National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your chorus call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the full year 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 fiscal year 21 financial results call. I'm joined by Christos Christodoulou, Group CFO, and Greg Pavarigouris, 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. I will begin with a brief overview of Greece's economy in view of the high uncertainty in the current global conjuncture. and their relevance for the future performance of NVG. Let me begin by saying that Greece's economy performed much better than expected in 2021, especially in the second half of the year, recovering strongly from the COVID-dead impact of 2020 in the first half of 2021. Indeed, the economy has already exceeded pre-COVID levels in Q4 2021, led by exports and fixed investment. and this despite tourism receipts in 2021 at 60% of their record 2019 level. Job creation was strong, with unemployment declining to 12.8%, the lowest level since over a decade ago. Private sector firms have strong balance sheets and profitability, reflecting years of crisis-hardened restructuring and their concomitant improved competitiveness. These developments are reflected in a fiscal outcome that is expected to be about 1.5 to 2 percentage points of GDP better than budgeted and a debt-to-GDP ratio that is estimated to have declined by about 14% of GDP in just one year, albeit remaining at high levels. The strong momentum of the economy and its solid fundamentals will prove very useful in the new challenge to absorb the commodity-induced spike in inflation, combining COVID-related supply chain disruptions with Russia's invasion of the Ukraine. The main transmission mechanism of this shock to the economy is a reduction in household disposable income and a rise in firms' input costs. As a result of this supply shock, GDP growth in 2022 should be negatively affected but soon recover with cumulative growth over the next two years not expected to deviate significantly from the previous forecast. Indeed, the ECB's new macro forecast suggests only a 0.2 percentage point reduction in annual average GDP growth over the three-year period 2022-2024. Greece's exposure to Russian energy supply is moderate, with only 15% of domestic energy consumption Russia sourced. specifically only one-third of imported natural gas from Russia the rest is sourced from Azerbaijan and through LNG contracts mainly with the USA and Algeria furthermore only one-fifth of crude oil imports are sourced from Russia and recall that over 30 percent of Greece's electricity consumption comes from domestic renewable sources including all the above internally we also project small deviations in activity in Greece for the three-year period 22-24 versus the pre-crisis one. Admittedly, these projections keep bouncing around in view of the high uncertainty toward events. Thus, in view of the economy's expected ability to broadly absorb the energy price shock, the likelihood of a new cycle of NPEs is low, especially in view of the recently announced government support programs for the most vulnerable households and firms estimated to be around 2% to 2.5% of GDP in total for 2022. According to NBG's exposure to Russia and Ukraine, let me say that it is immaterial, practically nonexistent. Neither sanctions nor the war should have any meaningful direct impact on our business. And with this, relatively longer than usual, but I believe necessary foray into the economic backdrop to our operations, which are almost uniquely Greek-based that has turned to banking and NBG. In 2021, NBG achieved decisive results arising from a multi-year transformation effort. Capitalizing on Greece's strong economic recovery, we have delivered one, strong organic profitability, two, an ambitious NP cleanup, and three, a growing and well-capitalized balance sheet. Underpinned by the rapid change towards a more flexible, and efficient operating model. Let us start from the balance sheet and specifically asset quality. In 2021, we reduced NPEs below the psychologically important 10% mark, specifically to 7% of the group and 6.9% domestically. This was achieved with a conclusion of the frontier transaction as well as continuous and solid negative organic formation despite the end of the moratorium and the government support programs. In nominal terms, the level of MPEs stand at 2.1 billion and only half a billion net of cash provisions. The frontier transaction in the health for sale portfolio is expected to complete before summer. Today, we are far cry from the 22 billion MPEs of 2015, 12 billion net of provisions. and this workout was achieved without the necessity to raise equity capital in any way or form. Turning to the other key components of the balance sheet, capital, NBG will soon be looking at a set one capital ratio that is above 18% and a total capital ratio near 19%. Specifically, at year end 2021, the set one ratio stood at 16.9%, and will be boosted by the closing of the ethnic key insurance transaction in the next few weeks as significant progress has been made on regulatory approvals. The critical DG Comp approval was granted on February 25th and without the need for any remedies. Additionally, the closure of the JV transaction of EVO payments expected in Q4 will provide a further 70 base point impetus to capital. That being said, the 5149 joint venture with EGO is not about raising capital. It is a first step in a strategy to form strategic partnerships with mostly digital and tech players, and thus to leverage on the concomitant synergies and advance our product and service offerings to match the increasingly exacting demands of our clients. As I believe doubts have been dispelled regarding the completion of NP cleanup and the adequacy of our capital, attention turns to the ability to accelerate the generation of sustainable organic profitability. In this area as well, NBG achieved significant progress in 2021. In fact, our core operating profit rose to $450 million, up 40% year-on-year, equivalent to circa 8% of tangible equity, delivering 70 base points of organic capital creation in 2021. after accounting for 50 base points from the committed RWA expansion arising from the growth of our performing loan book. Notable improvements occurred across all core P&L lines comprising core profitability. First, NII remained resilient despite competition-induced spread compression and the loss of $30 billion of NPE interest. This was achieved through loan expansion in the performing book of $1.4 billion once again the highest in domestic market, emanating from the 5 billion loan disbursements. Encouragingly, the corporate market, which has been buoyant for the past several years, is now also joined by a reviving retail market. Fees have had a remarkable strong year, up 10% with cross-selling efforts and digital banking reinforcing fees from increased loan penetration. This P&L line has significant room to continue to grow based on international benchmarks, especially in investment products, bank assurance, and investment banking services.