Bawag Group Ag Ord

Good day and thank you for standing by. Welcome to the BAWA Group Q1 2026 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 advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. and there will also be a transcript on the company's website. I would now like to hand the conference over to your first speaker today, and as Abhisar do, CEO, please go ahead.

Thank you, operator. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. Let's start with a summary of the first quarter results on slide three. We delivered net profit of €232 million and a return on tangible common equity of 28%. During the first quarter, the operating performance of our business was very strong with core revenues of $579 million, pre-provision profits of $391 million, and a cost-income ratio of 33%. Realizing the benefits from our investments over the years as we build out a pan-European and U.S. banking group. Total risk costs were $65 million, translating to a risk-cost ratio of 46 basis points. We have a low NPL ratio of 80 basis points and continue to see solid credit performance across our businesses. In terms of our balance sheet and capital, average customer loans and average customer funding were both up 1%, quarter over quarter. We have a fortress balance sheet with $13.6 billion in cash, equal to approximately 19% of our balance sheet, an LCR of 176%, and overall strong asset quality. Our pro forma CET1 ratio stands at 15.4%, with $650 million of excess capital. On the back of a record year in 2025, and having integrated both Canav and Barclays Consumer Bank Europe, which was rebranded to EasyBank earlier this year, we are thrilled to have been selected by PTSB as the preferred buyer. We said this last week, but I cannot stress this enough. The trust and confidence placed in us by the PTSB Board and the Minister for Finance of Ireland as the bank's majority shareholder is something we take very seriously and are keen to demonstrate our capabilities and contributions. Ireland is an incredibly attractive market with all the ingredients for successful banking, pro-growth economic policies, rich in human capital, and a gateway to EU markets. We aim to drive competition through investment and innovation, supporting PTSD's customers and, more broadly, the Irish economy, while delivering long-term sustainable growth. We plan to provide an updated mid-term outlook with full-year earnings, assuming a successful closing of the PTSD transaction, which is subject to shareholder and regulatory approvals. Excluding any potential PTSD impact, we reconfirm all of our 2026 targets with net profit over 960 million euros, return on tangible common equity over 20%, and a cost-income ratio of under 33%. Okay, moving on to slide four, the PTSD acquisition. PTSD represented an opportunity to acquire the third-largest bank in one of our core markets, and one that we have followed closely over the years. PTSD serves approximately 1.3 million customers, with a strong history as primarily a mortgage lender, providing essential retail banking services through a community banking-focused branch network across the country. The total balance sheet amounts to €30.5 billion, with €22 billion of customer loans and approximately €26 billion of deposits. Our three key focus areas will be, one, accelerating growth by complementing PPSB's current product offering with the full suite of retail and SME banking products, as well as corporate, public sector, and commercial real estate lending. Two, investing in technology and distribution, building up greater digital capabilities while investing in an advisory-focused branch network. We aim to consistently invest in the franchise to position PTSB to compete both in today's environment and over the long term, ensuring the franchise is at the forefront of innovation. Three, marrying local knowledge with broader group capabilities as we leverage the local expertise of the PTSP team with a deep understanding of the Irish market and close relationship to customers with the TechOps platform and balance sheet strength of Bala Group. On slide five, the impact of the PTSP acquisition on the Bala Group franchise. The PTSP acquisition will grow Bala Group total assets by around 40%. The group will serve over 5 million customers across seven countries, with over 90% of revenue and customer loans from euro area countries. Further diversifying our earnings, funding, and geographic exposure. Given PTSB's solid position in mortgage lending and retail deposits, residential mortgages will account for two-thirds of total customer loans and retail deposits will account for three-quarters of all funding. Further strengthening our balance sheet funding and serving as a catalyst for growth. We see significant opportunities to invest in technology. enhancing digital capabilities, customer engagement, and product innovation. Today, technology spend accounts for around 30% of our total spend at Follow Group, a competitive advantage and true differentiator. Our spend is strategic, judicious, and focused on the long term. We plan to leverage our tech ops platform, strengthen in-house capabilities, and position the bank to compete not just today, but long into the future. On the back of these investments, there will be several synergies in non-personnel related costs, which account for 55% of operating expenses at PTSP. Our goal is to establish a consistent operating rigor, deliver for our customers, underpinned by a strong culture of operational excellence, anchored to our meritocratic principles focused on retaining, developing, and promoting top talent. We also plan to capture benefits from overall funding and capital optimization, It involves strong credit rating, funding stack, and balance sheet management. From a financial standpoint, the acquisition will be P&L accrete of day one and in line with our through-the-cycle group return requirements, with a return on tangible common equity over 20%. The transaction is expected to contribute net profit over 250 million euros by 2028, translating into over 20% EPS accretion. and from a capital allocation perspective, is more accretive than a share buyback by more than two times. Given our strong capital position and capital generation, our goal is to fully self-fund the deal, which we will discuss in more detail. We also see opportunities to grow our product offering, growing both the number of lending and advisory products, expanding cross-sell opportunities across PTSD's customer base, as well as addressing new customers in new segments. We will leverage our product factories and partnerships to provide a full suite of retail and SME banking products. We hope to do this through a modern and digitally-enabled branch network, reducing friction from transactional banking and freeing up capacity for more customer-focused advisory. The goal is to provide customers with simple, intuitive, and affordable financial products and services that promote their financial health. However, we will remain patient and disciplined given our conservative approach to risk management, emphasizing risk-adjusted returns rather than leverage-driven growth. Given our experience with acquisitions in prudent nature, the goal is to build a strong foundation that will serve as a springboard for future growth. This is potential upside opportunity to our targets as we do not put any timeline on these organic incremental growth opportunities. Since 2012, Our strategy has been consistent. Grow within our core markets, prioritizing our customers' needs, deliver efficiency through operational excellence, and keep a safe and secure risk profile, all while embracing a continuous improvement mindset and building the right culture. The PTSD acquisition will have been our 15th acquisition since 2015, as M&A is a key plank of our strategy. We hope to capture all the learnings over the past decade to ensure a successful integration, leveraging best practices as we continue to adapt and improve with each new acquisition. With that, I'll hand it over to Enver to go into detail on the capital development and how we plan to fund the deal.

Thank you, Anas. I will continue on slide six. Capital development, our reported CT1 ratio landed at 15%. On a pro forma basis, our CT1 ratio was 15.4%. equal to $650 million of excess capital above our CP1 target of 12.5%. This factors in the sale of a minority investment that signed in the fourth quarter of 2025 and is expected to close in the second quarter of this year. We generated 103 basis points of gross capital from earnings, and we also completed one SRT transaction, which mostly funded the underlying business growth. We have not made any dividend accruals in the first quarter, and we plan not to do so in the first half of 2026, which leads me to the next slide and how we plan to fund the transaction. Slide seven. As of today, we anticipate that the transaction will cost us approximately 450 basis points of CT1 capital, which means that we need to be around 17% to also meet our management target of 12.5%. Our starting point as of here on was 14.6% or 210 basis points above our target. And we plan to generate another 250 basis points the first half of 2026. 200 of the 250 base points will come from a dividend policy change for 2026. In simple terms, we'll use our first half profit to fund the deal and only our second half profit of approximately 500 million euros will be eligible for a dividend payment. In addition, we plan to execute several RWA measures that will generate roughly 50 base points. So in total, with the starting access capital of 210 base points and the dividend policy change and the RWA measures, we should have more than 450 base points of excess capital by June 2026 to self-fund the whole deal. As an alternative, we would have the opportunity to further adjust the dividend for 2026 or raise capital. that is clearly not our preferred option. In terms of CT1 targets, these remain unchanged at 12 and a half percent or about 13% for access capital distributions. Moving to slide nine, our P&L and balance sheet overview. We delivered a strong quarter with net profit of 232 million euros and the return of tangible common equity of 27.6%. Core revenues increased by 1% quarter over quarter with net interest income up 2% and net commission income up 1%. Operating expenses declined by 3% in the quarter, resulting in a cost-to-income ratio of 32.5%, in line with our through-the-cycle target of below 33%. Risk costs mounted to 65 million euros, reflecting the changing asset mix towards consumer unsecured. In terms of balance sheet, customer balance increased by 1% quarter-over-quarter, while custom deposits were down 3%. Fungible common equity increased by 3% quarter-over-quarter, not including any dividend for 2026. We continue to maintain a fortress balance sheet with 14 billion in cash, representing approximately 20% of our total assets, an LCR of 176%, and strong asset quality reflected in a low MPL ratio of just 80 basis points. Moving to slide 10, On slide 10, core revenues, net interest income increased by 2% in the quarter, driven by customer loan growth of 1%, with growing consumer business and overall flat mortgage portfolio, with varying trends across countries. Net interest margins stood at 345 basis points, reflecting ongoing changing asset mix, while the deposit data decreased to 35%. We also provide an updated NI rate sensitivity, Every 25 basis points increase delivers 25 million euros per year after 12 months and 50 million euros per year after 24 months. Net commission income increased to 99 million with continuous strong results across business lines of retail and SME, particularly in credit cards and payments. For the rest of the year, we expect net interest income to grow gradually and a stable development in net commission income. On slide 11, operating expenses amounted to 188 million euros, representing a 3% closely defined with a cost income ratio of 32.5%, which is broadly in line with the pre-acquisition levels and are through the cycle target. The integration of the cloud business is now broadly completed while the integration of the rebranded EasyBank business in Germany is well on track. Waste costs for the quarter amounted for 65 million euros, with an increase of consumer unsecured in the overall asset mix, primarily driven by credit cards, and the corresponding ECL increase in Q1 driven by exposure growth in new business being the main drivers. We continue to close and monitor the evolving geopolitical situation and its potential implications for our portfolio. Direct exposures to sectors most sensitive to geopolitical shocks remain limited, particularly industries with high energy intensity or significant supply chain dependencies. Slide 12, retail and SME. The retail and SME segment delivered net profit of €198 million, a return on tangible common equity of 35.5%. Pre-provision profits amounted to €341 million, broadly flat quarter over quarter. Risk costs amounted to 65 million euros, corresponding to 67 business points, while credit policy remains solid with an MPL ratio of 1.3%. We expect continued growth across the franchise. Corporates, real estate, and public sector, this segment delivered net profit of 42 million, with a return on tangible common equity of 30.8%. Our focus remains on disability underwriting and risk-adjusted returns. And finally, on slide 13, reconfirming 2026 applicant targets, we reconfirm our net profit target of more than $960 million in 2026. Our 200-cycle targets also remain unchanged with an ROTC of greater than 20%, cost-income ratio below 33%, and a CET1 target of 12.5%. And with that, operator, let's open up the call for Q&A. Thank you.