National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I am Maria, your chorus call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the first quarter 2021 financial results. 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, Groups CFO, Greg Papagrigoris, Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we'll turn to Q&A. So let's begin. During the first quarter, the country more or less remained in a state of lockdown, albeit more targeted than previously. However, confidence began to return with the vaccine becoming a reality, e-commerce usage being more ingrained, thus supporting activity, while a similar situation worldwide led manufacturing and good exports to further highs. Overall, it is estimated the economic activity in Greece grew by 1% quarter and quarter in the first quarter of 2021. In the first two months of the second quarter, with the pace of vaccinations in Greece accelerating, and the expectations that nearly half the population will have at least one vaccine in the first two weeks of July, Greece's economy is starting to return to normal. For the last three quarters of the year, the Greek economy is anticipated to grow near 10% year on year. I described the main factors in the last results call. One, pent-up demand reflected in the increased household and corporate deposits. Improving prospects for strong recovery in tourism, potentially exceeding a recovery of 80% year-on-year to reach over 50% of the 2019 levels. Three, a higher than initially expected fiscal stimulus, and last but not least, a faster than expected arrival of recovery fund flows starting in the second half of 2021. This favorable conjuncture will allow Greece to experience strong growth past 2021 and for several years to come, as the European funds are used to upgrade Greece's economic growth model towards one that is more agile and sustainable. Turning now to MBG's results. Despite COVID-induced economic pressure, the Q1 results were solid with improvements across the three key areas. Profitability, asset quality, capital. Let me address each in turn. As regards profitability, Core operating profit in the first quarter from continued operations increased by 42% year-on-year, standing at a solid $95 million. Core income was up by about 5%, led by NII, up by 6% year-on-year, despite the drag from lower NPE interest. Disbursements, especially corporate, continued strong, but there was also signs of life in retail. These showed resilience up by 1% year-on-year despite mobility restrictions. Our perseverance on cost containment continue to bear fruit. OPEX was down 9% year-on-year with personnel expenses nearly 17% lower year-on-year, reflecting savings from the VES voluntary exit scheme programs largely in place through 2020 concerning approximately $900,000. FTEs. This combination yielded a notable 9 percentage point reduction in our efficiency ratio with a cost to core income settling at 52%. The resulting core operating profit annualized puts us well on the way to meet our guidance for a full year 22 core operating profit of $490 million, which you will recall would yield a core return on equity of about 9%. Overall, profitability after tax came in at a very strong 580 million, supported by large trading gains. These reflect an optimization of bond holdings as we approach the end of a low interest rate environment. As regards asset quality developments, despite the adverse environment in the first quarter, with the renewed restrictions and the termination of $3 billion of moratoria of previously performing loans at the end year 2020, we experienced negative organic formation of $130 million quarter to quarter. The experience through May 20th is even better than our guidance as ex-moratoria clients in early arrears, i.e., greater than 30 days past due, are less than 7% of the aforementioned $3 billion stock, and a very small amount are over 90 days past due. less than 2%. Overall, the impact from COVID on asset quality is likely to be significantly less than initially expected. At the end of the first quarter, domestic gross non-performing exposures stood at 4 billion. Net NPs at 1.5 billion. And these include 1.5 billion of forborne NPs Less than 30 days past due, with strong possibility to cure. Indeed, cures at over 200 million in the first quarter remain robust. Our first quarter cost of risk came at 114 base points, and our coverage increased by 200 base points quarter-on-quarter to 65%. This outcome reflects generous management overlays in view of the still high level of uncertainty. I expect this to subside and the cost of risk to come down. As regards the frontier securitization, the transaction is well on track with signing and completion expected in early third quarter, just around the quarter. Turning to capital, our set one ratio improved by 40 base points in the first quarter, despite absorbing the full year 2021 IFRS 9 transitional impact. with our SET1 ratio now exceeding 16%. On a fully loaded basis, SET1 and total capital ratios stand at 14% and 15% respectively, even before we factor in the additional 170 base points that would come from the completion of the frontier and ethnic key insurance transactions in the next few months. with solid future profitability and thus positive capital generation and the remaining NPEs having the encouraging characteristics described previously and thus highly unlikely to absorb significant amount of capital. And our CAD ratio closing in on 19% excluding including Frontier and Ethniki. I would like to stress for one more time that NBG does not need a capital increase. Indeed, our goal is to distribute capital back to our shareholders, always subject to regulatory approval. To conclude, I believe our track record speaks for itself. We have created strong momentum for change through our successful transformation program, currently completing its third year. It has become a distinguishing factor for NVG. When you combine this with a strong and sustainable economic recovery starting in the second quarter quarter of 2021, I feel confident we are on a steady course to deliver on the key goals of our strategy for 2021 to 2023. To complete the asset quality cleanup quickly within 2022, to achieve high returns for our shareholders, here are 9% core operating return on equity in 2022, and to provide added value to our clients while supporting sustainable growth. We remain committed to be the bank of first choice in Greece. With that, I would like to pass the floor to our group CFO, Christos, who will provide additional insights to our financial performance before we turn to Q&A. Christos. Thank you, Pablo.

Starting with the P&L highlights on slide 10, NBG delivered a very strong performance in the first quarter of the year with profit after tax from continuing operations up by 42% year-on-year. This performance reflects our solid core operating trends and the strong trading result benefiting from realized gains on debt security transactions. Moderate loan impairments of 114 basis points over net loans follow up from our strategy of incurring COVID and frontier-related provisions of 0.8 billion in 2020. Excluding trading, Our core operating profit registered a sharp improvement of 42% year-on-year to $95 million, providing a solid base for our guidance on core operating profitability for year 2022 of nearly $0.5 billion. With regards to capital adequacy, as illustrated on slide 12, the bank improved further its market-leading capital position despite absorbing the full IFRS 9 phase-in adjustment for 2021 this quarter. set one and total capital ratios are up by 40 basis points quarter on quarter, standing at 16.1 and 17.1 respectively. As illustrated on the slide, upon completion of both frontier and insurance transactions in the next few months, capital will be boosted by another 170 basis points versus current levels with a total capital ratio nearing 19% without factoring in profitability in the remainder of the year or any additional MREL issues. Going into the profitability drivers on slides 13 to 20, domestic NIEI in Q1-21 increased by 7% year-on-year, driven by funding cost benefits on the back of TLTRO utilization and the sustained repricing of time deposits. The improvement in our funding cost fully offset the reduction in the NPE NIEI on a year-on-year basis following the rigorous NPE cleanup. anticipated normalization of lending continues, reflecting the nominal impact of the lower yield, lower risk COVID-related state-guaranteed loans, as well as the back-booking price. On a quarterly basis, the reduction in the NII is driven by the NP component, as shown on slide 14, as well as lower NII from debt securities, following the crystallization of trading gains from sales in the quarter. apart from strengthening our capital base, have to improve the term structure of our bond portfolio at a point in time where interest rates seem to have reached their bottom. Most importantly, NII from performing exposures remains resilient on the back of the expansion of our performing loan book. Domestic disbursements, including repayments of working capital facilities over the period, reached 1.1 billion in the first quarter of the year, driving the expansion of our performing corporate book by 1.6 billion or 12% year-on-year, while retail balances show signs of stabilization. The continued expansion of our performing book will provide longer-term support to the net interest income, gradually offsetting the impact from the balance sheet risking of the next few quarters. Despite the lockdown in Q1 2021, Domestic fees were up year on year, supported by intermediation fees and the flourishing digital business as we continue to successfully engage active clients in our digital offering. Fees from digital channels were up 14% year on year. Notably, the pandemic has boosted the pace of digital adoption, with digital becoming by far the preferable channel for transactions. As shown on slide 19, transactions have now surpassed pre-COVID levels, despite sustained lockdown in Q1-21, we debunking transactions up by 33% year-on-year, replacing branch transactions that have been reduced by more than 51% over the same period. The ongoing migration of our customers to digital channels facilitates our plans for a cost-efficient and flexible operating model in line with our transformation strategy. On OPEX, as you can see on slide 20, Our cost-cutting efforts continue to produce impressive results, with domestic operating expenses dropping by 9% year-on-year. This is driven by the sharp reduction in personnel costs by almost 17% year-on-year, while G&A expenses are also down by 4%. Cost containment reflects the reduction in our headcount by circa 900 employees during 2020. the continuing rationalization of our branch network driven by the migration to lower-cost digital channels, as well as the optimization of spend to our established demand management framework. As a result, our cost-to-core income ratio improved sharply by 9 percentage points year-on-year, down to 52.1%. Moving on to asset quality on slides 21 to 25, Domestic NPs were down by 0.2 billion quarter-on-quarter to 4.1 billion, or just 1.5 billion net of provisions, with our FNPs below 30 days past due, comprising nearly 40% of residual NPs. Domestic NP ratio set at 50 basis points lower quarter-on-quarter, at 13.3%, while coverage was up by almost 200 basis points quarter-on-quarter to 64.8%. Organic flows in the quarter remain negative, supporting our guidance for 2021 and 2022. New defaults have reduced as the drop in economic activity has been cushioned by a larger than initially budgeted fiscal support, with curings remaining well above defaults. During the first month of the year, we have been offering step-up solutions to customers that continue to experience temporary financial difficulties due to COVID. while this is complemented by the state subsidy programs EFIRA 1 and 2, designed for both retail and SMEs. Evidence nearly five months post-moratoria expiry are encouraging and much better than expected. Accounts in early areas, that is over 30 days past due, from less than 7% of the ex-moratoria perimeter, while only a significant amount of less than 2% are in default, comparing favorably to our guidance for defaults of approximately 15% to 20%. Turning to liquidity on slide 26 and 27, domestic deposits increased by 6% for $2.7 billion year-on-year, mostly through private deposit inflows reflecting the fiscal support from the government due to the pandemic. LCR and LNFR ratios stand at 250% and 123%, comfortably above regulatory requirements. At the same time, the repricing of time deposits continue to support NIIN. Time deposit yields decreased by a further seven basis points quarter-on-quarter to 16 basis points, with current production coming in at 11 basis points. Eurosystem funding increased by 1.1 billion to 11.6 billion to TLTRO and will keep providing NII cushioning in 2021. Against an economy operating with targeted restrictions, NDG entered 2021 with strong momentum, increasing core operating profitability by a solid 42% year-on-year. At the same time, our NP ratio continues to improve, going down to 13%, with our provisioning coverage up by another 200 basis points to 65%. Capital ratios increased further, with total capital ratio pushing 19%, including the impact upon completion of frontier and ethnic insurance transactions in the next few months. Our strong start to the year confirms our commitment to capture the growth potential of the country post the pandemic as we leverage our progress in the NP cleanup and market leading capital position to improve recurring profitability to a core return on equity of 9% next year and beyond that the year after. And on this note, I would like to open the floor to questions.