National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I am Geli, your chorus call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the second quarter 2023 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 second quarter 2023 financial results call. I'm joined by Christos Christodoulou, Group CFO, and Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to question and answers. I will begin with a brief overview of Greece's economic prospects, a key driver of our performance. before I turn to our financial results in the second quarter. So let's begin. Economic activity in Greece remains resilient despite the slowdown in the Euro area, with leading indicators pointing to an acceleration in growth during the remainder of the year. Overall, full-year GDP growth should exceed 2.5%. The composition of growth is healthy, with the main drivers being both exports of goods and tourism services as well as fixed investment. The export performance reflects strong competitiveness as Greece keeps gaining export market share, while fixed investment reflects strong enterprise profits and buoyant real estate prices. Fixed investment will be buoyed by surging FDI, $6.5 billion in 2022 alone, and support from the RRF. These two funding sources have already created a strong pipeline of large investment projects. Regarding tourism, the recent forest fires, as abhorrent as they are, appear currently to have only a minor impact on tourism overall, and even in the local market of roads, this season has been hurt, hurt badly, but is far from over. The other main component of GDP growth, private consumption, remains solid despite the contractionary fiscal policy arising from the withdrawal of energy and other inflation support measures. This resilience reflects growing real disposable income, In equal parts employment and wages, which should accelerate further as inflation continues to decline at a faster than expected pace. Recall that headline CPI inflation currently stands near 2%. A final point on the macro, both our fiscal and current account balances are overperforming significantly versus expectations. Both important considerations for the imminent upgrading of the sovereign to investment rate The primary balance is heading for a surplus above 1.5% of GDP ahead of budget projections due to buoyant revenues. And the current account is down 2% of GDP in the first five months of the year versus a year earlier. In such a positive economic environment and supported by bank and state policies in place assisting the more vulnerable, our net NPE exposure has remained unchanged throughout the year at 0.3 billion. with a small pickup in mortgage arrears in the second quarter being the only sign of strain. In the event, the results so far are well inside our full year 23 NP formation guidance of $350 million. Once again, confirming the defensive nature of NVG's loan book. The other critical component of our balance sheet is our liquidity position, which remains a defining comparative advantage. It comprises a large and stable demand base, fueling a net cash position, which increased by a further $1 billion in the second quarter to near $7 billion. Regarding loan demand, corporate credit demand at the system level remained soft in the second quarter. Our domestic corporate performing loans were up by 8% year-on-year in the second quarter and nearly flat year-to-date. A positive sign is that repayments of working capital facilities from corporates with excess cash has slowed, has slowed markedly. Moreover, based on our strong pipeline of large corporate projects, we expect significantly stronger disbursement activity in the second half of the year, allowing us to meet our expectations for domestic loan additions of about one to one and a half million. Moving to the profitability performance, the combination of, first, the country's growth performance, second, the renewed political mandate for structural reforms, third, the unique strength of our balance sheet, among other positives, its response to raising rates, so-called positive NII beta, and fourth, our successful transformation program, which has made us more efficient and sales-oriented. These four have resulted in a strong set of second quarter results, outperforming our targets on all fronts. Specifically, our first half-23 core PAC exceeded half a billion, up by more than three and a half times year-on-year, reflecting strong core income growth, contained operating costs, as well as a continued containment of the cost of risk. Altogether, they drove our cost to core income to a low of 32% and our core return on tangible equity to above 16%, well above the target of 11% that we had for the full year of 23. The strong results on the profitability front result in capital generation at a pace of over 80 base points per quarter during the first half of 23, adding 160 base points of core capital since the beginning of the year. This has pushed our set one ratio to be best in class and reached 17.3%. The solid results in the stress test where NBG's performance was in bucket one should lead to lower regulatory capital requirements. In view of the sustainability of the core income improvement, we are proceeding to revise our guidance for 2023. Specifically, We are raising our return on tangible equity target by four percentage points to be to exceed 15%. This target assumes that ECB rates peak near the current 375 base points, leading our name to slightly exceed 300 base points and our cost to core income to remain inside the 35% mark for 2023. More importantly, We expect much of this good financial performance to be sustainable to 2025. The two main factors are, first, the reduction in the ECB DFR rate, deposit rate facility, will be gradual and constitute a reversion to a long-term sustainable equilibrium on our estimates of about 250 base points. Second, loan volume effects. An estimated compounded annual growth rate of 7% should offset a large part of the impact of the base rate decline, while our faster than previously anticipated capital buildup is likely to reduce Emerald costs through lower issuance. As a result, we guide for a core return on tangible equity of over 13% for 2025, also considerably higher than our previous guidance. The capital generated through the three-year period to 2025 is anticipated to exceed 450 base points versus our previous guidance of 350 before shareholder remuneration is factored in. In view of our solid results and their sustainability going forward, I am quite confident regarding our ability to remunerate shareholders going forward. With that, I would like to pass the floor to our group CFO, Christos, who will provide additional insight to our financial performance before we turn to Q&A. Christos.

Thank you, Pablo. Let me begin with the highlights of our profitability on slide 16.