Piraeus Finl Hldgs Sa

Gentlemen, thank you for standing by. I am Geli, your course call operator. Welcome and thank you for joining the Pireos Financial Holdings conference call and live webcast to present and discuss Pireos First Half 2023 financial results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. It's time I would like to turn the conference over to Pireos Financial Holdings CEO, Mr. Christos Megalou. Mr. Megalou, you may now proceed.

Good afternoon, ladies and gentlemen, and welcome to today's conference call on our first half 2023 financial results. This is Christos Megalou, Chief Executive Officer, and I'm joined today by CFO Theo Gnardelis, Chrysanthi Berbati and Xenophon Damalas. Paris Bank's strong operating performance in the first half of 2023 demonstrates how well we are progressing towards our vision to become a best-in-class European bank. We have delivered our seventh consecutive quarter of profitable growth and our best quarterly performance ever, with euros 238 million net profit, excluding one-offs. As a result, I would like to thank all the employees of Paireus Bank that continue to deliver, as well as our clients, for their continued support. We are proud that the performance of Paireus Group and the bank's leading role in the Greek market have been recognized by the prestigious international magazine Euromani, awarding Paireus the title of the best bank in Greece for 2023. Slide 4 shows our leading position across several market segments. Before elaborating on the bank's performance, I would like to comment on the macroeconomic environment. In 2023, the Greek economy remains on a growth trajectory with first quarter real GDP increasing by 2.1% year on year. Despite the uncertain global sentiment, the Greek economy remains on a path of economic expansion for 2023 and beyond, reflecting the different phase that it finds itself in the current cycle. Our estimate for Greek GDP is for 3.4% growth this year, with inflation decreasing and unemployment being significantly reduced. At the same time, real estate prices are showing a solid trend with residential prices increasing by 14.5% in the first quarter of 2023 annually. Let's start our presentation with slide five. which displays a remarkable performance in the first half of the year. Profitability, efficiency, asset quality, capital adequacy, all presented improvement, almost reaching the yearly targets we have communicated. The business model we are pursuing is characterized by sustainable and diversified revenue pools, cost efficiencies, and a solid balance sheet. Slide 6 illustrates the highlights of our Q2 performance. We generated normalized earnings per share of 18 euro cents running ahead of full year 2023 guidance provided in May. We produced a return on average tangible book of 15%. We delivered 15% net revenue growth the previous quarter on the back of a 9% net interest increase and a 16% net fee income growth. Our net fees for Q2 have been the highest ever for Piraeus Bank. We recorded best-in-class cost-to-income ratio of 32% from 36% in Q1, despite the inflationary environment. We lowered further our MPE ratio to 5.5%, front-loading our cleanup plan with two transactions in a quarter. We increased our MPE coverage to 57%. we achieved a Euros 800 million net credit expansion. Our CET1 ratio stands at a solid 12.3%, 80 basis points higher compared to the end of 2022. we increased our assets under management by 9% in a quarter. Slide seven sets out our earnings results in detail. Our solid financial performance and the supportive macro environment position us to outperform our 2023 targets. Thus, today, we are upgrading our 2023 normalized earnings per share guidance to more than 65 cents from more than 55 cents previously estimated in May, and our 2023 normalized return over tangible book value guidance to approximately 14% from approximately 12% previously. I will return to this in a while. Slides 8 to 10. present all the updated information driving our strong net interest income performance. Slide 8, net interest margin expanded further in Q2 to 2.6%. Slide 9, loan pass-throughs were stable at 77%. while slide 10, our deposit beta, stood at 12% at the end of June. Slide 11 presents the quarterly evolution of our net fee income. We achieved a record high of 141 million fees in Q2 corresponding to 75 basis points over asset, almost at par with European average. Furthermore, our cost containment efforts continue unabated, despite the inflationary headwinds. The strength of our operational efficiency is shown in the best-in-class 32% cost-to-income ratio as shown on slide 12. Our G&A costs recorded a 6% quarterly drop in Q2 to 78 million euros, also a record low for our bank. Slide 13 provides a summary of our asset quality indicators. Our NPE ratio dropped to 5.5%, already meeting our year-end NPE target. NPE coverage is now at 57%, up 110 basis points versus the previous quarter. NPEs dropped by 400 million versus the previous quarter as our cleanup plan was accelerated with two transactions in Q2 presented on slide 14 and 15. One transaction was concluded in late June, comprising retail loans, project Sena, while a second one, project Delta, has been classified as held for sale. The two NPE transactions minimize the legacy retail portfolio of Pareus Bank, offloading more than euros 350 million retail and small business NPEs. The remaining NPE portfolio of euros 2 billion, as shown on slide 16, has a clear path to almost half in the next 18 months under a combination of organic strategies. On slide 17, we present the movement of our performing loans. Q2 was a strong quarter with euros 800 million net credit expansion, helped by development programs and the recovery and resilience fund, as well as the pipeline of our corporate lending. For the second half of the year, we reconfirm our target for an additional 1 billion net credit expansion. Paereus has a strong liquidity profile presented on slides 18 and 19. Our deposit base is granular, stable, and of high quality. Our liquidity ratios are all solid, as evidenced by the 233% liquidity coverage ratio and the 61% loan-to-deposit ratio. Both are the top percentile of the European space. Turning to our capital base on slides 20 and 21, Q2 capital position is on track to full year 2023 target, absorbing the NPE cleanup costs, accruals for 10% dividend payout, and the accelerated DTC amortization. At the end of June, Paereus Bank had a 17.1% total capital ratio, comfortably above requirements and supervisory guidance. Lastly, on slide 22, on wealth and asset management, our new strategy continues to bring results, with assets under management reaching euros 8.2 billion at the end of June, recording a 9% increase in Q2. Moving now to our new forecasts for the year. We are pleased to provide you with a new set of estimates upgrading our targeted KPIs for the second time as shown on slide 23. For 2023, we now target a 14% return on tangible book versus 12% previously, or more than 65 euro cents earnings per share versus 55 previously. Net interest margin. is expected to be at approximately 2.5% this year, while we target a cost to core income ratio below 38%. We are also confident that our MPE ratio for the year will end up below 5%. Furthermore, we expect to achieve a CET1 ratio of 13% at the end of 2023. It is noted that our new set of targets are based on an assumed 4% deposit facility rate for the end of the year. Slide 24. presents the expected evolution of our CET1 ratio during the second half of the year. For 2024 and 2025, we remain committed to our previous targets as per our March 2023 business plan. Especially for 2024, we expect a 14% return over average tangible book value, assuming a 2.5% deposit facility rate. The results of the 2023 supervisory stress test are presented on slide 26. The result evidence Paereus Bank improvement of fundamentals, placing the bank at the 13th position among 70 EBA banks participating in the exercise. Paereus' consistent and strong operating results in the previous quarters have supported our group's investment case, while the increasing trends in our performance continue to create significant shareholder value. Slide 28 summarizes the competitive advantages of Paireus Bank across all areas. The commercial positioning and the financial strength of the bank indicate why its valuation remains attractive compared with its local and European peers. From slide 29 to slide 37, we present the drivers behind this performance and where we stand against our domestic and European peers. On slide 29, we demonstrate the sustainability of our return profile, which ranks in line with peers. Same goes for net interest margin, as presented on slide 30. Our net fee margin is consistently above peer average, as presented on slide 31, while we also outperform in terms of cost to income, as illustrated on slide 32. Slide 33 displays the radical reduction of our NPE ratio after many years of dealing with the legacy stock. The massive cleanup we have undertaken has brought us to lowest versus peer average NPE ratio. Slide 34 and 35 present our capital position. which is now at par with our domestic peers. While our strong operating results have grown and are expected to continue to grow, our capital buffers further. Slide 36 illustrates the PE multiples for Pireus versus peer average based on expected earnings as per public guidance. while slide 37 presents our current price to tangible book versus profitable EU banking comparisons multiple as expected, as estimated for year end 2023. Finally, before opening the floor to questions, a few words on the recent wildfires in Greece. Although our customers haven't experienced significant damages, we are in close contact with the local communities to identify the truly impactful ways through which Pareus Bank can support businesses and households. And with that, let's open the floor to take any questions you may have.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Those participating via the webcast, please review related information in the Q&A live session tab should you wish to ask a question. For those participating in the questions and answer session, please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Levizakos Alevisos with Axia Ventures. Please go ahead.