Banco Comercial Português

Good day and thank you for standing by. Welcome to the Millennium BCP 9-month 2025 earnings conference call and webcast. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please 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 the conference over to your speaker, Mr. Miguel Maia. Please go ahead.

Good afternoon. Miguel Maia speaking. Welcome to BCP earnings conference call. As usual, I will mention the highlights of our performance and then Miguel Braganza and Bernard Colas will follow, providing additional details. Recent times have been marked by high levels of volatility and instability that haven't faded away. The social and economic shock waves in the markets where we operate, coming from geopolitical conflicts and tensions, demand increased resilience and agility from our side. Our performance in the first nine months of this year confirms the quality and capability of our business model to overcome adversities while expanding the franchise and generating increased profitability. Consolidated net income reached 776 million, a year-on-year increase of 8.7, driven by a solid operational performance that supported a core operating profit of 1.8 billion and a ROE of 14.6%. In Portugal, net income went up 8%, having reached almost 655 million, supported by a robust business model and a leading position in multiple business firms. The net income of international operations increased 19.8%, driven by Poland, where, despite the costs with legal risks still being a significant burden, banks' millennium net income went up 56% to 202 million, also confirming that it has a high-quality franchise and a profitable business model. The costs in Poland associated with FX Morgan's loan portfolio amounted to 280 million, 31% below the costs over the same period last year, which gives us confidence and is a good indicator that the risk is controlled, has been properly managed and will not compromise the ambitions we have set for the Polish market on the strategic plan. The economy in Mozambique has been facing a challenging situation, dealing with the effects of the slowdown in activity following the social unrest after the outcome of last year's elections. The political situation stabilised, which led to a progressive normalisation of the activity and regaining of confidence from international investors, more recently reflected in the last week's announcement of the intention to redeploy important energy projects. We have had a long-standing operation in Mozambique, celebrating this year 30 years of local presence in the country, during which we have developed a resilient and prudent business model, having gained in-depth knowledge and expertise to successfully navigate the various stages of the economic cycle. In this challenging context, the net income in Mozambique amounted to 25.4 million, a year-on-year decrease of 59%, driven by impairments and provisions mostly related to the downgrade of sovereign debt rating. Despite this additional charge of impairments, the profit before impairments and provisions was aligned with last year's level supported by our strong commercial franchise. At the consolidated level, the ability of our business model to organically generate capital is clearly reflected in the group's strong capital position. Despite significant business growth and the fact that we are only incorporating 25% of the profit generated in line with the approved dividend policy, we have been able to maintain very robust capital ratios. We see tier 1 of 15.9 and a total capital of 19.9. Operating in an increasingly competitive landscape, the quality of our retail banking business model led to an increase of almost 9% in customer funds, which stood at 109.5 billion, and to an increase of nearly 5% in loans to customers, which reached 61.5 billion. This performance in customers' loans was driven by our intense commercial activity in Portugal, where performing loans went up 8%, having increased significantly both in loans to individuals and to companies. We keep the trajectory of improvement of the balance sheet quality, continuing to reduce non-productive assets. Over the past 12 months, NPE decreased by $332 million, recovery funds by $71 million and foreclosed assets by $19 million. The NPE ratio is now at 2.6%, with a total cash coverage of approximately 87%. which stands at 123% when including real estate collateral. Our rigorous management of balance sheet risks enable us to further improve the cost of risk to 31 basis points, a figure well anchored below the threshold of 50 basis points that we consider reasonable for our business model over the cycle. At the group level, the customer base expanded more than 4% in the last 12 months, exceeding 7.2 million, of which almost 2.9 in Portugal. Most notably, mobile customers grew 9% during the same period, accounting for 74% of the group's customer base, 66 in Portugal, revealing the success of our digital transformation journey. Customer recognition of our digital capabilities is also reflected in the use they make of the app. On the first nine months, the number of transactions carried out by the customers through the app increased 14%, including a significant growth in the number of accounts opened. In the same period, the number of sales through the mobile app increased 15%, with emphasis on sales of personal loans and investment funds. The priority we give at the investment we make to develop mobile solutions with a clear focus on customer-centric innovation and permanent improvement means that our app continues to lead the rankings and deserves top reviews on the most relevant platforms. In summary, I would say that the first nine months of the year have once again demonstrated that the strategic plan we approved enables the bank to continue evolving at a stronger pace. even in an environment that has proven more unpredictable and challenging than we had anticipated. I would also highlight the acceleration of lending in Portugal, already in line with our expectations, both individuals and corporate segments. Our international operations present distinct challenges, but overall are converging toward the level of profitability established in the strategic plans. Although we are investing significantly to enhance our commercial capabilities and operational resilience in digital, operational efficiency remains and will continue to be a priority for the group. We are therefore confident in our ability to continue quarter after quarter to successfully implement the strategic plan. Miguel, the floor is yours.

Thank you very much, ladies and gentlemen. Going now to page 8, as you see in consolidated terms, we are presenting a core income growing 3% in spite of the general reduction of the interest rate environments in several geographies in which we are. And I would highlight here particularly the growth of commissions of 4%. In terms of operating costs, a growth of 9% to a large extent conditioned by the evolution of the salary inflation in Poland. But this means that in spite of the reduction of interest rates, we were able to maintain our core operating profit relatively constant at the high level. Due to some other income, trading gains, recoveries of taxes, we are able to present a profit before impairment of position and provisions growing 3%. And due to the improvement in the risk profile of the bank, mainly in terms of credit risk and legal risk, we were able to reduce the impairment by 14%, which means that at the end of the day, we were able to present a growth of profit before income tax of 14%. As you see, in terms of some key metrics, we are able to present consequently a return on tangible equity above 15%, a growth of book value per share plus dividend per share based on the performer numbers of shares that are outstanding of 17%, and a growth of EPS of around 11.5%. So this clearly shows the ability that the bank has to generate shareholder value, even in a scenario of decreasing interest rates. In terms of general level of profitability in the bank, in page 11, you see that the growth of 2.6% in terms of our NII is mainly explained by the growth in the international operations of almost 6%. still a very high NIM, but also by a very prudent, I would say, management of the NII in Portugal that was able to remain broadly flat in spite of the reduction of interest rates. As I have guided since mid of last year, we were expecting, in spite of the reduction of interest rates, to have a broadly constant NII this year. And this is exactly what is happening. As you may say, if you adjust for the account, this is already the sixth quarter in a row in which our NII is steadily improving in Portugal in spite of the reduction of interest rates. These broadly flat NII together with the increase of fees and commissions of 6% in Portugal, will make it possible for us to show some growth in terms of the core income in Portugal. By core income, I mean NII plus fees and commissions. This increase of 6.3% in Portugal is explained by both market fees and by more transaction-related fees. In terms of the international operation, more challenges in terms of fees, to a large extent also due to the situation in Mozambique. In terms of other operating income, some important evolution, as you see here, so there are here two different tales of of the same story that the mandatory contributions in Portugal this year when you compare with last year are significantly lower because there was a recovery of a contribution declared unconstitutional of which we have already recovered year to date around 18 million of which 12 million in Q3. So this made it possible the mandatory contributions to go down from 40 million to 20 million in Portugal. On the other hand, in the international operations, what you have is the new situation of the bank in Poland that ceased to benefit from an extraordinary reduction in the bank tax. This normality has implied that the bank tax in Poland increased by around 60 million euros. these differences together with a better net trading income due to some transactions that have occurred, some of them not totally recurrent, have made it possible really to grow from minus 24.1 to 29.5 in consolidated terms. In terms of operating costs, I would here like to highlight the level at which we are. So in terms of in consolidated terms, we are with a cost to income of 37%, which is a very healthy cost to income in European terms, as we all know. In Portugal, our cost to income is 34%. And of course, with this type of cost to incomes, the cost pressures are higher. So we have been able still to maintain this level of cost to income. The level of cost has increased 7.4% in Portugal. and 6.4% in terms of salaries and employee compensation. I would here like to highlight that more than 50% of this growth has to do with incentives and variable remuneration. So it is flexible, but it has also to do with the sharing of the good performance of the bank with all the contributors to it, starting with less skilled workers to the most skilled workers. The international operations, as we know, the labour market in Poland is quite hot. This has to do with the general growth of productivity in the Polish market. As you may know, Poland has been year after year one of the countries in Europe with the strongest growth in salaries and also in productivity. This affects the whole economy. Of course, our bank is a challenger bank that is growing even more. As Miguel Maia has commented, our cost of risk really proving the resilience and the acuteness of our credit concessions policy uh the the cost of risk uh reducing from 38 to 31 basis points as i had anticipated uh also for portugal we were expecting costs of risk in this new normal from between 30 and 40 basis points in this new environment that we are now seeing it is a more benign environment up until now closer to 30 as we are seeing than 240. in terms of the international uh operations There was also a positive evolution of the cost of risk, but it has also to do with some credit sales that have generated a price that was higher than the net book value of the loans. In spite of the low level of NPEs, as you see in Portugal, we are already at 800 million, which is a very low level for the size of our balance sheet. and the quite low level of the NPE ratio, so considering only loans, 1.9% and 1.4% if you consider all the exposures contributes to the EBA ratio, we have been able to continue to reduce the stock of NPEs in Portugal, and we have done so year on year by 224 million. In the international operations also, as you see, the level of NPEs is higher to a large extent because our business in Poland has a higher concentration in cash flows, which are very profitable, So when you compare the spread with the cost of risk are very profitable, but generate a stock of NPEs that is somewhat higher. In terms of business activity, I think this is really the good news. I would say that then we are growing in terms of customer funds, 8.6%. And this has been dispersed throughout the group, which a growth of 6.3% in Portugal with a strong contribution also of off-balance sheet funds and a 13.8 contribution abroad. I would like to highlight also that just in Poland, the funds, so the off-balance sheet funds have grown almost 40%, 4-0, which positions the bank particularly well for a scenario of reduced interest rates. In terms of loan portfolio, the change has even been more dramatic to the positive. As we have been telling you already from some quarters, we want to inflect, so to say, a little bit or reposition the focus of the bank more towards the SME and the corporate market, both in Portugal and in Poland, and this has occurred. So we are growing 5% in terms of loan portfolio, but more than the total loan portfolio, what here I would like to highlight is that in Portugal, The corporate loan growth in terms of year on year, the corporate loan growth has been 6%. But if you take a look at it year to date, has been 9%. So the corporate loan growth in Portugal has been 9%. And quarter on quarter, 2.6%. So this explains, so to say, the growth in terms of exposure, the growth in terms of credit. But... An even more impressive change here has been what has happened in Poland. In Poland, the year-on-year growth of our corporate loan portfolio has been 12%. But not only the year-on-year has been 12%, but the year-to-date has also been 12%. So 12% year-to-date in terms of corporate loan growth, I would say is a very positive sign. of how right we were to design this strategy, mainly coupled with the low level of cost of risk that we are seeing. Of course, this then has an impact in terms of capital that I will comment then in a couple of slides. As you see here in slide 21, our capital ratio is still very comfortable. 15.9, clearly above what we were expecting, what is our minimum ratio, as you see here, and all the requirements of CRR3. As you know, for last year, our P2R has been 2.5%. For next year, it will be 2.25%. So we are clearly above the regulatory minimum. But what we have seen in this quarter is the ratio has decreased around 30 basis points from 16.2 to 15.9 and we have here three very important contributors, so to say. The first contributor, so to say, is a more technical contributor of 15 basis points that happens each time that our bank in Poland is able to recognize the accumulated profit as part of this common equity one, this increases the size of the non-eligible minority interests. So each time the KNF accepts that we incorporate our ratio for capital purposes, this somehow decreases our consolidated ratio. so to say, by this automatic function of decreasing our non-eligible minority interest. So this is a technical issue. It's an intra-month or an intra-year issue that we have been seeing over the last quarter. So somehow the ratio in the last quarter has somehow benefited from this, the fact that we had this for consolidated terms but not for local terms. the ratio in this quarter has somehow annulled this effect. This effect has been 15 basis points, which explains to a large extent the decrease. But then there are two very positive effects. On a quarter on quarter, the growth of the corporate loan book in Poland is responsible for a 10 basis point decrease. So this is a healthy consumption of our capital. And by the way, totally aligned with what we had presented in terms of our strategy. And the growth of our exposure, both credit and committed lines in Portugal, explains another 10 basis points. So the sum of these three effects is 35 basis points. And then, of course, this is partly compensated by the accumulated earnings in consolidated terms of which we are recognizing 25% because, as you know, our distribution policy is to distribute up to 75% in dividends and share buybacks. The leverage ratio is still very healthy in page 22. The morale requirements clearly fulfilled with an ample comfort. The liquidity position also evolving very well due to the strength of our franchise and the ability to originate and to increase our deposit base. And now I will pass the floor to Bernardo, commenting Portugal and the international operations.