National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the first quarter 2024 financial results. All participants are 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 morning, everyone. Welcome to our first quarter 2024 financial results call. I'm joined by Christos Christodoulou, Group CFO, Greg Papagrigoris, Group IR. After my introductory remarks, Christos will go into more detail. on our financial performance, and then we will turn to Q&A. Let me begin with an overview of Greece's economic environment, which provides a consistently positive backdrop to our strong and sustainable financial performance. Then I will turn to the key highlights of our financial results. So let's begin. Economic activity in Greece since the beginning of the year shows signs of acceleration. bouncing back from the temporary slowdown of the second half of 2023 induced by the floods. In fact, in the first quarter of 2024, most leading and conjunctural indicators have improved versus the fourth quarter. Specifically, employment growth has accelerated to over 2% so far in the first quarter of 2024 from about half that rate in the fourth quarter of 2023. And combined with real wage growth of 2% to 2.5% results in very healthy increases in disposable income. Business turnover, excluding the energy sector, accelerated to nearly 11% in the first quarter, indicating strong corporate profitability. Tighter capacity utilization rates and buoyant government investment point to a significant pickup in fixed investment. Exports climbed to new highs on the service side, with tourism revenues and arrivals up in the high teens year-on-year in the first few months, while export orders climbed to multi-month highs in March 2024. Indeed, manufacturing volumes have gathered pace, 3.5% in the first quarter so far. Last but not least, Greece's fiscal discipline continues, evidenced by a primary surplus of 1.9% of GDP in 2023 versus a target of 1.1%. already near the 2024 target of 2%. Looking forward, supportive credit conditions and normalizing interest rates combined with the impact of the RRF facility, the bulk of the spending of which is ahead of us as currently only 20% has been spent in the economy, will allow Greece to continue to close the investment and employment gap with the euro area. This will result in sustained strong GDP growth rates Our estimate is 2.5% in 2024 and at similar healthy rates in subsequent years. Now let me turn to the first quarter results of the bank. In this positive economic environment, combined with the accomplishments from our ambitious and still ongoing five-year transformation, as well as NBG's inherent comparative advantages, notably our balance sheet strength and the trust of our customers as the bank of choice, The bank's performance has continued to be quite positive. In terms of profitability, we have delivered a first quarter group core profit after tax of $320 million against guidance for a full year core profit of $1.2 billion. Our typical profit after tax was even higher at $360 million. This performance implies a core return on tangible equity of 17.6%, compared with our guidance for over 15% for the full year 2024. Among the key highlights of the quarter, which Christos will analyze in more detail, is the small drop in our NII relative to the fourth quarter of 2023, which only reflects hedging costs as well as additional MREL issuance. It is important to note that the increase in loan NII continues to appease that of deposit NII. corporate net credit expansion in the first quarter has been sluggish due to seasonality as well as continued cash management optimization by Greek corporates, especially some of the larger ones. However, disbursements have picked up sharply in March and April, with our April disbursements nearly matching those of the entire first quarter. Moreover, corporate credit approvals outstanding, but expected to be dispersed as the projects are executed approached that $3 billion mark over and above April's disbursements. Also noteworthy, disbursements in the retail portfolio accelerated in the first quarter more than 30% year-on-year and matched repayments for the first time in many years, despite the headwinds from an old vintage mortgage book. As a result, we stand by our guidance for a net loan expansion similar to 2023. Other key highlights of the first quarter results are the impressive growth in fees, up by 15% year-on-year, as well as the ongoing gradual normalization in the cost of risk as formation continues not to be significant year-to-date. Our sustained high profitability further enhanced our capital buffers, with our set-one ratio rising by 80 basis points quarter-on-quarter to 18.6%, after netting off the quarterly dividend provision. Our set one ratio currently far exceeds our internal targets of around 14%, which enhances our strategic flexibility, including with regards to shareholder remuneration. On that note, we expect the SSM to respond to our request for a dividend by the beginning of June. Please bear with us a bit longer, and we'll receive an unqualified answer soon. Turning to liquidity, despite our full repayment of the LTRO, the corporate loan repayment, and the switched mutual funds, our excess cash position increased and stands at over $9 billion. I'm sure you saw yesterday's announcement by DBRS regarding the rating upgrade of NBG to investment-grade status, basing their decision on the strength of our balance sheet and our sustained high profitability. Certainly a testament to our successful transformation and strategy execution. As a result, after nearly 15 years since the outset of the Greek financial crisis, NBG is rated once again pari passu with the Greek sovereign. Looking forward, our results will reflect the support of macro trends in a buoyant banking environment, as well as our inherent comparative advantages, including our transformation program, which is bringing rapid and efficient change, most notably in technology. The decision to invest early and heavily in technology has been distinguished from us already on digital banking and the concomitant superior customer experience, but gradually and steadily also on our agility and innovation. With that, I would like to pass the floor to our group C4 Christos, who will provide additional insight to our financial performance before we turn to Q&A. Christos. Thank you, Pablo.

Let's start with the profitability highlights on slide 15. A core profit after tax increased by 45% year-on-year in Q1-24, driving attributable profit after tax to $358 million, nearly 40% higher year-on-year and 14% higher quarter-on-quarter. This translated into a return on tangible equity of 17.6%, equivalent to 19.7% on an attributable part basis, before adjusting for excess capital. The year-on-year momentum in coprofilability was driven by higher NII, up 22% year-on-year, strong fees, up by 15% year-on-year, with operating expenses kept under control in the low single digits on a like-for-like basis, and our cost of risk steadily normalizing to 55 basis points in Q124, well inside our guidance for the full year. Going into more details, Our net interest income on a quarterly basis remained above the $600 million mark, just off the Q4-23 peak, with NIM at 326 basis points, despite the negative impact from the hedging costs on demand deposits, higher volume-driven wholesale funding costs, and the calendar phase effect, all of which were partially absorbed by growth in lending NII, as shown on slide 20. The words providing support to our NII were an easy-to-be-read start to come off, Apart from putting in place structural changes, we have also gradually increased our exposure and fixed rate assets. In the meantime, the healthy lending spread normalization we have seen has been in line with our expectations, implying a loan pass rate of circa 70%, while our strong and stable core deposit base, comprising nearly 80% of our deposit stock, has kept our blended deposit beta low at 12%. time deposit in Euro terms came in at 195 basis points in Q1, implying a beta of circa 50% in line with our guidance. As regards fee income, the positive momentum has been maintained, with our fees higher by 15% year-on-year, following a seasonally strong Q4. As shown on slide 25, main contributors to this performance were our retail fees, witnessing double-digit growth across products While corporate fees were also positive, yet affected by seasonality in Q1, already looking much stronger in Q2 on the part of accelerating originations and the pick-up in economic activity. The most notable contributions within the retail business were investment products, up by 38% year-on-year, driven by increased financial activity and higher mutual fund volumes, showcasing a successful effort to cross-sell, with lending fees also having a strong performance, up by 30% year-on-year. Moreover, our digital transformation continues strong, producing consistent results, with e-banking transactions up by 26% year-on-year and total customer transactions higher by 15% year-on-year. Cost discipline continues, allowing our cost-to-core income ratio to drop below the 30% mark, well inside our full year 24 target. On a life-for-life basis, Adjusting for the base effect from variable remuneration built up in the second half of 2023 versus evenly over 2024, recurring operating expenses were up by just 3% year-on-year after factoring in the union-agreed wage rises in December 2023, as seen on slide 26. Our ongoing IT and digital transformation continues strong, enhancing our operational efficiency and further improving our commercial offering. Now let me give you a review of the highlights of our balance sheet summarized on slide 16. Loan expansion stood at 1.1 billion year-on-year to over 30 billion of performing loans, mostly driven by corporates. Retail disbursements have cut its pace in Q124 to 0.4 billion, up by 32% year-on-year, driven by ESBs and consumer loans, while repayments were fully absorbed across all lines of business for the first time in many years as the CEO said. Corporate disbursements have recovered strongly in March-April, while the approved non-jet disbursed pipeline currently stands at nearly $3 billion, providing comfort to our full-year 24-grade expansion target. Domestic deposits were affected by Q1 seasonality, as well as cash management optimization by large corporates, while retail deposits were fairly stable, despite the small shift of depositors to asset management products. Our progress balance sheet on slide 18 is characterized by our best-in-class liquidity and capital profile, with the latter underpinned by a continuous organic capital filter. Both our balance sheet superiority and our solid and sustainable co-profitability dynamics have been officially acknowledged yesterday, allowing us to become the first Greek bank to regain investment-grade status after nearly 15 years, ranking Paris-Passou with the Greek sovereign. With regards to liquidity, We are also the first bank in Greece to fully repay our TLTRO exposure in Q1-24, while our net cash position increased further to over $9 billion, steadily at the high end of the sector. With deposits comprising circa 95% of our funding, we remain the lowest funding cost in Greece, with our loan-to-deposit and liquidity recovery ratio standing at 60% and 250% respectively. Turning to asset quality on slides 27 to 29, in Q1, net NP flows were practically nil when inside our guidance, allowing cost of risk to normalize further with our domestic NPs net of provisions close to zero. NP cash coverage stood at 86%, with our coverage across all three stages being at the high end of the European bank's spectrum, as shown on slide 29. Moving to capital on slide 17, Our impressive capital generation in 2023 continued in Q1-24, fueled by strong profitability. Our SED-1 ratio stood 80 basis points higher quarter-on-quarter at 18.6%, with the total capital ratio at 21.3% after factoring in dividend accrual for next year's payout. Moreover, our MRL ratio settled at 26.5%, exceeding the January 25 requirement of 25.3% by more than 120 pages. On slide 31 and 32, we provide a snapshot of our key ESG priorities. We remain committed to our ambitious net zero targets underpinned by our climate and environmental strategy, while we have also launched flagship social initiatives, including on financial literacy and inclusion. In sustainable energy, we recently co-signed a milestone deal to finance the construction of four photovoltaic projects of 730 megawatts in store capacity under the green pillar of the RRF. While earlier this month, we entered in a strategic partnership with a public power company for the offering of home energy upgrade loans. Summing up, our solid core profitability momentum was maintained in Q1 as we continue to capitalize on the distinct strengths of our partnership as well as our successful operational and digital transformation. All profitability is on a strong and sustainable path, further increasing our capital profits, translating into a return on tangible equity of circa 18%, indicating that we are well on track to sustain high returns and keep generating share of the value. Testament to these efforts and our results, MBG has become the first Greek bank to have retained investment grade post the Greek financial crisis. And with that, let's now open the floor to questions.