Erste Group Bank Ag S/Adr

And welcome to the second quarter 2024 Results Conference Call of Arista Group. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Thomas Samarowa, to begin today's conference. Thank you.

Thank you, Laura, for the kind introduction, and also welcome from my side to everybody who is listening in to our quarterly conference call. Today's call will be hosted by Peter Bossek, our Chief Executive Officer, Stefan Dörfler, our Chief Financial Officer, and Alexandra Haber-Latrabik, our Chief Risk Officer. They will lead you through a brief presentation highlighting the performance of the past quarter and also of the first half of 2024. after which time we will be ready to take your questions. Before handing over to Peter, the usual pointing to the disclaimer on page two is management will make a number of forward-looking statements. And with this, Peter, take it away, please.

Ladies and gentlemen, good morning and once again welcome to our second quarter 2024 conference call. This is my first investor and analyst call as the CEO of Erste Group, so before presenting to you another strong set of quarterly figures and an upgraded 2024 financial outlook, I will share with you my key priorities in managing the bank. I am on slide 4 now. I am committed to creating shareholder value by growing our business in a responsible manner. I believe that we operate in a unique footprint that provides tremendous organic growth opportunities for the next decade and beyond. I am also convinced that we can play a positive role in consolidating the banking industry in our region and, if we play it smart, also enter new markets in the eastern part of the European Union. But my commitment to you is value creation. So if our business continues to generate capital in excess of what is needed for organic growth and inorganic opportunities are not available at the right price, share buybacks will remain firmly on the agenda, most likely for some time to come. For the time being, we target completion of our 500 million share buyback by year end, complemented by a dividend of 3 euros per share for 2024. Value creation also means that I will put renewed focus on extracting more value from our digital initiatives. My concrete goal is to elevate our market-leading digital platform charge to the next level. primarily by expanding digital advice to broader sections of the client population. This will open up new fee-earning opportunities in such growth areas as asset management and pension products, as well as in the insurance business. Further product portfolio simplification will give us greater leverage in back office digitization and consequently support our efforts to operate as efficiently as possible. Accordingly, this will also be a focal point of mine. And finally, as already mentioned, we will keep an open mind when it comes to value creating in organic growth opportunities, be it driving in-market consolidation or by entering new markets. And with this, ladies and gentlemen, let's now have a look at our financial performance in the second quarter. I'm on page five now. We posted another strong quarter. Our core revenues, NII and fees, were up year on year and only trailed the exceptionally strong Q1 print by a narrow margin. NII continued to consolidate near the peak despite the ECB delivering the first rate cut, while fees confirmed the record performance of the previous quarter. Consequently, we decided to upgrade our full-year guidance for both NII and fees. We now expect NII's to stay flat in 2024 as opposed to declining by about 3%, and fees should grow by 10% rather than 5%. The other revenue items continue to perform strongly, and that is particularly true for net trading and fair value results. Nonetheless, overall revenues came in somewhat lighter in the second quarter, mainly because we posted one-off leasing income in the first quarter. Quarterly cost development was completely in line with our expectations, if anything somewhat better, despite the Austrian salary adjustments kicking in from April. Accordingly, we are now confident that we can keep the cost-to-income ratio comfortably below 50% for a second year in a row, in contrast to our previous expectations of delivering a cost-to-income ratio of about 50%. Risk costs didn't disappoint either. In fact, the quarterly print was limited to six basis points, confirming the excellent quality of our loan book. And with risk costs of 12 basis points in the first half of 2024, we now have enough evidence to also improve the full-year outlook for this item. Instead of less than 25 basis points, we are now expecting risk costs of less than 20 basis points in 2024. And with all these upgrades, we also lift the full-year profit outlook. Instead of approximately 50%, we now expect a return of tangible equity well above 15%. To conclude, 2024 shapes up to be another strong year, despite the many uncertainties that are out there. Our excellent P&L performance and outlook on slide 6 in the meantime is also reflected in the P&L dashboard. Net interest margin continued to consolidate around the level of 2.5%, fully in line with our expectations. Cost-income ratio is already well in line with our upgraded guidance. Is it that the risk-cost ratio at six basis points for the quarter and 12 basis points in the first half, supported by the release of FLI provisions and industry overlays? Alexandra will provide you more detail on this later. And with all of this, at 17.2%, we exactly match the return on tangible equity delivered in the first quarter. Our balance sheet development on page 7 already was characterized by a peak up in core business volume growth in the second quarter. We added more than €3 billion worth of loans in the first half, while customer deposits grew by more than €7 billion. This pretty much squares with our expectation that volume growth would become more robust as the year goes, and we also expect that our Austrian business will make a better contribution in the second half of 2024 than they did in the first. Consequently, we stick to our target of growing the loan book by about 5% in 2024. In terms of other balance sheet developments on the liability side, the volume of outstanding debt securities also increased as we front-loaded our funding activities into the first half, while the volume of interbank deposits declined due to the retirement of another €5 billion worth of TLTRO funds. On the asset side, central bank cash was in part redeployed into inter-bank lending, but also reduced by the already mentioned TL2 retirement. All in all, key takeaways from our balance sheet performance in the past quarter is that customer volume growth strengths are improving again. Moving to our key balance sheet indicators on slide 8, as a result of our overall strong business performance, our parameters continued to be excellent. Our loan-to-deposit ratio remained in the customer 85% to 90% range, reflecting balanced loan and deposit growth as already mentioned. Asset quality continued to be very satisfactory, with NPL ratios ending up only slightly to 2.4%. In contrast to previous quarters, defaults at the Austrian minority-owned savings banks slowed down, while CEE continued to perform very well. At the same time, NPL coverage excluding collaterals went down to about 80%, mainly on the back of releases of FLI and industry overlays, which were no longer needed. Our capital generation also remained strong in the first half, even if not really visible in the CT1 ratio, which declined slightly since the start of the year, as the full amount of the second share buyback in the amount of 500 million euros, as well as the pro rata dividend for 2024, were deducted and, of course, loan growth picked up. Let's now turn to the operating environment. I'm on slide 10 now. For 2024, our economies are projecting moderate economic growth in all our core markets that will accelerate going into 2025. Inflation has already declined a great deal and the future path will likely be determined by developments specific to individual markets. Overall, we expect inflation rates to hurrah in the low to mid single range in the CE region in the next 12 to 18 months. Despite this, it is still the expectation that rates will come down further in all geographies by year end. Our economic metrics such as unemployment, fiscal and external balances are expected to remain in good shape or improve in most of our markets. All of this should support volume growth as we progress throughout 2024 and into 2025. In terms of volume growth, and I'm on page 11 in the meantime, we also expect the retail business to make a healthy contribution. And in fact, the second quarter, we saw the first signs that this is already happening. We have seen the best level of new business volumes in housing loans since the third quarter of 2022, even though the stock was slightly down year on year. And consumer loan growth was even more pronounced, with stock being up nicely both year on year and quarter on quarter. On the liability side, our retail deposit base also edged up quarter on quarter. As regards deposit pass-through, and Stefan will be more specific on that later, retail pass-through rates continued to be more moderate than expected at the start of the rate-hiking cycle, and customers shifted fewer overnight deposits in term and saving accounts in the past quarter, helping maintain the share of current account deposits to total retail deposits comfortably above 50%. Our success story in promoting retail security savings plans as a means of building long-term wealth continued. The stock of such savings plans now tops 1.3 million, supporting long-term fee growth in our asset management business. And our market-leading digital retail platform also performed strongly in the past quarter, passing another milestone. we have now onboarded more than 10 million customers. And last but not least, our digital sales ratio in the retail business has now reached 59% with 70% of consumer loans already being sold digitally. Looking at the development in the corporate and market business on page 12, we actually see similar trends as in the retail business. Loan growth improved again. being up 1.4% and 3.5% quarter on quarter and year on year respectively. This was mainly driven by an increased loan demand by large corporates while the SME business was still lagging. In terms of sustainable lending new business volumes, we also made good progress, reaching about 80% of our annual 2.5 million euro target already in the first half of 2024. Overall, as far as corporate loan growth is concerned, We continue to be cautiously optimistic about the second half of 2024. On the liability side, we just observed the regular volatility mainly driven by the large corporate business, with corporate deposits stable year on year and up on the previous quarter. The market business continued to do well. We were involved in issuance of €92 billion worth of bonds and 130 book running mandates, generating healthy income in the security business. Asset management built on a good start to the year, with assets under management reaching an all-time high of 82.2 billion euros, supported in particular by strong net sales in the Czech Republic. This was reflected in our continued strong fee performance. On the digital front, the corporate business also made good progress. In the meantime, we have onboarded 43,000 customers to George Business in Australia alone and the first 900 in Romania, where the official launch is scheduled for this September. And now I would like to hand over to Stefan for the presentation of the quarterly operating trends.