Bawag Group Ag Ord

Good day and thank you for standing by. Welcome to the Bawag Group Q2 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. Good morning everyone. Before we start with the call, let me remind you of the following.

As you know, on 14 April, we announced that BABA had entered into recommended transactions to acquire 100% of PTSB. That transaction remains ongoing and is subject to shareholder, high court, and regulatory approvals. As the transaction is regulated by the Irish takeover rules, we are restricted in the information we can provide on this call, and as a result, we will not take any questions in relation to the PTSB transactions. With that, I will hand over to our CEO.

Thank you, Jutta. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. Let's go ahead and get started with a summary of second quarter results on slide three. We delivered net profit of 255 million euros, EPS of 3 euros and 28 cents, and return on tangible common equity of 29% during the second quarter. The operating performance of our business remains very strong, with core revenues of $590 million, up 8% versus prior year, pre-provision profits of $413 million, and a cost-income ratio of 31%. We continue to realize the benefits of investments over the years as we build out a pan-European and U.S. banking group. Total risk costs were 75 million, translating into a risk cost ratio of 54 basis points. We have a low NPL ratio of 90 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 flat quarter over quarter. We have a fortress balance sheet with 14.5 billion euros in cash, Equal to approximately 20% of our balance sheet, an LCR of 217%, and overall strong asset quality. During the first half of the year, we worked diligently to ensure we positioned ourselves to fully self-fund the PPSB transaction. For the first half of the year, we landed on a CET1 ratio of 17.4%, translating to over $1 billion of excess capital and 40 basis points above the target CET1 ratio of 17% required to self-fund the deal. We remain incredibly excited about the opportunity to acquire PTSB, which represents a pivotal step in our commitment to the Irish market. We started this process in November 2025 when we made a strategic decision to enter the announced public auction. We spent six months performing due diligence as part of a highly competitive and public auction process that required thorough analysis, planning and coordination to put our best foot forward. Post the announcement of the transaction, we have been working hard to prepare ourselves and have spent significant amount of time with regulators, the PTSD Board and other stakeholders to introduce ourselves, our business and outlining our plans in Ireland. We look forward to the next milestone with the PTSP shareholder vote scheduled at the end of the month and, subject to the satisfaction of the remaining conditions, expect the closing of the transaction in the fourth quarter of this year or the first quarter of 2027. If the PTSP transaction is approved, this will represent our 15th acquisition since 2015, as M&A is a key plank of our strategy. In that time, We have always prided ourselves on being a serious, committed, and disciplined buyer. PTSB would represent our first public company acquisition with different dynamics, but never changing our approach. 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 our approach. The trust and confidence placed in us by the PTSB Board The Minister for Finance of Ireland as the bank's majority shareholder and long-term shareholders who supported PTSD over the years is something we take very seriously and are keen to demonstrate our capabilities and contributions. Ireland is a very attractive market with all the ingredients for successful banking, pro-growth economic policies, rich in human capital, and a bridge to the EU, the UK, and the U.S. We aim to drive competition through significant investment and innovation, supporting PTSB'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 PTSB transaction, which is subject to shareholder and regulatory approvals. Excluding any potential PTSB 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 under 33%. With that, I'll hand it over to Enver.

Thank you, Anas. I will continue on slide four. Capital development, a reported CT1 ratio landed at 17.4%, equal to 105 billion of excess capital above our CT1 target of 12.5%. This sector is in the sale of a minority investment that closed in the second quarter of this year. We generated 112 basis points of capital from earnings, and we also completed one credit card SRP transaction. We have not made any dividend accruals in the first half, and this puts us in a position to fully self-fund the planned acquisition subject to shareholder high court and regulatory approvals. On slide five, 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 above 17% to meet our management target of 12.5% post-transaction. Our starting point as of year-end was 14.6%, and we generated 285 basis points in the first half of 2026 through earnings are the main measures and the temporary change in dividend policy and landed at 17.4% CT1 ratio. And with that, we are fully funded for the transaction. In terms of timeline, the next relevant milestone is the PTSV Shell scheme vote that will take place on July 30th. And in terms of CT1 targets, these remain unchanged at 12.5% or about 13% for excess capital distributions. Moving now to slide seven, RP&L and balance sheet overview. We delivered a strong quarter with net profit of 255 million euros and the return on tangible common equity of 28.7%. Core revenues increased by 2% quarter on quarter with net interest income up 2% and net commission income up 3%. Operating expenses declined by 2% in the quarter, resulting in a cost-income ratio of 31%. in line with our through-the-cycle target of below 33%. Risk costs of $75 million, $10 million higher versus prior quarter, largely driven by macro and asset mix. The tax rate was unusually low this quarter at 23.1%, including a positive one-off effect from the sale of the minority investment, while we expected to return to prior levels for the remaining quarters. In terms of balance sheet, custom loans and custom deposits were flat quarter over quarter. Tangible common equity increased by 8%, not including any dividend accrual for 2026. We continue to maintain a Fortress balance sheet with 15 billion in cash, representing approximately 20% of total assets and LCR of 217%, the strong asset quality reflected in the low ampule ratio of 90 basis points. Moving to slide eight, Net interest income increased by 2% in the quarter with custom loans flat in Q226 and supported by a continuing positive trend in unsecured consumer lending, including credit cards. Mortgage volumes remain subdued. Net interest margin at 348 basis points, reflecting an ongoing change in asset mix, while the deposit beta decreased to 31%. NI rate sensitivity is unchanged, 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 102 million euros 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 commissioning. On slide 9, operating expenses amounted to €185 million, representing a 2% quarterly decline with a cost-income ratio of 31%. They continue to deliver on synergy and efficiency measures across the larger group, while the second quarter also includes the new collective bargaining agreement in Austria of plus 3%. We are well on track to achieve our full-year outlook of an annual decrease of 5%. Risks for the quarter came in at 75 million euros, up 10 million versus prior quarter. The increase reflects continued growth in high-yielding unsecured lending, including credit cards, together with updated macroeconomic assumptions. Importantly, underlying credit performance remains strong, with stable delinquency trends and an NPL ratio of just 90 basis points. Given the expected continuation of these dynamics, we now expect a full year risk-cost ratio of around 50 basis points. Slide seven, Retail SME. The segment delivered net profit of 215 million euros, a return on tangible common equity of 36.5%. Pre-provision profits amounted to 364 million, 7% higher than the previous quarter. Risk-cost amounted to 75 million euros, corresponding to 77 basis points driven by the asset exchange and macro update, while credit quality remains solid with an NPR ratio of 1.4%. We expect continued growth across the franchise. On corporate and public sector, the segment delivered net profit of 40 million euros with a return on tangible common equity of 27.8%. Our focus remains unchanged on discipline and underwriting and Risk Adjusted Returns. Finally, slide 11. We are entering the second half of the year from a position of strength. Profitability remains robust. Capital generation continues to be strong. Asset quality is resilient and we remain on track to deliver our 2026 net profit target of more than 960 million euros while preparing for the next phase of growth through the planned acquisition of PTC. And with that operator, let's open the call for Q&A. Thank you.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now put your first question. One moment, please. And your first question today comes from the line of Gunara Saikalova from Morgan Stanley. Please go ahead.

Good morning. Thank you for taking my questions. So my first question is on risk-weighted assets. You reported almost $1.4 billion reduction in risk-weighted assets this quarter. Could you walk us through the key drivers behind that reduction? Should we assume that the majority was attributable to the credit card SRTs executed in G2, or were there any other meaningful factors that contributed? And looking ahead, is it fair to assume that risk-related assets have now bottomed out and will begin to grow from here? Have you largely completed your capital management initiatives, SRTs, or do you think there will be still further scope for RWA optimization? And finally, could you help us understand the P&L impact of their executed SRTs, and how should we think about the earnings implications of those deals going forward?

Yes, so Benara, good question. On the risk-rated advocacy client, it is mostly driven by the SRT. You've seen also reflected in the segmental numbers, so it's really in the retail and SME segment. It's roughly $1 billion decline that was coming from that transaction. In terms of outlook, I think consistent with what we said in the past, so we'll obviously look at more measures to do in the future, but at this point in time, we can't really share any more details on that.

And the P&L impact from the measures that you have concluded?

That is the $1 billion that I mentioned of the credit card S&P in the second quarter.

P&L impact.

To think of P&L.

and from this one billion reduction, should we expect any P&L impact from that going forward?

Yeah, there is an ongoing P&L impact that we have in the NII line and in the risk-cost line. In this specific one, it would be reflected in the NII line, but that's already fully reflected in our guidance.

Okay, and another question on the capital. So without asking you to provide a formal target today, Can you understand the framework that you're using to determine the capital level for the Irish bank? Because looking at the POS they're operating in 1440 and a half, 81, should investors think of that as the right starting point for your subsidiary, or do you believe the business can operate efficiently with a lower capital requirement over time? Any early thoughts on how you're thinking about this would be helpful.

It's really hard to, the line is really, I think, Thank you. Thank you. Your next question today comes from the line of Babel Kemeny from Autonomous Research. Please go ahead.

Morning, thank you. One on deposits, I noticed that your deposit levels were sluggish in Q2. Can you comment on the competitive situation on deposits in your markets, including in Austria, please? And my other question would be, PTFB, are you aware of any processes which may have the potential to delay the deal completion?

I'll take the PTSB. Unfortunately, we can't answer anything specific to PTSB or the transaction. I think our statements speak for themselves and for the deposit.

Yeah. So government and deposit levels, very similar would be as seen in Q1 and also in the prior year. So actually across the different markets and different franchises that we have, our core deposits are flat or actually up a bit. There are two elements. If you look at the German online deposit market, that is something that we decided actually to let run off, given the nature of it and also the higher cost. So that's the one offset to it. And the other one, we see a bit of an increased competition in the non-retail part, especially in the money market, deposit market, as well as the competition that we see from the government in Austria with the Punishas offer.

Did this have a meaningful impact on your pricing yet?

No, no real impact on the pricing. Again, it's just an offset of the growth that we have seen in the core franchise. So that's why you see an overall slight development, but no change to pricing.

Understood. Thank you. Next slide.

Thank you. We'll now go to the next question. And your next question today comes from the line of Hugo Cruz from KDW. Please go ahead.

Hi, thank you for the time. I have a couple of questions. So first on core revenues, I was wondering if you could give more granularity on the targets. For example, it seems to me that on the current run rate, you could deliver an NII of around 1970 or even above, fees of around $400 million. Is that something you agree with? And then related to that, did you slow down? So you've done the SRT, but I was wondering, did you slow down your loan growth this quarter to support the capital creation for the PTSP deal and where, if that happened? And then a final question on the cost of risk. You know, if you could give more detail on the macro assumptions that you took for the top-up. I'm wondering if oil price stays at this level by year-end, if you have to do another top-up with the Q4 results.

Thank you. Thank you, all. Good questions. Let me start with the RWA development. We have been very diligent in managing RWAs in the first half. Obviously, with the pending transaction, I think we've been pretty transparent about that. Has it impacted our business in terms of pursuing business? No, we never. The reality is markets are pretty grumpy. We actually got redeemed out of a number of positions in the second quarter on some of the transactional lending, in particular in real estate and a few corporate positions. But no, it wasn't an active deflection of volume. We did have a good pipeline that hopefully materialized, but I feel like I'm a broken record, always saying we have a good pipeline and People continue to do, I think, really aggressive and at times irrational things on the learning side. But we'll be patient and disciplined and we communicate where we are as far as our targets and be able to deliver that. So, we feel good.

Yeah, I'll take the far-referenced and the macro assumptions. Yeah, I would agree with you. I think it's quite realistic the numbers that you said with 1970 for a full year on NI and 400 for the NCI. It's probably the current If you extrapolate the numbers and the trends, that's where you probably get it for the full year. So, yeah, very realistic. Macro assumptions, just a regular prudent update if you do on macro, reflecting also the, you know, stagnation that you're seeing across the markets, especially on the, you know, lower GDP growth in Austria and the adjacent markets.

Okay, thank you.

Thank you.

Thank you. Your next question today comes from the line of Mate Lemmes from UBS. Please go ahead.

Yes, good morning, and thank you for your presentation. I have a few questions. The first one would be on the risk of guidance revision to 50 basis points. I just wanted to confirm, is this simply the reflection of the additional macro provisions you put in place in K2, or is there an element of perhaps some makeshift towards consumer lending? The second question is on loan growth. Anas, I hear you about the promising pipeline on the corporate side. Can you talk a little bit about the volume trends and product trends in retail and also perhaps on a country-by-country basis? That would be helpful. and lastly on deposits or deposit betas. You were down four percentage points sequentially. Could you talk about your expectations going into H2? Should they assume broadly stable development here? Thank you.

I guess we've got risk, cost, guidance, volume. Thanks, Manfred. I'll take the volume trends. If we could kind of, again, just go around the world or just around the world as far as in different products. Corporates and real estate, I think in public sector for that matter, it's a continuous trend and theme over the past few quarters. And I think that's going to probably be reflected in the second half. We do have a pretty decent pipeline, but you do see periods of, I think, there's periods of opportunities, but in large part, I think it's a pretty frothy market and we're going to just continue to be disciplined. and I knew you asked about the retail and SME. I'd say there's a tale of two worlds there. On the mortgage side, the volumes have been pretty muted. And that's actually not even country specific. Some countries are, I think, more aggressive than others. But the general theme is, as we look at the world right through just credit spreads, they're pretty thin across the different jurisdictions. And there's pockets of opportunity. But I think you'll see the first half development of mortgages I think that'll continue in the second half, so it's going to be pretty good. On the consumer and SME side, which is really credit cards, consumer loans, and specialty finance, which is leasing and factoring, that's actually going quite well. Probably better than expected, and that's probably offsetting the unit nature of mortgages. And that, on the mortgage part, is the credit card business in Germany, at Easy Bank Germany, that's going great. And consumer loans, we're seeing pockets of opportunity, as well as in specialty finance. I think all in all, that's pretty much the overall trend, which is no different than what we saw in the first quarter. And I think that you'll continue to see that the second half of the year as well.

Samantha, the risk guidance of 50 base forms. This is less a reflection of the macro update. It's more a reflection of the change in the asset mix that we have seen the last, I think, probably three, four quarters. So what happens there is we see muted mortgage demand and also development, while we see an increase of high-yielding consumer uncertainty and especially rising current business. And that comes obviously with a strong top line, but there's a front-loading of the ECL effect, which drives the risk-cost ratio higher. That's really mainly because of the outdated patterns of the 50 basis points. On the second one, on deposit trends and betas, So I would expect that deposits will probably remain quite stable in the second half of the year. I would expect technically the closet data to come down more as a function of higher rates and the rate hikes. Long term, we always said we see stable deposit data is more around 35%. So it might be unnaturally low in the second half given the recent rate hikes and the wants to come.

Thank you. We will now go to the next question. And your next question comes from the line of Amit Randon from J.P. Morgan. Please go ahead.

Yes, hi. Good morning, and thank you for taking my question. I have one, please, on cost. How should we think about the second half with respect to declining trajectory? Are there any particular moving parts there that we need to keep in mind here, please? Thank you.

Thanks, Amit. The trend will continue. You know, we made the comment on it that these are not investments in any particular quarter. These are investments for years, and obviously the integrations are bearing fruit in terms of a number of actions that were taken over the past year and a half. So these are things that you, there's such a long lead time that you should be able to accurately forecast kind of your cost development and have a good grip on it. So this, the trend will continue in the coming quarters.

Thank you. Thanks Simon.

Thank you. Our next question today comes from the line of Chris Hallam from Goldman Sachs. Please go ahead.

Yeah, morning everybody. Two quick ones. Just the first on asset productivity. If I look at revenues to RWAs in the second quarter, that was probably the biggest jump in terms of the percentage there in the past two to three years. Is that a reflection of mixed changes or is that probably just the timing of the SRT when in fact the RWA number came down in the quarter? Because obviously looking at a quarter end number there versus an in-quarter number for revenues. So just RWA productivity on the first question. Secondly, it's a bit of a mechanical one around the dividend guidance. So I'm just trying to figure out for the full year, should we be prioritizing the greater than $960 million dividend? or the H2 guide of around 500, because obviously that would get us closer to 990. Thank you.

Yeah, I got to be honest, I've never looked at revenues to RWA, so that's looking at that metric there.

I think you answered the question, because I think you said it's a point in time. I think Chris is probably more of a reflection of that, but in all honesty and transparency, we don't really look at that metric in terms of how we manage our business.

It was technical, I think, Chris. As Anas said, we don't look at it, but I'm quite sure it's streamed by the SRT that's been done. It's just a point in time. The second one, I think it was about dividend and the guidance for the second half. Yeah, we gave a guidance for around $5.1 million net profit for the second half. And how to think about it is the same as we know, it's a Q1. So we can go up to the $5.1 million in terms of net profit as long as we stay above 12.5% in terms of CT1 ratio. These are the two guardrails that we will follow.

Okay, okay, thank you.

Thank you. Your next question today comes from the line of Jordan Bartlem from Mediobanker. Please go ahead.

Good morning and thanks for taking my questions. I had a first one on fees, if possible. So fee income in retail and SMEs, I think he used to show a really attractive growth profile, just running around 50% year on year currently. I just wanted to give a little bit of an update on the drivers of that strong growth progression, and whether that's in line or better than you'd anticipated, and whether it's feasible to maintain that rate of growth going forwards. And then maybe a quick one on litigation risk as well. So last year, there was the adverse Supreme Court ruling on processing fees and We had the refund program, I think, expired at the end of the first quarter. There seems to be a little bit more noise now on trailing commissions with regards to investment accounts. I just wonder if you could give a little bit of an update on litigation risk, the way you see it, whether that trailing commission is a material risk for the bank and any other part that you could give would be super helpful.

Thank you so much. I'll cover the NCI effects.

The trend line was very strong for suppliers, as you said, but also, to be fair, that was largely driven by the acquisitions that we made in HAB and Barclays Consumer Bank, now East Bank Germany. That is a big driver of that. We do see a strong underlying trend, not as strong as you would compare year to year, but in general, payments, cards, and advisory brokerage business has been strong. We would expect that trend to continue, but not at the same pace as of last year. The second question was more about general litigation risk. My view on that, I think it's the new normal. I think you will see more of these consumer protection litigation topics coming up. How we look at it as well from a financial perspective, it's in the numbers. So it's reflected in numbers. We don't really point it out, but it's all in the underlying financial performance and and probably you would expect it to happen in the future as well.

Thanks a lot.

Thank you. Thank you. Your next question comes from the line of Javen Skibich from OdoBHS. Please go ahead.

Thanks a lot and good morning. Thanks for the presentation. Just a minor question on asset quality. I think you mentioned in the morning this single case in the Corporate segment, I think, but maybe overall, if you can give a bit of a color about asset quality development overall, particularly on the commercial real estate side, if there was any change in the positive or negative. And the second question would be on, there was a temporarily, I think, lower tax rate in Q2, and I think this should reverse back to normal levels going forward, right?

Yeah, that is correct. It was exceptionally bold because we had the sale of the minority investment in the second quarter that was tax-free. That's why the overall tax rate came down. We would expect the tax rate to go up to the prior levels for the rest of the year. And the second, on the asset quality, not too much to add. So underlying trends are really robust and metrics look really good, especially on real estate. I don't think we have seen any Any negative surprises over the last 24 months? So things are good.

Super great. Thank you.

Thank you.

Thank you.

We will now take our final question for today. And the final question comes from Tobias Lukas from Kettler Shugro. Please go ahead.

Good morning. quickly touching back on the risk cost development so you're guiding for 50 pips so you were a bit higher this quarter how much basis points was there for a kind of one-off booking and understanding the SRTs you just mentioned that the premium is booked in the NAI and part of the outlook earlier I thought I remembered that you were booking part of that in the risk cost so could you please remind me Thank you.

On the first one, on the riscos line, so we had an increase of 10 million in this quarter in terms of riscos, and they're actually halved during the macro, which is Non-recurring in nature, and probably half of the effect was coming from the asset in exchange that is recurring in nature. As long as the trend continues, which is a good trend, that we're doing more high-yielding consumer business, that trend will continue. That's why we updated the overall guidance to 50 basis points. On the SRT, yeah, that is a bit confusing, unfortunately. So the unsecured SRTs, i.e. consumer credit cards and the like, they are booked in NI given the CLN structure of the deal and everything else so mostly the mortgage part is under their riskless line and then the riskless line I believe it's around 5 million of the 75 that is tied to SRT cost.

Thank you and how much would it be in the NI line as a premium?

I don't have it on top of my head Tobias we'll come back to you on that. Okay.

Thank you very much.

Thank you. Thank you. I will now hand the call back to Anas for closing remarks.

Thank you, Operator. Thank you, everyone, for joining our 2Q earnings call. We look forward to catching up with you in the weeks and months ahead and hopefully for third quarter results. Take care. Have a nice day.

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.