National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I am Gail, your course call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the first quarter 2020 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. Pavlos Milonas, CEO of National Bank of Greece. Mr. Milonas, you may now proceed.

Good afternoon, everyone, and good morning to those of you joining from the U.S. Welcome to our first quarter financial results call. I'm joined by Christos Christodoulou, the group CFO, and Grigoris Paparigoris, head of I.R. After my introductory remarks, the CFO will go into more detail on our financial performance and then we will turn to Q&A. So let's begin. Capitalizing on a very successful management of the health slash lockdown phase of the crisis, Greece is gradually lifting restrictions of movement with most remaining ones to be lifted within the next few weeks. Thus, Greece moves with optimism to the next phase of the crisis with the goal of successfully restoring the economy. Uncertainty will need to come down further, initially helped by the large swath of government support measures. Specifically, these will exceed 15 billion, equivalent to 8% of GDP, with about one-third coming from European-sourced funds. To these figures, one will need to add the approximately 33 billion support, including 22 billion in the form of grants provided over the next three to four years, arising from the recently announced 75 billion European recovery fund, named the next generation EU. Of course, the Commission's proposal needs to be approved and hopefully without much delay. Albeit early days, additional positive news is that there exist nascent signs that confidence is beginning to return to the economy, as evidenced by various leading indicators, such as individual mobility data, as well as bank transaction data. Though admittedly premature, projections on the decline in economic activity and the prospective recovery by 2021 may need to be revised for the better. NBG's initial response to the COVID crisis was to ensure the health and safety of our employees and clients, adopting strict measures at HUD offices and branches. We successfully transitioned into a remote work-from-home operating model with appropriate controls in place, allowing approximately 70% of our staff to work remotely at its peak, cyber-securely and productively. At the same time, we accelerated our digital customer onboarding and engagement. The results have been impressive. Digit channel transactions have increased 60% year-on-year, more than 130% 1,000 customers have been digitally onboarded year-to-date. Active users of digital channels are up by more than 50% year-on-year. In this second phase, NBG is committed to supporting all its clients weather the crisis by providing the necessary liquidity support. To this end, we have also focused on the rapid implementation of payment moratoria covering the period for most of 2020 to both our corporate and retail clients. So far, NBG has received approximately 60,000 applications corresponding to $4 billion of loan balances, mostly mortgages and corporates. NBG is also actively participating in all the government support schemes involving state guarantees, co-financing, and interest rate subsidies. I believe that the rapid and successful shift in our operating model to work from home and the new service model, i.e., the new products I just mentioned, reveals the success of our transformation program in making NBG more agile and, of course, more digital. NBG's balance sheet strengths and strategic flexibility are important comparative advantages and will provide significant strengths during this crisis. The first quarter results without a doubt support this assertion. We addressed the issue of COVID-19 related provisions decisively, front-loading approximately half a billion of loan provisions in the first quarter. Within this amount, the COVID-related provisions amount to more than $400 million, standing at 150 base points over net domestic loans. That's on a non-annualized rate. Based on current economic projections, and given the unprecedented level of uncertainty, we believe these provisions cover the total amount needed for COVID-19. To this amount, 100 base points of underlying recurring quarterly credit risk charges are added, on an annualized rate this time. And as a result, our coverage ratio has been increased by nearly 300 base points quarter on quarter. Despite the very sizable cost of risk charge, group path exceeded 400 million. This result, along with the future PPI capacity, provides substantial room to absorb incremental provisions for NP-related inorganic actions going forward. As regards our core operating performance, core PPI has remained broadly unchanged quarter and quarter at 137 million. This is a result of lower core income, which has been offset by lower costs. As Christos will elaborate on each of these drivers in detail, I just want to highlight the reduction in our domestic personnel and G&A expenses, with the former reduced by 8% year-on-year, only partly reflecting the 1,100 FTEs reduction from the past year's successful VES. On a full-year basis, the operational cost savings from this will amount to $40 million. Turning to our capital position, our SET1 and total capital ratios stand at 15.5% and 16.4% respectively, absorbing the total anticipated COVID-19 charge-offs as well as the annual IFRS 9 transitional charge. Our capital position is circa 500 base points above the COVID adjusted OCR capital threshold of 11.5%. Clearly, visibility in this environment is extremely limited. However, there are some points that appear clear. First, the migration to digital banking is accelerating beyond expectations. and NBG has made impressive steps in this area over the past two years. Second, a new radically different and more efficient operating model for banks is emerging which will occupy management for the years to come. And third, this new operating environment driven by huge upcoming structural changes in the economy opportunities will be captured by the ones most flexible and adept. In closing, I would like to say that our success in changing the bank over the past two years as well as our timely and effective response to pandemic crisis are testament to NBG's change momentum and established transformational capacity. Coupled with our balance sheet strengths and strategic flexibilities, these elements will make the difference as we continue to rise to the oncoming challenges and support the national effort in this difficult period. With that, I would like to pass the floor to our CFO, Christos, who will provide additional insights to our financial performance before we turn to Q&A.

Thank you, Pablo. So starting with the P&L highlights on slide six, the key takeaway is the resilience of our co-operating profit, complemented by trading gains that support our pre-provision income, which as a result grew nearly four times on a year-on-year basis. This allowed the absorption of the total anticipated COVID loan impairments, also leaving substantial room for commodity identity-related inorganic actions going forward. Core income remained broadly stable year-on-year, aided by strong growth in fees at 12%, while NII declined by 4% reflecting the aggressive NP cleanup of 2019, the lower interest income from securities due to portfolio sales and the GGB swap in January, plus the cost from the tier 2 issuance in July 2019. Cost optimization efforts continue to produce impressive results. Domestic personnel expenses declined by over 8% year-on-year, reflecting the benefit of the 2019 VES that expired in February 2020. The last leg of approximately 300 employees leaving the bank during Q1 2020 has not been fully factored in. Moreover, a provisional VES charge of $90 million has been booked this quarter, providing flexibility for further cost rationalization while our tight management of general and admin expenses is set to provide further savings. The realization of last one of items, namely the 515 million gain from the GGB swap in January and the gains of 264 million from the sale of health to collect and sell securities in February allowed us to address the issue of the incremental provisions for the COVID crisis decisively Transloading the Total Anticipated Charge. Of course, we need to underline that this is subject to the information currently available and with the caveat of the unprecedented levels of uncertainty, especially with the macroeconomic focus. Having said that, COVID-related provisions came in at $416 million, which corresponds to a non-annualized cost of risk of 143 basis points. On top of that, The underlying Q1-20 cost of risk is 70 million euros or an additional 96 basis points. The high cost of risk level in Q1-20 is attributed to the bank's standpoint regarding the macro outlook in the context of COVID, with key macroeconomic variables projected to record a sizable contraction, being only partially offset by post-modal prospectality adjustments in line with accounting and regulatory guidance. Baseline GDP envisages a recessionary environment in 2020 with the annual charge reaching minus 7.5%, where the recovery is envisaged for 2021 with the average GDP growth rate at plus 5% year-on-year. Despite the high provision charges, group attributable profit after tax amounted to $304 million, in Q1-20 compared to 41 million a year ago, even after absorbing sizeable one-offs, including the 90 million provisional BES charge. As Pablo said, such profitability levels provide further flexibility in our NPE strategy, allowing us to be ready to launch NPE-related inorganic actions in a timely manner. Turning to slide 7, on asset quality, PANG NPEs dropped by 0.2 billion this quarter to 10.4 billion, reflecting efforts across organic channels. The improvement in flows in the first two months of the year was offset in March due to the COVID uncertainty and before the crystallization of the impact from the introduction of payment holiday measures. The domestic NP ratio now stands at 31.8%, down 40 basis points quarter-on-quarter, and 7.3 percentage points year-on-year. Cash coverage climbed to 56%, up by nearly 3% quarter-on-quarter. On the liquidity front, domestic deposits expanded by 1.7 billion this quarter, driven by state deposits, while domestic private deposits maintain a positive momentum. LCR and NSFR ratios remain at levels well above regulatory thresholds. Our exposure to the ECB's TLTRO facilities have been gradually increasing, and this will allow us to provide credit to corporates and households at a negative funding cost of minus 100 pesos. In terms of capital, Z1 and total capital ratios in Q1 stand at 15.5% and 16.4% respectively, comfortably absorbing the total anticipated provisions related to COVID-19, the full year IFRS 9 transitional adjustments, and still standing almost 500 basis points above the COVID-adjusted regulatory threshold of 11.5%. Going into further detail on profitability on slide 9, Group operating profits reached 426 million in Q1-20 compared to 16 million in Q4-19, reflecting our resilient corporate provision income and the large trading gains. Excluding non-core income and the COVID-related provisions, group operating margin expanded to 92 basis points in Q1 compared to 22 basis points the previous quarter, driven by lower operating costs and lower underlying provisions. Turning to slide 10, domestic NII amounted to $262 million in Q1-20 from $271 million in Q4-19, mostly due to lower NP interest income driven by the size of our portfolio sales in 2019 and lower NII from securities. Performing NII remained at similar levels, reflecting the healthy production of new loans in Q1-20 as well as curings. Indeed, domestic loan disbursements were up by $1.1 billion, a 53% increase year-on-year. Excluding COVID-related provisions, risk-adjusted NII remains at healthy levels of 192 million in Q1-20 versus 164 million the previous quarter. Moving on to slide 11, domestic deposits amounted to $44 billion, expanding by $1.7 billion this quarter. Low interest rate-bearing deposits increased their share to 72% of total deposits, best to 70% a year ago, allowing our blended deposit yield to reach lower to 29 basis points. Time deposit yield dropped further by 12 basis points this quarter to 52 basis points, with new time deposit production coming at 30 basis points. The repricing of time deposit benefited NII by 4 million this quarter and will continue to support this year's top line as the ongoing repricing becomes fully factored in. On slide 13, following a seasonally strong Q4, domestic fee income amounted to 63 million, up 13% year-on-year on the part of the stroke recovery in retail fees, which exhibit a 25% growth year-on-year, mostly driven by the increase in cut related fees, intermediation fees, and digital channels. Corporate fees remain weak across the sector due to competition. Moving on to OPEX on slide 14, As already mentioned, domestic personnel expenses dropped by 8.2% year-on-year, reflecting part of the benefit of the 2019 VEA, with the full-year impact for 2020 estimated at over 40 million euros. Domestic, general, and admin expenses were marginally lower year-on-year, while higher depreciation charges reflect the first-time adoption of 516 and the pro-daily consolidation in mid-19. Excluding depreciation charges, Domestic staff costs and general unemployment expenses as a percentage of core income dropped by 270 basis points to 49.4% in Q1-20 from 52.1% in Q1-19. A bit more detail on asset quality on slides 16 to 20. NP reduction continued driven by mortgages benefiting from restructurings involving the debt forgiveness to our innovative product student sector. As already mentioned, the improvement in MPE flows in the first two months of the year was offset in March due to COVID uncertainty as the implementation of relief measures is not yet reflected in March flows. As the CEO mentioned, with regards to payment holiday measures, until mid-May, MBG received about 60,000 applications corresponding for an amount of approximately $4 billion. In terms of risk concentration on slide 20, MBG has a well-diversified loan portfolio with less than 20% of our corporate clientele estimated to be relatively more affected by COVID. Sectors such as accommodation, services related to air transport, retail trade, media, machinery and equipment should see a fairly large share of their turnover affected by the ongoing economic crisis, and their recovery is likely to be more delayed versus that of less affected sectors. During difficult and uncertain times, the bank produced solid profitability and fortified further its balance sheet. This was complemented by our operational efficiency and our transformational capacity leading to a strong reaction to the challenges and opportunities posed by the crisis. We will continue to closely monitor the impact of COVID and review our financial performance and business plan accordingly. On this note, I would like to open the floor to questions. Thank you.