Bawag Group Ag Ord

and thank you for standing by. Welcome to the BABAG Group Second Quarter 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 this session, you will need to press star 1, 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. There will also be a transcript published to the website. I would now like to hand the conference over to your speaker today, Anas Abazoukou, Chief Executive Officer. Please go ahead.

Thank you, operator. I hope everyone is doing well this morning. I'm joined by Enver, our CFO. Let us start with a summary of the second quarter results on slide three. We delivered net profit of 210 million euros, earnings per share of 2.65 euros, and a return on tangible common equity of 28% during the quarter. The performance of our business was strong with operating income of 552 million euros, up 41% versus the prior year, pre-provision profits of 345 million, and a cost-income ratio of 37%. Total risk costs were $52 million, translating into a risk-cost ratio of 37 basis points as we continue to see solid credit performance across our businesses. In terms of our balance sheet and capital, average customer loans were up 3%, and average customer deposits were up 1% quarter over quarter. We have a Fortress balance sheet with $15 billion in cash, an LCR of 237%. an overall strong asset quality with a low NPL ratio of 68 basis points. We recently received regulatory approval for a share buyback of 175 million euros in line with our capital distribution target of over 13% through 2025, landing at a CET1 ratio of 13.5% after deducting the buyback and the dividend accrual in the second quarter. The operating performance of the businesses across the group was solid, but we continue to be patient and disciplined with over 20% of our balance sheet in cash in a market environment where we believe credit is frothy. The integrations of both Kanab and Barclays Consumer Bank Europe are progressing well. There has been a great deal of work taking place behind the scenes. Our focus is on building a solid foundation to drive profitable growth long into the future. On the Kanab front, we aim to have exited all transitional service agreements by the end of the third quarter and have already applied for a merger of the bank. the so-called branchification, which we hope to have completed by the end of this year. Barclays Consumer Bank Europe, which will be rebranded to Easy Bank Germany in 2026, has been progressing very well. The leadership team has been onboarded and the business continues to develop ahead of plan. Our goal with both integrations is clear, fully integrate into the group operating framework and culture, work as one team and speak with one voice. We're excited about leveraging best practices providing top talent with broader roles and pursuing the many growth opportunities ahead of us. Moving now to slide four, capital development. At the end of the second quarter, our CET1 ratio was 13.5% after deducting $175 million for the approved share buyback program and $116 million second quarter dividend accrual. For the quarter, we generated 100 basis points of gross capital, of which 91 basis points was through earnings. We have excess capital of 117 million euros, 50 basis points above our capital distribution target of 13% in 2025. In terms of any Basel IV output floor impacts, we have zero RWA inflation, as we have a buffer of 20 points to the output floor level, given that 90% of our business is currently on the standardized approach. On to slide five. Our retail and SME business delivered first quarter net profit of 173 million, up 32% versus the prior year and generating a very strong return on tangible common equity of 35% and a cost-income ratio of 38%. Pre-provision profits were 289 million euros, up 44% compared to the prior year. The retail risk costs were 53 million with a risk-cost ratio of 56 basis points. We continue to see solid credit performance across the business with an NPL ratio of 1.1%. We expect continued growth across the retail and SME franchise in 2025, driven by strong operating performance as we fully integrate the two acquisitions with solid growth in consumer and SME, which will offset muted mortgage loan growth given current pricing levels. On slide six, our corporates, real estate, and public sector business delivered second quarter net profit of $38 million, down 9% versus the prior year, and generating a strong return on tangible common equity of 31%, and a cost-income ratio of 25%. Pre-provision profits were $52 million, down 12% versus prior year. Risk costs were a positive $1 million, as we continue to see solid credit performance across the business, with an NPL ratio of 10 basis points, down 50 basis points from the prior quarter. This is best reflected in our U.S. office exposure, which was down 54% during the quarter, with a remaining portfolio of $143 million, of performing loans, equal to approximately 20 basis points of total assets and 3% of total real estate assets. Since the onset of rising U.S. interest rates in March 2022 and the subsequent distress in the U.S. office market, we have reduced our office portfolio by approximately 80% in what is arguably the most distressed asset class we've seen since the great financial crisis. When we say we are a lender focused on risk-adjusted returns, This is not a cliche, but a reflection of our discipline, conservatism, and long-term focus of both our markets and risk teams. We will stay patient and continue to focus on conservative underwriting, risk-adjusted returns, and not blindly chasing volume growth. With that, I'll hand it over to Enver.

Thank you, Enes. I will continue on slide eight. A strong quarter with net profit of 210 million euros and a return on tangible common equity of 27.6%. Poor revenues were up 2% versus prior quarter, with net interest income up 3% and net commission income up 7%. Operating expenses were up 5% in the quarter and cost income ratio stood at 37.5%. Risk costs were 52 million or 37 basis points, down 12% versus prior quarter. The tax rate in the second quarter was 26%, reflecting our growth outside of Austria. With high corporate tax rates in the Netherlands and Germany, we expect the tax rate to remain at this level. On slide nine, key developments of our balance sheet. Major balance sheet items remain flat this quarter, with averages increasing on the back of the full quarter inclusion of the most recent acquisition. With our cash position continuing to be greater than 20% of our balance sheet, we have a very comfortable liquidity buffer to address potential organic and inorganic market opportunities when they arise. Having said that, we'll stay patient and continue to focus on risk-adjusted returns and not blindly chasing volume growth. Core revenue developments of page 10. Net interest income was up by 3% in the second quarter. Despite having a full quarter of the credit cards business in Germany, net interest income also reflects the impact of the low interest rate environment with the average three-month arrival down 50 basis points during the quarter, leading to high deposit betas of 48%, four points higher versus prior quarter. With rates slowly but surely coming close to the terminal rate and overall solid margin development across our businesses and further deposit repricing, we expect the second quarter NI to be a good run rate for the remainder of the year. The net commission income was up 1%, reflecting the positive trend we have seen over the last couple of quarters, and we expect a similar run rate for the rest of 2025. On page 11, operating expenses up 5% in the quarter, reflecting mainly two effects. One, our new baseline of the larger group, and two, seller indexation after the collective bargaining agreement in Ulster came into effect on April 1st. with a 3.15% wage inflation. We believe that we have seen the peak of operating expenses in the second quarter, and we have made further progress on the integration of our acquisitions, and we expect our cost base to start coming down in the third quarter. We reconfirm our full year outlook of approximately 800 million of operating expenses. Under regulatory charges, They were $10 million in the quarter, and we expect it to be around $40 million for the full year. Moving to page 12, risk costs were down to $52 million in the quarter, in line with our expectations. Asset quality remained strong with an MPL ratio of 70 basis points. We continue to see a robust credit performance and expect risk costs of approximately 40 basis points for the full year. Let me close with the outlook and targets on page 13. We reconfirm our P&L outlook and targets for 2025 with a net profit of €800 million and earnings per share of above €10. And with that, let's open up for Q&A.