Banco Comercial Português

Good day and thank you for standing by. Welcome to the Millennium BCP first quarter 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Miguel Maia, Vice Chairman and CEO. Please go ahead.

Good afternoon. Miguel Maia speaking. Welcome to the CP earnings conference call. As usual, I will mention the highlights of our performance, and then Miguel Braganza and Bernard Kulas will follow, providing additional details. This quarter, our net income went up more than 8% when compared with last year's first quarter, having surpassed $234 million and confirming once again the quality of our franchise. Careful margin and cost management allowed us to achieve a sound core operating profit of more than $584 million. The activity in all our three core markets contributed to this performance, notably in Portugal, where net income went up more than 18%, having reached almost 204 million, supported by the leading position of BCP in multiple business fronts and confirming the profitability and efficiency of our business model. In Mozambique, Millenium BIM is showing a steady profit level, quarter after quarter, having achieved a net profit of 23 million, despite being influenced by the significant increase in the cash reserves maintained with the central bank. In Poland, Bank Millenium recorded its sixth consecutive positive quarter, with a net income of almost 30 million, despite still affected by relevant costs related with legal risks of FX mortgages, which had a negative impact of 191 million, of which 117 in provisions. The adjusted net income of Bank Millenium, excluding FX mortgage-related effects, grew more than 6% year-on-year, supported on expanding business volumes, corporate stability, and a strong NII, confirming the quality of our franchise. Still in Poland, we are prepared for implementing the credit holidays recently approved, whose impact, estimated in the range between 47 to 57 million, will be booked in the second quarter. The estimated value fits in what we have forecast for 2024. These quarter results confirm the strong ability of our business model to generate organic capital, which has allowed for substantial increase in our capital position. We have strong capital ratios, with Common Acre Tier 1 at 16%, and total capital at 20.5, having increased 246 basis points and 255 basis points, respectively, compared to the first quarter of last year. The quality of our retail banking business model, supported on strong relationships with our customers, led to an increase of 7% in customer funds year on year, and is prevailing in the challenging competitive landscape for deposits, on balance sheet customer funds grew 7.5%, having grown up 12% in Poland. We also kept our trajectory of improvement of the quality of the balance sheet. Since March 23, we have managed to cut non-productive assets by additional 326 million, including 223 million in MPEs, 60 million in foreclosed assets, and 43 million in restructuring funds. The NPE ratio stood at 3.4%, and the NPE cash coverage is above 81% and 121 if considering real estate collaterals. The rigorous management of the balance sheet risks enable us to keep a controlled cost of risk despite the challenging environment in which we are operating. At group level, the cost of risk decreased four basis points since March 23, reaching 52 basis points with reductions of five basis points in Portugal and four basis points in international activity. Overall, this was another quarter in which we further strengthened the franchise, the asset quality, the capital ratios and the operational efficiency of the bank. In the symbiosis between excellent teams and distinctive digital competencies, lays the backbone of our competitive edge. Individual and corporate clients continue to choose Millenium as their preferred bank, and our services were again awarded with prestigious distinctions recognized by the market. At group level, our customer base expanded 3% in the last 12 months, reaching 6.7 million, of which more than 2.7 million in portals. Most notably, mobile customers grew 11% during the same period, accounting for 69% of the group's customer base and 60% in Portugal, being a very good indicator of the success of BTP digital transformation. Customers' recognition of our digital capabilities continues to be reflected in the use they make of our app. This quarter, customers carried out 70% more transactions through the app, than on the same period last year with a significant growth in the number of transfers and payments. The number of sales through mobile has increased 53% in the same period with emphasis to saving solutions which increased 55% and to the sale of personal loans which increased 20%. The investment and priority we give to mobile solutions with a clear focus on customer-centric innovation means that our app continues to lead the rankings and deserves top reviews on the most relevant platforms. We closed the first quarter of 2024 with a strong commercial and financial performance in our three core markets, namely Portugal, Poland and Mozambique, despite the context in any of these geographies have remained quite challenging. The evolution of BCP's share value has also been positive, and as a result of the journey undertaken, it reflects the bank's ability to generate a relevant return on invested capital. The growth of the customer base and their satisfaction indicators, both with the branch teams and mobile, give us confidence and allows us to be optimistic about the future. Miguel, the floor is yours. Thank you, Alex.

Thank you very much, ladies and gentlemen. Here you see on page 8 the presentation of our income statement showing a growth of net income of 8.4%. This growth is explained by some improvement at the level of the core income that increased 3.8% and a strong increase in operating costs explained basically by the inflation in Poland. I would like here to highlight, as you may know, that Poland has increased the minimum salary around 20%. As you'll see, in Portugal, this increase was much more contained and aligned with the growth of the business. The core operating profit decreased marginally around 1%. An important impact that we had last year was the sale of our insurance brokerage company, the Millennium Financial Services, that of course we do not have this year. And this is what explains the negative evolution of the operating net income because of this extraordinary movement. By the same token, as we are seeing normalization at the level of the NIM, we are also seeing in our different geographies a normalization of our loans impairments and the provision. So we are seeing a progressive decrease in the cost of credit. And at the level of Poland, we decreased also the need of the provision for CHF mortgages. As I commented last time, we are expecting this year to have a lower albeit still substantial charge for provisions for CHF mortgage risk. The conjunction of all these effects together with a lower tax base partially explained or largely explained by the possibility to deduct some of the CHF costs in Poland explains the evolution of our net income of 8.4% based on a year that was a very good year. So, 23 was a very good year, as we all know, and we are being able to have a 24 that is even above the 23. The net interest margin still, as we see, clearly above 3%, going from 3.25 to 3.12, and enabling us to show a growth of the NII a bit a very good 23, still growing around 5%. In Portugal, compared with the Q1 of last year, we are having here a stability of the NII at the level of 339 million and the net interest income margins still also above 2%, which is, I would say, over the cycle, a good value to have in a mature market. When compared with the last quarter, this decrease is higher and this is largely explained by the fact that the cost of the deposits and subsequent impact on margin increased substantially in the last quarter of last year with a higher impact in the first quarter of this year. This impact was clearly already anticipated As I commented in my last presentation, we are expecting a means to high single digit decrease of the margin in Portugal. We are confirming this view here. And what we also can say is that presently we are already seeing, in terms of the front book of deposits, a decrease in the deposit cost. Our customer deposit cost, including term deposits and demand deposits, right now has a value in terms of stock of around 1%, and the front book is already decreasing. in terms of another important impact as you're seeing of our of our margin evolution is the fact that it has we have been very disciplined in terms of of credit in terms of credit concession in terms of pricing of credit this has translated in a good evolution in terms of other ways and in terms of capital. But of course, the other side of the coin of this discipline in terms of credit is a somewhat negative impact in terms of margin. In terms of international operations, we see here still a very high net interest margin, both in Poland and in Mozambique, around 4.57% and the margin going around 10%. Fees and commissions stability with two tails, I would say here. Everything that is related with market-related fees and commissions is growing both in Portugal and internationally. As we know, the asset management fees this year due to the performance of the market has been more beneficial than the year before. The daily banking fees and other day-to-day banking fees, also because there is some trade-off between these fees and the demand deposits and the acquisition of clients of daily banking is showing a slight decrease. But all in all, a stability of fees and commissions. The other income in page 12, as you see, shows the fact that we had last year this capital generation a deal of the sale of millennium financial services that was responsible for an impact of around 127 million in terms of other income, in terms of trading gains. This year, of course, we do not have this impact, and so this explains most of the situation. Operating costs. As I had anticipated, this is a number that has to be analyzed carefully. As we see in page 13, most of the increase comes from Poland. That is increasing the cost base above 20%. And I have commented for two years in a row, the minimum salaries have grown, the official legal minimum salaries have grown. In one year, 20%. In another year, 19%. the average salary inflation in Poland, the last numbers I've seen, was around 13%. But the economy is performing very well, and it's having also a positive impact in terms of the cost of credit. In Portugal, from a low base, what we see is an increase of 5.5%, which shows us some contentious, especially considering the inflation rate that we have in Europe. and a cost to income in the low 30s, which is, in absolute terms, I would say, a good value that compares well with most European banks. Cost of risk, a positive evolution. In Portugal, below 50 basis points. I think this is a trend to continue. As I had anticipated for this year, we are expecting a normalization, both of the NIM and of the cost of risk, so that in Portugal, what we are expecting one to broadly in terms of large numbers the cost of risk together with the other provisions to compensate each other and we are showing a cost of risk below 48 basis points in Portugal in the international operation it's a lot higher cost of risk and here I would like to highlight the very profitable unsecured personal loans business in Poland that is very very profitable with with spreads that are multiple of these 59 budget points. But of course, the cost of risk in unsecured personal loans is higher than in mortgages, as we used to have in Poland. A continued decrease of NPEs. As we see in page 15, Portuguese is already below 3% in terms of the loans NPE ratio. And in terms of the total NP ratio, i.e., considering non-balance sheet exposures or balance sheet exposures, and the portfolio of that is already at 2%. In the international operations, also, this last ratio is already at 2.4%. Still, in spite of these low numbers, we are still being able to reduce and further our NPEs while maintaining high coverage, as we see here, the total coverage around 123% and 122%. The business activity, very, very healthy. We see here in terms of total customer funds, growing 7%, where here, once again, the international operations show a very important number, around 22%, but also in Portugal, a growth of 1.5%, in spite of a very disciplined pricing of deposits. Of course, the issue of the pricing of deposits at the end of the day, because we are very much a daily banking franchise, and the bank we are Most of our business comes from the liability side of the balance sheet. So we have a loan to deposit below 70% in Portugal. What we see is that the margin compression in deposits affects us more than banks that are more credit based. Loan portfolio. In the international operations, a very healthy growth of the non-portfolio, around 1 billion euros. In Portugal, a decrease of 1.3 billion euros. This is, as I was commenting, a tale of two sides, so to say. We are being very disciplined in terms of the credit. We always analyze the credit vis-à-vis alternative investments in terms of government debt or publicly traded securities with lower risk so that we price the credit accordingly and always keeping in mind the economic result of the deal. This is having a very positive impact in terms of our capital. As we see, of course, this all sometimes means that we let go some deals that do not make as much sense from a value generation perspective. And this is basically the positive side of the coin of these high disciplines that we are showing. So the bank was able to grow substantially its common equity one as we see here of around 16% to around 16% comparing with the last value I would here like to highlight here three points I would say. On one hand we did a securitization that is responsible for a capital generation of 16 basis points And the remaining part of the capital accretion compared with the end of last year, around 40 basis points, has to be separated in two, I would say. Half, broadly half of the 40 basis points is linked exactly to the RWA decrease. that to some extent is also linked to this great discipline. So from the 40 basis points, 20 is around, is, so to say, linked to lower RWAs in our balance sheet. And the other 20 have to do with our results generation and organic capital accretion. These 20 basis points of capital accretion After, as we have already commented publicly, that we are accruing a 50% payout ratio, so this 20% capital accretion, these 20 basis points capital accretion means effectively 40 basis points pre-dividend is, so to say... to some extent, the new normal across the year. There is some seasonality along the different quarters, but I would say the new normal would be very close to around the 20 basis points capital accretion per quarter absent special and extraordinary yields. 20 basis points after the reduction of the 50% of payout. Leverage ratio, very, very favorable. As you know, we have conservative models, so this means that for the same capital ratio, our leverage ratio is stronger than our comparables, and our RWA density is still quite high, being still somewhat penalized by the history and by the long-term series that affect our PDs and LGDs. Morel, clearly above Morel. We want to maintain our relationship with the market, so we will continue to access the markets as long as they are there, to maintain our relationship with investors. But in principle, right now, as you see, we are in a very, very comfortable situation and we don't need to. Liquidity ratios. it's not, I would say, a restriction. As you see, an LCR of around 300% and an acceptable funding ratio of 172%. So we are very comfortable in the situation. I would say what constrains more our paid activity is neither the capital nor the liquidity, is the capital discipline. And this is something that probably will be maintained for some time. I will pass now the floor here to Bernardo.