Eurobank Ergasias Svcs

Ladies and gentlemen, thank you for standing by. I'm Poppy, your course call operator. Welcome and thank you for joining the Eurobank Holdings conference call to present and discuss the full year 2023 financial results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Fokian Karavias, CEO. Mr. Karavias, you may now proceed.

Thank you. Ladies and gentlemen, good afternoon, and welcome to our call. Together with me is our CFO, Hals Poloyanis, and the investor relations team. I'm starting the call with a quick review of the 2023 performance, and then, focus on our business plan and the financial targets for the years 2024 to 2026. Haris will give you more details on the business drivers for the three-year period. Finally, we will answer your questions. In 2023, Eurobank outperformed all targets set for the year, with record core profit as shown on pages 5 to 8. Co-operating profit increased by close to 70% to 1.5 billion euros and return on tangible book value reached 18%. Tangible book value per share increased by 21% to two euros and seven cents. In the last two years, tangible book value has grown by almost 50% cumulatively. Asset quality improved further with the NPE ratio declining to 3.5%, while coverage increased to 86%. On regulatory capital, SET1 stood at 17%, increased by 180 basis points, and CAD exceeded 20%. We had a strong last quarter with significant loan growth acceleration, while NII increased reached a new quarterly high. In addition, last year we advanced several strategic actions, such as the exit from Serbia, the acquisition of BNP Personal Finance in Bulgaria, and most importantly, the increase of our equity stake to a majority level in Hellenic Bank. These results were delivered amid a favorable economic background. with all our core markets outperforming the EU average. In 2023, GDP was up by 2 to 2.5% in Greece, Cyprus, and Bulgaria. Economic expansion was driven by private consumption, a record tourism season, and investments underpinned by DRF. Moving now to our 2024-26 business plan. On page 11, we summarize key assumptions. Economic growth remains strong for our core markets and well above the European average. In Greece, real estate price recovery continues, although at a slower pace. Furthermore, in 2024, growth in Greece should be mainly driven by investments, which could also feed into a solid loan growth in the corporate sector. For interest rates, we assume a declining cycle with three rate cuts by the ECB in 2024, starting in the second quarter of the year, and two more cuts in 2025. A key driver of the business plan is the integration of Hellenic Bank. which is subject to regulatory approvals. In this context, in February, we received the local competition authority approval, while those of the central bank and the superintendent of insurance companies are expected in the second quarter. Hellenic Bank, which showed a record profitability of 365 million euros for full year 2023, has a leading retail franchise, and strong liquidity, capital, and asset quality metrics. Furthermore, its business model is fully complementary to Eurobank's silos. The key goals for the three-year business plan are summarized on page 12. We aim to capitalize on the Greek growth cycle through our strong franchise, driven by all our business units, including corporate loans, and wealth management activities. With the opposition of Hellenic Bank in Cyprus and BNP in Bulgaria, we are becoming a bank with even more diversified sources of income, enhancing our systemic presence in a region of high growth. The business plan assumes a partial integration of Hellenic Bank, that is, line-by-line consolidation only for six months in 2024. Furthermore, throughout the three-year period, no balanced growth has been assumed, no synergies, and equity participation remains constant at 55%. Our key objective is to keep delivering resilient returns despite the lower interest rates environment. As such, On page 15, the business plan confirms that our top line will continue to grow. As shown on page 18, we expect a return on tangible book value at 15% in 2024 and around 13% on a recurring basis 2025 onwards. The 2023 performance. and the three-year business plan solid projections allow us to reward shareholders, starting with a payout ratio of at least 25% in 2024 and gradually increasing towards 50%. Our capital ratios remain substantially above internal targets, so surplus capital offers additional room for further M&A Obviously, should such opportunities arise. Furthermore, there is upside potential to this business plan from the full integration of Hellenic Bank. Equity participation quite higher than 55%. Second, cost and revenue synergies. And finally, the potential merger of Hellenic Bank with Eurobank Cyprus. Capturing this upside potential would further enhance our return on tangible book value at a level higher than 13% 2025 onwards. Overall, we are excited about our group's prospects. The consistent performance of our targets, the diversified business model, and our strategic plan regarding our recent acquisitions make us confident that we can capture the growth potential in our region, deliver sustainable mid-teens returns, and reward our shareholders for years to come. At this point, I would like to ask Haris to present our business plan drivers in more detail.

Thank you, Fokio. Let me start with elaborating further on how Keva Accounting for Hellenic Bank in our business plan as shown on page 14. We have assumed switching to line-by-line consolidation as of the third quarter of 2024, with our stake remaining at 55.3% throughout the business plan period. Furthermore, as we are still at the beginning of exploring the growth potential of Hellenic Bank, we have taken a static view of its balance sheet, i.e., no loan and deposit growth assumed. Finally, this business plan does not include any cost and revenue synergies deriving from Hellenic Bank operational consolidation to the group's universe. Let's now move to the evolution of volumes and NII drivers starting from page 20. Group loans are expected to grow faster by 6.5 and 7% for 2024 and the three-year period respectively. Specifically, performing loans are anticipated to increase by circa 2.3 billion in 2024 and by 8.5 billion in the three-year period, mainly driven by business loans in Greece and by both retail and corporate portfolio in Bulgaria. In Greece, business lending growth will be mainly powered by investments in infrastructure and concessions, energy production and storage, manufacturing and tourism. On the retail, mortgage book amortization is expected to be offset by accelerated consumer loan growth, mainly throughout digital channels, higher mortgage investments driven by low rates, and enhanced footprint in small business lending. Still on the same page, at the right part, group deposits are anticipated to increase in 2024 by 2 billion euro, and for the three-year period by 6.8 billion, which translates to an annual average growth rate of circa 3.5%. Moving on spreads on page 21. Lending spreads in Greece are expected to decrease by circa 30 basis points in 2024, mainly driven by the competition for corporate loans and the cap in mortgage-based rates. As regards deposit cost, we expect average time to total ratio to reach 38% in 2024 and 44% in 2026. Total deposit beta is anticipated to increase by 10 percentage points to 28% this year and reach 32% in 2026. Finally, on this page, net interest margin should decrease to circa 260 basis points in 2024 and 235 basis points in 2026, mainly reflecting loan and deposit spreads and base rates transitory. Furthermore, on NII and on page 22, net interest income is expected to increase by circa 7% in 2024, as the loan and deposit growth and the consolidation of the lending bank for six months offset the increase of deposit beta, the contraction of lending spreads, and the cost of new MRA licenses. In the following years, NII will increase further as the full consolidation of the lending bank and volume growth offset the negative impact of base rates, spreads, and MREL. Moving on physical emissions on page 23. Following a 7% fee income increase in 2023, we anticipate growth rate to double in 2024, reaching circa 630 million euro. A major driver for this increase is wealth management, which is key to our strategy. In this context, we invest further in technology and people, and we are exploring the opportunity to expand the new markets. Capitalizing on the above, we invested an average annual increase of 20% for managed funds and of 12% for private banking customers' assets and liabilities over the business horizon. Lending-related activities will continue to be one of the largest income contributors, driven by new disbursements, RRF, LGs, as well as transaction banking and liquidity management. In retail banking, the major initiative includes the launch and the gradual migration of individual legal entities to monthly fee packages. This converts the related variable income to fixed, It provides high predictability and opportunity to scale up to higher value packages going forward. As regards rental income, we maintain our investment property portfolio at the current size, capitalizing on the previous locations, the full occupancy and the high tenants quality, as well as on the attractive gross yields, which exceeds 7% on average. Overall, As regards the three-year business plan period, group fees are expected to reach 750 million euro by 2026. This translates to 75 basis points over assets, a circa 25% of core income. Greece points the way with 85 base points and 30% respectively. Moving on to operating expenses on page 24. In Greece, we target keeping our OPEX flat in 2024 and attain an average yearly increase below 2% for the three-year period. This performance should be achieved through savings from round-the-bank expenses, mainly premises and maintenance, the recently completed VES, and the contributions to resolution fund. These savings will be channeled to accelerate IT and digital investments, higher fixed and variable staff remuneration and new hires. In Southeastern Europe, cost base will be adjusted this and next year due to the consolidation of Hellenic Bank and BNP in Bulgaria. Furthermore, costs are anticipated to increase organically by circa 6% in 2024 and by a yearly average 5% for the business plan period. The organic increase mainly reflects the rollout of a new core system in Cyprus and Luxembourg, as well as salary adjustments to address inflationary pressures and contain the high attrition rate, especially in Bulgaria. Concluding this page, the undertaking cost initiatives, combined with the deployment of our transformation program, will enable the bank to address the growth challenges with right-sized and better remunerated resources. keeping the cost-to-core income ratio at 36% in 2024 and below 40% throughout the business plan period. On asset quality and on page 25, our MPE ratio is anticipated to be lower than 3.5% at the end of 2024 and circa 3% in the following years. In line with our counter-cyclical approach, Cost of risk slightly decreases in 2024 below 80 basis points and further at 65 basis points in 2026. This is also reflected in RFP coverage, which is expected to fluctuate around 80% throughout the business plan period. Finally on capital and on page 16 in 2024, strong organic capital generation fully offsets the impact of Hellenic bank consolidation, asset growth, and dividend distribution. For 2025 and 2026, fully loaded C2R ratio should be maintained at levels of 17% or higher, despite the accelerated dividend distributions and budget for implementation. This translates to a surplus of internal capital over internal capital targets between 250 and 300 basis points over the three year period. Concluding this presentation, we are very confident about our budget for 2024 and our new three year business plan goals. These are summarized on page 19. For this year, we target a core profit of higher than 1.5 billion euro. which drives TPV per share to circa 2.25 euro, and return on transit book value to 15%. In 2025 and 2026, return on transit book value remains resilient, and in conjunction with the forecasted capital buffers, set the stage for accelerated shareholders' rewards in the coming years. This completes my presentation, and we may now open the floor for your questions.