National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I am Mina, your chorus call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the second quarter 2024 financial results. At this time, I would like to turn the conference over to Mr. Pablos Milonas, CEO of National Bank of Greece. Mr. Milonas, you may now proceed.

Good morning, everyone. Welcome to our second quarter 2024 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 Q&A. Let me start by providing a brief overview of Greece's economic developments and outlook. During the first half of 2024, the Greek economy has remained on a solid footing, with growth spearheaded by a strong tourism and supported by resilient domestic demand. Specifically, Greece's GDP growth accelerated in the first quarter to over 2%, recovering strongly from the slowdown witnessed in late 2023 due to the floods. Let me describe some of the key factors driving activity. strengthened fixed capital formation, up by 9% year-on-year as regards the corporate sector, to a total of 14.8% of GDP on an annualized basis. Moreover, foreign investors' interest in the country remains high, with FDI heading for another strong year, following approximately $20 billion of inward FDI during the past three years. FDI is attracted by political stability, and solid economic fundamentals including a primary budget surplus of 2% of GDP. Such strong investment prospects point to continued robust demand for corporate loans. Second, support from private consumption due to a further improvement in the labor market comprising both employment growth of 2.5% approximately as well as rising employee compensation in real terms, 2.5% as well. Third, the residential real estate market remains buoyant with price increases of over 10% so far this year. The growth momentum in real estate prices is expected to continue in the medium term in view of the sustained supply store shortages combined with rising demand for residential real estate. The labor market and the real estate market together should support household loan demand going forward. Fourth, the tourist season is expected to break all records with annual revenue at $23 billion and arrivals increasing at a double-digit pace for a fourth consecutive year. Fifth, leading indicators point to a further strengthening in business and investment activity. Of special note, economic sentiment has edged up to a two-year high, and capacity utilization rates, which bode well for investment, are at multi-year highs. Overall, we expect GDP growth to be near 2.5% in 2024. Now let me turn to the first half of 2024 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 the inherent comparative advantages of our balance sheet and our technology, the Bank's performance has continued to perform well across all key metrics. In terms of profitability, we have delivered a first-half group Core PAT of $646 million, up 27% year-on-year, comparing very favorably with our full-year 2024 Initial Core Profit Guidance of $1.2 billion. In fact, our second quarter 2024 Core PAT was slightly higher than the first quarter, despite lower rates. This performance implies a core ROTE of 17.4% compared with our initial guidance for over 15% for the full year 2024. Among the key highlights of the quarter, which Christos will analyze in more detail shortly, NII normalization continued at a pace similar to the one in the first quarter, minus 3% Q&Q in both quarters. Important to note are the following. Drags on NII with a hedging cost of carry, which was carried in full in the second quarter, as was the full cost of the MRL issuances of the first quarter. More importantly, loan NII increased despite the negative impact of lower market interest rates, as this was offset by the impact from strong credit expansion. In fact, loan disbursements reached $2.8 billion in the second quarter, which is a multi-year record quarterly high. As a result, our performing loan book increased by a solid $1.1 billion in the second quarter. Other key highlights of our second quarter 2024 results are 1. The sustained double-digit growth in fees, up by 15% year-on-year. 2. The containment of our recurring operating costs to low single digits. And three, our cost of risk, which continues to decline, reaching 55 base points with little new gross formation flat on a net basis. Our sustained high profitability further enhanced our capital buffers, with our set one rising by 100 base points a year to date before dividend accrual for a 40% payout from this year's earnings to be paid in 2025. Our SET1 ratio at 18.3% is currently 450 base points approximately above our internal target of 14%, enhancing our strategic flexibility, including with regards to increasing shareholder remuneration. Turning to liquidity, our net cash position remained above $9 billion in June, despite the large net loan expansion, as well as the broadening shift towards mutual funds. In fact, we experienced a sizable increase in our deposits during the quarter, with a bulk of the increase comprising core deposits. The latter rose by a solid $1.3 billion quarter-on-quarter, leading to an improvement in our core to total deposit mix to close to 80% at the end of the second quarter. All these positive results continue to be recognized by rating agencies, and in early July, Moody's proceeded with a two-notch upgrade of the senior rating of NBG, now standing one notch above investment grade. Our strong first half 2024 financial results have prompted us to upgrade our full year 2024 guidance. We now expect our full year 2024 NII to exceed slightly the full year 2023 record level, reflecting a more gradual benchmark rate normalization, as well as stronger credit growth circa 1.5 billion for the full year is a new guidance up from 1.2 billion previously our confidence on delivering the revised credit growth target rests on the solid performance in the second quarter as well as on a strong corporate production pipeline i.e. approved but not yet dispersed loans which stands at approximately 2.5 billion fee growth will remain strong, while cost of risk, also positively revised, is now seen below 60 base points for full year 2024. Chiefly due to improved NII dynamics, core PAT and core return on tangible equity guidance for full year 2024 have been revised upwards to $1.3 billion and circa greater than 16%. respectively. Looking forward, our results will continue to reflect the support of macro trends and a buoyant banking environment, as well as our inherent comparative advantages. These include our transformation program, which is bringing rapid, efficient, and innovative change, most notably to our technology. In fact, our step change in technology has improved our agility and is a factor that distinguishes us. 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, the floor to you. Thank you, Pablo.

Let's start with profitability on slide 10. At age 124, core profit after tax reached 646 million, up by 27% year-on-year, implying an EPS of 1.4 euros per share, and a core return on tangible equity of 17.4% before adjusting for excess capital. The positive momentum in H1 profitability reflects core income strength driven by NII resilience up 13% year-on-year and impressive growth in fees up 15% year-on-year supported by cost discipline and a normalizing cost of risk on the part of favorable asset quality trends. Going into more detail, our Q2 NII continues to leverage a more gradual interest rate normalization path, as shown on slide 15, with quarterly reductions sustained in the low single-digit area on the path of low NII benefiting from strong disbursements in Q2, which reached a multi-year quarterly high of 2.8 billion. The accelerated trade expansion offsets the mild rate impact due to lower URIBO rates, partially absorbing the full impact of the hedging costs on deposits, as well as higher volume-driven emerald costs. At the same time, lending spread normalization continues at a low pace, with corporate spreads nearly flat year-to-date. Our deposit mix shifted closer to 80% in favor of core deposits in Q2, supporting our funding costs and NIM. Furthermore, time deposit repricing has abated, with yields in euro terms coming in at circa 200 basis points in Q2, implying a better of circa 50%. On a first half basis, NII reached 1.2 billion, with NIM at 323 basis points, well above our previous full year 24 target of less than 290 basis points, prompting us to upgrade guidance to over 300 basis points. Going forward, our upgraded net credit expansion, our increased exposure in fixed rate assets, and the reduction of hedging costs as ECB rates gradually come off are anticipated to offset the impact of lower rates on our NII. Complementing our resilient NII, net fees continued on a double-digit growth path, up 15% year-on-year and 6% quarter-on-quarter, driving fees over assets up nearly 10 basis points year-on-year to 0.6% in H1-24. As shown on slide 20, This was supported by retail fees increasing by 14% year-on-year on double-digit growth across products, with the most notable movements witnessed in investment products up 36% year-on-year, and bank assurance up 27% year-on-year. Retail lending fees are up by 30% year-on-year, benefiting from higher new production volumes, while corporate fees increase by 10% year-on-year, also driven by loan origination. Meanwhile, Transactions to e-banking channels were up 22% year-on-year in Q2, testament to the quality of our digital offering, driving total transactions 10% higher year-on-year. Moving to costs on slide 21, adjusting for the base effect from variable remuneration accounted for in the second half of last year versus evenly in 2024. Expenses were contained in H124, increasing by just 3.6% year-on-year. allowing our cost-to-core income ratio to remain low and well inside our upgraded full-year 24 target of less than 33%. The major increase in costs reflects the collectively agreed wage rises of last December, the impact from inflation, and the bank's strategic investment in IT infrastructure and digitization, which is already enhancing our operational efficiency and significantly improving our commercial offering and customer experience. Now let me walk you through our balance sheet highlights, summarized on slide 11. Loan disbursements, mostly driven by corporate, accelerated to 2.8 billion in Q2, driving group performing loans up by 2.4 billion year-on-year and 0.9 billion year-to-date to 31.4 billion, with retail also maintaining the positive Q1 momentum. Disbursements were spread across all segments, indicative of our diversified approach and market appetite. A strong pipeline provides confidence for the attainment of our upgraded loan expansion target of circa $1.5 billion for 2024. With regards to liquidity, our net cash position increased by $1.1 billion year-to-date to $9.1 billion, standing at the high end of the sector even post the full repayment of our TLTRO exposure in March, providing ongoing support to our NII and NIF. Deposits in Q2 reversed Q1 seasonality, with balances ending up near the flat year-to-date, increasing by a solid 1.4 billion year-on-year due to court deposit inflows from retail customers. Our loan-to-deposit and liquidity coverage ratios stood at 60% and 240% respectively, ranking at the high end amongst European peers. Finally, our liquidity profile entails a total funding cost of just 77 basis points, supported by deposits which comprise 95% of our total funds. Turning to asset quality on slides 22 to 24, group NP stock declined further to $1.2 billion in Q2, just $0.2 billion net of provisions, with insignificant organic formation leading to a normalizing cost of risk of 55 basis points in H1 versus 68 basis points a year ago. Our NP ratio stood at 3.3%. lower by 40 basis points quarter-on-quarter, with cash coverage at 86% and coverage across all three stages because being at the high end of the European bank's spectrum. Regarding capital, on slide 12, our strong H1 profitability drove our class-leading SED-1 ratio higher by 100 basis points year-to-date, or plus 50 basis points post-dividend accruance at 18.3%, with total capital ratio coming in at 20.9% and our emerald ratio settling at 25.9%, already exceeding the January 25 requirement of 25.3%. Following the 30% dividend payout in 2024, we have increased our dividend accruals in H-124 to reflect a target payout of 40% in 2025 out of 2024 profits. Our balance sheet superiority, as depicted on slide 13, underpinned by our leading liquidity and cabial profile, complemented by sustainable profitability, led Moody's recently to upgrade our rating by two notches to BBB, one notch above investment grade, following the DPRS upgrade to investment grade status in April. On slides 32 to 34, we provide a snapshot of our CSG priorities. We lead the market in sustainable energy financing, accelerating the transition to a sustainable economy, while our ambitious emission targets substantiate our net-zero commitment. We continue to receive broad recognition for our ESG activity and practices, recently achieving further upgrades from ISS and sustainability. A strong outperformance in the first half of 2024, coupled with the extended interest rate normalization horizon, describing an upward revision of our core return on tangible equity guidance for 2024 to over 16% versus 15% previously, with our core profit after tax now expected at circa 1.3 billion versus 1.2 billion before, as shown on slide 39. This translates into a higher EPS of circa 1.4 euros per share from 1.2 euros before. The key driver behind revising upwards our co-profitability guidance is the strength in our core income, which is now seen higher in 2024, despite attaining record high levels in 2023, leveraging NII strength and sustained momentum in fees. With regards to NII, it is now expected to edge marginally higher versus the 2023 record levels, despite lowering base rates, thus driving a 2024 NIM above 300 basis points versus the initial guidance of less than 290 basis points. The NII trajectory is supported by stronger loan growth, fueled by healthy corporate pipeline, allowing us to upgrade our 2024 loan expansion target to circa $1.5 billion versus $1.2 billion previously. Fees so far also outperform our initial expectations. leveraging the sharp pickup in loan origination, as well as the accelerating cross-sell of investment and bank assurance products. This momentum is testament to the success of our strategic direction to enhance the bank's fee-generating capacity via improved product and service offerings and digital channel leverage. We maintain our guidance for the high single-digit increase for this year with upside risk potential. Core income growth and continued cost discipline should allow our cost-to-core income ratio to remain below the 33% mark in 2024. Furthermore, we now anticipate our cost of risk to remain below 60 basis points, providing further cushion to our profitability and returns targets. Favorable asset quality trends year-to-date allow a revised 2024 NP ratio target of circa 3% versus 3.5% initially. Looking into the medium term, our 2026 core profit after tax target is revised higher to over 1.3 billion from over 1.2 billion initially, implying an EPS above 1.4 euros per share. Our NIM expectation is now in excess of 270 basis points compared to less than 270 basis points previously, mostly due to more favorable benchmark rates. Adjusting for excess capital defined over our internal Z1 target of 14%, normalized core internal tangible equity for 2026 is expected to exceed 18%. At this profitability rate, capital generation will continue strong, exceeding 500 basis points until 2026, driving our Z1 ratio pre-dividends to over 23%, as shown on slide 42. This level of capital against the 14% Z1 internal target level enticed more than 900 basis points of excess, providing, amongst other things, strategic flexibility as regards shareholders' remuneration. NBG delivered a solid financial performance in H1 that exceeded expectations, triggering guidance upgrades across key performance indicators. Our financial results are testament to the hard work and commitment of our team, as well as of the change momentum of the bank. As we move forward, we are confident in our ability to continue generating value for our shareholders, efficiently utilizing our class-leading levels of capital. And with that, let's now open the floor to questions.