National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I am Yota Yokoro's call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the full year 2023 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, they 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 morning, everyone. Welcome to our fourth quarter 23 financial results call. I'm joined by Christos Christodoulou, Group CFO, Greg Papagioris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to I will begin with a brief overview of Greece's positive economic environment which has set the backdrop to a robust financial performance. Then I will turn to our financial results. So let's begin. Economic growth in Greece remained on a healthy trend in 2023 despite an unfavorable external environment with a broadly stagnant euro area, Greece's main trading partner, highly restrictive monetary conditions, and a tighter fiscal policy. In fact, GDP growth in Greece stood at 2% in 2023, despite the negative impact from natural disasters, especially in Q4, and continued to outperform the year area by a significant margin. I would like to point out a few notable economic developments. First, labor market trends remained strong, with employment up 1.5% for the full year 2023, reducing the unemployment rate to a 14-year low. while real wages were up about 2% year-on-year as well. The resulting increase in real disposable income supported private consumption and this in turn supported consumer lending. Higher disposable income and increased consumer confidence also led to demand for housing which due to the current demand-supply gap has pushed up residential real estate prices significantly as well as nascent mortgage demand. Second, On the corporate side, business profitability is at a 13-year high. The impressive improvements in Greek corporate competitiveness have driven exports to a level near 50% of GDP, with tourism experiencing a record year and goods exports continuing to gain market share in their key markets. Greek corporates see this economic conjuncture as an opportunity and are planning significant expansion projects leading to the observed strong corporate loan demand. Indeed, so do foreign investors, resulting in record inflows of FDI. Third, Greece recorded a large and expected primary budget surplus due to buoyant tax revenue, including successful efforts to curb tax evasion. While the current account deficit was reduced by more than one-third, with little need for external funding after accounting for FDI inflows and EU funds. In sum, The Greek economy is reaping the rewards for hard-won gains in competitiveness gained over a multi-year restructuring effort and ambitious reform agenda, as well as policy credibility. These developments, combined with a significant reduction in the debt-to-GDP ratio, unsurprisingly led to the upgrade of the Greek economy to investment grade in the second half of last year, which has made the economy even more attractive to foreign investors, and this can be observed in much higher liquidity in the stock market. Going forward, leading indicators confirm that 2022 trends are continuing in 2024. Thus, full-year 2024 GDP is projected to accelerate to about 2.5%, despite a still weak outlook for the year area and monetary policy remaining tight for most of the year. An additional boost to the economy will come from the delayed positive impact from the absorption of substantial RRI funds, which are just now beginning to hit the real economy. Now, let me turn to the full year results of the bank. In this positive economic environment, combined with the impressive accomplishments from our ambitious and still ongoing four-year transformation, as well as our inherent comparative advantages, the bank's performance has excelled. In fact, our full year 2023 financial results have outperformed, by a wide margin, our guidance which we had already revised up back in August 2023. In terms of profitability, we have delivered a full year 2023 core PAT of $1.2 billion, translating into a core return on tangible equity of over 18%, even before adjusting for significant capital buffers. This outcome is far above our guidance for a core return on tangible equity of over 15% for the full year 23. From an earnings per share perspective, we have produced an earnings per share of over 1.2 euros per share for full year 23, again significantly higher than the guidance. The drivers behind these strong results reside in all the key lines of our P&L. The strong performance of NII resulted from the stable positioning of our balance sheet to a rising rate environment, but also the excellent job in the disbursements by our first line, especially for corporate. Net credit growth was $1.3 billion for the year and occurred mainly in the second half of the year. The increase in activity, combined with an exceptional cross-selling effort to our customer base, led to an impressive income growth of 17% year-on-year on a like-for-like basis, with encouraging progress on wealth management. Operating expense discipline continued despite higher depreciation charges reflecting our ambitious IT and digital transformation, including the replacement of our core banking system. Indeed, our IT strategy has already started to deliver dividends in the form of improvements in efficiency, competitiveness, and customer service. It comprises a distinct competitive advantage for NBG. due for operating expenses that reflect the usual seasonality, which was accentuated by a bonus accrual that was approved late in the year. Cost of risk came in well inside our guidance of 80 base points as a result of low NPE formation trends, circa half the budget level for the year, and already high coverage levels on all three loan stages. Our strong possibility enhanced our capital buffers further in 2023 by a sizable 220 base points to 17.8%, following a provision for a dividend payout ratio of 30%, taken mostly in Q4. Our set one ratio is currently approximately 400 base points above our internal target of 14%. providing significant strategic flexibility, including with regards to shareholder remuneration. Going forward, we intend to keep leveraging the support of macro trends and a buoyant banking environment, as well as our inherent comparative advantages, including our transformation program, which is bringing rapid and efficient change to the bank. And here I'd like to note that on the domestic front, The numbers speak for our customer satisfaction and loyalty. We are the domestic champion by a wide margin. Based on our 2023 results and our new 2024-26 business plan, we will now provide new guidance to markets. You will find it on page 17 of the presentation. The main takeaway is that we expect to be able to enhance the high levels of profitability achieved in 2022 in 2023 despite the normalization of interest rates during the business plan horizon. We will thus continue to accumulate capital despite steadily improving dividend payout ratios toward European levels and thus have room to complement shareholders' returns with buybacks from the market. Turning to the specific targets. As regards profitability, we're targeting a core return on tangible equity adjusting for excess capital of over 18% for 2026. This solid return derives from a 2026 core PATH, profit after tax, of over 1.2 billion, which implies an earnings per share of more than 1.3 euros per share. Net interest income sustainability reflects a relatively resilient NIMH arising from our increased exposure to fixed rate assets. and substantial deposit hedges already in place, as well as strong net credit expansion of 7% per year on average. A successful strategy on fees is expected to deliver a high single-digit growth in every year over the next three years. Cost containment will continue to be a major pillar of our strategy, with OPEX growing annually in the low single digits despite the investments in technology and the rapid increase in activity. Finally, cost of risk will normalize to levels below 50 base points in 2026, as we expect NP formation in 2024 to remain at similarly low levels experienced in 2023 and normalize to even lower levels in 2025 and 2026. Thus, we expect our NP ratio to be below 3% in 2036. As a result, we anticipate organic capital generation for the three-year period to 2026 pre-dividend payments to well exceed 500 base points, providing us further optionality on strategic possibilities and shareholder remuneration. To close, I would like to emphasize once again that our strategy derives from one, our investment in technology, so as to rapidly distinguish ourselves for our agile and expeditious operations and superior customer experience, and two, our people, will continue to earn the trust of our clients by providing service excellence, thus being acknowledged as the bank of first choice. In this manner, NBG will remain a key driver for the economy's continued strong growth. And 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.

Thank you, Pablo. Let's move to the highlights of our profitability on slide 23. In Q4 of 2023, we generated a core profit after tax of $345 million at group level, leveraging on accelerated core income growth, contributing towards delivering a full year core path of $1.2 billion, two and a half times higher year on year. This translates into a core return on tangible equity of 18.3%, well above our full year target of over 15%. Main contributor to this competing performance was our strong NIII momentum, up by 65% year-on-year, driven by higher base rates, healthy loan expansion of $1.3 billion year-on-year, as well as an increased contribution from securities income, all pushing net interest margin higher to 303 basis points for the full year in line with our guidance. In Q4, the positive NIII momentum was sustained as shown on slide 28, up by 6% quarter-on-quarter. Higher average base rates, complemented by solid credit expansion of $0.9 billion in Q4, comfortably absorb the pick-up in deposit and wholesale funding costs. Loan pass-through rate reached 73%, underpinning a healthy lending spread normalization, while blended deposit data remain low at 11%, reflecting our strong and relatively stable core deposit base, comprising nearly 80% of our deposit stock. Time deposit costs in Euro terms stood at approximately 180 basis points in Q4, applying a beta of circa 48%. Complementary to NII, fees also picked up sharply in 2023, increasing by 10% year-on-year on a reported basis, post the measure acquiring consolidation impact. or 17% on a like-for-like basis as shown on slide 33. Key drivers to this performance were lending fees from both corporate and retail businesses, as well as card and trade finance-related fees. A big growth was complemented by increasing cross-selling of investment and insurance products, with the relevant fees increasing by more than 25% year-on-year. At the quarterly level, domestic fees increased by 15% quarter-on-quarter. a period of transformation continued unabated, producing impressive results, with e-banking transactions up by 17% year-on-year, driving total transactions 9% higher year-on-year. As regards OPEX, cost-disability continued, as you may see on slide 34, with transformation, especially digital, driving FT optimization. Personnel and G&A growth was kept well below inflation, allowing a full year 23 cost-to-core income ratio to settle at 31.6%. Personnel expenses increased by less than 3% year-on-year, reflecting the sectoral wage increases in variable pay, while the growth in GNAs settled at just 1% year-on-year. The increase in depreciation charges reflects the role of our strategic IT plan, spearheaded by the replacement of our core banking system, which is now only two years away from completion. Our ongoing IT and digital transformation enhances our operational efficiency, automates our processes, and significantly improves our commercial offerings. Now turning to the highlights of our balance sheet on slide 24, disbursements accelerated to $2.6 billion in 2023, dragging performing loans up by $1.3 billion year-on-year to $30.5 billion in line with our guidance. Corporate loan growth was driven mostly by SMEs, project finance, and shipping. While retail loans exhibited a stabilizing trend, our slightly leveraging in mortgages was partly upset by growth in S.B. and consumer loans. It is worth mentioning that in mortgages, we dispersed circa 0.4 billion in 2023, of which approximately 85% was in fixed-rate products. Along the same lines, our exposure in fixed-rate sovereign bonds has increased by about a billion and a half in Q4-23, adding to the structural cash position of the bank insulating us against the anticipated ECB rate reductions. On slide 26, the distinct strength of our balance sheet underpinned by our superior liquidity profile, our robust capital profits, along with our investments in IT infrastructure, comprise unique comparative advantages. With regards to liquidity, we are mostly funded by retail deposits, with deposits comprising 96% of our net funding. Domestic deposit growth continues strong, as shown in slides 31 and 32, up by $1.7 billion in 2023, reflecting written customer dynamics as corporate deposit flowdowns affected both liquidity and net loan expansion during the year. Importantly, our deposit mix allows for the lowest funding cost in the sector, with time deposits still comprising just 20% of our domestic stock. A strong liquidity profile is also manifested by our net cash position of $8 billion, a loan-to-deposit ratio of 58% and a liquidity coverage ratio of 262%. On asset quality on slides 35 and 36, our NPE stock declined by $0.5 billion year-on-year to $1.3 billion, or just $0.2 billion net of provisions, driven by inorganic actions and supported by net organic NPE flows of circa $0.2 billion, around half the levels we were expecting for the year. This allows our NP ratio to drop to 3.7%, with cash coverage at 88%. Our full-year cost of risk settled at 64 basis points, well inside our 80 basis points guidance, reflecting the favorable formation trends, and at the same time maintaining class-leading coverages across all states. Moving to capital on slide 25, our SED1 ratio increased by an impressive 220 basis points year-on-year, to 17.8% in 2023, with the total capital ratio settling at 20.2%. It should be highlighted that our capital ratios also include a dividend provision of 90 basis points, reflecting a 30% payout out of 2023 earnings. Moreover, including emerald resources and pro forma for our January senior preferred issuance of 600 million, our emerald ratio stands at 25.4%, already ahead of the January 2025 requirement of 25.3%, as shown on slide 32. On slides 39 to 43, we provide an update on ESG. In line with our strategy, we have committed to a set of ambitious 2030 targets for finite emissions, substantiating our net zero vision. These targets, together with the bank's own emissions reduction goal, are underpinned by business value creation initiatives for the climate and the environment, as well as by the enhancement of responsible internal practices. At the same time, we have strengthened our ESG governance across hierarchy levels and lines of defense. Our performance is recognized as reflected in our improving ESG ratings. 2023 has been an exceptional year for MBG, spearheaded by record core profitability and our performance over guidance by a wide margin. This performance comprises a strong foundation on which to build on towards delivering our ambitious financial targets for the next few years, attaining an impressive mid-teen steady state core eternal tangible equity. Leveraging Greece's growth momentum, our distinct comparative advantages, and leading strategic investments in IT infrastructure, we aspire to improve our full year 23 record high profitability to a core profit after tax above 1.2 billion in 2026, implying an EPS of over 1.3 euros per share, fully absorbing the anticipated benchmark rate normalization of approximately 175 basis points over the next two years. At that profitability rate, organic capital generation will continue strong. Adjusting for our internal Z1 target of 14%, we anticipate our core return on tangible equity to continue to exceed 18% in 2026. The key profitability contributor will remain our core income. with cost control and core normalization, keeping evolving in our setting map. As regards our core income dynamics, NII, the most important driver of our record high 2023 profitability, is expected to be maintained at nearly the 2023 levels, despite the gradual yet considerable benchmark rate reduction over the next three years, with NIM dropping to around 270 basis points by 2026, as we show on slide 17. The resilience in our NII is underpinned by healthy credit expansion of a 7% CAGR over 2024 to 2026, structural hedges, as well as investments in fixed rate assets, mitigating the rate normalization impact, as well as additional funding costs deriving from remaining M relationships. Credit expansion will be mostly driven by corporates, as shown on slide 19, anticipated to grow at a high single-digit CAGR over 2024 to 2026, with retail supporting growth from 2025 onwards on the part of continued high-economic growth and corporate profitability affecting positively household economics over time. On FIEN Commission's income, growth is expected in the high single-digit area every year until 2026 as we continue to capitalize new originations, trade finance dynamics, investment products, and bank assurances. Our large deposit client base can continuously improve in product and service offerings you can tell you what results already in 2023 indicated that there is ample growth potential in this space. Higher core income coupled with continued cost discipline aided by abating inflation accorded the increased depreciation charges arising from the rollout of our IT plan. Combining these elements, our cost to core income ratio is anticipated to remain at a steady state level of around 35%. As regards our cost of risk, it will continue normalizing reflecting controlled NP formation in 24, similar to 2023 levels, and material formation in 25 and 26, as the CEO already mentioned. In that light, and given the gradual workout of our residual NP exposure over the next three years, we anticipate the NP ratio to drop below the 3% by 2026. This will allow our cost of risk to drop below 50 basis points, providing further support to our profitability. Our solid organic capital generation will be driven by a strong co-profitability, comfortably accommodating the MVCH credit expansion. As shown more elaborately on slide 20, we anticipate our organic capital generation to exceed 500 basis points in the next three years, driving our set one ratio pre-dividends to over 23% in 2026, while dividend payouts, which could start off at 30% this year, are expected to gradually grow, converging to European average. These levels of capital, when compared to our internal target Z1 level of 14%, suggest more than 900 basis points of excess capital, providing solid flexibility as well as optionality in remunerating our shareholders to dividends, as well as complementary share buybacks. Summing up, following our robust financial performance throughout the year, underpinned by record high copropriability, high double-digit returns, and class-leading capital buffers, We are confident we can stay the course, sustaining the impressive track record, generating value and tangible returns for our shareholders within and beyond the horizon of the current business plan. And with that, let's now open the floor for questions.