Bper Banca Spa Unsp/Adr

Good evening. This is the Coral School Conference Operator. Welcome and thank you for joining the BPAR full year 2020 consolidated results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Alessandro Vandelli, CEO of Beepr. Please go ahead, sir.

Okay, good evening, ladies and gentlemen. Thank you for joining this conference call today. This is Alessandro Vandelli, CEO, and I'm here with Roberto Ferrari, CFO, Alessandro Simonazzi, Head of Planning and Control. I really hope that despite of this prolonged pandemic emergency, you and your family have been keeping safe and healthy, confident that we'll be able to overtake this emergency soon and turn back to our ordinary life. 2020 results returned very positive messages, in line with our strategy focused on enhancing profitability, improving furthermore our asset quality, maintaining a very solid capital position while seeking, when possible, new growth opportunities. A few numbers are self-explanatory of what I have just said. 2020 net profit of over 245 million euros, gross and net NP ratio respectively down to 7.8% and 4%, Common equity to annual ratio at 13.52% excluded the impact of the capital increase. These are overall a concrete evidence of our strategy, and at the same time, a good starting point for future. Now if you turn on slide five of the presentation, which is already available on our website, we can start with the overview about the main messages and the overview of 2020 final year results. I think that the 2020 final year results give us back three main messages, fully in line with our strategy. First, resilient profitability. Second, a remarkable step up in our already sound capital and liquidity position. and further significant improvement of the asset quality. So first, profitability. Net profit is at 245.7 million euro, thanks to confirmed ability to generate revenues and to contain operating costs, despite the difficult economic and financial environment. Good news come in particular from revenues mainly related to the strong increase of net commissions and the resiliency of the net interest income as shown by the core income that is at the highest level over the past six quarters comparable on a like-for-like basis. To complete the overview, it must be mentioned the improving trend of the staff costs compared with the first two quarters of the year. The third quarter, as you know, shows the usual seasonality, mainly thanks to the effectiveness of the redundancy plan foreseen in our business plan. A final point on the cost of credit, which comes at 101 basis points, but it includes also a precautionary estimate of the foreseeable impact on credit of the deterioration in macroeconomic scenario as a result of the pandemic. Moving on to capital and liquidity, the group's capitalization is growing further, even excluding the increase in capital for the acquisition of growing concern from the Intesa-San Paolo Group, with a pro forma fully loaded CHET-1 ratio at 13.52%. showing a remarkable increase of 150 basis points since December 2019 and 50 basis points since September. If we take into account the effect of the rights issue, it stands at 15.90 basis points. The positive picture comes along with our very strong liquidity position with the LCR index at over 200% and the liquidity buffers close to 20 billion euro. These two important elements, profitability and capital position, allow us to propose a cash dividend of 4 cents per share for 2020 in line with the ACB's recommendation, but at the same time confirming our commitment to shareholder remuneration. The third point is on asset quality. Again, we delivered another impressive improvement on it, achieving the lowest MPE ratio over the last 12 years as a consequence of our clear strategy and strong commitment to get closer to the best-in-class peers. In fact, the gross and net MPE ratio sharply reduced respectively to 7.8% and 4% compared with 11.1% and 5.8% at the end of 2019. This is the result of a good mix of combined actions as, for example, the positive job made to improve the quality of the performing loan book, the default rate is down in Q4 at 1%, the disposal of bad loans and UTP, and lastly, the strong contribution of our bad loans management company, Bipper Credit Management. In addition to these three main focuses and talking about business, we experienced the growth in performing loans up by 0.9% versus September 20, and 3.8% versus December 19. Also supported by government measures related to the health emergency, mainly attributable to retail and small business segments. On the other side, total funding, including the bank insurance segment, reached 185 billion euros, up by 5.5% versus December 19, showing an increase both of direct and indirect funding, as well as in bank insurance business. Now, moving on to slide six, We cannot forget that in 2020, we worked also to tackle the pandemic. Our first goal was to put in place safeguards to protect the health of customers and employees and to ensure the operational continuity of business processes, which were further strengthened. In fact, over 50% of employees were able to work on a remote basis. Then our priority was also to strengthen and promote initiatives in supporting families and businesses in this moment of economic and social difficulty caused by the protracted health emergency, also thanks to the support of our branches and central services, which were fully operational in compliance with current regulations. To date, we have accepted over 100,000 applications for a moratorium and disbursed funds for state-guaranteed loans for over €3.5 billion, while promoting numerous charitable initiatives and fundraising at the service of the territories and communities served. Furthermore, and we are very proud of this, we achieved important objectives and results on sustainability, thanks to our strong commitment in integrating it within our business model in order to continue to create value for our shareholders and stakeholders, the environment, and society. For example, CDP Carbon Disclosure Project included our bank in the A-list, which acknowledges the commitment to fight climate change, and the standard ethics agency raised the bank's rating for EE- to EE, furthermore confirming the strong value of its commitment to the environment. At the end of 2020, we inaugurated in our bank one of the largest photovoltaic parks in Emilia-Romagna, which immediately had a positive impact on the reduction of emissions. Last but not least, growth. This is another strong message from 2020. As you all know, we are finalizing in a few weeks the acquisition of a growing concern from Intesa San Paolo Group. A very important strategic deal which will allow the Bipper Group to achieve a significant dimensional growth, both in terms of market shares and number of customers. We are almost at the end of the activities and I'd like to thank all the staff of the group for the excellent job they are doing to ensure the best execution process. At the same time, I'd like to welcome our new colleagues within the group and send a message to our new customers that we are making all possible efforts to provide, since the beginning, the best services they deserve. Now we can go quickly through our 2020 results. Please move on to the next slide, number eight. We start with an overview of the funding. Total funding in December 20 reached $185.2 billion, including a contribution of asset management from ARCA holding of $17.4 billion. Direct funding in December is at 63.1 billion, up by 8.8% compared to December 19, and up by 5.6% versus September 20, confirming a strong preference for liquidity of our customers. Indira Deportes recorded a very strong performance in December versus September, with an increase of 4.1%. Asset under management performed well in the quarter, up by 4% versus September, higher than pre-crisis levels. Bank of Sudan continues to show a very positive trend, reaching a stock of $7.3 billion, which means plus 0.8% versus September and plus 7% since the end of 2019. The low amount in Q1 caused by the pandemic outbreak in 2020, the net inflows in asset management, a life insurance product, raised 1.1 billion euro. And for the fourth time, total asset management, including bank insurance, exceeded the threshold of 50 billion euro. We are really pleased with our progress in this sector, also in light of the strong increase of our customer base expected from the acquisition of the going concern from Intesa San Paolo Group. Let's turn to slide 9. Net performing loans up by 3.8% since December, plus 1.9 billion euro. This trend is also supported by the government measures to sustain the economy during the pandemic crisis. During the year, more than 100,000 moratoria were granted on loans to customers for a total of $11 billion, equal to approximately 20% of total gross loans. At the end of 2020, the moratoria outstanding amounted to $7.2 billion. The faults on loans for which the moratorium was not renewed are marginal to date. also disbursed funds for the state-guaranteed loans for over €3.5 billion. The quality of the performing loans book is still confirmed with a particularly low bracket of high risk exposure, only 2.9% of the performing book. Let's turn to slide 10. On non-performing disposals, once again, we record an important improvement in our asset quality. Let me underline that this improvement is due not only to the activity of the staff dedicated to the disposal projects, but also to BIPO Credit Management, our company specializing in bad loans recovery, and to the credit department, with all the actions performed to reduce the UTP stock. Gross NP at the end of December amounts to 4.3 billion euro with a ratio of 7.8% down from 8.8% in September and 11.1% in December 2019. Also thanks to 1.6 billion euro disposal over the year. Net NP stock is at 2.1 billion euro with an improvement of the ratio at 4% from 4.7% in September and 5.8% in December 19. Another good news is that the decrease of DMP stock come along with an increase of DMP coverage to 15% from 49.3% in September. We continue our job quarter after quarter to improve answer quality, delivering positive results. The expected macro scenario is uncertain, but we think we are well-equipped to face it, and we confirm our strong commitment to accelerate further our, as I quote, improvement. The acquisition of the going concern from Intesa Sampaio will be another important step in this process. On slide 11, we can see, first of all, the default rate. at 1% from 1.7% in December 19, clearly due to the measure taken by the government related to the health emergency. But in my opinion, it is also linked to our improvement in the origination process. Moreover, the average recovery rate on band loans reached a peak at 6.9% from 6.3% in 2019. It was 3.7% in 2016, showing a very positive long-term trend, demonstrating that our servicing platform deep credit management proved very efficient. On slide 12, the securities portfolio reported an increase close to $1.4 billion versus September, and by $5.7 billion since December 19. mainly led by our large buffer of liquidity to be invested and positive market expectations, in particular in the first income bond market. Italian government bonds stock at $7.8 billion, weighing 31.5% of the financial assets portfolio, and Italian bond exposure is 10.9% of the total assets. Now we can move on to profit and loss figures on slide 14. Note that the comparison between full year 20 and full year 19 is not possible because of the change in the perimeter of the group. You remember the acquisition of Unipol Bank and ARCA in July 2019. The fourth quarter of 2020 instead is comparable to the fourth quarter of 2019. Having said this, we are very proud of the net profit reporting in 2020 of €245.7 million, thanks in particular to a positive ability to generate revenues and control of costs despite the difficult macroeconomic environment, one-off costs for the acquisition of the going consortium, €29 million, and other non-recurring items of 59.3 million. The result benefits from the positive impact from tax of 67 million euro. We can move on very quickly to page 15. On this page you can find details on the fourth quarter and then profit for the fourth quarter is at 45 million euro impacted by the growth in core income to 593 million euro. Operating costs at 437 million euros, including costs related to the strategic deal with Intesa-San Paolo, a cost of credit of 25 BIPs, contribution to funds for 24 million euros. So overall, so here I have to say that this represents a positive set of results. We can move on to page 16 for some details of the profit and loss, starting with the NII. To be more consistent, today Group's accounting policies in the fourth quarter and amount of 23.1 million previously accounted for in net interest income was reclassified to commission income. This amount refers to Finitalia, a company that entered in the scope of consolidation following the acquisition of Unipol Bank. Due to this item, net of which The decrease is equal to 2.2% quarter-on-quarter. On NA, we have the positive impact related to the TLC Road 3. We took up in June 14 billion, and at the end of September, we took up another 2.7 billion. The TLC Road net contribution in the quarter was 36 million euros. On the other hand, we recorded a reduction of the yield in the bond portfolio along with the reduction of the yield on mortgages and credit facilities due to the new easements at lower yield related to loans granted by the government. On slide 17, net commission amounted to 297.7 million in Q4, 274.6 million net of the already mentioned accounting effect, up by 4.8% quarter on quarter on a performer basis, reflecting a significant recovery after the decline in the second Q 2020 due to the effect of the and the prolonged period of the look down. In details, commission of asset management showed a very positive performance up by 8% quarter-on-quarter. Commission of bank assurance rebounded significantly. Commission of credit cards collection and payment is up 4.6% quarter-on-quarter, while the component referring to loans and guarantees also increased by 3.3% quarter-on-quarter net of the accounting effect. The weight of the commissions on the core income is above 46%, in line with our target to reach a good balance between NII and commissions. On slide 18, dividend trading income. In the fourth quarter, trading income was very positive, even if a bit lower than in the previous ones, equal to 42%. mainly supported by fixed income bond trading and favorable equity market performance. Moving forward on slide 19, operating costs in Q4 amounted to $437.4 million and are not comparable with the previous quarter, mainly due to non-recurring expenses related to the strategic deal with Intesa San Paolo and seasonality effects, staff costs, are up quarter on quarter due to the use of seasonality, but declined by 6.5% year on year, benefiting from the positive effect of the redundancy plan. Other administrative expenses amounted to $147.4 million, showing an increase Quotient on Quotient managed to higher costs related to the store name project we have been working on, amounting to 21.1 million in Q4. We recorded also an increase in DNA to 50.5 million from 43. Let's turn to page 20. provision and other items. We account in loan loss provision for 134.2 million euro in fourth quarter. Cost of rate is at 101 basis points. Take into account the worsening of the economic scenario caused by the health emergency and the objective to increase the coverage in all categories of MPE. In Q4, we accounted a contribution to a single resolution fund relating to previous year of 10.9 million euros acting from the settlement of irrevocable commitments granted by cash collateral. Turning our attention now to liquidity, we can move on to slide 22. About liquidity, we consider our liquidity position very sound. Our total eligible asset increased at 28.1 billion, along with a bucket of an encumber eligible asset of 10 billion, and that's a liquidity of 9.9 billion made by redeposit to the ECB. ECB exposure of 16.7 billion euro in December 20, entirely composed of TLC3. LCR index is at 200.1%, so well above the 100% threshold, as well as the NSFR ratio stands well above the regulatory floor. I would like to draw your attention to our capital position on slide 23. We confirm our very positive capital generation and sound capital position, excluding the impact of the right issue Chetwan ratio fully loaded pro forma at 13.52%, with a significant increase year-to-date of 151 basis points. Chetwan ratio fully loaded pro forma at 15.9%, embedding the capital increase. We have also some extra buffer to exploit in Q1, like the ID model extension, Now, in conclusion, let me highlight briefly key messages on slide 25. We continue to record a very resilient profitability despite the complexity of the current situation caused by the health emergency and the process of acquisition of the growing concern from the San Paolo Group. I would like to underline the further important improvement in our asset quality with a tangible decrease in MPE stocks and an increase in coverage. Also, our capital position highlighted a very positive trend with a capital generation of about 150 basis points together with other 238 basis points of capital related to the completion of the right issue. We confirm once more the high strategic and industrial value of the deal with Intesa San Paolo Group, which will lead to significant growth in size and improvement in the competitive position in Italy and a significant increase in the customer base. This acquisition will provide important support to revenues in terms of both interest income and commission, especially in asset management and bank assurance. It will also accelerate the improvement in asset quality, despite the situation of high uncertainty, while at the same time reducing the group's cost-income ratio. All these factors should provide support for the group's profitability and should enable a tangible increase in shareholders' remuneration in the future, of course maintaining solid capital ratios. Thank you all for your time and attention. Now we are ready to start the Q&A session and to take your questions. Thank you again.

Excuse me, this is the Coral School Conference operator who will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Noemi Peruc with Mediobanca. Please go ahead.