Bper Banca Spa Unsp/Adr

Good morning. This is the Coral School Conference Operator. Welcome and thank you for joining the BPARIS Third Quarter 2024 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. Nicola Sponghi, Head of Investor Relations of Beeper. Please go ahead, sir.

Thank you and good morning, everyone. I'm pleased to welcome you to our third quarter 2024 earnings conference call. Before I give the floor to our CEO, Gianni Franco Papa, please know that our slide set and press release can be found on our corporate website. I would also advise you to take note of the disclaimer on slide two of the presentation document. That said, after the presentation, our CEO and our CFO, Simone Marcucci, will take care of the Q&A session. I will reiterate that this is reserved for financial analysts who might kindly request to ask a maximum of two questions each. So, let everyone have the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of Bipper.

Good morning, everyone. Thank you, Nicola, for the introduction. As you can appreciate on slide four, the bank continued to post strong results throughout the first nine months of 2024. Revenues grew by 2.9%, reaching 4.1 billion euros, underlining the resilience of our business model. Adjusted net profit was up by over 2% at €1.1 billion. As I mentioned in Q2, and as a further reminder, net profit has been adjusted excluding the gain on the disposal of the MPE servicing platform in Q1 2024 and excluding HR-related actions in Q2 2024. Our cost-income ratio is lower at 49.5%, mainly due to seasonality of HR costs and lower consultancy and marketing costs. We achieved further progress on the cost of risk, further improving the ratio to 39 basis points, underlying the high quality of our portfolio. Adjusted return on tangible equity stands at a robust 17.4%, along with the CET1 ratio, which reached 15.8% thanks to our strong organic capital generation. Finally, the bank's liquidity profile remained robust, with LCR and NSFR ratios broadly in excess of the minimum threshold required. Let's move on to the net profit drivers on slide number 5. As you can see, in the first nine months, we have been able to demonstrate a positive performance throughout all P&L drivers. Worth noting that the bank demonstrated a steady quarterly bottom line growth in the last four quarters. In the pages to come, we will provide you with an in-depth review of each and every item. Guidance remains substantially unchanged in line with what was presented at our Capital Market Day, as we are confident in the delivery of our results. Noteworthy is the revised guidance on the CET1 ratio from above 14.5% to approximately 15%. All in all, we confirm our 2024 guidance on all other items. Now, I would like to move on to the core part of the presentation on slide 7. After our Capital Market Day presentation on October 10th, I am pleased to share our progress towards building a stronger, more resilient bank for the future. Our strategic plan includes 38 targets initiatives organized across our three pillars, which I reiterate. Unleashing our clients' full value, focusing on delivering the maximum possible benefits to our customers. Capturing the full potential of economies of scale using our growth to increase efficiency. And leveraging strong balance sheet, ensuring stability and creating lasting opportunities. And a cross-enabler of modernizing the operating machine, improving and simplifying our operations to serve clients better. I'm proud to report that 55% of these initiatives are already underway. And we are on track to fully implement all of them by the end of the first half of 2025. Let's now turn to our financial performance. As you can see on the slide, total revenues increased by 2.9% in the first nine months of 2024 versus 2023. This was achieved thanks to resilient core revenues, which were up by 5% at 4 billion euros. Among the main drivers of total revenues in Q3 2024, I will highlight the following. Resilient NII in spite of lower rates. A lower contribution of net commissions income given the effect of the summer months on sales. And finally, stable dividend income. To be noted, the continuous solid trend in productivity. with a net revenues to risk-weighted assets ratio, which increased from 8.6% to 9.6% between Q1-23 and Q3-24. Let's move on to the next slide, which focuses on net interest income. Net interest income growth in the nine months of 2024 was encouraging, given decreasing interest rates. In fact, nine months on nine months, NII was up by 6%. In the quarter, net interest income performance was resilient given the overall macroeconomic scenario, increasing to over 840 million euros. Spreads were slightly lower in the quarter by a matter of single digit basis points, while volumes more than compensated the negative effects of rates. In addition, treasury related activities produced flat revenues. Finally, I would like to highlight that our sensitivity to 100 basis points movements equal to approximately 160 million euros in the quarter. This increase from 130 million euros in Q24 is mainly attributable to the repricing on floating rate mortgages. Now, let's move on to the development of net commission income. Nine months on nine months, commission income grew by 3.5%, reaching 1.5 billion euros. As a result of the focus the bank is placing on capital light, high quality, non-interest income. The most important contributor were fees, were banking services, where the bank was able to post resilient revenues. Fees from non-life insurance and from assets under management reported the most important increase. That said, fees quarter on quarter were down by some 5.4% due to seasonality, which characterized net sales in the summer months. In this context, I would like to underline that recurrent AUM and AUC fees continue to show good progress, increasing by approximately 10% in the last 12 months. Let's move to the next slide, which focuses on the progression of total financial assets. Total financial assets grew by 6.8% in the last 12 months, driven by assets under custody and assets under management. In the quarter, total financial assets grew by almost 5 billion euros. These were driven by an increase in AUM and AUC thanks to positive market effects and customer assets conversion. In fact, the bank was able to capture deposit conversion into assets under custody thanks to customer demand for government bonds and other financial products. Let's move on to our performance on the cost side. Nine months on nine months, total costs were up by a mere 4%, reaching a cost-income ratio of 49.5%. In Q3, total costs were up 8.3%, mainly thanks to seasonality in HR due to the holiday period. As you can see in the waterfall chart, the key drivers of HR costs were the National Collective Label Agreement, new hires, and HR-related cost synergies, which had a positive impact of €80.4 million. Non-HR costs decreased by 2.1% quarter-on-quarter, mainly influenced by lower consultancy and marketing costs. Looking at the end of the current year, we expect some seasonality in Q4, translating into a pickup in both HR and non-HR costs, in line with Q4 2023. Let's move to cost of risk, where the bank showed a very good progress. As you can see in the slide, nine months on nine months, loan loss provisions came down by almost 30% landing at 254 million euros, bringing the cost of risk down to 39 basis points. Similarly, the cost of risk has shown a very positive progression, falling from 63 basis points in Q1 2023 to 35 basis points in Q3 2024. Needless to say that this underlines the high quality of our portfolio. I would like to mention a couple of other points which I deem key in the context of the quality of our loan book. Total cumulative overlays stood at approximately €220 million in line with Q2 and our NPE coverage ratio increased from 53.3% to 54.4%, underlying our conservative risk approach. Our conservative approach is further confirmed as we report a nine-month coverage ratio on performing loans at 0.73%, among the highest in Italy. Let me remind you that our total coverage ratio at 54.4% remains one of the highest in the Italian banking sector. One final remark regards our guidance towards the cost of risk below 48 base points in Q4. In the last quarter of 2024, given current macroeconomic uncertainty, we expect an increase of the cost of risk due to a more conservative approach to coverage and increased sales of bed loans. Let's move on to the asset quality on the next slide. The quality of our loan book continues to show a very healthy state. From a bank perspective, gross MPEs remain flat year on year at 2.5 billion euros. The fact that Bipper is characterized by a high-quality loan book is further highlighted by the net MPE ratio, which, as you can appreciate, remains unchanged and is one of the lowest in the Italian banking sector at 1.3%. Stage 2 loans were slightly up by €300 million, quarter on quarter at €8.2 billion, with a coverage ratio of 5.3%, anticipating macroeconomic uncertainty. Having finished with asset quality, let's move on to the development of the bank risk-weighted assets. As you can see in the slide, In Q3 2024, our total risk-weighted assets slightly decreased quarter on quarter. This result was achieved primarily on the back of a proactive portfolio management exercise, which overcompensated higher risk-weighted assets deriving from business dynamics. Credit risk-weighted assets remained stable at around 45.3 billion euros, while the reduction in market risk-weighted assets was mainly due to the sale of equities held in our portfolio. In terms of capital, we continued to post a significant organic capital generation, reaching a CET1 ratio of 15.8%. As such, our organic capital generation was 295 basis points in the first nine months of 2024, amounting to an outstanding 1.6 billion euros of CET1 capital generation. Let me add that the MDA buffer gradually improved to 659 basis points in Q3-24 from 315 basis points in Q1-23. Moving on to liquidity, let me point out that the bank's liquidity ratio remains high. The LCR reached 168.7% at the end of September 24 versus 161.4% at the end of June. Similarly, the NSFR increased to 136.1% from 134.6% at the end of June 24. The improvement in both ratios was achieved thanks to the issuance of a cover bond, coupled with a reduction in tax assets and other assets in the third quarter. In Q3 2024, the loan deposit ratio was 66.2% versus 75.7% at the end of June 2024. Turning now to the bond portfolio, We point out that the Italian government bonds amounted to 10 billion euros and account for around 39% of total bonds. Since Q2 24, the bank started to increase the stock of Italian government bonds to take advantage of market conditions. The duration of our securities portfolio was materially reduced. In fact, the duration of the portfolio was statically reduced to 1.7 years, And with reference to the Italian government bonds portfolio, it was reduced to 1.9 years. A brief look at our latest bond issuance is important. In August, we successfully reopened the Italian public bond market after the summer break and priced a new 500 million euros five-year cover bond. This is the second cover bond transaction of 2024 for us. and the third one following the implementation of the new European Cover Bond Directive in Italy. The issuance also represents the fifth successful foray in the institutional bonds market for BPIR in 2024, highlighting its status of frequent issuers and investor appreciations for the name. Ladies and gentlemen, before we start with questions, A brief summary of the most important achievements of this quarter. Revenues were up by almost 3% nine months on nine months in spite of lower interest rates. Our net interest income remains resilient both in the nine months and quarter on quarter thanks to our commercial dynamics. Our risk discipline remains unchanged and our asset quality stands at the highest level within the Italian banking sector. Our cost control remains extremely thorough. In the first three quarters, we continue to generate significant organic capital amounting to Euro 1.6 billion or 295 basis points. 55% of our business plan initiatives have already been launched. And finally, we are on track to achieve our 2024 guidance. We have only revised upwards our CET ratio guidance to approximately 15% from 14.5%. Before moving on to Q&As and as stated during the Capital Market Day, we will provide you with a segment reporting for each business line starting from Q4-24. We are now ready to take your questions. Thanks.