Banco Bpm Societa Ord

Good evening. This is the Coruscall Conference Operator. Welcome and thank you for joining the Banco BPM Group First Quarter 2023 Results Conference Call. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

Good evening, everybody, in particular for all of you that are linked from London that today is a bank holiday. Before leaving the floor to Mr. Castagna for the presentation, let me remind that you can find the slide on the website on the Investor Relations page. Then following the presentation, we will have a Q&A section reserved to financial analysts, and I ask to you to limit the two questions for analysts to leave the room to each other for the question. Now I leave the floor to Mr. Castagna.

Thank you, Roberto. Good evening, everybody. Thanks for being with us. I'm very proud, together with my management team, to present this first quarter excellent set of results which allow us to lead Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord We can foster many very good results. First of all, profitability. Net income growing 49% year-on-year to 265 million, which of course is a very good point to imagine growing profitability for the full year. But also the capital strengthening is very good news. We have 80 basis points of increase in capital growth in common equity tier 1 which adjusted for Basel is 14.15% and finally we still are developing some very important initiative which we already gave some hint in our previous press release related to the boost in capital generation and profitability coming in 23 and 24 from the bank assurance and the payment and merchant acquiring transaction which are on our target going to the guidance we think we can be in the position to increase very much both 23 and 24 we are prepared to deliver guidance for 1 billion 140 million of net income for 23 which means 75 basis points of IPS which have to be compared with 49 on the original strategy plan and 60 which were given on February this year. As much as we can increase to 90 points of IPS for 2024 also in this case compared with 69 basis points of the original strategic plan and the 75 basis point gave in February this year. This means basically that in 23 and in 24 we will double the net results of 21 and 22 respectively. On page 7 again some numbers, some figures about the increase of profitability driven of course by NII which grew 45% year on year but also together with the fees so the core income grew 23% year on year. Cost of risk is still very prudent approach shown by our bank in the past and we still assume that 51 basis point is a concrete figure to Foregas for this year leading to again acting our 265 million which again is 49% year-on-year increase at 26% on last quarter results. We already said about common equity tier 1 increasing 80 basis points. The same was for MDA buffer, which is still very much important in terms of potential remuneration to our shareholders. Finally, liquidity and funding, very good position. The total liquidity grew to $41 billion. with LCR 199% and SFR above 130%. Let's concentrate about the improvement of NII which of course is leading the growing profitability. As you can see, we took advantage of any increase of Euribor in the recent quarter in one year we grew from minus 54 which was the average EUR in Q1 2022 and now in Q1 2023 was 264 basis point in April is 317 following the ECB decision to increase the ECB depot facility rate to 3.25 The more recent Euribor is 3.28%. In this respect, we were very good in maintaining at a very low level the deposit cost. As you can see, quarter by quarter, we grew only to 46 basis points the overall cost of our deposit. which in turn increased those of 2.5 billion in April with respect to the results of March this year. This allows us to have a revised guidance also on NII which now we assume could lead to NII, total NII higher than 3 billion in 2023 replacing the 2.7 billion guidance of February. The previous guidance was based on Euribor 2.5%. This new assumption is based to the current Euribor, which is 3.3%, and observed the deposit beta, which is reduced from 46% to 33%. Let's also say that the potential further impact for alternative interest rate scenarios allow us to imagine a further growth of 300 million for 100 basis points of interest rate increase. On page 9, as we also announced in February this year, We think that the result we observe in Q1 2023 allow us to say that the previous strategy plan targets are completely surpassed. We are higher than the quarterly representation, not only of 2023, but also of 2024. Strategy plan, as you can see, both in terms of total revenues, we are now at... 1,250,000,000 vis-à-vis the plan which assumed 1,075,000,000 for 23 and 1,150,000,000 for 24. The same is for core revenues well higher than the 24 business plan as much as the pre-provision income which is now 610,000,000 compared with the 520 million of 24 in the original plan also the cost of risk is now at the same level we had a bit lower than the level we had for 2024 in our plan 137 million versus 145 million as well as net income is much higher that the forecast for 23 and 24 at 265 million which if we want to normalize the impact of the systemic charge that as you know are calculated on Q1 and Q3 if we assume that this would be annualized the normalized result for Q1 would be almost $290 million not saying that of course we know that this is the last year in which we should have the systemic charge from EU resolution funds so most probably the only impact of the systemic charge in 2024 will not be there anymore strong capital position and we say that we have as usual the two figures both for December 22 and for March 23 on a stated point of view we grew from 12.83 of common equity tier 1 to 13.57. Meanwhile, if we add the calculation about the application of Danish compromise, we grow this figure from 13.34 to 14.15. The evolution is fostered by the Q1 performance with 50 basis points which, of course, will be reduced by the dividends and 81 coupons of 28 basis points, but with further improvement both in the reserve post-tax of ultra-complex and sales on a positive dynamics of RWA as well as other positive impact mainly driven by the DTA on the HTCS portfolio. Capital ratio will increase as well, TR1 to 16.5, TCR to 19.3 and again a very comfortable capital buffer growing to 544 million adjusted with the Danish compromise with a fully efficient capital structure having filled all the buckets of 81 and TR2. Furthermore, we still have to deploy completely two actions which you have been already informed either directly by us or through a press release we gave on the payment system transaction. Let's give you some more detail. We have still in place these two projects. One is, as usual, bank assurance. We are in the process, after concluding the strategy partnership with the Crédit Agricole, to getting the application for the Danish compromise after having the recognition as financial conglomerate in March by ECB and before the closing of H1-23 we will exercise the call option on the 65% on Vera Vita and Vera Assicurazioni which would lead by year end to the acquisition of our joint venture. This is something that you already know of course. What is fairly new is the project on payment cards and merchant acquiring We have, let's first of all give you some idea of the magnitude of this business. We have 140,000 points on sales, we have 4.4 million of payment cards, which nowadays give us a total transaction volume of more than 20 billion in terms of issuing, 13 billion in terms of acquiring, 21 billion in terms of ATM. but showing an increase year by year which is double figure especially in terms of acquiring 23% or issuing almost 16%. These volume generate NPL contribution in 22 and again we are experiencing also in Q1 23 double digit increase gross revenues, let's say a revenues pool over 300 million which after paid scheme, intercharge and processing piece leave us with a pre-tax contribution of 140 million which is 14% more than the previous year. What we are trying to conclude is a transaction which will give a value potential of 2 billion of next present value to this business through a long-term exclusive distribution agreement with a partner which would be aimed to preserve completely the running fee levels without conceding further margin to our partner with a consistent cash-in of an upfront component creating additional room for shareholder remuneration with a mechanism enabling us to extract further value from future expected growth so not again like for the other product factory in which Banco Bpm is always sit together with the partner on the driving seat likewise in asset management consumer finance bank assurance we would like to have the same structure of stakeholders in participation also in the payment business and this would be a further strengthening of our profitability and opportunity to deliver more rewards to our shareholders. We are in the final step of this transaction. We expect to have a term sheet signed by the end of June this year. Let's go to some figures about our first quarter. I wouldn't go through all the numbers. You already said an NII is 45% more than last year. Very good also fees and commission are at the same level of Q1 2022 and 7% above Q4 results. Another important figure is income from insurance business. which with the new IFRS 17 accounting standard has a signing contribution of 10 million in this quarter vis-à-vis a contribution of 40 million in Q4 22 which took count of the revaluation of the Govis portfolio of our insurance company. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord operating costs are basically in line 1.7 below Q4 22 and slightly above Q1 22, 2.5% showing of course the capability of the bank to take care of the inflation growing during 2022 and this first quarter of the year. Pre-provision income again 9% year-on-year growing. Loan loss provision 9% year-on-year minus 25% on last quarter 22. Leading to a profit from pre-tax of 474 million which is 20% year-on-year growth and 42% quarter-on-quarter, leading again to a final result of net income of $265 million compared to $210 million Q4, which again took advantage of the income from insurance calculated with the old standard model, and $178 million in Q1 2022. which is an increase of almost 50% year-on-year and 26% quarter-on-quarter. Let's have a look to the component of NAI. As I show you on Q1, year-on-year, of course, the growth is massive, 45%. If we go comparing Q4-22 to Q1-21, Q1-23, it appears to have only a 2.6% of increase. But if we eliminate the benefit of the contribution of TLTRO from Q4-22, which was 80 million, you can see on the right side that also excluding the effect of the one lower day, two lower days, sorry, effect of Q123 on Q422, the NII increase quarter on quarter is almost 18%. Driven of course by commercial activities only slightly impacted by the increase of cost of wholesale funding. As you can see on the bottom side of the slide, we were able basically to maintain a very good discipline on asset spread, which remained at 1.53%. Meanwhile, we took a very big advantage from the liability spread, growing 63 basis points quarter on quarter up to above two full points at 2.04%. Volume were supported by a very good customer base, a very qualitative franchise. We, as you know, since June 22, we are not pushing for customer loans. We are trying to, of course, keep our pace, giving priority to the quality of our loans and to the guarantee and collateral which can come together with our granting loans. And so you can see that out of the 5.2 billion of new lending, 1.3 billion were assisted by state guarantees. 96% of these new lending was concentrated in the best rating classes and 71% of the new lending was granted in the north of the country. also very important to stress that out of our 91 billion of loans granted to household and non-financial companies 68% are either collateralized or state guaranteed and this percentage only for the state guarantee grow from 19% to 28% if we consider only the loan granted to non-financial companies, so excluding households. Another important figure is on the right bottom side. If we consider only the small lending to small SMEs, which amount to $19 billion, more than 43% is under state-guaranteed support, and only 3% of SME Portafoglio is in the high-risk rating class, of which 76% secures. Net Peace and Commission, again, very good results in line with Q1-22, in which the first two months in last year were very good, not impacted by the war. So we are very happy to go again to that level of results. As you can see, Q4 2022 was much lower, 7% growth in Q1 2023, and the growth that we are experiencing vis-à-vis the Q4 is both on management and advisory fees, in which we grow 13%, and in commercial banking fees, in which we grow 2.4%, with a growth year-on-year on 5.3%. It's very important to remark that a good part of this contribution comes out of the product factor in which we are investing a lot. Likewise, insurance products and payment services. Cost dynamics well under control, plus 2% year on year, notwithstanding inflation rise. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord which were not considered in 22 and for which we have provisioned in 23. Cost income ratio down to 51%. We took advantage for a normalized pace of depreciation and amortization which were inflated in Q4 22. The insurance business cost of course are included in these costs and amount only to 2.7 million in Q1 2023 for this year. Let's go at page 18 to the cost of risk. We wanted to show you how our reduction in cost of risk goes together with the reduction of the MPE ratio. we are now down to 4.2% which is 3.7% with the EBA definition and almost around 2% in terms of net MP ratio our 51 basis points are basically 30 basis points coming from inflows also with a very good default rate basically in line with our main competitors, 0.85%, and the remaining 20 basis points coming from the maintenance of the stock. This means that we continue to provision at least between 35% and 40% every inflow in non-performing loans. Let's say that we have already increased to 0.75 billion over the planned horizon, so 2023-2024, the additional disposal for which we have already cost of risk front-loaded. So we will split between 2023 and 2024 further reduction in MP through these disposals. Meanwhile, our overlays is stable at around 160 million. The cost of risk is declining, but we are increasing MPE coverage, notwithstanding a low default rate. As you can see, the total MPE go down to 4.7 billion, almost evenly split between OTP and bad loans, with a net MPE of 2.3 billion. The migration rates are maybe the best ever for our bank, default rate 0.88 vis-à-vis 0.94 last year, with a Q rate which is almost double the Q rate of 22, which lead to a net default rate of 0.72%. On the bottom part of the slide, you see the increase in MP coverage, which globally is growing from 50.4% of March 22 to 50.6% of December 22 to 51.4% of March 23, which is split between UTP coverage at almost 41% and bed loans 65% or 72% if you consider write-offs. Stage 2 loans maintained almost at the same level of the previous year. Let me give the floor to Edoardo Ginebra for some slides about Depth Securities Portafoglio and Liquidity Funding position.