Bawag Group Ag Ord

Good day and thank you for standing by. Welcome to the BAWAG Group Q1 2025 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. There will also be a transcript published on the website. I would now like to hand the conference over to your speaker today, Anas Abuzakouk, CEO. Please go ahead.

Thank you, operator. I hope everyone is well. I am joined this morning by Enver, our CFO. Let us start with the summary of the first quarter results on slide three. We delivered net profit of 201 million, earnings per share of 2 euros and 54 cents, and a return on tangible common equity of 26% during the first quarter. The performance of our business was strong, with operating income of 534 million, up 39% versus prior year, pre-provision profits of 336 million, and a cost-income ratio of 37%. As we closed Barclays Consumer Bank Europe in February, and are focused on integrating our acquisitions. Total risk costs were $59 million, translating into a risk-cost ratio of 43 basis points. We have a low NPL ratio of 70 basis points, down 10 basis points from year end, as we continue to see solid credit performance across our businesses. In terms of our balance sheet and capital, average customer loans were up 15%, and average customer deposits were up 16%. quarter over quarter. We have a fortress balance sheet with 15.3 billion of cash, an LCR of 213%, and overall strong asset quality. Our CET1 ratio stands at 13.8%, with 189 million euros of excess capital above our 13% capital distribution target. Today, our business is approximately 85% retail and SME and 85% dust now. with the low exposure to corporates that have an impact from tariffs and over 20% of our balance sheet in cash as we saw a great deal of froth in credit over the years. We will be patient as we adapt to changing macro conditions and the impact of tariffs. Moving to slide four, capital development. At the end of the first quarter, our CET1 ratio was 13.8% after closing of Barclays Consumer Bank Europe the return to standardized approach for the retail and SME business, the impacts of Basel IV, the execution of a mortgage securitization, and after considering the first quarter dividend accrual of 111 million. And we paid the dividend for the year 2024 of five euros and 50 cents per share on April 11. For the quarter, we generated 108 basis points of gross capital through earnings. We have excess capital of 189 million euros approximately 80 basis points above our capital distribution target of 13% for the years 24 and 25. On slide 5, our retail and SME business delivered first quarter net profit of $158 million, up 21% versus the prior year, and generating a very strong return on tangible common equity of 33% and a cost-income ratio of 39%, which includes two months of Barclays Consumer Bank Europe financials. Pre-provision profits were $264 million, up 30% compared to the prior year. The retail risk costs were at $48 million, with the risk-cost ratio of 53 basis points. We continue to see solid credit performance across the business, with an NPL ratio of 1%. We expect continued earnings growth across the retail and SME franchise in 2025, driven by strong operating performance as we fully integrate the two acquisitions as well as solid growth in the consumer and SME space, which will be offset by muted mortgage loan growth given overall demand and pricing levels that we see. On slide six, our corporates, real estate, and public sector business delivered first quarter net profit of $36 million, down 7% versus prior year, and generating a strong return on tangible common equity of 27% and a cost-income ratio of 23%. Pre-provision profits were $59 million, down 4% versus prior year. Risk costs were $9 million, resulting primarily from booking of a more adverse ECL macro provision. We continue to see solid credit performance across the business with an NPL ratio of 60 basis points, down 10 basis points from the prior quarter. On the back of a strong first quarter of originations, We have a solid pipeline of opportunities, but we'll be patient and see how customers react to the shifting macro and global trade situation. We will continue to focus on disciplined underwriting, risk-adjusted returns, and not blindly chasing volume growth. On slide seven, an update of the Kanab and Barclay Consumer Bank Year of Integrations. As far as our two strategic acquisitions are concerned, this year is about ensuring we fully integrate both deals and build a solid foundation for the future. There is a great deal of work taking place behind the scenes. We have been onboarding team members, decoupling from TSAs, integrating systems, harmonizing the data and applications landscape, and reinforcing leadership where needed to ensure a successful integration. Our goal is clear. We work as one team, and we speak with one voice as we position both businesses for future growth. It's early days, but we wanted to provide a snapshot of key developments in the progress being made. Six months into the Kanab integration, we completed data integrations, simplified the product landscape, and exited 75% of transitional service agreements, which we target to be completed by the middle of this year. Our focus in the coming months will be decommissioning redundant systems, continuing to reduce reliance on third parties, preparing the bank merger application to convert Kanab to a branch, and working on the migration of our mortgage servicer targeted for the first half of 2026. Overall, the business has been performing above expectations and we're already using Kanab best practices around customer onboarding. The teams are also assessing incremental product opportunities and hope to roll out a working capital facility to our Kanab customers. As we close on three months on the Barclays Consumer Bank Europe integration, we have already completed the data migration, simplified our product landscape, and exited several transitional service agreements, of which we hope to have completed within 12 months. The teams are working hard preparing for the credit card system migration, as well as the official rebranding to EasyBank Germany. Both the migration and rebranding are expected in early 2026. We're also working to centralize support functions and reduce reliance on third parties. A number of leaders have taken on group leadership positions, allowing us to draw on top talent across the group. Overall, the business has been performing ahead of expectations and we're excited about the many growth opportunities ahead. On slide eight, an overview of our balance sheet and asset quality. As we have entered a period of elevated uncertainty in both geopolitical and economic terms, we expect to capitalize on the strength of our balance sheet and disciplined underwriting. Our concentration in secured lending and commitment to the Dakhnel region supports a low risk profile with an NPL ratio of 70 basis points. well below 1%, where we've been running since 2021, as well as low volatility through economic disruptions. Our total balance sheet is 73 billion of assets, of which 15 billion, over 20%, resides in cash. We have been patient over the years with our excess liquidity, avoiding frothy credit markets as we felt credit risk was mispriced. We have 52 billion in customer assets, Over 80% of our customer book is secured or public sector lending anchored by a 27 billion mortgage portfolio with an LTV under 60% in the Dakhna region. The current environment of high uncertainty directly impacts corporate borrowers and has a second order impact on consumers overall as an economic slowdown would eventually increase unemployment rates. In terms of our book, our corporate lending exposure is only 2.7 billion euros or 4% of total assets. only 700 million or 25% of the corporate exposure and less than 1% of total assets has material reliance on export import markets and sales or supply chains. In addition, this book has a net leverage below four times and focuses on non-cyclical industries with strong cash flows, which provide resilience through downturns. Our consumer unsecured lending of 6 billion is more sensitive to macro developments and changes in unemployment rates. Over the years, we have tight underwriting to accommodate for inflationary impacts. Our real estate lending portfolio has an average LTV of approximately 50% and is made up primarily of residential and industrial logistics assets. Our U.S. office exposure, which accounts for 4% of total real estate lending and less than 40 basis points of total assets, has been the most distressed asset class we've seen since the financial crisis. However, our underwriting has been successfully tested and the U.S. office portfolio reduced with a resilient performing book looking forward. The recent market volatility from the short-term impacts of changing tariffs and more long-term impacts of a changing economic order and global trade will take some time to be fully understood. However, we have a solid foundation, a fortress balance sheet, and a leadership team that has worked together for over a decade navigating changing currents, as we aim to be a source of strength for the customers and the communities that we serve. With that, I'll hand it over to Amber.

Thank you, Anas. I will continue on slide 10. A very strong quarter with net profit of €201 million and a return on tangible common equity of 26%. Net interest income up 21%. Net commission income up 10% versus prior quarter. Overall, core revenues were up by 19%. Operating expenses were up by 20% in the quarter and cost income ratio stood at 37%. Risk costs were 59 million in the quarter, including higher risk costs for day one ECL and macro updates. On slide 11, key developments of our balance sheet. Customer loans were up by 9% in Q1 and 46% year over year, mainly driven by the two acquisitions. Cash position is now at $15.3 billion and makes up 21% of our balance sheet, leaving us with a very comfortable liquidity buffer to address potential organic and inorganic market opportunities in the coming quarters. The next slide, our customer funding, which is made up of customer deposits and AAA-rated mortgage and public sector cover bonds, is up 1% versus prior quarter and stands at $62.2 billion, with our cash position now at $15 billion. Overall deposit betas at 44%, including higher beta deposits of recent acquisitions. With that, moving on to slide 13, core revenues. Net interest income of $446 million was up by 21% for this prior quarter, with a very strong net interest margin of 331 basis points. Overall, we have seen solid volumes in the business and an uptick in deposit betas, mostly coming from recent acquisitions. In terms of net commission income, up by 10% with an overall good performance across trading, advisory and payments in our retail and SME segment. For the rest of the year, we expect a quarterly net interest income of above 450 million euros and net commission income of above 85 million euros. On slide 14, operating expenses are up by 20% of the quarter driven by the acquisitions and presenting the new run rate of the group. We expect the cost line to be about 800 million for full year 2025, which includes any integration costs. On regulatory charges, we accrued for the higher bank levy as proposed by the Austrian government program, expecting a full year contribution of 40 million euros in total. Moving to slide 15, risk costs. Overall, continued strong asset quality with a low MPL ratio of 70 basis points. We booked 59 million of risk costs in the first quarter, representing the risk profile of a larger group and new product mix, as well as risk costs related to day one ECL and macro updates. For 2025, expect risk costs to be at around 40 basis points, including any securitization costs. Finally, on slide 16, our 2025 outlook and targets, we reconfirm all our midterm targets and our 2025 outlook and targets with a net profit of greater than 800 million euros and an earnings per share of greater than 10 euros. And with that operator, let's open the Q&A, please. Thank you.