Banco Comercial Português

Welcome to VCP earnings conference call. I will go through the highlights of our performance, followed by Miguel Braguéns and Bernardo Colós, who will provide additional details. On the first six months, net income stood at 485 million, an increase of 15% year on year, supported on a strong operational performance, with special emphasis to Portugal, where net income went up 16%, reaching 411 million, supported by the strong competitive advantage of our business model and leveraging on BCP's leading position in multiple lines of business. Steering through an environment of soft decreasing interest rates since late 2023, we rigorously manage core income and operational costs, being able to maintain a sound and stable core operating profit of almost 1.2 billion for the off-year activity at the consolidated level. In Mozambique, Millenium BIM keeps showing a sustained and adequate profit level, contributing with stable results for the group's profitability. Net income stood at 47 million in the first half of the year, confirming the resilience of our business model and its capability to tackle the involving challenges of the Mozambican economy. I would say that the results in Mozambique were, frankly, positive, considering the significant increase of almost 40% of the local requirement for non-remunerated cash reserves to maintain with the central bank. In Poland, the performance of Bank Millenium was still significantly influenced by specific items, besides the provisions and costs related to legal risks for FX loans, which amounted to $230 76 million in the first six months. There were 47 million of additional costs in the second quarter for legal credit holidays within the range of values that we have anticipated. At another level, the second quarter, the 17th row of positive net results was quite remarkable for Bank Millennial. It marked the formal exit from the Capital Protection and Recovery Plan closing an important and successfully overcome cycle in the evolution of the bank, with the bank millennial reaching robust buffers, both in terms of capital and morale requirements. Despite the mentioned specific items and the resume of payment of the banking tax in Poland with the exit from the recovery plan, Bank Millenium achieved a net income of 83 million in the first six months, aligned with the net income in last year's first half, although last year's result was positively influenced by a significant one-off income of 127 million from the bank insurance transaction, I mean by that the sale of 80% of Millennium Financial Services. The consistent organic capital generation capacity of our business model is well reflected in the solid capital position achieved. We have capital ratios comfortably above regulatory requirements with Common Equity 1 at 16.2% and total capital at 20.6%, having increased 219 basis points in Common Equity 1 and 225 basis points in total capital in the last 12 months. The quality of our retail banking business model in all our markets, supported on strong commercial skills and lasting relationships with our customers, led to an increase of 8.9% in customer funds year on year, overcoming the 100 billion mark for the first time in BCP's history. Now it's standing the increasingly competitive landscape for deposits. On the balance sheet, customer funds grew 9.3%, having grown up more than 18% in Poland. We also kept the trajectory of improvement of the quality of the balance sheet, continuing to cut non-productive assets. In the last 12 months, we managed to decrease 175 million in NPEs and 59 million in foreclosed assets. NPE ratios to that 3.4% and NPE total cash coverage is above 81% and above 121% considering real estate collaterals. Operating in a challenging environment, our rigorous management of the balance sheet risks enable us to also improve the cost of risks, which is currently well anchored with the reference presented in the strategic plan. At group level, the customer base expanded more than 4% in the last 12 months, exceeding 6.8 million, of which more than 2.7 million in Portugal. Most notably, mobile customers grew more than 11% during the same period, accounting for 70% of our customer base and 61% in Portugal, revealing the success of our digital transformation journey. customers recognize value in the distinctive approach that sets us apart from the competition, namely from poor digital players. Leveraging on the symbiosis between a wide footprint and top digital competencies, We offer customers a superior combination of innovative products, convenience and quality of services. This approach is supporting the expansion of the customer base with individual and corporate clients continuing to choose Millenium as their preferred bank and we see our service awarded with relevant distinctions. Customer recognition of our digital capabilities is also reflected in the use they make of our app. On the first six months, the number of transactions carried out by the customers through the app was 26% above last year's first-off figures, with a significant growth in the number of transfers and payments. The number of sales through the mobile app is also growing significantly, having increased 49% in the same period, with emphasis to carbs and saving solutions, which increased 53%. The investment and the priority we give to mobile solutions, with a clear focus on customer-centric innovation and permanent improvements, means that our app continues to lead the rankings and deserves top reviews on the most relevant platforms. To conclude, I would say that we have completed the first half of the year following a period of normalization of the bank, and the results are very much in line with what we had planned, which gives us confidence regarding the future. The quality of our franchise by which I mean the preference with which customers distinguish us. Our high efficiency model, the quality of our balance sheet and the solid capital ratios allow us to reaffirm today with even greater conviction that we will be in a position to ensure that the distribution for the 2024 results will mark the beginning of a new phase in BCP relationship with the market. and a phase in which we will be able to sustainably present a payout equal or greater than 50%. Miguel, the floor is yours.

Thank you. Thank you very much. As you see here in our, in page 8, in our simplified income statement, comparing with the year of 23, which was an extraordinary year in terms of NIMH and because of the sale of the Millennium Financial Services, we still show a growth in core income in spite of the dynamics of interest rate, which is then more than compensated negatively by the sale of 80% of the millennium financial services that, of course, was an extraordinary last year. In terms of impairments, we see a normalization of impairments. However, we have here an extraordinary also recovery of an old legacy write-off that was more or less responsible for around 50 million euros of profit. But nevertheless, even considering that, we see a clear normalization path in the loan impairment, as we had commented before. So we would expect this year a normalization in terms of the NIM that is happening without any abrupt changes. but at the same time also a normalization of the impairment charges converging to the impairment charges that similar banks to us show in the market. The charges for legal risk in Poland, still at high level, but below what we've seen last year and this is a little bit what we expect for the full year, so still a high level of charges in terms of CHF because of the of the changes in statutory interest, the claims and so on. But what we would here also like to emphasize is that we are not seeing anything that we were not expecting. So we are here seeing a trend very much in line with what we have been commenting to you and with what we have been expecting. In terms of the taxes, as it was shown, in the presentation of Millennial Bank in Poland. We had here also, I would say, an extraordinary gain in terms of taxes that was basically the deductibility of a small part of the costs with the annulment of the contracts. So we are still trying to fight for a larger tax deduction of the losses with Swiss franc loans up to now what has been guaranteed is that the interest that was taxed in the five years before the loan being declared null and void can be the taxes related to the interest that we obtained in the five years before the loan being declared null and void can be reverted. So this represented a tax asset, so a possible tax asset that was registered. This is only on average. I mean, what we are expecting here to deduct for the time, broad numbers, of course, it depends on on specific contracts, but you are speaking about 15% of the costs of the contracts that may be deducted in the future. Going forward, we don't expect these extraordinary tax gains related to the Swiss franc costs, but we expect a small deductibility on the costs that will occur in the next quarters. In page 10, we see here our group interest margins showing some contraction, but still above 3%, which is, I think we all agree, a very interesting interest margin that shows an important customer franchise. In Portugal, with a value of around 2.3%, and in our international operations here, to a large extent Poland, around 4.5%. At the group level, we have been able to compensate these NIM contractions with some growth in volumes so that the NII actually in consolidated terms has grown 1.7%. In terms of fees and commissions, stability growing 2.3% with similar levels both in Portugal and in the international operations. Other income. We have here, as commented in page 12, the extraordinary insurance deal of last year, whereby we've sold 80% of Bank Millenium Financial Services, which represented a gain of 127 million. And we also see a reduction in regulatory contributions, mainly in the European Fund, as you see here, from 85.6 million to 62 million. So this explains the dynamics of other income. Operating costs. Operating costs are a challenge in a country such as Poland. The minimum salary two years ago was 20%. Last year was 19% increase, so the salaries are increasing materially in Poland. In Portugal, which is our main geography, we have been very disciplined in terms of costs. However, with the inflationary pressures that we've seen last year, there are here low single-digit increases. This means that we are still with a very resilient cost to income, around 35%, which proves also the robustness of our business model. Cost of risk. Cost of risk, I would say, adjusted for this extraordinary at around 50 basis points. What we expect going forward is a value between 40 and 50 basis points going forward, probably considering the extraordinary, much closer to 40 basis points, in line with our models and with our expected losses, still somewhat above the policy of our main competitors in the main markets, reflecting the prudence of our approach. In international operations, a cost of risk that is, I would say, stable at 46 basis points. A continuous decrease of NPEs when you compare with last years. uh in the quarter there was a stability in terms of of np's however when of course as we reach a lower and lower number and as most of our np's are unlikely to pay the reduction becomes becomes more difficult because unlikely to pay np's are are much more difficult to to sell because you typically need the agreement of of the seller because if the seller yeah of the data because If the debtor is performing, I mean, even because of bank secrecy rules and so on, you cannot simply sell the loan. As you see, most of our NPs right now are unlikely to pay. Going forward, we still are optimistic on this issue. We are trying still to do some sales. There is always some, I would say, some bulkiness in terms of these sales because you need portfolios that have a minimum amount. But in any case, we are reaching here values in terms of the NPL ratio, 90 days NPL of 1.4%. The NPE ratio considering securities and off-balance sheet exposures according to EBA at 2.1%. So these are values that are much more aligned with what is the practice in Europe. In terms of business activity, Very healthy business activity in terms of customer funds. You see that the customer funds in general have grown 9% year on year. It's 9%, so very, very relevant. with a strong impact from our international operations, growing almost to 20%, but even in Portugal growing at 4.6%, which in the context of strong delivery in terms of pricing of deposits and without compromising the NII, It really demonstrates the preference of our customers and how important it is for us to have a differentiation in terms of customer service. In terms of loan portfolio. the news are not so good because of our discipline in terms of pricing. So the impact of new loans and of new stimulus to the company sector is taking somewhat more time than what we were expecting. So in Portugal, what we see is some decrease in terms of our performing loan portfolio. What we expect for the full year is, I would say, a stability. end of this year compared with the end of last year stability due to low single digit growth. It will depend now on the second half of the year on the business confidence and on the really possibility of access of some companies to these new European funds that then will have secondary effects but Our base case right now is stability to low single digit increase in terms of the loans to companies. Loans to individuals are already growing at low single digits, so there we feel much more comfortable. In terms of the international operations, growing at 3.5%, with a stronger focus in Poland in loans to SMEs and corporates, which is the segment where we are clearly punching below our weight due to capital management in the last years. In terms of capital ratios, common negative one growing from 14% last year to 16.2%. And if you remember, 16% in March, so 20 basis points of growth, very much aligned. with what I have been commenting here of our 20 to 25 basis points accretion in terms of capital after putting aside around 50% for the payout. This 16.2 compares very favorably with the minimum ratio of 9.41. And even if we increase this 9.41 by the 29 basis points of the new buffer of the Bank of Portugal will get to 9.7. So it is a comfortable capital ratio in terms of CET1 and also in terms of total capital ratio. As we have commented, We are working on a strategic plan that we will disclose together with the results of Q3. And in the context of this plan, we will give some more light in terms of how will the distribution policy going forward, keeping in mind that at least 50% will be distributed in terms of dividends. Leverage ratio. Still a strong leverage ratio, 6.4%, which is partly explained by our high RWA density. So this gives us some confidence that even with the new regulations and with CRR, mainly in terms of credit, we feel comfortable that our models have adequate buffers in terms of credit risk. Morel, we are meeting our Morel requirements. No news. We expect to refinance what our senior preferred notes in the second half of 24, maintaining our relationship with the market, but we really don't need it. It's just, I mean, our policy of maintaining the relationship with the market and the presence in regular terms. Pension fund, the pension fund keeps an excess. I would here want to clarify that this excess is, I mean, like a buffer for market movements and for surprises. So while we are within this excess, I mean, even if the pension fund performance is less good, until this excess is consumed, we have not a an issue in terms of capital. There is an ALM in terms of the evolution of liability vis-à-vis the evolution of the assets. So, of course, because the liabilities, the value of the liabilities is linked to long-term fixed rates, interest rates, a large part of the portfolio, as we see here, is also invested in bonds. So this means that when interest rates go go up as it has occurred i mean typically the value of our bond portfolio goes up but the the value of of our of our liabilities also is works in tandem liquidity ratios still very much above above the minimum actually we have more liquidity than what you would like to uh but we are not willing to compromise also in terms of capital discipline and in terms of asset pricing. We expect that as time goes by, as the loan growth picks up, a part of this liquidity access will be allocated to loans. I will pass now to Bernardo.

Thank you, Miguel, and good afternoon, ladies and gentlemen. And starting on page 26, net income in Portugal stood at 411 million, in the first half of 2024, standing 16.2% above the 353.7 million achieved in the same period of the previous year. This evolution of net income in the Portuguese activity benefited from the stability of net operating revenues, cost discipline, and by the reduction of provisions, as well as the reduction in terms of mandatory contributions. On page 27, looking to NII in Portugal, net interest income stood at 673 million, which represents a decrease of 4.8% compared with the same period of last year, although it's important to mention that NII in Portugal registered a small decrease on a quarter-on-quarter basis of just 1.4%, which supports our view for NII evolution in 2024. This evolution resulted from different dynamics when we look on the yearly basis. In one end, NAI benefited from the higher income generated by the customer loan portfolio and from the positive impact arising from the active management of the securities portfolio. On the other hand, there was an increase in costs associated with remuneration of deposits. Costs also incurred with the issue of some debts and also the reduction of the loan book. Net interest margin decreased from 2.52% in the first half of 2023 to 2.29 in the first half of 2024, but still at the high levels on the banking sector. Moving to page 28. that will look at fees and commissions as other income. Total fees and commissions stood at 286 million in the first half of this year, which means an increase of 2% compared with the same period of the previous year. Banking commissions were flattish and market-related commissions went up more than 11%. And here, I mean, it should be noticed an increase to what regards to banking commissions related with cards and transfers, and on the market-related fees, the increase registered on securities. With regards to trading, there was, in 2024, a negative contribution of 4.7 million, That compares with a small positive contribution of 4.5 in the same period of last year. And these differences are mostly explained by the mark-to-market and some of the hedging activity, as well as costs related with securitizations that we did on the past. Other net operating income stood at minus almost 23 million in the first half of this year. That compares with almost minus 67 million on the first half of 2024. And this improvement is explained by the reduction of mandatory contributions that moved from almost 73 million in 2023 to less than 40 million in 2024. Here on this line, we have a positive impact coming from some gains on real estate. That also provides a relevant contribution for this line, once they were considerably higher than the previous year. Now going to page 29, and despite the disciplined cost management of the group, operating costs in Portugal went up 3.1%. And this evolution on operating costs in the Portuguese activity is explained by increases recorded in staff costs as well on admin costs, as depreciations were stable year on year. Number of employees with a slight increase and the number of branches with a slight decrease year on year. Moving to page 30, which refers to asset quality, NPEs stood at the level of 1.1 billion at the end of June, showing a reduction of more than 150 million compared with June last year. Taking in consideration the continued efforts to reduce the NPEs, it's important to highlight that the NPE ratio in Portugal, as mentioned by Miguel, stood below 3%. Cost of risk, as also mentioned by Miguel on the second quarter, was impacted by some impairment reversals and stood at 28 basis points. And without this specific impact, the cost of risk would have stood around 50 basis points, which compares with 53 one year ago. Now let's move to page 31, which looks at the NP coverage breakdown. And as you can see, total coverage of NP is at 140%, and the NP coverage by loan loss reserves at 87%. Coverage by loan loss reserves is stronger in loans to companies, where, as you know, real estate collateral, usually more liquid and with more predictable market value, accounts for a lower coverage than when you compare to loans to individuals. Coverage by loan loss reserves was at 122% for companies as of June 2024. On page 32, which shows the evolution of foreclosed assets and corporate restructuring funds, as you can see, the net value of foreclosed assets stood at 66 million, that compared with 124 million one year ago, meaning a reduction of more than 47%. And here it's also important to remind you that, just as a reminder, that in December 2022, the net value of foreclosed assets amounted more than 180 million, and in December 2021, more than 450 million. Regarding property sales, there was a relevant reduction in number of transactions compared with the first half of last year. which was somehow expected due to the reduction of real estate assets on BCP balance sheet. Corporate restructuring funds were stable year on year. Now moving to page 33, total customer funds reached 69 billion in June 2024, which compares with 66 billion recorded on the same date of the previous year. This evolution is mainly justified by the positive evolution of unbalanced sheet customers and more specifically due to the increase in deposits that went up almost 2.6 billion compared with June 2023 and almost 1 billion if we look at the end of March 2024. Loans to customers to that 38.6 billion below the 39.9 billion recorded in the first half of 2023, although it's important to highlight that we hold an inflection point on the second quarter as the loan book grew slightly less than 200 million euros from the end of March. Going to page 34, which shows the evolution of performing loan book in Portugal, loans to individuals to that 21 billion, which is 300 million above the amount recorded one year ago. All in all, loans to individuals went up almost 1.4% compared with June last year. Loans to companies amounted to 16.4 billion at the end of the first half of this year, standing below the 17.9 billion recorded in the same period of the previous year. Decrease, as already mentioned, is justified by higher interest rates and delays in investment projects, particularly those co-financed with European funds, and additional, as we mentioned before, also the repayment of COVID lines that also influence this negative evolution of loans to companies. Now, moving to page 36 and starting the deep dive on international operations. Net profit in Poland remained resilient, reaching almost 83 million in the first half of 2024, which compares to 83 million one year ago. In the first half of this year, the result of the Polish operation continued strongly impacted or conditioned by the provisions associated with the Swiss franc mortgage credit portfolio. And on the second quarter of this year, it was also influenced by costs related to the extension of credit holidays, which, as you know, amounted to almost 47 million euros. Despite these constraints, Banque Milenio continued very strong in operational terms, allowing the bank to maintain positive results for the seventh consecutive quarter. Now, regarding Mozambique, net profits stood at almost 47 million in the first half of this year, which compares with 49 million in the same period of last year. And if we look at the international operations after minority interest and excluding exchange rate effects, the contribution from international operations in the first half was 74 million, which compares to 69.5 million in the first half of last year. The result of international operations adjusted for the effects related with Banque Milenio increased by 12.5% on a comparable basis from 184 million to more than 207 million in the first half of this year. On page 33, 36, which refers to Bank Millennium, I think the first message that must be highlighted is the formal conclusion of the capital protection plan in May and the exit of the recovery plan in June. Net income, as mentioned before, continued to be impacted by costs related with CHF. And if we exclude these specific items, net income grew 19 million or almost 6% compared with June last year. Net operating revenues went down 23%. And as mentioned by Miguel, it's mostly explained by the one-off effect related with the sale of 80% of millennial financial services that was registered in first half of 2023. Operating costs went up almost 14% and mainly influenced by the strong wage inflation registered in Poland. And it's also important to highlight that capital, CT1 and total capital, improved significantly and stood comfortably above minimum requirements. On page 38, which provides some detailed information about Macmillanium, NII without credit holidays increased 5.3% to 635 million. That compares with around 600 million one year ago, And I think it's also important to highlight the increase that happened on a quarterly basis. NIMS stood at 4.32. That compares with 471. Fees and commissions decreased 3.4. And this reduction is mainly related with lower contributions from insurance. Other income was strongly impacted in 2023, as I said before, by the sale of 80% of millennial financial services. Total costs excluding mandatory contributions went up 13.7%, influenced by an increase of 17.8% on staff costs. Mandatory contributions went up more than 8 million, and it should be noticed that Bank Millennium already started to pay the banking tax in June this year as the bank exits the recovery plan. Moving to page 39, related with asset quality in Poland, Cost of risk to that 50 basis points, which is aligned with Bank Millennium expectations for 2024. Non-performing loans more than 90 days past due to that 2.2%, and coverage by loan loss reserves of non-performing loans to that more than 155%. On page 40, customer funds in Bank Millennium grew 17% year on year, off balance sheet grew 32% and total deposits 16% compared with June 2023. In terms of loan to customers, Gross Book stood at 17.9 billion, slightly above the first half of 2023. And it should be noticed that Bank Millennium was somehow on the path constrained in terms of capital. the decrease of the loan book was also impacted by the reduction of the CHF mortgage book, which is somehow positive, I would say. On page 41, regarding FX mortgage portfolio, it's worth mentioning the continued reduction of the CHF mortgage portfolio, which has reduced 19% since June last year and by 7% from the end of the first quarter of this year. CHF loan book at the end of the first half, 24, represented 2.4% of the loan portfolio compared to 5.5% one year ago. A cumulative provision for legal risk amounted to 1.75 billion, representing more than 101% of total mortgage loan portfolio in Swiss franc. Reduction over the last year was has been driven by natural redemptions and amicable settlements with clients that on the second quarter were still above 1,000 cases and in line with the previous quarters. New court claims have stayed quite stable after the peak in August and around that level of 1,600 cases per quarter. In June 2024, the number of court cases stood slightly above 22,000. Turning to page 42, which now regards to Mozambique, we can say that Millennial BIM has been quite resilient and continues to be an important and stable contributor for BCP results. Net income stood at almost 47 million, a reduction of 4.3% compared with the same period of last year, reflecting the decrease in NII due to the reduction in interest rates and the increase in mandatory reserves. Capital ratio stood at 37.5%. Moving to page 43, NII, and taking in consideration what I just mentioned before, NII went down 5.2% to a level of 100 million euros. and NIMS to that 8.1%. That compares with 8.9% in the first half of 2023. Now on page 44, non-performing loans 90 days past due at 3.8%, which compares to 7.1% in June 2023. Non-performing loans 90 days past due with coverage above 110% and aligned with June last year. Cost of risk stood at 58 by this point. That compares with a much higher level in June 2023. Now, regarding volumes, and we are on page 45, you can see that customer funds registered an increase of more than 10% and loans to customers a decrease of 8.7%. meaning that the increase on loans to individuals of 24% was not enough to compensate the decrease on loans to companies of more than 100 million euros. And I will end here, and thank you for your attention. And before we move to Q&A, I will return to Mr. Berger for some final remarks.