National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I'm Poppy, your course call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the second quarter 2022 financial results. All participants will be in a 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 second quarter financial results call. I'm joined by Fyssos Kistadoulou, the group's CFO, and Greg Papagregoris, group head of IRR. After my introductory remarks, Christos, we'll go into more detail on our financial performance, and then we'll go to Q&A. I will begin with a slightly longer than usual description of Greece's economic developments and prospects in view of the high uncertainty created by the current turbulent environment, and then I will turn to the financial performance. Despite the gloom, I am cautiously optimistic that the Greek economy will outperform most of its European peers. Let me explain why. First, the energy dependence of the Greek economy in Russia is relatively low and will be replaced by alternative sources. Specifically, natural gas comprises less than 20% of final energy consumption, of which 35% is from Russia. The rest is sourced from LNG, 45%, and the TAP pipeline from Azerbaijan, 20%. The amount coming from Russia, around 8% of final energy consumption, is mainly used for electricity production. Greece plans to replace Russian gas by one and increase the contribution of lignite-powered power plants from 5% to 10% of total energy consumption. A switch of a number of electricity generation plants from using gas to oil and three lower gas use in industry as committed to the EC, European communities. Second, though energy access risk appears to be minimized, energy price risk remains high but manageable. Specifically, the reduction in real disposable income from higher inflation has been to a large extent offset by fiscal measures. Specifically, any energy-related fiscal measures targeting mostly low-income households are expected to exceed $6.5 billion in fiscal year 2022. Out of a total package of fiscal measures equivalent to greater than $8 billion, which would address the impact of inflation. And this amount could rise further still. Our estimates are that these will offset approximately two-thirds of the direct energy hit to these households, thus dampening the impact on consumption. Further support to real disposable income will come from surprisingly strong employment growth, estimated to be 4.5% at fiscal year 2022, it is 10% in five months 2022, combined with wage increases of around 3% on average for the private sector, including nearly a 10% increase in the minimum wage. These should offset higher food costs and residual energy costs not covered by the fiscal measures previously described. In fact, real disposable income may not suffer a meaningful decline in fiscal year 2022, although some downside risks exist for 2023 if the energy crisis is prolonged and greater than expected. A strong economic backup includes an outstanding tourist season. It is called revenge tourism. We are experiencing near peak levels of arrivals combined with a strong positive terms of trade impact for much higher spend per head, estimated at about 15 to 20% year on year. Indeed, The tourism sector will enjoy its best year ever. In addition, enterprise profitability was up 15% year-on-year in the first quarter, and it's at a 10-year high, suggesting a large capacity to absorb higher input costs. In fact, a nominal increase in profits over the 2019 level exceeds the estimated hit from higher energy costs. In addition, business turnover continues to outpace 2019 levels by significant margins, 26% higher in 2022 versus the first five months of 2019, and this excludes energy-related activities. All in all, GDP is expected to increase by 4% to 5% in 2022, while the projections for 2023 have a wider range around the midpoint of 3%, between 1.5% and 4%. This greater resilience versus European peers also reflects the fact that one, the Greek economy is in a very different phase of the economic cycle, coming off an extensive period of destruction which eliminated players. Second, collateral values, mainly real estate, are still undervalued. Following the 60% drop in prices during the economic crisis, they are on a steady growth path, increasing by almost 9% year on year in the first quarter.

Third,