Bawag Group Ag Ord

good day and thank you for standing by welcome to the BAVAG group Q3 2025 results conference 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 1 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one, one again. Please be advised that today's conference is being recorded. There will also be a transcript published on the company's website. I would now like to hand the conference over to your speaker today, Anas Abouzikouk, CEO of the company. Please go ahead.

Thank you, operator. I hope everyone is doing well this morning. I'm joined by Enver, our CFO. Let's start with a summary of Third quarter results on slide three. We delivered net profit of 219 million euros, EPS of 2.77 euros, and return on tangible common equity of 28%. The performance of our business was strong with operating income of 555 million, pre-provision profits of 354 million, and a cost-to-income ratio of 36%. 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 1%, and average customer deposits were down 2%, quarter over quarter. We have a Fortress balance sheet with $13.5 billion of cash, an LCR of 201%, and an overall strong asset quality with a low NPL ratio of 76 basis points. During the third quarter, we completed our 175 million share buyback. We canceled 1.6 million shares, leaving us with 77 million shares outstanding, which is down 23% from our IPO back in 2017. For the quarter, we landed a CET1 ratio of 14.1% after deducting the dividend accrual. The operating performance of the business across the group was solid, but we continued to be patient and disciplined. With 19% of our balance sheet in cash, in a market environment where we believe credit is still frothy. The integrations of Kanab and Barclays Consumer Bank Europe are both going well, with the growth of the cards business really standing out. The teams are focused on the blocking and tackling of integrations and executing on our roadmap. The gains you see are incremental, but build up with each passing quarter. This is the first quarter where you see integration efforts start to materialize in terms of reduced operating expenses, and this will continue in the quarters ahead. As for key milestones, we are planning for the Kanab bank merger to be completed by the end of this year, and have been working on testing key system migrations scheduled in 2026. 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. Both integrations have also served as a catalyst for an organizational redesign as we grow into a pan-European and U.S. banking group. The foundation of this redesign is a digital-first approach to banking complemented by a strong advisory-focused branch network. We are now able to realize the gains of technology investments made over the years in creating a common tech ops platform that can scale with the benefits increasing from various operational and AI initiatives. We plan to share more of what we've been working on with year-end results. The recent stress in corporate lending does not come as a surprise. We have witnessed the blind focus on volume growth leading to lax underwriting and increased risk-taking in various forms. In contrast, our approach has always been to remain patient and disciplined, prioritizing risk-adjusted returns over sheer volume growth. Ultimately, increased stress and volatility in the market work to our advantage as they lead to a repricing of credit risk and a return to more rational and disciplined lending. We are on track to exceed all 2025 targets and are building momentum going into 2026. With strong earnings and capital generation, a fortress balance sheet, and a long-term mindset geared to avoiding the latest fad or hype cycle, our focus is prudent capital allocation, making investments that drive long-term profitable growth, and preparing the business for both the opportunities and challenges stemming from volatile markets, technological innovation and disruption, and an ever-changing banking landscape. Okay, moving to slide four, capital development. At the end of the third quarter, our CET1 ratio was 14.1% after completing the $175 million share buyback program and $120 million dividend accrual for the quarter. For the quarter, we generated 114 basis points of gross capital, of which 94 basis points was through earnings. We executed the mortgage SRT during the third quarter, providing relief of approximately $470 million of RWAs against mortgages that were under the standardized approach. We have excess capital of 258 million euros, 110 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 our output floor level, given 90% of our business is currently under standardized approach. We will revisit any further capital distributions with year-end results after considering any new business and or potential M&A opportunities. On to slide five. Our retail and SME business delivered third quarter net profit of $188 million, a very strong return on tangible common equity of 37% and a cost-income ratio of 35%. Pre-provision profits were $311 million, up 57% compared to the prior year. The retail risk costs were $56 million, with a risk-cost ratio of 58 basis points. We continue to see solid credit performance across the business with a low NPL ratio of 1.2%. We expect continued growth across the retail and SME franchise in the fourth quarter, driven by strong operating performance as we fully integrate the two acquisitions and solid growth in consumer and SME with mortgage origination starting to pick up. On slide six, our corporate real estate and public sector business delivered third quarter net profit of $39 million and generating a strong return on tangible common equity of 31% in a cost-income ratio of 25%. Pre-provision profits were 53 million, flat versus prior year. Risk costs were positive with a 1 million release as we continue to see solid credit performance across the business with an NPL ratio of 10 basis points. As I mentioned earlier, we believe there will be increased stress across the corporate lending space more broadly, no different than U.S. office When stress builds up, you begin to see the difference in underwriting and asset quality. As far as our U.S. office exposure, this was down 17% during the quarter and 82% since 2022, with a remaining portfolio of $118 million of performing loans, equal to approximately 20 basis points of total assets and 2% of total real estate assets. We will stay patient and continue to focus on disciplined underwriting, risk-adjusted returns, and not blindly chase volume growth. With that, I'll hand it over to Amber. Thank you, Anas.

I'll continue on slide eight. A strong quarter with net profit of 219 million euros and the return on tangible common equity of 28%. Core revenues were up 1% versus prior quarter with net interest income up 1% and net commission income up 4%. Operating expenses were down 3% in the quarter and cost income ratio stood at 36%. Risk costs were 52 million euros or 37 basis points, broadly in line with the prior quarter. The tax rate in the second quarter was 26%, reflecting our more diversified geographic footprint in 2025. On slide nine, the key developments of our balance sheet. Overall, average customer loans were up 1% and average customer deposits down 2% quarter over quarter, resulting in a 2% decline in total assets. We maintain a strong cash position at roughly 20% of our balance sheet, ensuring enough liquidity for future market opportunities. However, with spreads remaining at current market levels, we'll stay patient and continue to focus on risk-adjusted returns. Core revenue developments on page 10. Net interest income was up by 1% in the third quarter, the average three-month arrival remained flat this quarter and is expected to remain at this level, so we will start to see more positive developments in the coming quarters. The group's deposit betas decreased by 10 percentage points to 38%, primarily due to a reduction of high-cost deposits. In terms of outlook, we expect to see a continued positive trend for the rest of the year. That commission income was up 4%, reflecting the ongoing positive trend in retail and SME, as we have seen over the past quarters. We expect a stable development in the fourth quarter. On page 11, operating expenses were at $200 million, down 3% in the quarter, and in line with our expectations. The integration of the acquisitions is progressing in line with plan, and we see initial integration effects already materializing. We are also making progress on operational initiatives aimed at further streamlining our processes and unlocking long-term productivity gains across business lines. We will provide an update of our progress with full-year results. We expect integration effects to continue to develop positively in the fourth quarter, and we therefore reaffirm our full-year guidance of approximately 800 million operating expenses for 2025 and operating expenses below $200 million for the fourth quarter. Regulatory charges were $10 million in the quarter and expected to be around $40 million for the full year. Moving to page 12, risk costs were $52 million in the quarter, broadly in line with prior quarter and in line with our expectations. Asset quality remained solid with an NPL ratio of less than 80 basis points. We continued to see a robust credit performance and continued to see risk costs at approximately 40 base points for the full year. Let me close with the applicant targets on page 13. We expect to exceed our 2025 targets of a net profit of 800 million and earnings per share of more than 10 euros. And with that, let's open up for Q&A.