department 31 December 2016



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3. Use of estimates and judgments (continued) 3.11 Cooperative Sector Restructuring Plan (continued) Progress of the implementation of the revised Restructuring Plan (continued)

Cost reduction / Efficiency Improvement:

On 15 September 2016, the 2nd Voluntary Retirement Scheme was completed and as a result 78 employees exited the sector.

It is noted that the first phase of the CCIs‟ branch network rationalization project, which was initiated on the basis of the provisions of the Restructuring Plan, has been completed. As a result, the branches had been reduced to 251 by the end of December 2015. On 31 December 2016, the number of branches has been reduced to 246.

Commercial and other non-core activities:

Commercial Non-Credit Participations

There is a commitment to divest the participations of CCS to commercial non credit companies by the end of 2018. In this respect, following the completion of valuations by independent valuation firms, divestment proposals have been submitted by the entities of the commercial cooperative sector for all the major commercial participations of the CCS, which have been approved by the BoD of CCB. The sale agreements for the agreed transactions, which involve all the major commercial participations, have already been drafted and are expected to be signed within 2017. The transaction of PEAL Troodos Ltd has already been completed. Commercial Activities

Regarding the divestment of commercial activities, all activities have been divested during the year 2016, with the exception of two activities for which the transaction is still pending and whose divestment is expected to be completed within 2017.

IPO readiness assessment

The final signed Prospectus was submitted to the Cyprus Securities and Exchange Commission (CySEC) on 22 December 2016. The CySEC sent a letter of approval of the CCB‟s Prospectus on 22 December 2016. Also, following the instructions of the Cyprus Stock Exchange (CSE), the Bank submitted the signed Annexes 4 and 7 for the application of the CCB, thus ensuring the pre-approval by the CSE. Transfer of staff from CCIs to CCB: The transfer is expected to take place through the legal merger of the CCIs with the CCB while the provisions of the relevant law regarding the employees‟ rights in the transfer of business will be fully implemented (Law N.104 (I) / 2000). Legal merger of CCIs with CCB:

In December 2016, the management of CCB decided to recommend the legal merger of the CCIs with CCB as part of implementation of the strategy for restructuring of the CCS. The decision on the legal merger of the CCIs with CCB was approved by the General Meeting of the shareholders on 30 December 2016. The merger is expected to increase the value of the Organization and to strengthen its efforts to form a modern corporate governance framework, which will enable it to become more transparent, competitive and attractive for potential investors, in view of the forthcoming admission to the regulated market of CSE, through which it will be possible to restore the CCS to an enlarged and domestic ownership basis. 3.12 Regulatory Capital Indicators The Capital Adequacy ratios of CCB (Total Capital, Tier 1 Capital, και Common Equity Tier 1 Capital) on 31 December 2016 amounted to 15,42% compared to 14,92% on 31 December 2015. The change in Capital Adequacy ratios is mainly due to the reduction in the risk weighted assets, mainly due to the loan portfolio, and a slight decrease in regulatory capital. Capital Adequacy indicators were calculated in accordance with Regulation (EU) No 575/2016 and the Minimum Capital Requirement for Credit Institutions and Investment Companies Directive, dated 26 June 2013,



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which entered into force on 1 January 2014 and the relevant circulars and laws of the Central Bank of Cyprus. It is noted that the minimum capital adequacy to be held by each credit institution is determined on an annual basis by the SSM under Pillar II, and in particular the SREP (Supervisory Review and Examination Procedure). In the context of the SREA for 2015, the minimum Tier 1 capital ratio for 2016 is set at 12,25% and the Bank is subject to a distribution dividend limitation to shareholders. The Group exceeds the minimum indicator that was in effect at 31 December 2016.

According to a decision sent by the ECB to the CCB in December 2016 in the framework of the supervisory dialogue, the minimum capital ratio applicable from 1 January 2017 is 11,75% (Total SREP Capital Requirement 'TSCR'), consisting of minimum regulatory capital 8% (CET1 of 4,5%, Additional Tier 1 and Tier 2 1,5% and 2% respectively) and additional Pillar II funds 3,75%. The Bank is subject to a dividend distribution restriction and, additionally, the ECB under Pillar II has notified the CCB of a non-public call for an additional stock of Class 1 Common Equity Fund. The Bank should cover regulatory capital buffers that currently include the Capital Conservation Buffer, which the CBC had set at 2,50%, resulting in a total liability of 14,25%. The claim declined to 13% from January 1, 2017 following the approval of the Banking Activities Amendments Law in February 2017 on the capital conservation buffer. In addition, the combined capital buffer requirement for the Cooperative Central Bank includes:

The security buffer O-SII (Other Systemically Important Institutions) which has been set at 1% and will be implemented progressively over a period of four years starting from 1 January 2019,

The Countercyclical Capital Buffer, which the CBC has set at 0% for exposures in Cyprus up to 30/6/2017 (the CBC revises this buffer on a quarterly basis and informs the bank with a relevant letter), and

A Systemic Risk Buffer that has not yet been determined. 3.13 Liquidity Customer deposits decreased by 1,38% compared to December 2015, amounting to €12.568 million (December 2015: €12.744 million). The total of the Group‟s cash and deposits with banking institutions as at 31 December 2016 has increased by €636,9 million and reached €3.882 million (2015: €3.245 million). As at 31 December 2016, the Group‟s liquid assets amounted to €4,307 billion, out of which approximately €44 million related to liquidity that can be provided from the Euro system by pledging bonds. By liquidating the European Stability Mechanism‟s bond, the Bank secured €1,5 billion, an amount which was deposited in CBC. As noted in note 1.2.1 securities issued by the Republic of Cyprus are not eligible for ECB funding and are subject to restrictions when included in liquid assets. It is noted that despite the above, the internal as well as the supervisory liquidity ratios are still within the acceptable limits. The Management and the Committee of CCB review on a regular basis the liquidity position of the Group, which continues to have access to the liquidity facilities of CBC, as per the existing rules, when it is necessary. As at 31 December 2016 the Group has not used the ECB‟s emergency liquidity assistance (ELA). 3.14 Profitability The operating profit for the year ended 31 December 2016 amounted to €145 million (2015: €170 million restated) while provisions for loan impairment amounted to €116 million (2015: €380 million restated) and accumulated provisions to €3,3 billion (2015: €3,5 billion restated) The reduced profitability from operations was offset by the reduced provisions for loan impairment, forming the net profit for the year to €7 million. The condition of the Cypriot economy and the macroeconomic environment affect directly the profitability of the Group. Since 2011 and up to the first quarter of 2015, significant recession percentages have been noted. In 2016 the Cypriot economy showed positive growth rates for the second consecutive year, slightly offsetting the recession in previous years. The high unemployment rate, which is currently on a downward trend, is expected to continue to negatively affect the ability of individual borrowers to repay their loans. In 2017 and 2018 positive growth rates beyond 1% and further reduction in unemployment are expected, thus improving the outlook of the economy.



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3. Use of estimates and judgments (continued) 3.15 Stress test -2016 The ECB conducted stress tests for significant institutions under its supervision during 2016. The aim of the exercise is to assess the resilience of financial institutions to extreme market developments, to contribute to the overall SREP assessment so as to confirm capital adequacy and liquidity and to ensure the joint handling of all major institutions supervised by the SSM. The Bank participates in this exercise as part of the annual evaluation of the SSM and the results of these tests have been used during the SREP evaluation in 2016. 3.16 Uncertainties The Bank's Management and Committee are not in a position to predict precisely all of the developments that could influence the Cyprus economy and, as a result what impact, if any, they might have on the future financial performance, cash flows, financial position and capital of the Group. Despite the increase in the Group's capital ratios, they continue to closely monitor the economic developments and take measures to maintain the Group's viability and manage the current situation, as well as possible future negative developments. The ability of the Group to continue as a going concern depends on:

The progress of the Cyprus economy, the progress of property prices in Cyprus, the ability of borrowers to repay their debt obligations and the ability to effectively realize the collateral on non-performing loans. These factors materially affect the value of the provision for impairment and, consequently, the capital adequacy of the Group.

The developments of the international economic environment and especially in markets and economies affecting Cyprus.

The continuation of the successful implementation of the amended Restructuring Plan of the Group and the realization of the long term macroeconomic scenario which formed the basis of its preparation.

The continuing need to maintain liquidity to satisfactory levels and the availability of emergency liquidity mechanisms via the CBC.

Changes in the legislative and regulatory framework to the extent that they affect the Group's results and financial position.

The requirements of the supervisory framework in relation to capital adequacy, as defined under the SREP framework and the regulatory framework which constantly evolves to stricter requirements, including the implementation of the Bank Recovery and Resolution Directive (BRAD).

3.17 Evaluation of going concern The Management and the Committee of the Bank, having taken into consideration the above factors, they are satisfied that the Group has the means for continuing its operations in the next twelve months and as such the consolidated financial statements will continue to be prepared on the going concern basis for the following reasons:

The Group maintains sufficient capital base which exceeds the minimum capital ratio set by the recent evaluation of the SSM.

The credit rating indicators for the Cypriot Economy by International Credit Rating Agencies have improved during 2016 and the prospects of the Cypriot economy according to the European Committee are positive.

The liquidity ratios are deemed adequate, while the Group maintains access to alternative sources of raising liquidity.

4. Adoption of new and revised International Financial Reporting Standards and Interpretations As of 1 January 2016, the Group has adopted all the changes in International Financial Reporting Standards (IFRS) as these have been enacted by the European Union and relate to its operations. The adoption has not lead to significant changes in the consolidated financial statements of the Group.



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4. Adoption of new and revised International Financial Reporting Standards and Interpretations (continued) The following Standards, Revisions to Standards and Interpretations have been issued but have not been in force for financial years commencing 1 January 2016. Those relevant to the operations of the Group are presented below. The Group does not intend to adopt the below before they come into force. (i) Standards and Interpretations adopted by the European Union

IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2018). IFRS 9, which replaces existing guidance in IAS 39 and will enter into force on 1 January 2018, provides revised guidance for the classification and measurement of financial instruments, a new model of expected credit losses for the calculation of the impairment of financial assets, and new general provisions on hedge accounting. Classification, Measurement and Impairment Financial assets should initially be classified at a measurement category where they are measured either at amortized cost or fair value. The criteria to be taken into account depend on the business model used by the entity to manage these assets and their contractual cash flow characteristics. In order for a financial asset to be measured at amortized cost, the business model should aim to hold the financial assets in order to collect their contractual cash flows and these contractual cash flows should represent solely payments of principal and interest. If an asset meets the above criteria, but is held both for sale as well as for the purpose of collecting the contractual cash flows, it should be classified at the measurement category of fair value through other comprehensive income directly attributable to equity. Financial assets not meeting either of the two business models are required to be measured at fair value through profit or loss. The classification of financial liabilities did not materially change. Unlike the existing IAS 39, under which credit risk losses are only recognized where such losses have occurred, IFRS 9 requires the recognition of expected losses due to credit risk. In particular, upon initial recognition of an instrument, losses due to credit risk estimated to take place over the next 12 months should be recognized immediately. In the event of a significant increase in credit risk, provisions should be made for expected credit losses that may arise from all possible events of default over the expected life of a financial instrument. Effect of IFRS 9 on the Group The Group is in the process of preparing for the implementation of IFRS 9, by focusing on the development of methodologies for calculating the impairment of loans based on expected credit losses and by assessing the impact of the standard in its consolidated financial statements. As the impairment model, required to be implemented by IFRS 9 is based on expected credit losses, this may lead to an increase in the Group's credit risk provisions and may therefore affect capital adequacy requirements. However, the assessment of the impact of IFRS 9 cannot be fully assessed at this stage. It is also expected that the supervisory authorities will determine how the impact on capital adequacy requirements will be handled. IFRS 15 ''Revenue from Contracts with Customers'' (effective for annual periods beginning on or after 1 January 2018). IFRS 15 establishes a comprehensive framework for determining whether, when and how revenue is recognized. It replaces existing income recognition guidance, including IAS 18 "Revenue", IAS 11 "Construction Contracts" and IFRIC 13 "Customer Loyalty Programmes". The Group is currently evaluating the impact of the standard on its consolidated financial statements.



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4. Adoption of new and revised International Financial Reporting Standards and Interpretations (continued) (ii) Standards and Interpretations not adopted by the European Union

IFRS 16 "Leases" (effective for annual periods beginning on or after 1 January 2019). IFRS 16 will replace IAS 17 and related interpretations. The new standard will introduce a single, on balance sheet accounting model for lessees, eliminating the distinction between operating and finance leases. Lessor accounting however will remain similar to the current standard and the distinction between operating and finance leases is retained. The Group is currently evaluating the impact of the standard on its consolidated financial statements. IFRS 15 (Clarifications) ''Revenue from Contracts with Customers'' (effective for annual periods beginning on or after 1 January 2018). The new standard may have a significant effect on how and when entities will recognize revenue from contracts with customers. The standard replaces IAS 11 “Construction contracts”, IFRIC 13 “Customer Loyalty Programmes and IAS 18 “Revenue”. The standard provides a single, principles based model to be applied to all contracts with customers and two approaches to the recognition of revenue: at a point in time or over time. Extensive disclosures will be required, including revenue analysis, information on performance requirements, changes in asset balances and contract obligations between periods as well as judgments and estimates. The Group is currently evaluating the impact of these clarifications on its consolidated financial statement. IAS 7 (Amendments) “Disclosure Initiative” (effective for annual accounting periods beginning on or after 1 January 2017). On 29 January 2016, IASB issued amendments to IAS 7. The amendments will require that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (a) changes from financing cash flows; (b) changes arising from obtaining or losing control of subsidiaries or other businesses; (c) the effect of changes in foreign exchange rates; (d) changes in fair values; and (e) other changes. The Group is currently evaluating the impact of these amendments on its consolidated financial statements. IAS 12 (Amendments) “Recognition of Deferred Tax Assets for Unrealized Losses” (effective for annual accounting periods beginning on or after 1 January 2017). The amendments will give clarifications in relation to the recognition of a deferred tax asset that is related to a debt instrument measured at fair value. Additionally, it clarifies that the carrying amount of an asset does not limit the estimation of probable future taxable profits and that estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences. Furthermore, it clarifies that an entity assesses a deferred tax asset in combination with other deferred tax assets. Finally, where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type. The Group is currently evaluating the impact of these amendments on its consolidated financial statements. IAS 40 (Amendments) “Transfers of Investment Property” (effective for annual accounting periods beginning on or after 1 January 2018). The amendments clarify when an entity should transfer a property asset to, or from, investment property. A transfer is made when, and only when, there is an actual change in use, i.e. an asset meets or ceases to meet the definition of investment property and there is evidence of the change in use. A change in management intention alone does not support a transfer. In addition, it is clarified that the revised examples of evidence of a change in use in the amended version of IAS 40 are not exhaustive. The Group is currently evaluating the impact of these amendments on its consolidated financial statements. Annual improvements in IFRS, 2014-2016 cycle (effective for annual accounting periods beginning on or after 1 January 2017 (IFRS 12) and 1 January 2018 (IFRS 1 και IAS 28)). The annual improvements impact three standards. The amendments to IFRS 1 remove the outdated exemptions for first-time adopters of IFRS. The amendments to IFRS 12 clarify that the disclosure requirements for interest in other entities also apply to interests that are classified as held for sale or distribution. The amendments to IAS 28 clarify that the election to measure at fair value through profit or loss an investment in associate or a joint venture that is held by a venture capital organization, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. The Group is currently evaluating the impact of these annual improvements on its consolidated financial statements.



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4. Adoption of new and revised International Financial Reporting Standards and Interpretations (continued) (ii) Standards and Interpretations not adopted by the European Union (continued) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” (effective for annual accounting periods beginning on or after 1 January 2018). The interpretation clarifies that the transaction date is the date on which the company initially recognizes the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The Group is currently evaluating the impact of the interpretation on its consolidated financial statements. 5. Significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented in these consolidated financial statements unless otherwise stated. 5.1 Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Bank and the entities controlled by the Bank (its subsidiaries). Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of the Bank‟s subsidiaries are included in the consolidated statement of profit or loss and other comprehensive income from the date that the control was effective until the date the control ceases. Income and expenses of subsidiaries acquired or disposed off during the period are included in the consolidated statement of profit or loss and other comprehensive income from the date of acquisition and up to the date of disposal. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interest even if this results in the non-controlling interests having a deficit balance. Non-controlling interest represent equity of subsidiaries that are not related directly or indirectly with the Bank and with which the Group has not agreed any extra term with the owners of the non-controlling interest which could create to the Group a conventional obligation which might give rise to a financial liability. In every business combination, the Group may choose to measure the non-controlling interest either at fair value or at the proportionate amount of the net identifiable assets of the subsidiary. Non-controlling interest is classified under equity in the consolidated statement of financial position, separately from equity attributable to the Bank‟s shareholders. Non-controlling interest is presented in the statement of profit or loss and other comprehensive income as allocation of the total profit or loss for the year, between the non-controlling interest and the Bank‟s shareholders. Changes in shareholding interests of a subsidiary of the Group that do not result in loss of control are considered as transactions within equity and the relevant adjustments are being made in relation to the shareholders of the Bank and non-controlling interest, in the consolidated statement of changes in equity, so as to reflect the change in ownership, but there are no adjustments in the amount of goodwill and no profit or loss is recognized. When the Group has lost the control over a subsidiary, this is considered as disposal of the shares and as a result any profit or loss that arises is recognized in the profit or loss. Any interest recognized in the subsidiary during the day of the loss of control, is recognized at fair value and this amount is recognised at fair value from the initial recognition of the financial asset. Balances and transactions which are eliminated during consolidation Balances and transactions with companies of the Group as well as unrealised profits or losses incurred from transactions between them, are eliminated during the preparation of the consolidated financial statements. Unrealised losses incurred from transactions between companies of the Group are eliminated in the same way as unrealised profits, but only to the extent that there is no evidence for impairment in value.



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5. Significant accounting policies (continued) 5.2 Transactions under common control A business combination involving entities or businesses under common control, required that all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory. 5.2.1 Business combination of companies under common control A business combination of companies regarding entities which are, in the end, controlled by the same party or parties before and after the business combination and this control is not transitory, is accounted for using the pooling of interest method. The principles of pooling of interest method are:

The Group does not adjust the assets and liabilities at fair value but instead incorporates assets and liabilities at book values as shown in the books of the acquired company adjusted to achieve alignment with the accounting policies of the Bank.

The merger reserve is created from the difference between the share capital of the CCIs and the companies of the trading sector which are consolidated and for which there was no equivalent investment cost in the books of CCB and the cost of investment in the share capital of CCB in the books of the CCIs.

The consolidated financial statements incorporate the profit or loss of acquired companies which were absorbed, as if the companies (acquirer and acquiree) were consolidated from the date which common control was first established. As a result the consolidated financial statements reflect the profit or loss of the companies absorbed during the entire period even if the absorption took place within the period. Moreover, the respective amounts of the previous period also reflect the consolidated profit or loss of the acquired companies even though the transaction occurred in the current period.

5.3 Turnover The Group‟s turnover includes interest income, income from fees and commissions, net income or loss from disposal and revaluation of foreign currency and financial assets and other income. 5.4 Interest income and expense

Interest income and expense is recognized in profit or loss using the effective interest method whenever possible, otherwise the contractual interest rate is used. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the carrying amount of the financial asset or financial liability. The effective interest rate is calculated at the initial recognition of the financial instrument and it is not revised at a later date. Income from interest of advances to customers which have been impaired is recognized on the unimpaired balance using the effective interest rate method whenever possible, otherwise the contractual interest rate is used. Interest income and interest expense include:

Interest in financial assets carried at amortized cost and calculated using the effective interest rate method Interest in financial assets available for sale calculated using the effective interest rate method

5.5 Fee and commission income and expenses Fee and commission income related to loans and other advances to customers are recognized in profit or loss using the effective interest method, whenever possible, or otherwise the contractual interest rate is used. The fee and commission expenses are recognized on an accrual basis in the period that the services occurred.



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5. Significant accounting policies (continued) 5.6 Income from hire purchase and leasing Income from hire purchase and leasing are recognized in the statement of profit or loss and other comprehensive income and are measured on a systematic basis in proportion to the amounts receivable so that the return on investment is constant. Debtors of hire purchase and leasing are included in the consolidated statement of financial position under advances to customers after deducting the commission attributable for future installments. 5.7 Rental income Rental income is recognized on an accrual basis in a straight line method over the life of the rent. 5.8 Income from investments in securities Dividend income from investments in securities is recognized when the right of the Group to receive payment is established. Withheld taxes are transferred to profit or loss. Interest income from investments in securities is recognized using the effective interest method. Profit or loss of divestment from securities, that represents the difference between the net proceeds and the carrying value of the investments disposed, is transferred to profit or loss. 5.9 Dividend income

Dividend income is recognized when the right to receive payment is established.

5.10 Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but has no control or joint control over those policies.

The results, assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method unless the investments are classified as available for sale, where they are treated according to IFRS 5 “Non-Current Assets Held For Sale and Discontinued Operations”. According to the equity method, the investment in an associate is recognized firstly in the consolidated statement of financial position at cost and then adjusted to recognize the share of the Group in the profit or loss and other comprehensive income of the associate. When the share of the Group in the losses of an associate exceeds the Group‟s participation (which includes every long term participation which, in fact, is part of the net investment of the Group in the associate), the Group ceases to recognize its excess share of losses. Additional losses are recognized only in the occasion that the Group has been charged with legal or constructive obligations or has made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying value of the investment. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group‟s investment in an associate. When necessary, the entire carrying value of the investment (including goodwill) is tested for impairment in accordance with IAS 36 “Impairment of Assets” as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying value. Any impairment loss recognized forms part of the carrying value of the investment. Any subsequent reversal of that impairment loss is recognized in accordance with IAS 36 to the extent subsequent that the investment subsequently increases to its recoverable amount.



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5. Significant accounting policies (continued) 5.10 Investments in associates (continued) When a Group entity transacts with an associate, profits or losses resulting from the transactions with the associate are recognized in the Group's consolidated financial statements only to the extent that these transactions are not related to the Group. 5.11 Foreign currencies Foreign currency transactions are translated in the functional currency using the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into Euro at the rate of exchange ruling at the reporting date. Non-monetary items denominated in foreign currency and measured at historic cost are translated using the exchange rates ruling as at the date of their initial recognition. Non-monetary items denominated in foreign currency and measured at fair value are translated using the exchange rates ruling as at the date of determining the fair value. All exchange differences arising are recognized in profit or loss. 5.12 Segmental reporting

Operating segments are presented according to internal reporting provided to the chief operating decision maker. The chief operating decision maker is the person or group of persons responsible for the allocation of resources to operating segments and the assessment of their performance. The Committee of the Bank is the chief operating decision-making body. The Committee monitors the results of the operating segments of the Group separately for decision-making purposes in relation to the allocation of resources to operating segments and the assessment of their performance. The performance of the operating segments is assessed based on the operating profit or loss before taxation which is measured as in the consolidated financial statements.

For each reporting segment, interest income is presented net of interest expense, as the majority of income derives from interest and the chief operating decision maker depends mostly on net interest income for the assessment of performance of each segment and the allocation of resources to each segment. The results of the segments, both in financial and commercial sector, are assessed based on financial performance indicators such as total income and expenses, percentage of expenses on income, return on assets and on capital and provisions for impairment.

5.13 Employee retirement benefits

The Group and its employees contribute to the Government Social Insurance Fund based on the salary of the employees. In addition, the Group follows a Defined Benefit Contributions Scheme (Provident Fund), the assets of which are kept in separate accounts. The plan is funded by payments made by the employees and the Group. The contributions of the Group are written off in the period they relate to and are included in the staff costs. The Group does not have any legal or constructive obligation to pay extra contributions if the plan does not have sufficient funds to pay all the employees for benefits relating to their services during the current and prior periods.

5.14 Taxation

Income tax expense comprises of current and deferred tax. It is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in profit or loss and other comprehensive income. Current taxation represents the amount of the tax liability which relates to the taxable profit of the period, using the tax rates that have been enacted, or substantially enacted, by the reporting date of the consolidated statement of financial position and any adjustments to tax payable or receivable in respect of prior periods. The Group is not subject to income tax on income deriving from transactions with Members.



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5. Significant accounting policies (continued) 5.14 Taxation (continued)

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated statement of financial position and the corresponding tax bases. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be realised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, taking into account the tax rates and laws that were enacted or substantially enacted by the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

5.15 Property, plant and equipment

Land and buildings are carried at fair value, based on valuations by independent professional valuers, less subsequent depreciation for buildings. Revaluations are carried out with sufficient regularity such that the carrying value presented in the consolidated statement of financial position does not differ materially from their fair value at the reporting date. All other property, plant and equipment are stated at historical cost less depreciation.

Increases in the carrying value arising on revaluation, are credited to fair value reserves in equity. Decreases that offset previous increases of the same asset are charged against that reserve. All other decreases are charged to profit or loss. Each year the difference between depreciation based on the revalued carrying value of the asset (the depreciation charged to profit or loss) and depreciation based on the asset‟s original cost is transferred from fair value reserves to retained earnings.

Properties under construction to be used for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group‟s accounting policy. Depreciation of these assets, calculated on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is calculated on the straight-line method so as to write off the cost or revalued amount of each asset of property, plant and equipment, over its estimated useful life. The annual depreciation rates used are as follows: Buildings 3%-10% Plant and equipment 10%-20%

No depreciation is calculated on land and on properties under construction. The assets‟ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Where the carrying value of an asset is greater than its estimated recoverable amount, the asset is written down immediately to its recoverable amount. Expenditure for repairs and maintenance of property, plant and equipment is charged to profit or loss of the year in which it is incurred. The cost of major renovations and other subsequent expenditure are included in the carrying value of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. The book value of property, plant and equipment is reviewed for impairment when events or changes in conditions indicate that the book value may not be recoverable. If there is such an indication and the book value is higher than the estimated recoverable amount, then the book value of the asset is impaired to the recoverable amount. The recoverable amount of property, plant and equipment is the higher amount between net selling price and value in use.



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5. Significant accounting policies (continued) 5.15 Property, plant and equipment (continued) An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or withdrawal of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying value of the asset and is recognized in profit or loss. When revalued assets are sold, the amounts included in the fair value reserves are transferred to retained earnings. 5.16 Investment properties Investment properties include investments in land and buildings held for rental and/ or for capital growth, instead of use in the ordinary course of business or for sale. Investment properties are initially recognized at cost in the consolidated statement of financial position which includes the expenses arising from the transaction and subsequently measured at fair value on each reporting date. The fair value of property is determined by independent professional valuers. Gains or losses arising from revaluation of investment properties that is included in the profit or loss for the year, represents the difference between the fair value at the end of the year and the fair value at the beginning of the year or the cost of investment properties purchased during the year. An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the continued use of the asset. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in profit or loss in the period in which the property is derecognized. When an investment property was previously included in property, plant and equipment has been disposed, any amount recognized in the fair value reserve is transferred to the retained earnings. 5.17 Properties held for sale Properties held for sale include properties acquired in satisfaction of debt and are measured at the lower of cost and net realizable value. 5.18 Non-current assets held for sale and discontinued operations The Group classifies non-current assets and groups of assets as held for sale, if their carrying value will be recovered mainly through a sale transaction and not from their continued use. The above requirement is met only when the sale is highly probable and the asset (or disposal group) is available for immediate disposal in its current condition. The Committee should be committed to a sale plan and the sale is expected to meet the conditions of a complete sale within a year from the year of classification When the Group is committed in the context of a sales plan involving loss of control of a subsidiary, all the assets and liabilities of that subsidiary are classified as held for sale when the above criteria are met, regardless of whether the Group will retain non-controlling holding in the former subsidiary after sale. Non-current assets and groups of assets held for sale that are classified as held for sale are measured at the lower of the asset's previous carrying amount and fair value less costs to sell, except for assets and liabilities that are not within the scope of the measurement requirements of IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". These are measured in accordance with the Group's accounting policies as described elsewhere in this note. Immediately prior to the initial classification as held for sale, the carrying amounts of the assets (or assets and liabilities of the disposal group) are measured in accordance with the relevant IFRSs. Upon the subsequent measurement of the disposal group, the carrying amounts of assets and liabilities held for sale that do not fall under the measurement requirements of IFRS 5 are measured in accordance with the relevant IFRSs before the determination of the fair value less costs to sell of the discontinued operations.



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5. Significant accounting policies (continued) 5.18 Non-current assets held for sale and discontinued operations (continued) Any impairment loss that arises from a disposal group, it is first allocated to goodwill, and then allocated to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventory, financial assets, deferred tax assets, assets arising from employee benefits, investment property and biological assets, which continue to be measured in accordance with other accounting principles of the Group. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses from revaluation are recognized in profit or loss. Intangible assets and property, plant and equipment that are classified as held for sale are not depreciated while they are classified in this category and any investments recognized using the net asset position are no longer accounted for under this method. Assets and liabilities classified as held for sale are presented separately in the consolidated statement of financial position. A disposal group may be considered as a discontinued operation if it is an entity or a component of an entity that either has been disposed of, or has been classified as an asset held for sale and (i) it represents a separate major line of business or geographical area of operations, (ii) is part of a single coordinated plan to dispose of a separate major line of business or geographical area operation; or (iii) is a subsidiary acquired exclusively with a view to resale. Net loss / profits from discontinued operations include net operating profit before tax from discontinued operations (including net gains or losses from pre-tax sale and gains or losses from disposal group held for sale, which is a discontinued operation at fair value less costs to sell) and tax arising from discontinued operations. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as gains or losses in the consolidated statement of profit or loss. 5.19 Computer software Costs that are directly associated with identifiable and unique computer software products controlled by the Group and that will probably generate economic benefits exceeding costs beyond one year are recognized as intangible assets. Subsequently computer software is carried at cost less accumulated amortization and accumulated impairment losses. Expenditure which enhances or extends the performance of computer software programs beyond their original specifications are capitalized. Expenditure associated with maintenance of computer software programs is recognized as an expense when incurred. Computer software is amortized using the straight-line method for a period not exceeding five years. Amortization commences when the computer software is available for use. The residual value and useful economic life are reviewed and adjusted at every reporting period, if it is considered necessary. An intangible asset is derecognized on disposal or when no future economic benefits are expected from use or disposal. Gains or losses arising from the derecognition of an intangible asset, measured as the difference between the disposal proceeds and the carrying value of the asset, are recognized in profit or loss when the asset is derecognized. 5.20 Revaluation reserve

Any surplus from revaluation of land and buildings is credited to the revaluation reserve which is included under equity. In cases where, after revaluation, depreciation charged increases, then an amount equal to this increase (after deferred tax) is transferred every year from revaluation reserve to retained earnings. At the disposal of revalued land and buildings, the relevant cumulative surplus included in revaluation reserve is also transferred to retained earnings. 5.21 Deferred income Deferred income represents income receipts which relate to future periods.



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5. Significant accounting policies (continued) 5.22 Deferred income from government grants Government grants received for non-current assets acquisitions are recorded as deferred income and recognized as income on a systematic and rational basis over the useful life of the asset. Grants are recognized when there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received. Government grants that relate to expenses are recognized in profit or loss as revenue. 5.23 Operating Leases Leases, where substantially all risks and rewards of ownership of an asset are transferred to the lessee, are classified as finance leases. All other lease agreements are classified as operating leases. The Group has only entered into operating lease agreements for property either as a lessor or as a lessee. For operating leases where the Group is the lessor, the leased property is recognized as an asset of the Group and is depreciated over its useful life. Rental income from operating leases is recognized in the consolidated statement of profit or loss on a straight line basis over the period of the lease. For operating leases where the Group is the lessee, the leased property is not recognized as an asset of the Group. Rental expenses made under operating leases are charged to the consolidated statement of profit or loss on a straight line basis over the period of the lease. 5.24 Financial instruments 5.24.1 Recognition The Group initially recognizes other advances to customers, deposits of customers and debt capital issued on the date on which they are originated. All other financial instruments are recognized on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially recognized at fair value, which in all cases except for instruments classified as at fair value through profit or loss, includes transaction costs that are directly attributable to their acquisition or issue.

The Group classifies its financial assets as follows:

loans and advances to customers

held to maturity

available for sale

at fair value through profit or loss

The Group classifies its financial liabilities as liabilities at amortized cost.

5.24.2 Derecognition

The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. All rights or obligations that were created or retained by the Group during the transfer are recognized as an asset or liability. On derecognition the difference between the carrying amount of the asset and the sum of the consideration and any gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. If there is not a realistic prospect of recovering the loans and accumulated provisions these may be derecognized, either fully or partly. When loans are secured, the amount that is derecognized is after the proceeds received from the liquidation of the collateral. In case that, the net realizable value of the mortgage has been determined and no realistic prospect of recovering an additional amount is established, the derecognition can be completed at an earlier stage. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expire.



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5. Significant accounting policies (continued) 5.24 Financial instruments (continued) 5.24.3 Offsetting

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position when, and only when, the Group has a legal right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under the accounting standards, or when they relate to gains and losses arising from a group of similar transactions.

5.24.4 Measurement at amortised cost

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, less any principal repayments, plus or minus the cumulative amortisation using the effective interest rate method of any difference between the initial amount recognized and the maturity amount, less any reduction for impairment.

5.24.5 Fair value measurement

Fair value is the price that would be received from the disposal of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the main or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

The Group measures the fair value of an instrument using the quoted prices in an active market for that instrument when these are available. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the primary factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e. the fair value of the consideration paid or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability, nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument, but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures its assets at the bid price and its liabilities at the ask price.

Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk, that are managed by the Group on the basis of net exposure to either market or credit risk, are measured on the basis of a price that would be received to sell an asset (or paid to transfer a liability) for every particular risk exposure. Portfolio level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk of each of the individual instruments in the portfolio. The fair value of an on-demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The Group recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.



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5. Significant accounting policies (continued) 5.24 Financial instruments (continued) 5.24.6 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the Group has no intention for trading immediately or in the foreseeable future. Loans and receivables include advances to customers and banks. Loans and receivables are recognized initially at fair value plus any attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. 5.24.7 Receivables from trade operations Trade receivables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. The provision recognized is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. 5.24.8 Financial assets The Group classified its financial assets that comprise of investments in bonds and investments in shares in the following three categories. The investments are classified in the below categories upon initial recognition based on their characteristics and the purpose of their acquisition. (i) Investments held to maturity Investments held to maturity are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity, and which are not designated as at fair value through profit or loss or as available for sale. After initial recognition investments held to maturity are carried at amortised cost using the effective interest method, less any impairment losses. A sale or reclassification of a significant amount of investments held to maturity which are not close to their maturity date would result in the reclassification of all investments held to maturity as available for sale, and would prevent the Group from classifying investment securities as held to maturity for the current and the following two financial years, except for:

disposals or reclassifications that are so close to the maturity date that the change of the market interest will not have a substantial impact on the fair value of financial assets,

disposals or reclassifications that realized after the Group has recover the whole initial value,

disposals or reclassifications that are a result of non-recurring, isolated events, beyond the control of the Group which could not be reasonably expected.

(ii) At fair value through profit or loss Financial assets at fair value through profit or loss are allocated to the following categories: (a) Assets for commercial use and (b) Assets designated at fair value through profit or loss at initial recognition.

Changes in the fair value of the assets that are designated as assets at fair value through profit or loss are included in profit or loss.



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5. Significant accounting policies (continued) 5.24 Financial Instruments (continued) 5.24.8 Financial assets (continued) (iii) Available for sale Investments available for sale are non-derivative investments that are designated as available for sale or are not classified in any other category of financial assets. Investments available for sale comprise of equity securities and debt securities. Investments in unquoted equity securities for which the fair value cannot be reliably measured are classified as financial assets at cost. The category includes the investments in cooperative credit institutions. The Cooperative Companies Law does not allow the transfer of shares held for a cooperative credit institution to a third party who is not already a member of the cooperative credit institution and the transfer of shares between members cannot be completed unless there is an approval of the Committee of the cooperative credit institution. In addition, each member-shareholder of a cooperative credit institution holds only one vote irrespective of the number of shares held. Due to the above limitations, the fair value cannot be estimated reliably and therefore the investments are presented at cost. The remaining investments available for sale are measured at their fair value after initial recognition. Gains or losses arising from changes in the fair value are directly recognized in equity, with the exception of impairment losses. On disposal or impairment of the investments, the cumulative gain or loss which was previously recognized in equity, is recognized in profit or loss. 5.24.9 Deposits and other customer accounts Deposits are the main source of financing for the bank. Deposits and other customer accounts are initially recognized at fair value less attributable transaction costs. After initial recognition, deposits and other customer accounts are measured at amortised cost, using the effective interest rate method. 5.24.10 Cash and cash equivalents Cash and cash equivalents comprise of cash and unrestricted deposits to central banks, investments in debt securities, deposits and amounts due to other banks, as well as repurchase agreements, of which the maturity does not exceed the period of three months from the acquisition date. Cash and cash equivalents are recognized in the consolidated statement of financial position at amortised cost. 5.24.11 Loans payable Loans are recognized at the initial amount of proceeds received, net of financing costs. Loans are subsequently stated at amortized cost. Any differences between the proceeds (net of costs) and the repayment value is recognized in profit or loss over the duration of the loan using the effective interest rate method. 5.25 Impairment 5.25.1 Financial assets At each reporting date, the Group assesses whether there is objective evidence that financial assets, other than financial assets carried at fair value through profit or loss, are impaired. Financial assets are considered to be impaired when there is objective evidence of impairment as a result of a loss event that has occurred following the initial recognition of the assets and that the loss event has an effect on the future estimated cash flows of the assets that can be measured reliably. Objective evidence that financial assets are impaired may include default or delinquency by the borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that the borrower or issuer will enter bankruptcy, the disappearance of an active market for the financial asset, or other observable data relating to a group of assets such as adverse changes in the payment schedule of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an



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investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. 5. Significant accounting policies (continued) 5.25 Impairment (continued) 5.25.1 Financial assets (continued) The Group evaluates whether valid evidence of probable impairment exist in its loan portfolio on an individual and on a collective basis. Individually significant loans are assessed for individual impairment. Individually significant loans that were individually assessed but found not to be individually impaired are then collectively assessed for any impairment that has been incurred but not yet recorded. Loans that are not individually significant are then collectively assessed for any impairment by grouping together loans with similar risk characteristics. The calculation of the provision for impairment is based on the Group‟s assessment in relation to the historical trends of losses demonstrated by the relevant groups with similar risk characteristics. Impairment loss on assets measured at amortised cost is calculated as the difference between the carrying amount and the present value of estimated future cash flows discounted at the asset‟s effective interest rate. If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial hardships of the customer, then an assessment is made of whether the financial asset should be written-off. If the cash flows of the renegotiated asset are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired and the original financial asset is derecognized and the new financial asset is recognized at fair value. Losses are recognized in profit or loss and are reflected in an impairment account against advances or investments held to maturity. Interest on the impaired assets continues to be recognized through the unwinding of the discount. The Group examines whether there are any valid indications for impairment for the investments held to maturity on an individual basis. If an event occurring after the recognition of impairment causes the amount of impairment loss to decrease or amounts relating to impaired loans to be received, then the decrease in impairment loss is reversed through profit or loss. When there is objective evidence that an investment available for sale is impaired, the cumulative loss that had been recognized directly in equity is reclassified from equity to profit or loss. The amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost (net of any repayment of capital and amortisation) and current fair value, less any impairment loss on that investment previously recognized in profit or loss. If, in a subsequent period, the fair value of an impaired investment available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss previously recognized will be reversed through profit or loss. Any future increase in fair value is recognized in other comprehensive income. The Group writes off a loan or an investment, either partially or in full, when it determines that there is no realistic prospect of recovery.

5.25.2 Non financial assets The carrying amounts of non-financial assets (other than investment properties and deferred tax assets) are reviewed by the Group at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the Group estimates the assets‟ recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset or a cash generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.



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The loss from impairment is reversible only to the extent that the carrying amount does not exceed the net carrying

amount that the asset would have had if the impairment loss was not recognized, after deducting depreciation.



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5. Significant accounting policies (continued) 5.26 Provisions A provision is recognized when the Group has a present legal or constructive obligation as a result of a past event it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. When the Group expects a provision to be repaid, for example under an insurance contract, the repayment is recognized as a separate asset only when the repayment is virtually certain. 5.27 Non-current liabilities Non-current liabilities represent amounts that are due in more than twelve months from the date of the consolidated statement of financial position. 5.28 Repurchase agreements Securities sold subject to repurchase agreements („repos‟) continue to be recognized in the consolidated statement of financial position. The proceeds from the sale of the securities are recognized as „Repurchase Agreements‟. Securities purchased, on the condition that they will be resold in the future („reverse repos‟), are not recognized in the statement of financial position. The amounts paid for purchase thereof are recognized as „Reverse Repos Agreements‟. The difference between the sale and repurchase consideration is recognized as interest income or expense over the life of the repurchase agreement using the effective interest rate method. 5.29 Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor failed to make payments when due, in accordance with the terms of a financial instrument. Guarantees and documentary credits are the financial guarantees the Group provides to its customers. Financial guarantees are initially recognized at fair value on the date the guarantee was granted. Because all guarantees agreed are on an arm‟s length basis and the value of the premium agreed corresponds to the value of the guarantee obligation, the initial fair value of a financial guarantee is zero. Subsequent to initial recognition, the Bank‟s liabilities under such financial guarantees are measured at the higher of the initial amount, less cumulative amortization of fees, which are recognized as income on a straight line basis during the guarantee period, and the net present value of the best estimate of the amount required to settle the probable obligation as a result of the guarantee. 5.30 Inventories

Inventories are stated at the lower of cost or net realizable value. The cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less the costs to completion and selling expenses.

5.31 Share capital

Shares issued and fully paid are recognized at nominal value and are classified as share capital which is included in equity. When subsidiaries of the Group acquire shares of the parent company, the fair value of these shares is included in retained earnings in equity. Any gain or loss arising from their disposal is included in equity. Expenses directly related to an increase of the authorized share capital and issued share capital are recognized directly in equity during the year they occurred.



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5. Significant accounting policies (continued) 5.32 Earnings per Share The Group presents basic and diluted earnings per share attributable to the majority shareholders. Basic earnings per share is calculated based on earnings attributable to equity holders and the weighted average number of issued shares throughout the year. The diluted earnings per share is calculated after adjusting earnings attributable to equity holders of majority and the weighted number of issued shares. 5.33 Dividends

Dividends payable are recognized as a liability in the financial statements of the Bank in the year in which they are approved. In particular, interim dividends are recognized as a liability in the year in which they are approved by the Committee of the Bank. Final dividends are recognized in the year in which they are approved by the shareholders of the Bank. 5.34 Transactions between related parties Parties are considered as related when one party has the ability to control the other party or has significant influence on the financial and operational decisions of the other party. Related party transactions are considered to be transfers of resources or obligations between related parties, irrespective of whether a price is charged. 5.35 Events after the reporting period

Assets and liabilities are adjusted for events occurred between the end of the reporting period and the date that the consolidated financial statements are approved by the Committee, in cases when these events provide additional information on the valuation of amounts relevant to conditions existing at the reporting date. 5.36 Comparative amounts The comparative amounts included in the financial statements are restated, where considered necessary, to conform with changes in the presentation of the current year. The comparative amounts presented in the consolidated financial statements at 31 December 2016 were restated to reflect the effect of the correction of error as disclosed in note 49.



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6. Segmental analysis

The main activities of the Group is the provision of banking and financial services and the carrying out of trading operations, which are carried out in Cyprus.

Banking, financial and insurance

services Trading

Activities

Transactions

between segments Total

€'000 €'000 €'000 €'000 2016 Net interest income/(expense) 279.914 (160) - 279.754 Net fees and commission income 28.585 - - 28.585 Other (losses)/income 17.675 16.838 (172) 34.341

Total net income 326.174 16.678 (172) 342.680

Staff costs (98.808) (4.562) - (103.370) Depreciation (8.464) (895) - (9.359) Other operating expenses (72.552) (5.679) 172 (78.059)

Total expenses (179.824) (11.136) 172 (190.788)

Operating profit before provisions for impairment 146.350 5.542

- 151.892

Increase in provisions for impairment of loans and other advances and other provisions to cover credit risk (116.484) -

-

(116.484)

(Loss)/profit before tax 29.866 5.542

- 35.408

Banking, financial and insurance

services Trading

Activities

Transactions between

segments Total €'000 €'000 €'000 €'000 2015 Net interest income/(expense) 317.009 (46) - 316.963 Net fees and commission income 32.170 - - 32.170 Other (losses)/income (3.418) 28.498 (12.032) 13.048

Total net income 345.761 28.452

(12.032) 362.181

Staff costs (89.340) (7.502) - (96.842) Depreciation (9.321) (2.029) - (11.350) Other operating expenses (78.141) (11.694) 11.998 (77.837)

Total expenses (176.802) (21.225)

11.998 (186.029)

Operating profit before provisions for impairment 168.959 7.227

(34) 176.152

Increase in provisions for impairment of loans and other advances and other provisions to cover credit Risk (380.457) -

-

(380.457) Other expenses - (3) - (3)

(Loss)/profit before tax (211.498) 7.224

(34) (204.308)

In 2016, the operational merger of SEM with CCB has been completed. Therefore, in 2016 SEM is included in the banking, financial and insurance services sector, while in 2015 in trading activities. Related expenses and comparative amounts have been reclassified from the gross profit of commercial sector included in the category of "Other Revenue", to "Staff Costs" (Note 11) and "Other Operating Expenses" (Note 13) so as to reflect the changes in the structure of the Group.



64

7. Interest income

2016 2015 €'000

€'000 (Restated) Loans and other advances to clients 433.947 529.146 Deposits in Central Bank of Cyprus (11.356) (4.125) Deposits in other banking institutions 241 198 Investments held to maturity - 31.607 Investments in financial assets available for sale 37.891 10.150

460.723 566.976

Interest receivable from loans and other advances to customers includes interest receivable on the recoverable amount of impaired loans of €210.024 thousand (2015: €250.545 thousand). The effect of the error on interest receivable from Loans and other advances to clients is disclosed in note 49 of the consolidated financial statements. 8. Interest expense

2016 2015 €'000 €'000

Customer deposits 180.504 249.461 Loans repayable 19 65 Amounts due to other banks 446 489

180.969 250.015

9. Other net gains/(losses)

2016 2015 €'000 €'000

Net (loss)/profit from disposal of property, plant and equipment (228) 32 Net loss from disposal of property held for sale (704) (119) Net profit from disposal of intangible assets - 8 Net loss from disposal of investment properties (287) (8) Fair value loss on investment properties (3.890) (4.584) Fair value gains on financial assets available for sale transferred to profit or loss - 64 Net profit from disposal of financial assets available for sale 32.676 563 Impairment charge on property held for sale (8.207) (700) Impairment charge on property, plant and equipment (3.274) (8.870) Other (losses)/profit (3.093) 2.500 12.993 (11.114)

During the year, a profit of €27,0 million was recognized from the sale of government bonds and a profit of €5,8 million from the sale of the Group‟s shareholding in Visa Europe Limited.



65

10. Other income

2016 2015

€'000 €'000

Net income from trading in foreign currencies 884 1.615 Gross profit from trading sector 467 691 Rents receivable 2.878 3.578 Dividend income 11 21 Sundry 407 2.884

4.647 8.789 11. Staff costs 2016 2015 €'000 €'000

Wages and salaries 78.714 77.540 Social Insurance and other Government funds 7.995 7.805 Contributions to other funds 3.739 3.733 Special contribution 390 473 Contributions to provident funds 3.724 3.564 Costs for voluntary retirement plan 4.174 84 98.736 93.199 Other staff costs 729 635

99.465 93.834 Number of employees at the end of the year (including Committee Members in their executive capacity) 2.916 2.944

The remuneration of the members of the Committee is disclosed in note 42.1. The Group, other than the mandatory contributions to Social Insurance and other Government funds, based on the collective work agreements contributes to the following, which are included in contributions to other funds:

(a) Medical Scheme: Medical scheme is provided to employees, as follows: - Through the Health Fund of the Cyprus Bank Workers Union, to which the Group contributes a defined

contribution of 2,50% on the total emoluments of the year. - Through the Pancyprian Cooperative Health Fund, to which the Group contributes a defined contribution of 4%

on the total emoluments of the year, - Through predefined insurance plans of companies represented by the Group. (b) Life Insurance premium: Group life insurance is provided to employees through predefined schemes of Insurance Companies which are represented by the Group. In addition, the Group operates defined contribution plans, the employees‟ Provident Funds, which prepare separate financial statements and provide their members with defined benefits during the retirement or early termination of service pursuant to their Articles of Association. The employer's current contribution is 7% for the Bank and 5% for the CCIs. The corresponding for the employee is 3-10% for the Bank and 3-12% for the CCIs.

CCS Voluntary Retirement Plan:

On 16 August 2016, the Group established the Voluntary Retirement Plan, which ended on 15 September 2016. The Plan was accepted 78 individuals from the CCS, of which 58 people from the Credit Sector and 20 people from the Commercial Sector, whose activities are gradually being phased out.



66

11. Staff Costs

CCS Voluntary Retirement Plan (continued):

The total cost of the Plan amounted to €4,2 million. This includes an estimate of the cost of additional benefits granted to the staff that accepted the Plan and relate to: medical care, life insurance coverage for a period of three years from the date of departure or until the normal retirement date

- whichever is the soonest, and payment of the transferred annual leave of up to two years including any outstanding balance of 2016 up to the

date of departure. The first two benefits cease to apply in the case where the staff member who accepted the Scheme is employed in another organization. 12. Depreciation 2016 2015 €'000 €'000

Property, plant and equipment for own use (Note 25) 8.065 9.946 Intangible Assets (Note 26) 727 769

8.792 10.715 13. Other operating expenses 2016 2015 €'000 €'000

Taxes and licenses 1.029 1.473 Electricity 2.730 2.604 Cleaning and water supply 1.312 1.198 Insurance premiums 2.004 1.885 Repairs and renovations 1.649 1.052 Telephone and postage 1.585 1.640 Stationery and printing 3.177 2.676 Maintenance of equipment 4.732 4.478 Other consultancy fees 1.561 1.167 Other professional fees 11.665 12.036 Special levy on deposits 18.770 18.768 Remuneration of non-executive Committee members 397 685 Transportation costs 805 772 Advertising 2.255 2.153 Rent 784 746 Security expenses 1.132 1.077 Professional subscriptions 806 605 Valuation expenses 2.176 3.569 Other expenses 14.489 14.026 73.058 72.610 The total fees to the Group's statutory auditors for the audit of the financial statements of the Group and its subsidiaries as well as other fees to the statutory auditors which are included in other professional fees are analyzed as follows:

2016 2015 €'000 €'000 Audit fees 694 1.342 Tax services 159 92 Assurance services 41 176 Other services 250 753 1.144 2.363



67

13. Other operating expenses (continued) According to the "Imposition of Special Tax on Credit Institution Law of 2011 to 193 (I) / 2015" each credit institution is obliged to pay special tax calculated on the total deposits of each credit institution in the Republic on a quarterly basis, as these were recorded at the end of the previous quarter, at the rate of 0,0375%. From 1 January 2015 until 31 December 2021, 35/60 of the total revenue accruing from the submitted special tax will be transferred to an account held at the Central Bank for the benefit of the Recapitalization Fund, which is set up under the provisions of the "Establishment and Operation of the Independent Fund for Recapitalization Law of 2015". From 1 January 2022 onwards, all revenue from the special tax will be transferred to the Fixed Fund. The Special Tax on deposits recognized in other operating expenses for the year ended 31 December 2016 amounts to €18.770 thousand (2015: €18.768 thousand). 14. Taxation

14.1 Tax recognized in profit or loss for the year

2016 2015 €'000 €'000

Corporation tax – current year 207 850 Prior years corporation tax 14.359 114 Defense Contribution – current year 195 242 Defense Contribution – previous year 1 - Capital gains tax 365 115 Deferred tax – debit/(credit) (Note 36) 3.888 (29.862)

19.015 (28.541)

The tax on the Group‟s profit or loss, before tax, differs from the theoretical amount that would arise using the applicable tax rates as follows:

2016 2015 €'000 €'000

Profit/(loss) before tax 28.180 (210.813) Corporation tax rate 12,5% 12,5% Tax calculated at the applicable tax rates 3.523 (26.352) Tax effect of the loss from the transactions with members not subject to tax (3.291) 32.609 Tax effect of expenses not deductible for tax purposes 10.798 16.017 Tax effect of allowances and income not subject to tax (9.342) (33.307) Tax effect of losses brought forward (3.988) (749) Tax effect of loss for the year 3.268 12.531 Tax effect from offsetting group losses (761) - 10% additional charge - 101 Defense contribution – current year 195 242 Defense contribution – previous years 1 - Capital Gains tax 365 115 Deferred tax 3.888 (29.862) Prior Year taxes 14.359 114 Other taxes - -

19.015 (28.541)



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14. Taxation 14.2 Tax recognized in other comprehensive income 2016 2015 €'000 €'000

Revaluation of land and buildings (2.895) 3.240

(2.895) 3.240 Tax recognized in other comprehensive income for the revaluation of land and buildings from continuing operations amounts to €3.480 thousand (Note 36). The corporation tax rate is 12,5%. The Group is subject to tax on income arising from transactions with non-members. In accordance with article 13 of the Income Tax Law 118(I)/02, any tax losses of the Group companies in Cyprus which are not offset against taxable profits of other Group companies in Cyprus, are carried forward and offset against future taxable profits. Based on an amendment to the Income Tax Law issued on 21 December 2012, tax losses for the years from 2006 onwards, can be carried forward and set off only against taxable profits for the next five years. Based on the International Accounting Standard 12, the Group recognized deferred taxation amounting to €38.062 thousand arising from tax losses and from temporary tax differences (Note 36). Deferred tax was recognized on the basis of profitable forecasts of the Management of the Bank, which have been prepared in 2016 and are based on available data, including historic profitability levels. This demonstrates that the Group is in a position to achieve taxable profits against which the deferred tax can be utilized. Gross rents (minus 25%) received by the Group are subject to defense contribution at the rate of 3%.



69

15. Profit/ (loss) per share Basic and diluted profit / (basic and diluted loss) per share The amounts of basic and diluted profit/(loss) per share is based on the profit/(loss) attributable to equity holders of the Bank, the weighted average number of issued shares as at the year end and the weighted average number of issued shares during the year is as follows: 2016 2015 Continuing

operations Discontinued

operations Total Continuing operations

(Restated) Discontinued

operations Total (Restated)

Profit/(loss) attributable to equity holders of the Bank (€thousands)

8.626

(1.760) 6.866

(181.682)

4.652 (177.030) Weighted average number of issued shares during the year (thousands)

6.036.121

6.036.121 6.036.121

4.777.217

4.777.217 4.777.217 Basic profit/(loss) per share (€cent)

0,14

(0,03) 0,11

(3,80)

0,10 (3,70) Adjusted weighted average number of shares (thousands)

6.036.121

6.036.121 6.036.121

4.777.217

4.777.217 4.777.217 Diluted profit/(loss) per share (€cent)

0,14

(0,03) 0,11

(3,80)

0,10 (3,70) On 31 December 2016 and 31 December 2015, the diluted profit / (loss) per share is the same with the basic profit/ (loss) per share because there were no issued warrants or other financial assets convertible into shares. On 31 December 2015 the average number of shares has been adjusted for the issue of shares towards the Recapitalization Fund against the prepaid share reserve and the division of share capital, which took place in 2016 (Note 37, Note 49). 16. Discontinued operations Pursuant to the provisions of the revised Restructuring Plan (Note 3.11), the Group has drafted sale agreements for the commercial non credit participations in New Sevegep Ltd, SOPAZ Ltd and Comarine Ltd. These agreements have been sent to the Registrar of Cooperative Enterprises for review and approval. Once the agreements are approved, the parties will proceed to implementation of the agreements, which are expected to be signed within 2017. Additionally, on 26 July 2016, the disposal of PEAL Troodos Ltd has been completed. As a result of the above, as at 31 December 2016 the results of these companies were categorized as discontinued operations, whereas the assets and liabilities of the companies that were not disposed off by 31 December 2016 are presented separately in the Group's Statement of Financial Position as " Non-Current assets / liabilities and disposal groups held for sale " (Note 38). The results of these commercial sector participations that are included in the Consolidated Statement of Profit or Loss are presented below. The comparative figures of the Consolidated Statement of Profit or Loss have been adjusted to reflect last year‟s results of these companies as discontinued operations, as this classification was not made in the previous year.



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16. Discontinued operations (continued) Results of discontinued operations

Out of the total profits from continuing operations of €9.165 thousand (2015: loss of €182.272 thousand), an amount of €8.626 thousand (2015: loss of €181.682 thousand) is attributable to equity holders of the Bank and an amount of €539 thousand (2015: loss of €590 thousand) is attributable to non-controlling interests. Out of the total loss from discontinued operations of €2.099 thousand (2015: profit of €5.825 thousand), an amount of €1.760 thousand (2015: profit of €4.652 thousand) is attributable to equity holders of the Bank and an amount of €339 thousand (2015: profit of €1.173 thousand) is attributable to non-controlling interests. An amount of €3.172 thousand has been recognized in the Group's other comprehensive income in respect of discontinued operations. Discontinued operations have no material impact on the Group's operating, investing and financing cash flows for the years ending 31 December 2016 and 31 December 2015. The results of discontinued operations are included in Trading Activities in note 6 of the consolidated financial statements and the effect on the profit / (loss) per share is presented in note 15.

2016 2015 €'000 €'000 Interest income 167 201 Transactions between sectors (167) (199) Interest expense (349) (451) Transactions between sectors 349 451 Net interest income - 2 Other net gains 825 34 Transactions between sectors - (34) Other income 15.876 15.373 Total net income 16.701 15.375 Staff costs (3.905) (3.008) Depreciation (567) (635) Other operating expenses (5.156) (5.342) Transactions between sectors 155 115 Total expenses (9.473) (8.870) Profit from discontinued operations before tax

7.228

6.505 Taxation (627) (680) Profit for the year from discontinued operations 6.601 5.825 Loss from impairment of discontinued operations value (8.700) - Net (loss)/profit for the year from discontinued operations

(2.099)

5.825



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17. Deposits with central banks Deposits with the Central Bank of Cyprus include deposits for liquidity purposes or/and additional placements for surplus available funds and are presented below: 2016 2015 €'000 €'000

Deposits with Central Bank of Cyprus 3.733.950 3.084.874 Accrued interest (717) (528)

3.733.233 3.084.346 2016 2015 Repayment Analysis: €'000 €'000

On demand (Note 39) 3.612.609 2.962.187 Compulsory deposits 120.624 122.159

3.733.233 3.084.346 The exposure of the Group to credit risk and impairment losses in relation to the above mentioned deposits is reported in note 44.1 of the consolidated financial statements.

18. Deposits with other banking institutions The deposits with other banking institutions comprise deposits of liquid assets and are presented below: 2016 2015 €'000 €'000

Deposits with Cypriot banks 271 787 Deposits with foreign banks 42.807 45.359 Other cash equivalents 536 11 43.614 46.157 Accrued interest 42 38

43.656 46.195 2016 2015 Repayment analysis: €'000 €'000

On demand (Note 39) 2.119 1.282 Within three months (Note 39) 33.967 42.911 Between three months and one year 7.570 2.002

43.656 46.195 On 31 December 2016 placements with other banks amounting €5.037 thousand (2015: €6.000 thousand) were pledged as collateral. At 31 December 2016, deposits with other Banking Institutions of the Group which are repayable within three months for the purposes of the consolidated statement of cash flow statements are €36.264 thousand (2015: €44.193 thousand) (Note 40). The exposure of the Group to credit risk and impairment losses in relation to the above mentioned deposits is disclosed in note 44.1 of the consolidated financial statements.



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19. Loans and other advances to customers 2016 2015 €'000

€'000

(Restated)

Loans and advances to customers 11.974.970 12.644.973 Advances for the repayment of refugee deposits 36.758 36.758 Long term advances for agricultural development 19.428 21.472

12.031.156 12.703.203 Accrued interest 2.636 3.383

12.033.792 12.706.586 Provisions for impairment (3.272.236) (3.449.248)

8.761.556 9.257.338 Analysis of loans and other advances to customers by category: 2016 2015 €'000

€'000

(Restated) Current accounts 849.136 1.085.010 Term loans 11.123.518 11.550.154 Other debtors 2.316 9.809

11.974.970 12.644.973

Provisions for impairment: Individual

and collective

provision for doubtful

debts IBNR Total €'000 €'000 €'000

1 January 2015 (Restated) 2.602.438 331.050 2.933.488 Interest of impaired loans 480.692 - 480.692 Unwinding of discount (250.545) - (250.545) Charge for the year 602.536 (222.079) 380.457 Write offs and other transfers (94.844) - (94.844)

31 December 2015/1 January 2016 (Restated) 3.340.277 108.971 3.449.248 Interest of impaired loans 423.043 - 423.043 Unwinding of discount (210.024) - (210.024) Charge for the year 99.413 13.924 113.337 Write offs and other transfers (503.340) (28) (503.368) 31 December 2016 3.149.369 122.867 3.272.236



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19. Loans and other advances to customers (continued) The breakdown of loans and advances to customers based on their remaining maturity is shown below: 2016 2015 Repayment analysis: €'000 €'000 (Restated)

On demand 2.201.335 2.694.869 Within three months 100.871 148.680 Between three months and one year 348.908 398.921 Between one to five years 1.898.108 1.931.496 Over five years 7.484.570 7.532.620

12.033.792 12.706.586

Provisions for impairment (3.272.236) (3.449.248)

8.761.556 9.257.338 The non-performing loans as at 31 December 2016 were €7.216.753 thousand (2015: €7.563.538 thousand), representing 60,0% of the total portfolio of loans and other advances to customers (2015: 59,5%). The analysis of non-performing loans is disclosed in note 46 and is presented according to the new Directive of the European Banking Authority (“EBA”). According to the definition of EBA, the following advances are considered as non-performing: (i) Significant advances that present past due balances more than 90 days, or (ii) Advances for which the debtors cannot fully repay their obligations without the sale of collateral, or (iii) Customer advances for which the Bank took legal actions against them, or Advances of bankrupt customers, or Advances for which the Bank has recognized a provision for impairment or write off, or (iv) Advances that have been restructured twice in a period of two years, or (v) Advances that have been restructured and during the monitoring period (2 years) were past due for a period for more than 30 days. The Group‟s exposure to credit risk, regarding loans and other advances to customers, is reported in note 44.1 of the consolidated financial statements.

Advances with terms that were renegotiated and forbearance policy

The net advances with terms that were renegotiated are analyzed below by sector:

2016 2015

€’000 €'000 (Restated)

Trading sector 88.044 77.465 Construction and real estate entities 256.073 183.121 Manufacturing entities 56.354 48.133 Tourism entities 53.771 35.075 Other entities 288.090 238.543 Individuals 2.012.734 1.632.985

Total 2.755.066 2.215.322



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19. Loans and other advances to customers (continued) 2016 2015 Analysis of loans by geographical region: €’000 €'000 (Restated)

Cyprus 8.761.556 9.257.338

8.761.556 9.257.338

The effect of the error on Loans and other advances to customers is disclosed in note 49 of the consolidated financial statements. The Group proceeds to write-off of loans, and equivalent provisions for impairments, whose recovery is considered remote and for which it retains the legal right of collection. The amount of these loans at the end of the year amounts to €558.981 thousand (2015: €82.467 thousand). 20. Inventories

2016 2015 €'000 €'000

Raw materials 93 5.375 Finished goods 860 7.983 Properties for development - - Other inventories 1.273 1.501

2.226 14.859

21. Properties held for sale 2016 2015 €'000 €'000

On 1 January 100.338 79.582 Additions 32.743 15.665 Disposals (3.864) (4.073) Impairment charge (8.207) (700) Transfers from property, plant and equipment - 852 Transfers from investment property - 9.012 Other transfers 815 -

31 December 121.825 100.338

During the year, properties held for sale were revalued by independent professional valuers.

Properties held for sale include properties acquired in satisfaction of debt amounting to €98.112 thousand (2015: €72.246 thousand). During the year, the Group proceeded to additions of property which were acquired against debts of €32.743 thousand (2015: €15.665 thousand) and sales of €2.236 thousand (2015: €3.517 thousand).



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22. Financial assets available for sale

2016 2015 €'000 €'000

Bonds 651.112 945.145 Shares 31.414 37.066 682.526 982.211 Bonds Government bonds 590.708 861.536 Foreign banks bonds 46.914 63.610 637.622 925.146 Accrued interest 13.490 19.999 651.112 945.145 Listed in stock exchange 651.112 945.145 Non-listed - - 651.112 945.145

Shares Listed in stock exchange 16.680 15.909 Non-listed 14.734 21.157

31.414 37.066

The movement in financial assets available for sale for the year is presented below:

2016 2015 €'000 €'000

On 1 January 982.211 47.570 Transfer to non-current assets and groups of assets held for sale (1.000) - Additions 360.653 99.094 Disposals (664.831) (105.568) Transfer from investments held to maturity - 885.988 Net fair value gain on financial assets available for sale transferred to profit or loss - 64 Impairment charge - (3) Amount transferred to equity 5.493 55.066

On 31 December 682.526 982.211

Financial assets available for sale, which are mainly comprised of bonds, are revalued annually at fair value using the closing prices as at 31 December. For investments traded in active markets, fair value is determined as per the Stock Exchange bid prices. For other investments, fair value is estimated as per the current market value of similar instruments or as per the discounted cash flows of the underlying assets. Equity securities for which fair value cannot be measured reliably are recognized at cost less impairment.

The Republic of Cyprus, which is the issuer of the Government Bonds, is assessed by the Credit Rating Agencies as BB / B1 / BB-.



76

22. Financial assets available for sale (continued) The analysis of investments in securities based on their remaining contractual maturity from the reference date is presented below: 2016 2015 Repayment analysis: €'000 €'000

Within three months 86.795 67.662 Between three months and one year 18.097 42.235 Between one to five years 443.810 819.696 Over five years 102.410 15.552

651.112 945.145 The following are included in profit or loss with respect to financial assets available for sale: 2016 2015 €'000 €'000

Net gain on disposal of financial assets available for sale 32.676 563 Net fair value gain on financial assets available for sale transferred to profit or loss - 64 Impairment charge – financial assets available for sale - (3)

Net gain from financial assets available for sale 32.676 624

23. Investments held to maturity The movement for the year in held-to-maturity investments is presented below: 2016 2015 €'000 €'000

On 1 January - 2.409.781 Additions - - Disposals/Repayments - (1.523.793) Transfer to available-for-sale financial assets - (885.988)

On 31 December - - Purchases and sales of investments held to maturity are recognized on the transaction date, which is the date that the CCB commits to purchase or sell the asset. The cost of purchase includes transactions costs. The investments are subsequently presented at amortized cost using the effective yield method. During 2015 CCB sold debt securities which were classified as investments held to maturity. The Group reassessed its policies in relation to its investment portfolio and decided to reclassify all the bonds that were previously classified as investments held to maturity, as financial assets available for sale, so as to be able to sell these bonds if and when necessary. As a result, according to the accounting policies adopted by the Group and the IFRSs, the Group is not allowed to classify any subsequent investments as investments held to maturity for the period until the end of the current financial year and for the following two years.



77

24. Investment properties

2016 2015 €'000 €'000

On 1 January 282.560 248.157 Transfer to non-current assets and groups of assets held for sale (42.598) - Additions 831 180 Disposals (5.230) (847) Adjustment for fair value (3.890) (4.584) Transfer to properties held for sale - (9.012) Transfer from property, plant and equipment 12.660 29.865 Transfer to property, plant and equipment (4.165) (4.213) Transfer from property for development - 23.014 Other transfers (1.518) -

On 31 December 238.650 282.560

Investment properties are revalued annually on 31 December at fair value, which is the open market value, as estimated by an independent professional qualified surveyor. 25. Property, plant and equipment

2016 Land and buildings

Property under

construction

Machinery and equipment

Total

€’000 €’000 €’000 €’000

Cost or valuation On 1 January 239.954 9.921 112.978 362.853 Transfer to non-current assets and groups of assets held for sale (8.963) - (19.108) (28.071) Additions 800 4.259 5.774 10.833 Disposals/write-offs (920) (115) (217) (1.252) Adjustment for revaluation (1.783) - - (1.783) Impairment charge (1.019) (2.059) (1.112) (4.190) Reclassification from / to properties under construction 279 (269) (10) - Transfer to investment properties (12.660) - - (12.660) Transfer from investment properties 4.165 - - 4.165 Transfer to intangible assets - - (26) (26) Other transfers (1.812) (2) (573) (2.387)

Balance at 31 December 218.041 11.735 97.706 327.482 Depreciation On 1 January 3.243 - 97.900 101.143 Transfer to non-current assets and groups of assets held for sale (1.219) - (16.242) (17.461) Charge for the year 4.162 - 3.903 8.065 On disposals/write-offs (82) - (216) (298) Adjustment for revaluation (1.827) - - (1.827) Impairment charge (1) - (915) (916) Transfer to intangible assets - - (26) (26) Other transfers (15) - (610) (625)

Balance at 31 December 4.261 - 83.794 88.055

Net book value at 31 December 2016 213.780 11.735 13.912 239.427



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25. Property, plant and equipment (continued) 2015 Land and

buildings Property

under construction

Machinery and

equipment

Total

€'000 €'000 €'000 €'000

Cost or valuation On 1 January 289.183 18.512 121.936 429.631 Additions 4.747 3.289 3.275 11.311 Disposals/write-offs (4.048) - (8.142) (12.190) Adjustments for revaluation (23.663) (819) - (24.482) Impairment charge (6.373) (2.383) (187) (8.943) Reclassification from / to properties under construction and machinery and equipment 7.063 (7.434) 371 - Transfer from investment properties 4.213 - - 4.213 Transfer to investment properties (29.168) (1.244) - (30.412) Transfer to properties for sale (852) - - (852) Other transfers (1.148) - (4.275) (5.423)

Balance at 31 December 239.954 9.921 112.978 362.853 Depreciation On 1 January 8.093 - 102.354 110.447 Charge for the year 5.444 - 5.129 10.573 On disposals (380) - (6.575) (6.955) Adjustment for revaluation (9.070) - - (9.070) Impairment charge (73) - - (73) Transfers to investment properties (547) - - (547) Other transfers (224) - (3.008) (3.232)

Balance at 31 December 3.243 - 97.900 101.143

Net book value at 31 December 2015 236.711 9.921 15.078 261.710 The Group‟s land and buildings were revalued in 2015, based on valuations from independent professional qualified surveyors on the basis of fair value. The revaluation adjustment, net of corresponding deferred tax, was charged to the fair value reserve in equity. In the consolidated statement of cash flows the proceeds from the sale of property, plant and equipment comprise of: 2016 2015 €'000 €'000

Net book value 837 7.424 (Loss) /profit from the disposal of property, plant and equipment (228) 32

Proceeds from disposal of property, plant and equipment 609 7.456



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26. Intangible assets 2016

Rights for

use Computer software Total

€'000 €'000 €'000

Cost On 1 January - 21.399 21.399 Transfer to non-current assets and groups of assets held for sale - (122) (122) Additions - 4.383 4.383 Transfer from property, plant and equipment - 26 26

On 31 December - 25.686 25.686 Amortization On 1 January - 20.183 20.183 Transfer to non-current assets and groups of assets held for sale - (114) (114) Charge for the year - 727 727 Write offs - (40) (40) Transfer from property, plant and equipment - 26 26

On 31 December - 20.782 20.782

Net book value at 31 December 2016 - 4.904 4.904 2015

Rights for

use Computer software Total

€'000 €'000 €'000

Cost On 1 January 84 20.461 20.545 Additions - 791 791 Other transfers (84) 257 173 Disposals - (110) (110)

On 31 December - 21.399 21.399 Amortization On 1 January 16 19.257 19.273 Charge for the year - 776 776 Disposals - (104) (104) Other transfers (16) 254 238

On 31 December - 20.183 20.183

Net book value at 31 December 2015 - 1.216 1.216



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27. Investments in subsidiaries The significant financial entities and entities with exclusively trading operations whose figures were consolidated are presented below: Name

Country of Incorporation

% of Ownership 31 December

2016

% of Ownership 31 December

2015

Main activities

Troodos Cooperative Credit Society Ltd Cyprus 100 99 Financial Paphos Cooperative Savings Society Ltd Cyprus 100 99 Financial Limassol Cooperative Savings Society Ltd Cyprus 100 99 Financial Strovolos Cooperative Credit Society Ltd Cyprus 100 99 Financial Famagusta-Larnaca Cooperative Savings Society Ltd Cyprus 100 99 Financial Nicosia Cooperative Savings Society Ltd Cyprus 100 99 Financial Telecommunications, Energy and Banks Employees Cooperative Savings Society Ltd

Cyprus

100

99

Financial

Ledra Cooperative Credit Society Ltd Cyprus 100 99 Financial Allileggyis Cooperative Credit Society Ltd Cyprus 100 99 Financial Lakatamia-Dheftera Cooperative Credit Society Ltd Cyprus 100 99 Financial Makrasyka-Larnaka-District of Famagusta Cooperative Credit Society Ltd

Cyprus

100

99

Financial

Cyprus Educational Cooperative Savings Society Ltd Cyprus 100 99 Financial Cyprus Police and Military Cooperative Savings Society Ltd Cyprus 100 99 Financial Kokkinochoria Cooperative Credit Society Ltd Cyprus 100 99 Financial Periferiaki Limassol Cooperative Credit Society Ltd Cyprus 100 99 Financial Periferiaki Nicosia Cooperative Credit Society Ltd Cyprus 100 99 Financial Tamassos-Orinis and Pitsilias Cooperative Credit Society Ltd Cyprus 100 99 Financial Cyprus Civil Servants Cooperative Building and Savings Society Ltd

Cyprus

100

99

Financial

Pancyprian Cooperative Confederation Ltd Cyprus 91,24 91,24 Trading Cooperative Computer Society (S.E.M) Ltd Cyprus - 100 Trading NEW SEVEGEP Ltd Cyprus 83,57 83,57 Trading SOPAZ Ltd Cyprus 81,35 81,35 Trading PEAL Troodos Ltd Cyprus - 59,46 Trading Newfields Ltd Cyprus 100 100 Trading Comarine Ltd Cyprus 59,48 59,48 Trading Cooperative Federation of Carob Supply of Limassol Ltd Cyprus 90,98 90,98 Trading Cooperative Federation of Carob Supply of Larnaka Ltd Cyprus 100 100 Trading Cooperative Federation of Carob Supply of Paphos Ltd Cyprus 98,78 98,78 Trading Cooperative Federation of Carob Supply Ltd Cyprus 66,67 66,67 Trading CCSRE Real Estate Company Ltd Cyprus 100 - Real estate

management At the end of the period, CCB was exercising substantially full control over the Cooperative Credit Institutions (note 27.1). CCSRE Real Estate Company Ltd was established in 2016 and is a 100% subsidiary. On 24 August 2016 the Group received the final approval from the supervisory authorities to proceed with the merger of the Cooperative Computer Society Ltd with CCB. 27.1 Changes in ownership interests of subsidiaries On 6 May 2016, in accordance with the terms of the relevant decree of the Ministry of Finance, the Group acquired the additional 1% of all Cooperative Credit Institutions previously owned by the minority shareholding, thus increasing its ownership percentage from 99% to 100%.



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27. Investments in subsidiaries (continued) 27.1 Changes in ownership interests of subsidiaries (continued)

As a result, the Group presented:

(a) Decrease in minority interests of €4.709 thousand, (b) Decrease in the fair value reserve – land and buildings of €150 thousand, (c) Increase in the fair value reserve for financial assets for financial assets available for sale of €289 thousand and (d) Increase in the statutory reserve of €4.570 thousand.

The following summarize the effect of the change in the Group's participation in the credit sector companies: €'000 Total equity attributable to shareholders on 1 January 2016 - restated 392.542 Effect of the increase in the percentage holding 4.709 Increase in share capital 107.800 Increase in equity 431.164 Share of total comprehensive income (373.560)

Total equity attributable to shareholders on 31 December 2016 562.655

On 26 July 2016, the Group proceeded with the sale of its shareholding in PEAL Troodos Ltd (Note 16). The sale does not have a significant impact on the Group's results.

28. Investments in associates

2016 2015 €'000 €'000

On 1 January - 207 Other transfers - (207)

At 31 December - -

Details of investments in associates are as follows:

Name

Country of Incorporation

Main Activities Participation %

P&S Lpg Gas Limited Cyprus Trading Gas 50 Holco Holdings Limited Malta Shipping 20

As of 1 January 2015, the Bank no longer has significant influence in the above investments.

29. Other assets

2016 2015 €'000 €'000

Accrued revenues - 1.722 Trading sector debtors 725 18.774 Receivables for cash deficit 93 97 Receivables for inventory deficit 36 108 Prepayments 2.640 4.531 Receivables from Rents 1.132 2.145 Refundable taxes (Note 35) 7.558 8.270 Other receivables 33.341 24.891

45.525 60.538

The Group‟s exposure to credit risk and impairment losses relating to other assets is reported in note 44.1 of the consolidated financial statements.



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30. Amounts due to other banking institutions 2016 2015 €'000 €'000

Cheques under clearing 10.706 6.900 Deposits from banks 25.084 20.480 Loans from banks 48.510 54.052

84.300 81.432 The analysis of contractual non-discounted cash flows of amounts due to other banking institutions based on the remaining contractual period from the reporting date to their maturity is presented in note 44.3 of the consolidated financial statements. 31. Deposits and other customer accounts 2016 2015 €'000 €'000

Current 742.880 659.400 On-Demand 1.844.816 1.743.802 Notice 718.071 652.472 Fixed 8.827.948 9.204.953 Student 50.000 49.684 Permanent 315.479 351.730

12.499.194 12.662.041 Accrued Interest 68.767 82.165

12.567.961 12.744.206 2016 2015 Repayment analysis: €'000 €'000

On demand 2.647.725 2.535.084 Within three months 3.288.496 3.749.964 Between three months and one year 6.215.944 6.042.723 Between one and five years 71.976 72.395 Over five years 343.820 344.040

12.567.961 12.744.206 32. Other loans 2016 2015 €'000 €'000

Loans for reactivation of refugees 20.681 20.652 Other loans payable 521 705

21.202 21.357 The loans to the Group for the reactivation of refugees as well as the loans granted by the Group to the refugees during the period 1974-1984, bear no interest as from 1 January 2001 and they are repaid in the same period and by the same amount as they are received from the debtors.



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33. Loan for the repayment of refugee deposits 2016 2015 €'000 €'000 The Republic of Cyprus 36.534 36.534

The loan towards the Group for the repayment of refugee deposits, and loans granted by the Group to the refugees, included in note 19, are interest free and their repayment is suspended. 34. Other liabilities 2016 2015

€'000 €'000

(Restated) Trading sector creditors 488 5.428 Customer prepayments 112 1.874 Social insurance and other taxes 1.826 1.706 Value added tax 3.013 1.273 Special contribution for defense- withheld 9.103 11.914 Amounts due to customer accounts 979 1.157 Deferred income - 23 Payable taxes (note 35) 14.939 1.688 Other liabilities 87.729 60.635 118.189 85.698

The effect of the error on other liabilities is disclosed in note 49 of the consolidated financial statements. 35. (Refundable)/ Payable Taxes 2016 2015 €'000 €'000 Corporation tax (7.499) (8.246) Special contribution for defense (10) (4) Special tax levy on Credit Institutions (20) (20) Other taxes (29) - Refundable taxes (7.558) (8.270) Corporation tax 14.928 1.672 Special contribution for defense 11 16 Payable Taxes 14.939 1.688



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36. Deferred tax

Deferred tax is calculated in full on all temporary differences under the liability method using the applicable tax rates (Note 14). Deferred tax assets are recognized on tax losses and tax claims that have not been realized as well as taxable temporary differences, only when it is probable that there will be future taxable profits against which they can be utilized. Deferred tax assets are reviewed at each reporting date and reduced to an appropriate level where it is no longer probable that the related tax benefit will be realized.

Deferred tax is measured based on the tax rates that are expected to be applied in the period in which the assets will be realized or the liability will be settled, taking into consideration the tax rates and laws that have been enacted or substantially enacted until the reporting date. Based on the International Accounting Standard 12, the Group recognized deferred taxation amounting to €38.062 thousand arising from tax losses and from temporary tax differences. Deferred tax was recognized on the basis of profitable forecasts of the Management of the Bank, which have been prepared in 2016 (which are based on available data, including historic profitability levels). This demonstrates that the Group is in a position to achieve taxable profits against which the deferred tax can be utilized. The movement in the deferred tax account is as follows:

Deferred tax liabilities:

Accelerated tax depreciation

Revaluation of land and buildings

Profit on fair values of

investment properties

Temporary tax

differences Total €’000 €’000 €’000 €’000 €’000

On 1 January 2015 5.872 16.535 20.482 3.013 45.902 Debit/ (credit) to: Statement of profit or loss and other comprehensive income (Note 14.1) - (168) 326 79 237 Fair value reserve (Note 14.2) - (3.240) - - (3.240)

On 31 December 2015/ 1 January 2016 5.872 13.127 20.808 3.092 42.899 Debit/ (credit) to: Transfer to non-current liabilities and groups of liabilities held for sale - (1.252) (4.997) 14 (6.235) Transfer due to reclassification (6.005) 2.505 6.525 (3.025) - Statement of profit or loss and other comprehensive income (Note 14.1) 135 (148) (5.414) 26 (5.401) Fair value reserve (Note 14.2) - 2.187 360 - 2.547 Other transfers (1) (1.689) 3.290 (1) 1.599

On 31 December 2016 1 14.730 20.572 106 35.409



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36. Deferred tax (continued) Deferred tax assets

Tax losses

Temporary tax

differences Total €'000 €'000 €'000

On 1 January 2015 16.475 280 16.755 Debit/ (credit) to: Statement of profit or loss and other comprehensive income (Note 14.1) 30.043 56 30.099

On 31 December 2015/1 January 2016 46.518 336 46.854 Debit/ (credit) to: Transfer to non-current assets and groups of assets held for sale (72) (13) (85) Statement of profit or loss and other comprehensive income (Note 14.1) (8.398) (891) (9.289) Fair value reserve (Note 14.2) - (933) (933) Other transfers - 1.574 1.574 Transfer due to reclassification 14 (14) -

On 31 December 2016 38.062 59 38.121 As at 31 December 2016, total taxable losses to be carried forward amounted to €479.243 thousand (2015: €513.345 thousand). An amount of €38.062 thousand (2015: €46.518 thousand) has been recognized as deferred tax asset since, according to the business plan of the Cooperative Sector, are expected to be utilized against future profits within the next five years. 37. Share capital 31 December

2016 31 December

2016 31 December

2015 31 December

2015 Number of

shares €'000 Number of

shares €'000 Authorised

1.562.500.000 shares at €1,28 each - - 1.562.500.000 2.000.000 6.224.904.542 shares at €0,28 each 6.224.904.542 1.742.973 Issued and fully paid On 1 January 1.183.682.464 1.515.113 1.183.682.464 1.515.113 Issue of shares 331.431.360 369.712 - - Decrease in nominal value of shares - (194.712) - -

1.515.113.824 1.690.113 1.183.682.464 1.515.113

Denomination of nominal value 6.036.120.911 1.690.113

The total issued and fully paid up share capital at 31 December 2016 was 6.036.120.911 (2015: 1.183.682.464) shares of nominal value €0,28 (2015: €1,28) each. On 6 May 2016, a decree of the Minister of Finance was published in the Cyprus Government Gazette, according to which the nominal value of each share was reduced from €1,28 to €1,1155, and 331.431.360 shares of nominal value €1,1155 were issued to the Recapitalization Fund and Co-operative Holdings Companies of the CCIs, regardless of any contrary provisions of the Cooperative Companies Law, any law governing the Capital markets and the Stock Exchange Law and Regulations and Regulatory Administrative Acts issued under all the above laws, as amended or replaced from time to time.



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37. Share capital (continued)

Following the above issue, the participating interest of the Republic of Cyprus in CCB‟s ownership structure amounts to approximately 77% and the participating interest of the Recapitalization Fund to approximately 22%.

Subsequently. in accordance to the Decree, the nominal value of each share was divided to €0,28 by issuing to the existing shareholders approximately four shares of nominal value €0,28 for every one share held of nominal value €1,1155. The above referred division does not affect the total nominal value of the shares held by the shareholders prior to the division, nor each shareholder‟s percentage stake in the ownership structure of CCB.

38. Non-current assets and liabilities and disposal groups of assets and liabilities held for sale

As per note 16, pursuant to the provisions of the revised Restructuring Plan, the Group has drafted the sale agreements for the commercial non credit participations in New Sevegep Ltd, SOPAZ Ltd and Comarine Ltd. These agreements have been sent to the Registrar of Cooperative Enterprises for review and approval. Once the agreements are approved, the parties will proceed to the implementation of the agreements, which are expected to be completed by the end of the second quarter of 2017. As a result, the assets and liabilities of these companies are presented separately in the Group's Statement of Financial position as "Non-current assets / liabilities and disposal groups of assets / liabilities held for sale". 38.1 Impairment losses associated with discontinued operations

Impairment losses of € 8.700 thousand for impairment of assets and liabilities held for sale and related to discontinued operations are measured at the lower of their carrying amount and fair value less costs to sell and are included in "Net loss for the year from discontinued operations" in the consolidated statement of profit or loss and other comprehensive income. These losses were allocated to property, plant and equipment and intangible assets

38.2 Non-current assets and liabilities of discontinued operations On 31 December 2016, discontinued operations were carried at fair value less costs to sell and included the following assets and liabilities:

2016 €'000 Non-current assets and disposal groups held for sale

Cash 24 Deposits with other banking institutions 178 Inventories 14.423 Financial assets available for sale 5.690 Investment properties 43.527 Property, plant and equipment 1.641 Deferred tax assets 11 Other assets 18.077 83.571

Non-current liabilities and disposal groups held for sale

Deferred tax liabilities 5.931 Other liabilities 5.764 11.695

Fair value hierarchy The calculation of the non-recurring fair value for the disposal group held for sale has been categorized at Level 3 of the fair value based on the data used in the valuation technique. The Group's exposure to market risk with respect to non-current assets and liabilities and disposal groups of assets and liabilities held for sale is reported in note 44.2 of the consolidated financial statements.



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39. Reserves The movement in reserves is disclosed in the consolidated statement of changes in equity. The profit for distribution relates to the net profit or losses for the year which is transferred to the statutory reserve. 39.1 Prepaid share reserve

The prepaid share reserve was created under the amended Restructuring Plan which requires changes in the ownership structure of the Group (Note 3.11). 39.2 Fair value reserve

The fair value reserve for land and buildings arises from the revaluation of land and buildings. When the revalued land or buildings are disposed, the portion of the revaluation reserve that relates to that asset is transferred directly to profit for distribution. The fair value reserve for financial assets available for sale represents accumulated gains and losses arising on the revaluation of financial assets available for sale that have been recognized in other comprehensive income, net of amounts reclassified to profit or loss, if those assets were disposed or impaired. 39.3 Merger reserve

The merger reserve is in effect created from the merger of the CCIs and the trading sector companies under the common control, from CCB. The share capital amounts of the CCIs and the trading sector companies are transferred into this reserve. 39.4 Statutory reserve The statutory reserve required by law is created as per the article 41(1) of the Cooperative Companies Law no. 22 of 1985, as subsequently amended. The reserve is distributed as per the Recapitalization of Cooperative Central Bank / Central Body Decree of 2013, as subsequently amended. 39.5 Dilution of shares nominal value reserve The dilution of shares nominal value reserve is created by reducing the nominal value of shares. In 2014, the nominal value of shares was reduced from €8,54 to €1,28 and in 2016 the nominal value was reduced to €1,1155. In accordance to the Decree, the nominal value of each share was divided to €0,28 by issuing to the existing shareholders approximately four shares of nominal value €0,28 for every one share held of nominal value €1,1155. The above division does not affect the total nominal value of the shares held by the shareholders prior to the division, nor each shareholder‟s percentage stake in the ownership structure of CCB. 39.6 Deemed distribution

Companies which do not distribute 70% of their profits after tax, as defined by the Special Contribution for Defense of the Republic Law, during the two years after the end of the year of assessment to which the profits refer, will be deemed to have distributed this amount as dividend. Special contribution for defense at 17% will be payable on such deemed dividend to the extent that the owners (individuals and companies) at the end of the period of two years from the end of the year of assessment to which the profits refer are Cyprus tax residents. The amount of this deemed dividend distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. The special defense contribution is paid by the company on behalf of the owners.



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40. Cash and cash equivalents

For the purposes of the consolidated statement of cash flows, cash and cash equivalents include:

2016 2015 €'000 €'000

Cash 105.595 114.894 Deposits with central banks (Note 17) 3.612.609 2.962.187 Deposits with other banking institutions (Note 18) 36.264 44.193

3.754.468 3.121.274 41. Contingent liabilities and commitments In order to address the needs of its customers, the Group conducts business involving guarantees and credit limits which at the reporting date remained unutilized. Additionally, the Group has obtained commitments for capital expenditures for which contracts were signed at the reporting date but have not yet incurred. These facilities and liabilities are not included in the consolidated statement of financial position and their nominal values as at 31 December 2016 are presented below: 2016 2015 €'000 €'000

Contingent liabilities Guarantees 56.180 64.253

Commitments Undrawn or partly utilized limits of advances and loans 409.672 423.286 Documentary credits 917 903 Commitments for Capital Expenditures 2.158 4.356

412.747 428.545

468.927 492.798 The maturity of the above contingent liabilities and commitments of the Group are as follows: 2016 2015 €'000 €'000

Within one year 159.701 144.368 Between one and five years 142.524 178.414 Over five years 166.702 170.016

468.927 492.798 Letters of guarantees are irrevocable commitments by which the Group is responsible to pay a specific amount to the beneficiary in the event of a customer‟s default on his contractual obligations. Undrawn or partly utilized limits on advances and loans are commitments to provide credit facilities to customers. The credit facilities are provided for a fixed period of time, are reviewed at regular intervals and can be cancelled by the Group at any time. Documentary credits are commitments by the Group to make payments to third parties provided that the terms of the documentary credit are satisfied, which include the presentation of the bill of lading and/or other documents. The Group has recognized a provision of €3.147 thousand deriving from the above guarantees and documentary credits for the year ended 31 December 2016. The respective accumulated provisions as at 31 December 2016 are €3.515 thousand.



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41. Contingent liabilities and commitments (continued) Capital expenditures for which contracts were signed at the reporting date but have not yet materialized are as follows: 2016 2015 €'000 €'000

Property, plant and equipment 2.158 4.356

2.158 4.356

41.1 Contingent tax liabilities

Income tax returns which are submitted to tax authorities are subject to review by the tax authorities. Upon future review of the current and previous years‟ income tax returns, of the Group and its subsidiaries by the tax authorities, there is a possibility that additional taxes will be imposed in the year under examination. The Committee is unable to assess the amount of these potential tax liabilities.

41.2 Commitments from Legal Claims

On 31 December 2016, there were pending legal claims against the Bank and the CCIs in relation to their activities. The Bank and the CCIs in consultation with their legal advisors examine the cases and, based on the legal advice they receive, the necessary accounting treatment is made on the basis of the provisions of International Accounting Standard 37 "Provisions, Contingent Liabilities and Contingent Assets". According to the provisions of IAS 37, "Provisions, Contingent Liabilities and Contingent Assets", paragraph 92, no further information is disclosed that may prejudge the Group's position in dispute with other parties.

42. Related party transactions

The ownership structure of the Cooperative Central Bank Ltd is described in detail in note 3.11.

All transactions with members of the Committee and key management personnel, including their affiliated parties, are carried out on an arm‟s length basis. Related parties include spouses, children and entities in which the members of the Committee/key management personnel hold, directly or indirectly, at least 20% of the voting rights in a general meeting or they are directors or in any way have control.

Regarding key management personnel, a number of facilities has been provided on the same finance terms as those of the Group‟s personnel. The following transactions were carried out with related parties:

42.1 Committee and key management remuneration

The remuneration of Committee Members and other key management personnel was as follows:

2016 2015 €'000 €'000

Committee Members Executive members: Wages and salaries 285 238 Employer contributions to various funds 42 39 Non-Executive members: Rights of Non-Executive Members 279 221 Employer Contributions to various funds 2 1

Key management personnel Wages and salaries 958 647 Employer Contributions to various funds 174 102

1.740 1.248 The remuneration of non-executive members of the Committee, includes fees which are paid to members in order to cover expenses for the performance of their duties.



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42. Related party transactions (continued) 42.1 Committee and key management remuneration (continued) Key management personnel consist of the Senior Management of the Bank. The Senior Management of the Bank as at the date of issuance of the consolidated financial statements is presented in page 1. The remuneration of key management personnel, includes the remuneration of management personnel who have undertaken other tasks within the organization during the year.

Wage Analysis of Executive Committee members

2016 2015

€'000 €'000

Marios Klerides - 148 Nicholas Hadjiyiannis 202 15 Panayiotis Philippou - 17 Stavros Iacovou 83 58

Total 285 238

Rights of non-Executive members analysis

2016 2015

€'000 €'000

Nicholas Hadjiyiannis - 48 Charalambos Christodoulides 45 39 Demetris Theodotou - 18 Giorgos Hadjinicola 36 20 Athanasios Stavrou - 17 Georgios Kittos 36 20

Panikos Pouros 38 22 Georgios Strovolides - 17 Lambros Pieri 40 20 Christakis Taoushanis 30 - Adonis Pegasiou 17 - Kypros Ellinas 18 - Susana Poyiadjis 19 -

Total 279 221 42.2 Loans and other advances 2016 2015 2016 2015

Number

€'000 €'000

Members of the Committee and related parties: Less than 1% of the net assets of the Group per member of the Committee 2 2 125 47 Key management personnel and related parties: 10 9 2.009 1.769

Total on 31 December 12 11 2.134 1.816 There are no credit facilities to independent members of the Committee. The balances of loans and other advances

of key management personnel include outstanding balances of the Senior Management of the Bank as at the reporting date.



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42.3 Deposits 2016 2015

€'000 €'000

Members of the Committee and related parties 1.387 558 Key management personnel and related parties 1.224 1.291

Total on 31 December 2.611 1.849 The balances of deposits of key management personnel include outstanding balances of the Senior Management of the Bank as at the reporting date. 42.4 Contingent liabilities and commitments involving related parties In addition, on 31 December 2016, there were contingent liabilities and commitments relating to guarantees and unutilized credit limits as follows: 2016 2015

€'000 €'000

Members of the Committee and related parties 81 - Key management personnel and related parties 364 258

Total on 31 December 445 258

42.5 Exposure to the Republic of Cyprus 2016 2015 €'000 €'000 Bonds and Loans 943.596 1.228.537 Guarantees for loans and other advances to clients 428.187 464.129 43. Financial instruments by category 31 December 2016 Financial assets

available for sale Loans and

receivables Total €'000 €'000 €'000

Assets as per consolidated statement of financial position (continuing operations):

Cash and deposits with central banks - 3.838.804 3.838.804 Deposits with other banking institutions - 43.656 43.656 Loans and other advances to clients - 8.761.556 8.761.556

Financial assets available for sale 682.526 - 682.526 Other assets - 35.327 35.327

Total 682.526 12.679.343 13.361.869



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43. Financial instruments by category (continued) Loans and other

financial liabilities Total €'000 €'000

Liabilities as per consolidated statement of financial position (continuing operations):

Amounts due to other banking institutions 84.300 84.300 Deposits and other customer accounts 12.567.961 12.567.961 Other loans 21.202 21.202 Loan for repayment of refugee deposits 36.534 36.534 Other liabilities 89.080 89.080

Total 12.799.077 12.799.077

31 December 2015 Financial assets

available for sale

Loans and receivables Total

€'000 €'000 €'000

Assets as per consolidated statement of financial position:

Cash and deposits with central banks - 3.199.240 3.199.240 Deposits with other banking institutions - 46.195 46.195 Loans and other advances to clients - 9.257.338 9.257.338 Financial assets available for sale (Restated) 982.211 - 982.211

Other assets - 47.736 47.736

Total 982.211 12.550.509 13.532.720

Loans and other financial liabilities Total

€'000 €'000

Liabilities as per consolidated statement of financial position:

Amounts due to other banking institutions 81.432 81.432 Deposits and other customer accounts 12.744.206 12.744.206 Other loans 21.357 21.357 Loan for repayment of refugee deposits 36.534 36.534

Other liabilities (Restated) 67.112 67.112

Total 12.950.641 12.950.641



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44. Financial Risk Management Financial Risk Factors The Bank is developing a comprehensive risk management framework which aims to an effective monitoring and management of risks on a consolidated basis. The framework aims:

- The measurement and monitoring of the main types of risks which the Group is exposed. - The development of policies and procedures for evaluating and managing each risk. - The compliance with supervisory obligations including maintaining sufficient capital.

The Committee and the Risk Management Committee, are responsible for the management of risks. In accordance with the regulatory requirements, an independent Risk Management Department has been established which submits regular reports and recommendations and aims to develop appropriate methodologies for managing risks. The most significant risks to which the Group is exposed to are credit risk, market risk, liquidity risk, capital risk management, counterparty risk and operational risk. The Committee and the Risk Management Committee assess on a systematic basis the risk concentrations especially when it relates to advances and takes all necessary actions for managing those risks. Mitigation methods are explained as follows:

44.1 Credit risk

Credit risk arises from the customers‟ inability to repay their loans and other advances and fulfill their contractual obligations. The quality of the loan portfolio is monitored on a systematic basis and provisions for impairment are recognized for specific or other losses that might relate to the portfolio. The Group applies effective controls and procedures and obtains sufficient collaterals so as to minimize the possibility of loss from credit risk. Credit risk concentration There are restrictions regarding the concentration of credit risk from the Banking Law of Cyprus and the relevant directive issued by the Central Bank of Cyprus. According to these restrictions, banks are not allowed to lend more than 25% of their capital base to a single customer and its related parties taking into account the effect of credit risk mitigation techniques. As at 31 December 2016, the Group was in compliance with the above restrictions. Maximum Exposure to credit risk ignoring collaterals The table below reflects the worst case scenario of credit risk exposure of the Group without taking into account any collaterals held. In order to estimate the effect of the risk, as stated above, for the assets included in the consolidated statement of financial position the carrying amounts were used, as they are presented in the consolidated statement of financial position.

Maximum exposure to credit risk:

2016 2015 €'000 €'000

Deposits with central banks (Note 17) 3.733.233 3.084.346 Deposits with other banking institutions (Note 18) 43.656 46.195 Loans and other advances to customers (Note 19) (Restated) 12.033.792 12.706.586 Other receivables 35.327 47.736

Total 15.846.008 15.884.863

Contingent liabilities (Note 41) 56.180 64.253 Commitments (Note 41) 412.747 428.545

Total not included on the consolidated statement of financial position 468.927 492.798

Total credit risk exposure 16.314.935 16.377.661 As shown above, 73,8% of the total credit risk exposures arise from loans and advances to customers and 22,9% from deposits with Central Banks.



94

44. Financial Risk Management (continued) 44.1 Credit risk (continued) 44.1.1 Impaired Advances If the Group assesses that the total amount of the capital and interest due may not be recovered according to the contractual terms of the loan or the relevant agreement, it classifies these advances as impaired. 44.1.2 Non Impaired Advances The Group‟s loans which were assessed individually and no impairment was identified are classified in risk grades as follows: Grade 1 (Low Risk): Advances which were past due up to 90 days and are performing. Grade 2 (Medium Risk): Advances which were past due up to 90 days and are non-performing and advances which were past due between 91 and 180 days. Grade 3 (High Risk): Advances which were past due over 180 days or are impaired. 44.1.3 Advances which are past due but not impaired Includes loans for which, even if the repayment of the capital and interest due is past due according to the contractual obligations, the Group based on its evaluation does not assess that they should be impaired, because of the amount of collateral or/and the schedule of repayment of the amounts due. 44.1.4 Advances with conditions that were renegotiated The Group, where it deems as beneficial, renegotiates the terms of advances for cases in which customers apply for renegotiation, as they are not in the position to repay according to the initial terms, either because of their adverse financial position or any other reason. On 31 December 2016, the Group renegotiated the repayment terms on loans of €2.755.066 thousand (2015: €2.215.322 thousand). Under the new definition of EBA, restructuring of a client‟s facilities is considered to be any change of the terms and/or conditions of the advances in order to deal with existing or expected financial difficulties of the client to repay the advances in accordance with the existing repayment schedule, or full or partial refinancing of the problematic advance. A restructured non-performing advance remains classified as non-performing for 12 months following the restructuring date. After the lapse of the above mentioned period for the classification of restructured advances as non-performing, the advance will be classified as non-performing only if it fulfills the criteria for the classification of non-performing facilities according to the new definition of EBA, if any delays occur or if there are concerns about the full repayment of the advance according to the revised repayment schedule. Based on the above categories, advances to customers of the Group are presented in the tables below:



95

44. Financial Risk Management (continued) 44.1 Credit risk (continued) 44.1.4 Advances with conditions that were renegotiated (continued) 31 December 2016

Loans and

advances to customers

Deposits with other banking

institutions Total €'000 €'000 €'000

Carrying amount: 8.761.556 43.656 8.805.212 Impaired loans: Grade 1 (Low Risk): - - - Grade 2 (Medium Risk): - - - Grade 3 (High Risk): 6.984.276 - 6.984.276 Individually impaired: (3.149.369) - (3.149.369) Carrying amount: 3.834.907 - 3.834.907 Advances with terms that were renegotiated 2.047.576 - 2.047.576 Past due but not impaired: Grade 1 (Low Risk): 489.622 - 489.622 Grade 2 (Medium Risk): 19.639 - 19.639 Grade 3 (High Risk): 143.253 - 143.253 Carrying amount: 652.514 - 652.514 Analysis of past due: 0-30 days 379.873 - 379.873 30-60 days 79.547 - 79.547 60-90 days 43.606 - 43.606 90 days+ 149.488 - 149.488 Carrying amount: 652.514 - 652.514 Advances with terms that were renegotiated 95.396 - 95.396 Neither past due nor impaired: Grade 1 (Low Risk): 4.397.002 43.656 4.440.658 Grade 2 (Medium Risk): - - - Grade 3 (High Risk): - - - Carrying value: 4.397.002 43.656 4.440.658 Advances with terms that were renegotiated 612.094 - 612.094

Balances after individual impairment 8.884.423 43.656 8.928.079 Collective impairment (122.867) - (122.867)

Total carrying amount 8.761.556 43.656 8.805.212



96

44. Financial Risk Management (continued) 44.1 Credit risk (continued) 44.1.4 Advances with conditions that were renegotiated (continued) 31 December 2015

Loans and

advances to customers

Deposits with other banking

institutions Total €'000 €'000 €'000

Carrying amount: 9.257.338 46.195 9.303.533 Impaired loans: Grade 1 (Low Risk): - - - Grade 2 (Medium Risk): - - - Grade 3 (High Risk): 7.373.476 - 7.373.476 Individually impaired: (3.340.277) - (3.340.277) Carrying amount: 4.033.199 - 4.033.199 Advances with terms that were renegotiated 1.640.667 - 1.640.667 Past due but not impaired: Grade 1 (Low Risk): 626.891 - 626.891 Grade 2 (Medium Risk): 11.307 - 11.307 Grade 3 (High Risk): 164.954 - 164.954 Carrying amount: 803.152 - 803.152 Analysis of past due: 0-30 days 443.070 - 443.070 30-60 days 125.317 - 125.317 60-90 days 62.505 - 62.505 90 days+ 172.260 - 172.260 Carrying amount: 803.152 - 803.152 Advances with terms that were renegotiated 90.670 - 90.670 Neither past due nor impaired: Grade 1 (Low Risk): 4.529.958 46.195 4.576.153 Grade 2 (Medium Risk): - - - Grade 3 (High Risk): - - - Carrying value: 4.529.958 46.195 4.576.153 Advances with terms that were renegotiated 483.985 - 483.985

Balances after individual impairment 9.366.309 46.195 9.412.504 Collective impairment (108.971) - (108.971)

Total carrying amount 9.257.338 46.195 9.303.533



97

44. Financial Risk Management (continued) 44.1 Credit risk (continued) 44.1.5 Collateral Based on Group‟s policy, the amount of credit facilities granted should be based on the repayment capabilities of the relevant counterparties. Furthermore, for the hedging and mitigation of credit risk the Group obtains collaterals, the nature of which is set by the Group‟s policies. The main collaterals held by the Group include mortgages over properties, pledging of cash, government and bank guarantees, charges over assets of businesses as well as personal and corporate guarantees. The total ratio of loan coverage per type of exposure as at 31 December 2016 (covered with property, financial securities and government guarantees): Collateral value/ loan balance:

Coverage percentage/exposure

type

Housing

loans

Consumer loans (inc. current accounts)

Business loans Businesses – Municipalities and local authorities

Total

€'000 €'000 €'000 €'000 €'000

<20% 289.568 930.038 324.535 59.007 1.603.148 (20%-40%) 261.893 419.263 211.169 7.923 900.248 (40%-60%) 472.650 603.132 296.091 9.005 1.380.878

(60%-80%) 522.774 546.369 230.254 15.098 1.314.495 (80%-100%) 560.267 494.796 224.132 13.435 1.292.630 (100%-120%) 901.325 732.898 347.629 7.754 1.989.606 (120%-140%) 489.664 299.172 133.663 375.160 1.297.659

>=140% 1.048.797 526.106 464.216 216.009 2.255.128 Total 4.546.938 4.551.774 2.231.689 703.391 12.033.792

% Fully secured 54% 34% 42% 85% 46%

Ratio of Loans to Value (loan balance/ market value of collateral):

Ratio of Loans to Value (loan balance/ market value of

collateral)

Ratio of loans to value (loan balance)

Percentage of the total loans with property collaterals

€'000 %

<20% 785.017 7%

(20%-40%) 1.451.100 12% (40%-60%) 1.527.526 13% (60%-80%) 1.452.591 12% (80%-100%) 1.054.399 9%

>=100% 3.837.330 32% Total 10.107.963 85%

The loans‟ balance in relation to the total amount of advances to customers relates to those that did not include immovable property as collateral.



98

44. Financial Risk Management (continued) 44.1 Credit risk (continued) 44.1.5 Collateral (continued) The total ratio of loan coverage per type of exposure as at 31 December 2015 (covered with property, financial securities and government guarantees): Collateral Value/ loan balance (Restated):

Coverage percentage/exposure

type

Housing

loans

Consumer loans (inc. current accounts)

Business loans Businesses – Municipalities and

local authorities

Total

€'000 €'000 €'000 €'000 €'000

<20% 320.673 1.272.855 358.555 74.368 2.026.451 (20%-40%) 169.290 282.415 137.231 6.454 595.390 (40%-60%) 375.952 503.737 288.515 16.511 1.184.715

(60%-80%) 499.654 556.308 246.059 16.064 1.318.085 (80%-100%) 603.489 566.707 280.359 1.093 1.451.648 (100%-120%) 931.754 839.256 392.087 403.972 2.567.069 (120%-140%) 649.011 413.663 178.751 4.624 1.246.049

>=140% 1.064.397 599.520 454.509 198.753 2.317.179 Total 4.614.220 5.034.461 2.336.066 721.840 12.706.586

% Fully secured 57% 37% 44% 84% 48%

Ratio of Loans to Value (loan balance/ market value of collateral):

Ratio of Loans to Value (loan balance/market value of collateral)

Ratio of loans to Value (loan balance)

Percentage of the total loans with property collaterals

€'000 %

<20% 897.356 7% (20% - 40%) 1.593.756 13%

(40% - 60%) 1.746.528 14% (60% -80%) 1.572.261 12% (80%-100%) 1.162.256 9%

>= 100% 3.189.686 25%

Total 10.161.843 85%

The loans‟ balance in relation to the total amount of advances to customers relates to those that did not include immovable property as collateral.



99

44. Financial Risk Management (continued) 44.1 Credit risk (continued) 44.1.6 Analysis of collateral and guarantees

Collateral Value 31 December 2016

Collateral on immovable property Financial collaterals Other collaterals Total Collaterals

€'000 €'000 €'000 €'000

Private

8.711.654

259.197

710.299

9.681.150

Business 1.501.625 94.595 296.121 1.892.341 Public Sector 42.731 17.732 1.252.778 1.313.241 Total 10.256.010 371.524 2.259.198 12.886.732

Collateral Value 31 December 2015

Collateral on immovable property

Collateral on

immovable property Collateral on immovable

property Collateral on

immovable property

Private

9.292.508

273.416

720.808

10.286.732

Business 1.494.117 102.179 339.795 1.936.091

Public Sector 37.064 15.087 1.214.646 1.266.797

Total 10.823.689 390.682 2.275.249 13.489.620

44.2 Market risk Market risk is the risk of financial loss arising from sudden changes in foreign currency rates, interest rates and prices of financial instruments. The risk is managed by the Assets and Liabilities Committee (ALCO) so as to be maintained within acceptable limits. For the efficient management of risks arising from interest rate and exchange rate fluctuations, the Assets and Liabilities Committee (ALCO) has defined specific strategies and has set limits on open positions for every risk. The analysis relating to the position of the Group regarding foreign currency risk, interest rate risk and price risk is presented below:

44.2.1 Currency risk Currency risk is the risk of financial loss arising from adverse changes in foreign currency rates when there is a net position (asset or liability) in one or more foreign currencies. The Bank‟s Management sets open foreign currency position limits, on a total basis for all currencies and for each currency separately, which are monitored on a continuous basis. The tables below set out the Group‟s exposure to currency risk resulting from its existing open foreign currency positions. Changes in exchange rates against the Euro used in the sensitivity analysis are based on historical fluctuations in foreign exchange prices.



100

44. Financial Risk Management (continued) 44.2 Market risk (continued) 44.2.1 Currency risk (continued)

31 December 2016 Euro

United States

Dollars Pound Sterling

Other

currencies Total €'000 €'000 €'000 €'000 €'000

Assets Cash 101.742 1.908 1.652 269 105.571

Deposits with central banks 3.733.233 - - - 3.733.233 Deposits with other banking institutions 5.181 18.122 15.862 4.491 43.656 Loans and other advances to customers 8.761.556 - - - 8.761.556 Inventories 2.226 - - - 2.226 Properties held for sale 121.825 - - - 121.825

Financial assets available for sale 680.905 1.621 - - 682.526

Investment property 238.650 - - - 238.650 Property, plant and equipment 239.427 - - - 239.427 Intangible assets 4.904 - - - 4.904

Other assets 83.646 - - - 83.646 Non-current assets and group of assets held for sale 83.571 - - - 83.571

Total 14.056.866 21.651 17.514 4.760 14.100.791

Liabilities

Amounts due to other banking institutions 84.300 - - - 84.300 Deposits and other customer accounts 12.533.336 15.155 15.599 3.871 12.567.961 Other loans 21.202 - - - 21.202

Loan for the repayment of refugee deposits 36.534 - - - 36.534 Other liabilities 153.598 - - - 153.598 Non-current liabilities and group of liabilities held for sale 11.695 - - - 11.695

Total 12.840.665 15.155 15.599 3.871 12.875.290 Equity 1.225.501 - - - 1.225.501

Total liabilities and equity 14.066.166 15.155 15.599 3.871 14.100.791

Net currency position (9.300) 6.496 1.915 889 -

Sensitivity analysis

Change in exchange rates+% 5,0% 4,0% 6,0% Impact on net profit € 325 77 53 Impact on equity € 325 77 53 Change in exchange rates+% 5,0% 4,0% 6,0% Impact on net profit € (325) (77) (53)

Impact on equity € (325) (77) (53)



101

44. Financial Risk Management (continued) 44.2 Market risk (continued) 44.2.1 Currency risk (continued) 31 December 2015

Euro

United States

Dollars Pound Sterling

Other

currencies Total €'000 €'000 €'000 €'000 €'000

Assets Cash 110.928 1.919 1.702 345 114.894

Deposits with central banks 3.084.346 - - - 3.084.346 Deposits with other banking institutions 6.038 20.878 15.631 3.648 46.195 Loans and other advances to customers (Restated) 9.257.338 - - - 9.257.338 Inventories 14.859 - - - 14.859

Properties held for sale 100.338 - - - 100.338

Financial assets available for sale 982.211 - - - 982.211 Investment property 282.560 - - - 282.560 Property, plant and equipment 261.710 - - - 261.710

Intangible assets 1.216 - - - 1.216 Other assets 107.392 - - - 107.392

Total 14.208.936 22.797 17.333 3.993 14.253.059

Liabilities Amounts due to other banking institutions 81.340 34 58 - 81.432 Deposits and other customer accounts 12.708.478 18.105 14.366 3.257 12.744.206

Other loans 21.357 - - - 21.357 Loan for the repayment of refugee deposits 36.534 - - - 36.534 Other liabilities (Restated) 128.597 - - - 128.597

Total 12.976.306 18.139 14.424 3.257 13.012.126 Equity (Restated) 1.240.933 - - - 1.240.933

Total liabilities and equity

(Restated) 14.217.239 18.139 14.424 3.257 14.253.059

Net currency position (8.303) 4.658 2.909 736 - Sensitivity analysis

Change in exchange rates+% 5,0% 4,0% 6,0%

Impact on net profit € 233 116 44 Impact on equity € 233 116 44

Change in exchange rates+% 5,0% 4,0% 6,0% Impact on net profit € (233) (116) (44) Impact on equity € (233) (116) (44)



102

44. Financial Risk Management (continued) 44.2 Market risk (continued) 44.2.2 Interest rate risk Interest rate risk is the risk of decrease in the value of financial instruments or in net interest income as a result of adverse movements in the market interest rates. Interest rate risk arises due to timing differences on the repricing of interest rates on assets and liabilities. The Group monitors on a continuous basis interest rates fluctuations and the exposure of its assets and liabilities which are subject to interest rate fluctuations or have a fixed interest rate and take all necessary measures for managing this risk. The tables below set out the Group‟s exposure to interest rate risk. The Group‟s assets and liabilities are presented in the tables at carrying amounts based on the date of repricing of the interest rate or the maturity date for fixed rate items. 31 December 2016

On demand Within three

months

Between

three months and one year

Between one

and five years

Over five years

Non-interest bearing Total

€'000 €'000 €'000 €'000 €'000 €'000 €'000

Assets Cash - - - - - 105.571 105.571

Deposits with central banks 3.733.233 - - - - - 3.733.233 Deposits with other banking institutions 2.183 33.903 7.570 - - - 43.656 Loans and other advances to

customers (gross) 222.214 3.625 8.187.600 1.822 41.686 3.576.845 12.033.792 Inventories - - - - - 2.226 2.226 Properties held for sale - - - - - 121.825 121.825 Financial assets available for sale - 86.795 18.097 443.810 102.410 31.414 682.526

Investment properties - - - - - 238.650 238.650 Property, plant and equipment - - - - - 239.427 239.427 Intangible assets - - - - - 4.904 4.904 Other assets - - - - - 83.646 83.646

Total 3.957.630 124.323 8.213.267 445.632 144.096 4.404.508 17.289.456

Liabilities Amounts due to other banking institutions 16.296 1.202 23.861 27.678 15.263 - 84.300

Deposits and other customer

accounts 1.150.721 3.160.003 8.196.886 60.351 - - 12.567.961 Other loans - - - - - 21.202 21.202 Loan for the repayment of refugee deposits - - - - - 36.534 36.534

Other liabilities - - - - - 153.598 153.598

Total 1.167.017 3.161.205 8.220.747 88.029 15.263 211.334 12.863.595

Net position 2.790.613 (3.036.882) (7.480) 357.603 128.833

4.193.174 4.425.861

Net cumulative position 2.790.613 (246.269) (253.749) 103.854 232.687 4.425.861

Loans and other advances to customers do not include the accumulated impairment provisions of €3.272.236 thousand.



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44. Financial Risk Management (continued) 44.2 Market risk (continued) 44.2.2 Interest rate risk (continued) 31 December 2015

On demand Within three

months

Between three

months and one year

Between one and five years

Over five years

Non-interest bearing Total

€'000 €'000 €'000 €'000 €'000 €'000 €'000

Assets

Cash - - - - - 114.894 114.894 Deposits with central banks 3.084.346 - - - - - 3.084.346 Deposits with other banking institutions 1.282 42.911 2.002 - - - 46.195 Loans and other advances to

customers (gross) (Restated) 305.955 3.819 8.655.946 2.385 45.121 3.693.360 12.706.586

Inventories - - - - - 14.859 14.859 Properties held for sale - - - - - 100.338 100.338 Financial assets available for sale - 67.661 42.235 819.695 15.552 37.068 982.211

Investment properties - - - - - 282.560 282.560 Property, plant and equipment - - - - - 261.710 261.710 Intangible assets - - - - - 1.216 1.216 Other assets - - - - - 107.392 107.392

Total 3.391.583 114.391 8.700.183 822.080 60.673 4.613.397 17.702.307 Liabilities

Amounts due to other banking institutions 10.894 93 16.431 - 54.014 - 81.432 Deposits and other customer accounts 1.214.868 3.582.663 7.902.830 43.845 - - 12.744.206

Other loans - - - - - 21.357 21.357 Loan for the repayment of refugee deposits - - - - - 36.534 36.534 Other liabilities (Restated) - - - - - 128.597 128.597

Total 1.225.762 3.582.756 7.919.261 43.845 54.014 186.488 13.012.126

Net position 2.165.821 (3.468.179) 780.922 778.235 6.659 4.426.909 4.690.181

Net cumulative position 2.165.821 (1.302.544) (521.622) 256.613 263.272 4.690.181

Loans and other advances to customers do not include the accumulated impairment provisions of €3.449.248 thousand



104

44. Financial Risk Management (continued) 44.2 Market risk (continued) 44.2.2 Interest rate risk (continued) Sensitivity analysis: An increase of 100 basis points in interest rates on 31 December 2016, will have as a result the decrease in equity and results, as shown below. A decrease of 100 basis points would have a similar but opposite impact on equity. It is noted that the interest rate sensitivity analysis, as presented below, is significantly dependent on the assumptions adopted for the repricing period of the various assets and liabilities without a contractual maturity or repricing date and requires other factors to remain stable. In particular, with regard to loans linked to the Bank's key interest rates, it is assumed that the readjustment of interest rates under the various scenarios will not occur immediately but in a later period reflecting the average maturity of the Bank‟s funding sources. As a result, in the event of an increase in interest rates, the overall effect on results will be negative, since the positive effect on interest income before that particular period is not included. On the other hand, in case of interest rate reductions, the positive effect of the above case is heavily offset by the floor of deposit levels to 0%, and consequently by the limited decrease in interest expense following this scenario. Equity Results

2016 2015 2016 2015

€'000 €'000 €'000 €'000

Impact – from increase (27.831) (43.282) (19.470) (27.407)

Impact – from decrease 30.225 47.113 11.315 (20.104)

44.2.3 Investment price risk Price risk arises from adverse changes in the prices of the investments held by the Group. The Group‟s investments are classified as Available for Sale (AFS) and therefore changes in the investment prices affect the Group‟s capital. The Group monitors on a daily basis, a complete set of early warning indicators aiming at the early recognition of adverse fluctuations in the value of investments and takes all necessary actions to limit the impact on equity. 44.3 Liquidity risk Liquidity risk is the risk of financial loss arising from a potential inability of CCB/CB to meet its current payment obligations without suffering additional costs. The monitoring of liquidity risk concentrates on balancing cash inflows and outflows in various time periods, ensuring that under normal circumstances CCB/CB would be in a position to respond to its cash obligations. For the efficient management of liquidity risk, CCB/CB monitors the liquidity risk associated with its daily activities, through daily monitoring of various liquidity ratios and carrying out stress testing on a quarterly basis, as required by the relevant directives/circulars of the Central Bank of Cyprus. In addition, it applies methodologies for assessing liquidity needs, which are expected to occur in the following year under hypothetical liquidity crisis scenarios as part of its internal liquidity adequacy assessment process. Furthermore, CCB/CB calculates the Liquidity Coverage Ratio και Net Stable Funding Ratio on a monthly and quarterly basis respectively, as required by the European Regulation 575/2013in the context of Basel III on a European level and the harmonization of the European supervisory framework. The following table shows the index for liquid assets in euro, which is required based on the relevant Directive of the Central Bank of Cyprus for the computation of Prudential Liquidity in euro:



105

44. Financial Risk Management (continued) 44.3 Liquidity risk (continued) 2016 2015 % %

On 31 December 34,2 29,6

Average for the year 31,9 26,2

Maximum quarterly index 34,2 29,6

Minimum quarterly index 29,4 23,5

Minimum supervisory Index 20,0 20,0 The Group meets the supervisory liquidity requirements for the euro. The following table shows the index for liquid assets in foreign currency, which is required based on the relevant Directive of the Central Bank of Cyprus for the Prudential Liquidity in foreign currency: 2016 2015 % %

On 31 December 117,6 116,3

Average for the year 115,3 117,8

Maximum quarterly index 117,6 121,0

Minimum quarterly index 113,0 114,4

Minimum supervisory Index 70,0 70,0 The Group meets the supervisory liquidity requirements for foreign currencies.



106

44. Financial Risk Management (continued) 44.3 Liquidity risk (continued) The following tables show the contractual non-discounted cash outflows based on the remaining contractual period from the reporting date to their maturity. 31 December 2016

Carrying

amount

Contractual

cash flows

On

demand

Within three

months

Between three

months and one

year

Between one and

five years

Over five

years €'000 €'000 €'000 €'000 €'000 €'000 €'000

Liabilities Customer deposits 12.567.961 12.626.066 2.749.949 3.294.196 6.176.901 85.739 319.281

Amounts due to other banking institutions 84.300 85.258 16.296 1.204 23.944 28.193 15.621

Other liabilities 211.334 211.025 105.529 2.294 44.957 - 58.245

Total liabilities 12.863.595 12.922.349 2.871.774 3.297.694 6.245.802 113.932 393.147

31 Δεκεμβρίου 2015

Carrying amount

Contractual cash flows

On demand

Within three

months

Between three

months and one

year

Between one and

five years Over five

years €'000 €'000 €'000 €'000 €'000 €'000 €'000

Liabilities

Customer deposits 12.744.206 12.832.801 2.487.326 3.632.636 6.302.311 68.590 341.938 Amounts due to other banking institutions 81.432 81.962 10.965 93 16.538 - 54.366 Other liabilities 186.488 184.473 30.507 12.352 63.057 6.604 71.953

Total liabilities 13.12.126 13.099.236 2.528.798 3.645.081 6.381.906 75.194 468.257

44.4 Other risks

44.4.1 Capital risk management The primary regulatory authority, which determines and monitors the Group‟s capital requirements is the SSM. On 26 June 2013, the European Parliament and the Council approved the Regulation (EU) no.575/2013 (Capital Requirements Regulation- CRR), which relates to the prudential supervision requirements for credit institutions, as well as the Directive 2013/36/EU (Capital Requirements Directive IV- CRD IV), which relates to the access to the activities of credit institutions and the prudential supervision of credit institutions (Basel III). In August 2014, CBC has issued a Directive for the purposes of determining the Distinctive Discretions and the Transitional Provisions provided by Regulation (EU) no. 575/2013, by exercising its power pursuant to the article 41 of the Business of Credit Institutions Law of 1997 to (no. 4) of 2013 and under Regulation (EU) no. 575/2013. The Basel III directive consists of the following pillars: Pillar I – Minimum Capital Requirements: Pillar I refers to the minimum capital requirements of the credit institution, so as the exposure of the Group to credit risk, market risk and operational risk is adequately covered. Pillar II – The supervisory review process: Pillar II links the regulatory capital requirements to the banking institutions‟ internal capital adequacy assessment procedures (ICAAP) and to the reliability of its internal control structures. The purpose of Pillar II is to promote the communication between supervising authorities and banking institutions on a continuous basis and the reliability of the banks‟ capital needs in relation to their risks.



107

44. Financial Risk Management (continued)

44.4 Other risks (continued)

44.4.1 Capital risk management (continued)

Pillar ΙΙΙ – Disclosure of information: Pillar III requires, amongst others, the disclosure of information regarding the risk management policies and procedures of the banking institution, the results of the calculations of minimum capital requirements, as well as information regarding the composition of the institution‟s capital. The relevant disclosures are published on the website of the Cooperative Central Bank Ltd.

In the context of legislative and regulatory demands for the consolidation of the CCIs into a central organization as per the instructions of the European Union, the Cooperative Central Bank Ltd assumed the role of central organization, defined as „Central Body‟. The Central Body started to operate on 1 January 2008. Cooperative Central Bank Limited, by assuming its new role of the Central Body in compliance with the European Directive 2000/12/EC, as recast with the Directive 2006/48/EC, relating to the taking up and pursuit of business of credit institutions and the Cooperative Societies Rules of 2004, guaranteed the commitments of affiliated CCIs so that the latter be exempted from the regulatory provisions of the Directive on an individual basis. The above Directive and the Rules provide that, the exempted provisions must be satisfied by the Central Body and the affiliated CCIs on a consolidated basis.

The Group‟s equity entirely comprises of Common Equity Tier 1 Capital which includes issued share capital and reserves (including revaluation reserve). Common Equity Tier 1 Capital is reduced by the participation of the affiliated CCIs, the intangible assets and the amount of deferred tax assets which depends on the future profitability and does not arise from temporary differences, subject to the provisions of the CRR and the transitional provisions of CBC. The capital adequacy of the Group is monitored by the management every quarter. The required information is submitted every quarter to CBC, for calculating the capital requirements and large exposures on a collective basis.

It is noted that the minimum capital adequacy to be met by each credit institution is determined on an annual basis by the SSM under Pillar II, and in particular under the Supervisory Review and Examination Procedure (SREP). In the context of the SREP for 2015, the minimum Tier 1 capital ratio for 2016 is set at 12,25% and the Bank is subject to a distribution dividend limitation to shareholders. The Group exceeds the minimum indicator that was in force at 31 December 2016.

According to a decision sent by the ECB to CCB in December 2016 in line with the supervisory framework, the minimum capital adequacy ratio applicable from 1 January 2017 is 11,75% (Total SREP Capital Requirement 'TSCR'), consisting of minimum regulatory capital 8% (CET1 of 4,5%, Additional Tier 1 and Tier 2, 1,5% and 2% respectively) and additional capital Pillar II 3,75%. In addition, under Pillar II ECB has notified CCB of a non-public call to maintain an additional Class 1 Common Equity Fund. The Bank should maintain capital reserves provided by the regulatory framework that currently include the Capital Conservation Buffer, which the CBC had set at 2,50%, resulting in a total liability of 14,25%. The claim was reduced to 13% from 1 January 2017 following the passage of the amendments of the Banking Act Law on February 2017, concerning the capital conservation buffer.



108


44.4 Other risks (continued)

44.4.1 Capital risk management (continued) In addition, the combined capital buffer requirement for the CCB includes:

the security buffer O-SII (Other Systemically Important Institutions) which has been set at 1% and will be implemented progressively over a period of four years starting from 1 January 2019,

the Countercyclical Capital Buffer, which CBC has set at 0% for exposures in Cyprus until 30/6/2017 (CBC revises this buffer on a quarterly basis and informs the bank with a relevant letter); and

the Systemic Risk buffer which has not yet been determined until today. During December 2015, the Group increased its equity by €175 million (Note 3.11). The capital increase was achieved following the submission of a capital plan which was prepared based on the relevant circular (the Decision) issued by the ECB on 27 November 2015. For the years 2016 and 2015, the Group complied with all capital requirements, as presented below: 2016 2015

€’000

€'000

(Restated)

Equity

Common Equity Tier 1 capital 1.166.564 1.194.749

Total risk weighted assets 7.567.224 8.009.976

% %

Common Equity Tier 1 Capital ratio 15,42 14,92

Leverage Ratio The leverage ratio is a useful tool which helps a credit institution to specify its capital adequacy and restrict the extent, to which it can utilize its capital base.

According to the provisions of Regulation (ΕΕ) no. 575/2013 of the European Parliament and the Council as well as the suggestions of the Basel Committee for the banking supervision, a bank shall maintain a leverage ratio of at least 3%, which means that its total assets cannot be more than 33 times of its eligible Tier 1 capital.

At 31 December 2016, the CCB / CB Leverage Ratio was estimated at 8,3%, meaning that total assets are 12,12 times more than available eligible Tier 1 capital.

44.4.2 Counterparty Risk

Counterparty risk arises from the risk of loss due to the probability that a counterparty, with which the Group enters into a specific transaction, defaults before the final settlement of the transaction.

The Bank‟s Assets and Liabilities Committee (ALCO) approved a specific model for the determination of limits regarding the exposures in other countries and banking institutions of Cyprus and abroad. The limits are mainly determined based on the credit rating of the counterparty, as it is set by recognized international credit-rating agencies, and the maturity period of the placement/investment. The model is revised at least annually or whenever the economic conditions require it.



109


44.4 Other risks (continued) 44.4.2 Counterparty Risk (continued) The Market and Liquidity Risk Management Department, monitors on a regular basis, any changes of the counterparties‟ credit ratings and of the countries for which the Group has set limits and distributes timely the relevant information to the responsible functions for taking the necessary measures and corrective actions. At the same time, a daily limit monitoring procedure has been set, so as to identify deviations and avoid breaches of the set limits. 44.4.3 Operational risk Operational risk refers to the financial loss due to inadequate or failed internal processes, human resources and systems or from external events.

Operational risk includes legal risk and compliance risk but excludes the strategic and reputational risk. The Bank‟s Risk Management Unit (“RMU”) is responsible for setting the overall Operational Risk Management Framework and Governance. In this context the Operational Risk Management Framework has been established in order to define, inter alia, the roles and responsibilities of all business, supporting and control units of the Bank. Iit, also, determines, the specific policies and procedures related to the Collection of Operational Risk Events, the Risk & Control Self-Assessment (RCSA) as well as the setting of Key-Risk Indicators (KRIs) for the monitoring of high risk areas. The management of operational risk is also directly related with the preparation of action plans/implementation of corrective measures when deemed necessary aiming to increase the operational efficiency of the procedures and human resources respectively and as a result the improvement of the quality of services to the clients. The collection of operational risk events is carried out through a specialized IT system operated by the Operational Risk Liaisons/Ambassadors established in every business unit of the Bank. Moreover, the RMU, through special educational programs aims to the continuous training of personnel in operational risk management issues in order to create the appropriate culture. 45. Fair value of financial instruments Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the market participants in the principal or, in the absence of it, the most advantageous market to which the Group has access to at the measurement date. The fair value of the liability reflects the effect of non-performance risk. Accounting policies that include the valuation techniques followed by the Group for the assets and liabilities that are measured in the consolidated financial statements at fair value on a recurring and non-recurring basis are described in detail in notes 5.15 to 5.18 and 5.24. Fair value of loans and other advances is approximately equal to their book value in the consolidated statement of financial position, net of the provisions for impairment. Fair value of the remaining financial assets in the consolidated statement of financial position does not differ significantly from their carrying amount.



110

45. Fair value of financial instruments (continued) 45.1 Measurements of fair value recognized in the consolidated statement of financial position The Group uses the following hierarchy to determine and disclose fair value: Level 1: fair value measurements based on quoted prices (unadjusted) in active markets for identical assets

or liabilities. Level 2: fair value measurements based on information other than quoted prices included within Level 1 that

are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: fair value measurements based on valuation techniques that include information for the asset or

liability that are not based on observable market data (unobservable inputs).

For assets and liabilities recognized in the consolidated financial statements at fair value, the Group determines whether transfers have been made between the levels in the hierarchy by re-evaluating the classification at the end of each period. The table below presents an analysis of the Group's assets at fair value, or assets for which the fair value is disclosed, based on the hierarchy level:

31 December 2016 Level 1 Level 2 Level 3 Total €'000 €'000 €'000 €'000

Financial assets available for sale

Investments in debt securities 208.046 443.066 - 651.112 Investments in shares 16.680 14.734 - 31.414

224.726 457.800 - 682.526 Properties held for sale - - 121.825 121.825 Investment properties - - 238.650 238.650 Properties held for own use - - 225.515 225.515

Total 224.726 457.800 585.990 1.268.516

31 December 2015 Level 1 Level 2 Level 3 Total €'000 €'000 €'000 €'000

Financial assets available for sale Investments in debt securities - 945.145 - 945.145 Investments in shares 15.909 21.157 - 37.066 15.909 966.302 - 982.211

Properties held for sale - - 100.338 100.338 Investment properties - - 282.560 282.560 Properties held for own use - - 246.632 246.632

Total 15.909 966.302 629.530 1.611.741

There were not any transfers between the different levels during the year. The table below shows the reconciliation between the initial and the final balance for assets whose fair value

measurement is classified in Level 3 of the hierarchy:



111

45. Fair value of financial instruments (continued) 45.1 Measurements of fair value recognized in the consolidated statement of financial position (continued) 31 December 2016 Level 3 Properties

held for sale Investment properties

Properties held for own use Total

€'000 €'000 €'000 €'000 Opening balance 100.338 282.560 246.632 629.530 Total gains or losses:

- in the statement of profit or loss (8.207) (3.890) (7.239) (19.336) - in the statement of total other

comprehensive income - - 44 44 Additions for the year 32.743 831 5.059 38.633 Disposals for the year (3.864) (5.230) (953) (10.047) Transfers from / (to) other property categories 815 (35.621) (18.028) (52.834)

Closing balance 121.825 238.650 225.515 585.990

31 December 2015 Level 3 Properties

held for sale Investment properties

Properties held for own use Total

€'000 €'000 €'000 €'000 Opening balance 79.582 248.157 299.602 627.341 Total gains or losses:

- in the statement of profit or loss (700) (4.584) (14.127) (19.411) - in the statement of total other

comprehensive income - - (15.412) (15.412) Additions for the year 15.665 180 8.036 23.881 Disposals for the year (4.073) (847) (3.668) (8.588) Transfers from / (to) other property categories 9.864 39.654 (27.799) 21.719

Closing balance 100.338 282.560 246.632 629.530


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2016 46. Analysis of performing and non-performing loans

31 December 2016

Total loan portfolio Accumulated impairment losses

of which non-performing

of which advances with conditions that were

renegotiated

of which non-performing advances

of which advances with conditions that were renegotiated



€000 €000 €000 €000 €000 €000 €000 €000

Total advances* 12.033.792 7.216.753 2.755.066 2.142.789 3.272.236 3.149.369 652.228 623.719

General governments 700.676 36.127 32.271 24.348 10.696 7.950 6.364 6.147

Other financial businesses 2.715 328 297 147 267 165 60 48

Non-financial businesses 1.697.163 1.207.541 454.962 386.033 605.445 580.032 144.664 139.202

of which: small and medium sized businesses 920.791 604.857 211.972 174.051 309.694 292.205 68.232 65.405

of which: trading and real estate businesses 328.257 277.680 118.891 104.684 142.546 139.273 39.341 38.223

Per segment

1. Construction 158.137 107.978

52.777

2. Wholesale and retail trade 250.127 165.435 87.037

3. Real estate businesses 719.962 606.814 309.175

4. Accommodation, food and beverage services 117.113 99.092 36.895

5. Other segments 451.824 228.222 119.561

Private Individuals 9.633.238 5.972.757 2.267.536 1.732.261 2.655.828 2.561.222 501.140 478.322

of which: Housing loans 4.546.937 2.303.450 1.092.852 785.043 958.574 908.704 203.648 191.993

of which: Consumer loans 4.551.445 3.268.106 1.010.503 814.089 1.536.264 1.496.653 250.260 241.074

* Excluding loans to central banks and credit institutions.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2016

113

46. Analysis of performing and non-performing loans (continued)

31 December 2015 (Restated)

Total loan portfolio Accumulated impairment losses


of which advances with conditions that were

renegotiated


of which advances with conditions that were renegotiated


advances


advances

€000 €000 €000 €000 €000 €000 €000 €000

Total advances* 12.706.586 7.563.538 2.215.322 1.673.255 3.449.248 3.340.281 524.342 502.915

General governments 720.011 43.263 24.575 8.807 12.526 11.298 1.362 1.253

Other financial businesses 1.829 636 580 406 313 267 148 141

Non-financial businesses 1.780.324 1.227.167 351.503 287.175 615.721 593.548 108.030 104.660

of which: small and medium sized businesses 1.080.110 696.421 190.808 147.068 353.658 336.335 60.734 58.497

of which: trading and real estate businesses 326.228 276.991 70.920 63.918 142.236 139.724 27.147 26.888

Per segment

1. Construction 169.520 113.498

56.977

2. Wholesale and retail trade 264.389 175.626 96.552

3. Real estate businesses 718.025 597.499 298.148

4. Accommodation, food and beverage services 117.089 100.521 35.055

5. Other segments 511.301 240.022 128.989

Private Individuals 10.204.422 6.292.472 1.838.664 1.376.867 2.820.688 2.735.168 414.802 396.861

of which: Housing loans 4.614.220 2.309.650 901.939 628.222 930.172 885.320 172.446 162.960

of which: Consumer loans 5.034.461 3.562.568 802.497 630.074 1.719.905 1.684.207 200.816 193.635

* Excluding loans to central banks and credit institutions.



114

47. Loan portfolio analysis as at 31 December 2016 based on the date the loans were issued

Total loan portfolio Advances to non-financial businesses Advances to other financial businesses Advances to Individuals

€000

Non-performing advances

Accumulated Provisions







€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Within 1 year 916.246 633.439 150.720 136.467 93.023 26.955 1.441 - 26 778.338 540.416 123.739

1 – 2 years 622.885 309.918 85.993 87.316 47.389 16.112 151 - 12 535.418 262.529 69.869

2 - 3 years 188.256 70.489 27.054 32.365 21.279 9.806 1 - - 155.890 49.210 17.248

3 - 5 years 1.814.436 917.883 409.595 252.433 177.270 93.583 254 98 59 1.561.749 740.515 315.953

5 - 7 years 3.321.487 1.925.732 906.131 561.311 363.567 189.796 351 54 36 2.759.825 1.562.111 716.299

7 - 10 years 3.608.521 2.209.352 1.103.593 1.064.371 381.375 198.930 72 56 57 2.544.078 1.827.921 904.606

Over 10

years 1.561.961 1.149.940 589.151 263.575 159.765 80.960 447 120 77 1.297.939 990.055 508.114



115

47. Loan portfolio analysis as at 31 December 2015 based on the date the loans were issued

Total loan portfolio Advances to non-financial businesses Advances to other financial businesses Advances to Individuals

Non-

performing advances

Accumulated

Provisions

Non-

performing advances

Accumulated

Provisions

Non-performing

advances

Accumulated

Provisions

Non-performing

advances

Accumulated

Provisions

€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000

Within 1 year 670.155 482.497 118.897 91.881 68.215 18.827 478 318 111 577.796 413.964 99.959

1 – 2 years 218.473 80.454 30.707 36.639 21.898 9.542 - - - 181.834 58.556 21.165

2 - 3 years 832.054 409.042 152.980 117.622 72.621 32.154 216 88 41 714.216 336.333 120.785

3 - 5 years 2.937.284 1.531.908 662.737 445.136 275.028 134.632 492 12 21 2.491.656 1.256.868 528.084

5 - 7 years 3.306.114 2.076.326 946.145 512.917 371.411 176.976 96 57 18 2.793.101 1.704.858 769.151

7 - 10 years 3.266.358 1.876.724 923.913 1.054.183 319.505 171.119 95 51 53 2.212.080 1.557.168 752.741

Over 10 years 1.476.148 1.106.587 613.869 241.957 141.752 84.997 451 109 69 1.233.740 964.726 528.803



116

48. Events after the reporting period The significant events after the reporting period are presented in notes 1.2.1, 1.2.2 and 3.16. 49. Correction of errors As per the provisions of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, the Group has identified an error in the recognition of interest income and the valuation of loans which has an impact on the presentation of prior years‟ financial statements.

The error was mainly due to misinterpretation and inadequate implementation of the applicable laws, which provide for the responsibilities of the lender in relation to the contractual obligations arising from loan contracts, where the base interest rate is linked to the base rate of the European Central Bank or the Euribor (“reference interest rates”). The loan contracts were substantially issued in the period from 2007 to 2011, i.e. before and after the accession of Cyprus to the Eurozone and the adoption of the Euro on the 1/1/2008. Due to the significant deviation of the cost of deposits in Cyprus from the aforementioned reference interest rates, a number of Cooperative Credit Institutions either unilaterally changed the reference interest rate stated in the loan contracts due to misinterpretation of the contractual clauses, or did not follow as they ought to have done the reduction in the reference interest rates of the loan contracts, or they increased the interest rate margin without previously satisfying the requirements set out in the applicable laws. It should be noted that in a number of cases, the borrowers were notified of the change either through an announcement in the daily newspapers or by personal notification letters or other forms of communication. The Board of CCB, on the basis of recent legal opinions that were received in 2017, following a relevant decision of the Financial Ombudsman, has adopted the view that the abovementioned practices are not compatible with a reasonable legal interpretation of the relevant terms of the loan contracts and applicable legislation and it has decided that, based on an assessment of the circumstances and legal merits of each case, to reimburse interest overcharges to those customers that were affected from the error. The decision affects non-settled loans and loans that have been settled after 2011. The decision does not affect cases that have been decided in Court or by an Arbitrator and which will continue to be handled in the course of handling non-performing loans and advances.

The error identified has been corrected by restating the comparative amounts affected in the prior periods.



117

49. Correction of errors (continued) The impact of the error on the consolidated financial statements of the Group for the previous periods is summarized in the table below:

(i) Consolidated Statement of Financial Position: Impact of correction of error Balance as

previously reported

Corrections/adjustments

Restated balance

€'000 €'000 €'000

ASSETS

1 January 2015 Loans and other advances to customers before provisions 13.095.223 (86.801) 13.008.422 Total provisions for impairment (2.968.495) 35.007 (2.933.488) Total assets 13.936.862 (51.794) 13.885.068 As at 31 December 2015 Loans and other advances to customers before provisions 12.797.210 (90.624) 12.706.586 Total provisions for impairment (3.485.580) 36.332 (3.449.248) Total assets 14.307.351 (54.292) 14.253.059

LIABILITIES

1 January 2015 Other liabilities 92.391 2.009 94.400 Total liabilities 12.683.078 2.009 12.685.087 As at 31 December 2015 Other liabilities 75.344 10.354 85.698 Total liabilities 13.001.772 10.354 13.012.126

EQUITY

1 January 2015 Share capital and reserves 1.225.540 (53.803) 1.171.737 Equity attributable to equity holders of the Bank 1.225.540 (53.803) 1.171.737 Non-controlling interests 28.244 - 28.244 Total equity 1.253.784 (53.803) 1.199.981

As at 31 December 2015 Share capital and reserves 1.277.903 (64.646) 1.213.257 Equity attributable to equity holders of the Bank 1.277.903 (64.646) 1.213.257 Non-controlling interests 27.676 - 27.676 Total equity 1.305.579 (64.646) 1.240.933

(ii) Consolidated Statement of Profit or Loss:

Impact of correction of error Balance as

previously reported

Corrections/adjustments

Restated balance

€'000 €'000 €'000

For the year ended 31 December 2015

Interest income 576.438 (9.460) 566.978 Increase in provisions for impairment of loans and other advances (379.073) (1.384) (380.457) Net loss for the year (165.603) (10.844) (176.447) Total expenses for the year (122.709) (10.844) (133.553) Basic and diluted loss per share (€cent) (Note 15) (3,48) (0,22) (3,70)

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