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 second quarter 2025 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 morning, everyone. Welcome to our second quarter 2025 financial results call. I'm joined by Christos Christodoulou, the group CFO, Greg Papadouris, group head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we'll turn to Q&A. As usual, and before I turn to our second quarter financial results, I will briefly refer to Greece's sustained economic resilience, which requires increased significance in the current turbulent external environment. The main takeaway is that Greece's economy remains on a steady growth trajectory with leading indicators suggesting continued growth momentum. Let's review the main drivers. As regards households, robust labor market conditions support household income and consumption. Specifically, the unemployment rate is at a 15-year low, dropping below the 8% mark. If you recall, the unemployment rate, even in the years before, after we entered into the year era, was around 7.5%. So we're near historic lows. Wage increases are in the mid-single digits, double the rate of inflation. So they're real wage gains. Wealth is increasing rapidly, especially housing wealth, through valuation gains, but also through the accumulation of financial assets. On the corporate side, activity remains solid with business investment headed to an all-time high. The drivers behind this performance reflect high capacity utilization rates, while new industrial orders are near a 30-year high. Corporate profitability is also at a multi-year peak and is combined with very strong credit expansion. Credit expansion to corporate is six times the pace of that in the euro area. This stimulus is set to continue as monetary conditions are increasingly supportive with the benchmark rates currently 200 base points below their mid-2034 levels. And additional boost activities coming from fiscal policy. RRF funds and other public investments are running at the pace of 6% of GDP. Moreover, RRF funds entering the economy are expected to be around $20 billion between now and 2027-2028. Furthermore, the operational budget, i.e., the budget excluding capital spending, is also likely to loosen in 2025 versus 2024, given the past year's primary balance surplus of nearly 5% of GDP. Preliminary indications are there could be tax reductions to the middle class, but that's yet to be determined. Lastly, as regards external demand, tourism revenue is back on track and at new highs, with both volumes and, most importantly, spend up. Also, good exports have held up well, up around 7% in volume terms, despite global uncertainties. I think that you will agree the above describes a quite resilient economy. In fact, we expect GDP to grow at a pace above 2%, exceeding the year average by more than two times. Now let me turn to our financial results. Despite sharply lower interest rates in the first half of the year, we continue to deliver a strong performance. In fact, it has provided us the confidence to upgrade several metrics of our 2025 guidance. Key headlines of performance comprise our profit after tax of $700 million, which was practically flat year on year. Moreover, normalized return on tangible equity was 16.3% despite our large capital buffers, i.e. a very large denominator. This strong result was mainly due to our resilient income, which reflects the strength of our balance sheet. Three drivers are worth specific mention. First, the impressive pickup in credit expansion in the second quarter, which led our performing exposure to expand by $1.5 billion in the first half of the year. Combined with a strong pipeline of corporate disbursements, approved but not yet dispersed, allows us to revise our full year 2025 performing exposure expansion guidance to greater than $2.5 billion versus our previous greater than $2 billion. Second, second thing worth mentioning. The NII decline in the high single digits is fully aligned with our full year 2025 guidance as our projection for market rates was validated. 150 base points down year on year versus the first half of 2024. Again, as guided, the rate effect was partially offset by the strong loan expansion, by higher contribution from our structural edges, and by gradual increase in pass-through on our time deposits. Third factor, fees are outperforming our full year 2025 guidance of 7% to 8%. Indeed, adjusting for the state measures, they grew at an impressive 14% year on year. Notable support comes from investment products, credit origination, deposits, and card fees. On the cost side, we continue investing in human capital, rewarding our people with fair increases in remuneration while onboarding new talent so as to rejuvenate our workforce. Our emphasis on being technological and digital leaders continues unabated. The completion of the replacement of our core banking system, which provides us with significant competitive advantages in speed and efficiency, is expected in the first quarter of 2026, on time and on budget after five years of hard work. As regards credit quality, we continued on our prudent provision strategy, with the cost of risk dropping to 40 base points in the second quarter. direct reflection of benign formation trends and high coverages across all stages even by European standards this allows us to revise our guidance positively on this metric as well these results I'm sure you agree are supportive of our fiscal year 2025 guidance and have allowed us to revise upwards key metrics several already mentioned but also and most importantly our return on tangible equity for this year to greater than 15% from greater than 13% previously as well as our EPS expectation to about 1.4 euros from previously 1.3 a few words on a key comparative strength of NBG our capital buffers they continue to strengthen in the second quarter of 2025 with our set one ratio increasing by 20 base points quarter to quarter to nearly 19% following the absorption of a 60% payout accrual, the accelerated DTC amortization, and the strong credit growth of a quarter. Our confidence in our capital accrual and following our commitments to shareholders, we target to front-load 2025 distributions in fourth quarter 2025 by distributing about one-third of our payout in the form of an interim dividend, of course subject to the approval of the regulators. a set one ratio currently stands nearly five percentage points above our internal target of 14% underscoring a disciplined approach to our capital allocation strategy our emphasis clearly to increase shareholder remuneration through higher and frontal repayments while at the same time to maintain our medium term strategic optionality to close we have demonstrated for yet another quarter the adaptability and and resilience of our business model, capitalizing on the strength and resilience of our balance sheet to deliver a set of results which has allowed us to upgrade our main full-year 2025 targets. We are confident that the allocation of our excess capital will push our performance and our shareholders' returns to new levels, setting MBG further apart from our competition. 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, over to you.

Thank you, Pablo. I will start with the key highlights of our profitability on slide 14. For the first half of 2025, we delivered a strong set of results that reaffirm our full-year guidance, creating upside potential across multiple KPIs. Income resilience, despite lower benchmark rates, produced a profit after tax of $0.7 billion, nearly flat year-on-year. This translates into a return on tangible equity of 17.5% before adjusting for excess capital, or 16.3% normalized for the strong H1 trading gains, standing well above our original full year 25 guidance of over 13%, which is now upgraded to over 15% as disclosed on our guidance update on slide 11. From an earnings per share perspective, We generated an EPS of 1.54 euros, or 1.43 euros on a normalized basis, leading to an upgrade of our full year EPS guidance to circa 1.4 euros from 1.3 euros previously. Going into more detail, our net interest income was down 3% quarter on quarter and 9% year on year, a trend in line with our guidance, reflecting the sharp reduction of the average three-month URI board as illustrated on slide 18. accelerated performing loan expansion of 1.2 billion in the second quarter, resulted to a net expansion of 1.5 billion year-to-date in H125, partially mitigating the impact of lower benchmark rates on our net interest income. Moreover, an increasing contribution from deposit hedges and the gradual pickup in the pace of time deposit repricing added further support as illustrated on slides 18 to 20. As a result, Our funding costs dropped further in Q2 by 6 basis points, reaching 65 basis points, the lowest in the Greek market, while our H125 net interest margin settled at 287 basis points, supporting our full-year 2025 target of 280 basis points. Fee momentum increased and accelerated in the second quarter, resulting into an H125 growth of 8% year-on-year on a reported basis, or 14% excluding the impact from state measures on payments with strong performance across core businesses as shown on slide 23. Retail fees increased by 16% year-on-year on a like-for-like basis, driven primarily by fees from investment products surging by 66% year-on-year as we continue to gain market share in fee-generating funds under management as a result of a successful cross-selling strategy. while deposit and card related fees also grew in the double digits. Notably, our market share in bond mutual funds has increased by nearly 7 percentage points year-on-year and 2 percentage points year-to-date, leveraging the propensity of prime depositors to switch towards mutual funds, which drove our retail funds under management by circa 2 billion year-on-year to nearly 8 billion as shown on slide 8. Corporate fees also delivered solid growth, up 13% year-on-year, led by lending fees, which increased by nearly 40% on the back of accelerating new production volumes. Moving to operating expenses on slide 24, costs were up by 7% year-on-year, or 5%, normalizing for variable pay accruals in the first half of 2024, and the benefit from delayed exits from our December voluntary exit program, expected to fully materialize by year-end 2025. Our cost-to-income ratio stood at 32.5% after normalizing for our high trading gains, well inside our full year 25 guidance of circa 35%, reflecting our top-line resilience. The trends in OPEX reflect our ongoing investment in human capital through variable remuneration and the onboarding of new talent and skills, as well as our class-leading investments in IT and digital infrastructure. The latter includes the replacement of our core banking system a transformative initiative for MBG underpinning our strategy to enhance efficiency, product quality, and client experience. As regards credit risk, the continued absence of net MPE flows and high provision coverage across stages by European standards allowed our cost of risk to settle at 40 basis points in the second quarter, displaying gradual normalization and limited volatility. As a result, cost of risk for the first half of 2025 came in at 43 basis points, triggering an upgrade in our full year guidance to below 45 basis points from less than 50 basis points previously. Our strong profitability enhanced our capital buffers, comfortably absorbing our 60% payout accrual, the accelerated TTC amortization, and the pickup in credit expansion in the second quarter of the year. As shown on slide 16, Our Z1 ratio increased by circa 60 basis points year-to-date to 18.9%, with the total capital ratio at 21.7%, while our MRED ratio of 28.4% comfortably exceeds the final target of 26.8%. Our strong capital buffers, nearly 500 basis points above our internal targets, provide us with a unique strategic optionality for incremental shareholder remuneration and further value enhancement. In this context, we intend to proceed with an interim dividend of approximately one-third of the 2025 payout in Q425, subject to regulatory approvals. Echoing the message conveyed by Pavlos, increasing our short-term shareholder remuneration through higher and front-loaded payouts does not come at the expense of maintaining our medium-term strategic optionality, which includes incremental return of capital to our investors, as well as assessing growth opportunities via bolt-on acquisitions in adjacent markets and value-accreditive M&A. Now let me walk you through the highlights of our balance sheet summarized on slide 15. Our performing loan book was up by a solid 12% year-on-year in H-125 and up by $1.5 billion year-to-date, comparing favorably to our full-year 25 credit expansion target, which is now upgraded to over $2.5 billion from over $2.2 billion previously as disclosed on slide 11. This revision factors in a strong corporate pipeline for the remainder of the year, while on the retail side, performing loans are already growing in the low single digits in H-125. Disbursements in the second quarter accelerated to $2.4 billion, totaling $4 billion for the 6-1 period, driven by corporates allocated across key sectors of the Greek economy. These include energy, with emphasis on renewables, hotels, shipping, light manufacturing, and transportation. Retail disbursements continue to gain momentum, increasing by 9% year-on-year to $0.8 billion in H-125, as shown on slide 19. On the liability side, deposits returned and resumed an upward trend in the second quarter of the year, with balances ending up $1.2 billion higher year-on-year, after adjusting for $1 billion of EFCA deposits transferred to Bank of Greece on July 1. As illustrated on slide 20, The increase reflects the sustained inflows from low-cost saving accounts and the absence of further corporate deposit optimization in the second quarter. A unique deposit mix with core deposits at 80% of the total stock, the pickup in the pricing of time deposits with a pass-through of circa 30% against the year-end target of around 50%, as well as higher income generation from deposit hedges, act to offset increasingly the rate-induced pressure in our net interest income. Our leading liquidity and funding position is further illustrated on slide 22. With deposits comprising circa 95% of our total funding, we maintain the lowest funding cost in Greece as already mentioned, while our liquidity coverage ratio of 248% is among the strongest in Europe, complemented by a loan-to-deposit ratio of 63%. Turning to asset quality on slides 25 to 27, Group NP stock amounted to just 0.9 billion in Q2-25, on the back of E9 asset quality trends, translating into an NP ratio of 2.5%, down 10 basis points quarter-on-quarter, and in line with our full-year target. Importantly, our leading coverage levels across stages by European standards provide cushion, showcasing another strength and a comparative advantage of NVGs' balance sheet. Concluding, in the first half of 2025, we delivered strong profitability and a return on tangible equity of over 15% despite sharply lower interest rates, allowing us to upgrade our return on tangible target for the year to over 15% from 13% previously. This performance demonstrates the strength and resilience of our business model and the disciplined execution of our strategy, laying a solid foundation for sustained value creation for our shareholders. Our capital partners remain a key comparative advantage, denoting our capacity for increasing distributions while providing flexibility for capturing incremental organic and inorganic value-adding opportunities. It is important to highlight that our excess capital utilization strategy adds value to our shareholders across all NVSA scenarios. As we move into the second half of the year, we remain focused on executing our priorities with the same discipline and commitment. And with that, I would like to open the floor for questions.