National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your course call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the third quarter 2021 financial results. 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 nine months 2021 financial results call. I'm joined by Christos Christodoulou, Group CFO, and Greg Papadouris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to Q&A. So let's begin. The economy is recovering much faster than expected from the pandemic-caused crisis. Many indicators of activity have already surpassed their 2019 levels, while others, such as tourism, have exceeded expectations, especially in late summer and early autumn. The two key sources of uncertainty are the most recent wave of COVID-19 cases and, as of today, its new variant, and the capacity to constrain supply, creating cost-push inflation, especially in the energy sector. Both factors should be temporary. Regarding the first, the silver lining is that the daily vaccination rate has picked up rapidly to about 400,000 per week, with 74% of the adult population currently vaccinated. A higher level of protection should shield the population from an acceleration of acute cases, thus making unnecessary the need for new restrictive measures that affect economic activity. Regarding the inflation, new government measures of about $1 billion targeted to the most vulnerable should safeguard private consumption. Thus, GDP growth expectations for Greece should not be impacted significantly. Our forecasts have been updated for new developments to 7.5% in 2020 and 4.3% in 2022, while inflation will recede quickly and average 1.2% in 2021 in 2.5% in 2022. Now, turning to NVG. The third quarter performance reflects the impact of the strongly recovering economy, as well as a multi-year transformation effort, with tangible results as regards balance sheet strength, organic profitability, and a thoroughly revamped operating and service model. On the asset quality front, organic NP reduction was notable, down almost one percentage point in the quarter, with a negligible impact on NPs from clients 11 months after the end of their COVID moratorium. In contrast, curings continue unabated, with $1.2 billion of restructured loans having the potential to cure during the next 12 months. As a result, provision coverage increased to a highly satisfactory 7%, in view of the solid underlying mostly real estate collateral. This has allowed a continuation of the gradual reduction in the cost of risk to 94 basis points in the third quarter of 2021. Overall, the domestic NPE ratio stood at 11.9%, with the NPE stock settling at 3.7 billion, implying NPEs of just 1.1 billion net of provisions. Regarding NPE transaction, Frontier is expected to close in a couple of weeks, and the Frontier 2 process, which is under HAPS also, for about $1 billion, has commenced with a schedule to close by mid-year 2022. Turning to profitability, the progress achieved in the first half of the year accelerated in the third quarter, with core operating profit of 20% for a second consecutive quarter to $134 million. As a result, the nine-month 2021 core operating profit increased strongly, up by 50% year-on-year, to an almost 8% return on tangible equity. Solid improvements occurred on all four organic P&L lines, net interest income, fees, operating expenses, with underlying provisions flat at below $100,000. Notably, performing loan expansion on a year-on-year basis nears a billion, among, if not the best, performers of the sector, with high disbursements offsetting unprecedented refinancing from the bond market to the large corporates, around $3 billion of issuance in 2021, and the government's tax advance program providing significant liquidity to smaller firms, $5 billion in 2020 and $2.5 billion in 2021. In addition, the focus on operating costs, especially personnel, has a drop in the additional 8% reduction in the nine months to September, resulting in a cost-to-core income ratio of approximately 50%. Fee income accelerated by 11% year-on-year and 5% quarter-on-quarter, driven by intermediation, card, and digital fees, as we capitalize on our three-year transformation program and the accelerating economic development. As part of our transformation strategy, we are looking to partner with JVs who are specialists in various fintech-like fields. To this end, we're currently in discussion with a world-class player regarding our current acquiring business. These are well along, and we're expecting to make an announcement, hopefully, before year-end. The capital accretive NPE performance, both organic and inorganic, combined with a strong profitability, has led the capital ratios higher to 17.8%, and circa 19% with SET1 and total capital ratios respectively for a form of the closing of Frontier and Ethnic Key. The closing of Frontier 1, as mentioned earlier, is expected in early December, while as regards Ethnic Key insurance, following the agreement with DGC, the buyer is in consultation with DG Comp on the antitrust side. We anticipate completion of the transaction early next year. Looking forward, as the 3Q results suggest, We are well on track to meet our 2022 guidance for core operating profits of about half a billion and an NPE ratio near mid-single digits. The prospects for 2023 and onwards look even better. Specifically, the substantial results from our transformation effort, the revamping of our service and operating models, including the impressive digital turnaround, are coinciding with a unique economic conjunction with the confluence of several positive forces. the long efforts to the structure of the economy, along with a global macro rebound, and the inflow of significant recovery and resilient funds. We are thus well-placed to support and advise our clients in achieving their future plans, including through the NBG platform for the RF Ethnic Key 2.0, with NBG as their partner, the bank of first choice. With that, I would like to pass the floor to our group CFO, Christos, will provide additional insights to our financial performance before we turn to Q&A.

Thank you, Pablo. So let's now go into the financial performance in more detail. Starting with the profitability highlights on slide eight, our nine-month profit after tax from continuing operations amounted to $714 million, up 19% year-on-year. More importantly, though, Our recurring core operating profit surged by almost 50% year-on-year to $341 million for the period, reflecting a 6% year-on-year growth in core income and a sharp reduction in operating expenses by 8%. Looking to asset quality and balance sheet highlights on slide 9, domestic NP organic flows in the quarter remained firmly negative, bringing the cumulative organic reduction to about $0.4 billion for the nine months. This bodes well with our guidance for an organic NP reduction of $0.8 billion cumulatively for 2021 and 2022, before factoring in any inorganic actions. Domestic NPs thus dropped further to $3.7 billion, or 11.9% of across loans, of which nearly a third, or $1.2 billion, are FNPs below 30 days past due with a good chance to cure. In light of negative organic formation trends, our gradually normalizing cost of risk keeps pushing our domestic NP coverage successively higher, as on a year-to-date basis, we have added more than 70 percentage points of coverage, reaching 70% in Q321. Domestic performing loan balance additions are maintained at sector-high levels of plus 0.8 billion year-on-year as of September 2021, driven by net loan disbursements of 2.8 billion over the same period. Deposit gathering remains strong as we experience the inflows of 2.6 billion in the nine-month period, mostly from the private sector, despite client rates reaching near zero levels. Our capital position is robust and keeps improving as shown on slide 10, with set one and total capital ratios settling at 16.4 and 17% respectively. The completion of Frontier and Ethnic Insurance Day will increase our already best-in-class capital position by another two percentage points, rendering a total capital ratio of circa 19% well above our guidance for year-end 2022 capital levels. Now let's go through the key drivers of our improved profitability on slides 11 to 17. Domestic NII recovery accelerated in Q3. driving the nine-month period NII 5% higher year-on-year. This reflects the expansion of our performing loan book by a solid 0.8 billion year-on-year, as well as funding cost benefits from the repricing of deposits and the utilization of ECB's TLCRO facility. Encouragingly, loan NII remains resilient, driven by the rising performing balances offsetting the reduction in NPNII and the ongoing normalization of lending yields. Going into domestic loan evolution in more detail on slide 13, net loan disbursements for the period reached 2.8 billion in September 21, up by 18% year-on-year, excluding COVID-19 programs. Corporate net disbursements remained strong, amounting to 2.1 billion, while retail net disbursements surged by 36% year-on-year. As a result, Our performing book expanded by 0.8 billion year-on-year with corporate performing exposures rising by a billion or 7% over the same period. The growth momentum of our performing book gradually offset the impact from the , providing sustainable and long-term support to the net interest income. Moving on to slide 16, domestic fees increased by 5% quarter-on-quarter and 11% year-on-year. capitalizing on the economic growth in our transformation program initiatives. Growth was strong across all key areas. Retail up 8% year on year, corporate up 9%, and non-core banking fees up 35% year on year. The most notable recovery was witnessed in corporate lending fees at 24% year on year, as well as intermediation and digital fees in the retail business. reflects the successful shift of our clients to digital functionalities, facilitating the bank's transition into an efficient and more flexible operating model. Indeed, e-banking transactions surged by 24% year-on-year in Q321, replacing branch transactions that have declined by 44% year-on-year. Let me now turn to costs on slide 17. Building up on the stroke track record of the first half of the year, operating expenses were down by a solid 8% year-on-year in the nine-month period, further improving our cost-to-core income ratio by nearly 8 percentage points year-on-year to circa 50%. The key driver of this performance is the sharp reduction in personnel expenses by 15% year-on-year as the bank realizes the benefits of the 2020 VES, reducing the headcount by circa 800 employees. Upcoming targeted exit schemes driven by the optimization in our branch network operating model and footprint and further leveraging of our digital offering will allow us to fulfill our targets. Moving on to asset quality on slides 18 to 22, domestic NP is kept on a downward trend reaching 3.7 billion or just 1.1 billion net of provisions. Domestic NP ratio came 90 basis points lower quarter on quarter at 11.9% while coverage increased by further 370 basis points quarter-on-quarter, breaking the 70% balance. For Carrigan, the reduction year-to-date remains impressive. Curings cut a page in Q3 2021, reflecting increased mortgage restructurings in the respective period last year, while the flow of new defaults and redefaults remains broadly stable. Most importantly, the payment performance of ex-moratoria clients, nearly one year post-moratoria expiry, remains far better than expected, indicating a much lower COVID-19 impact than initially anticipated and provided for. As shown on slide 22, less than 4% of the ex-moratoria perimeter was in default as of November 21, while total loans onboarded to NBG step-up facilities remain low at just 0.3 billion. Turning to liquidity on slides 23 and 24, Domestic deposits increased by 13.5% or 5.9 billion year-on-year, reflecting strong inflows in savings accounts, with time deposit evolution remaining negative. Time deposit yields are down by 13 basis points year-to-date to 10 basis points, while new production comes in at just 7 basis points. So, to conclude, evidently we had a great run so far in the year. We have managed to grow our core operating profits by nearly 50% year-on-year, consistently over the quarters and across profitability lines, demonstrating we are well on track to deliver on our guidance for core operating profits of half a billion euros for 2022. Our improving profitability performance is complemented by the sustained balance sheet re-risking, with the remaining NP reduction entailing minimal execution risk and zero capital consumption safeguarded by our high coverage ratios and capital levels.