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.

The first question comes from the line of Kemeny Kabor with Autonomous Research. Please go ahead.

Good morning. Thank you for the presentation. My first question would be on NII, where your guidance remains unchanged. I believe this would leave room for some incremental NII decline in the second half. would you expect NII to stabilize here in the coming quarters or do you see room for further decline and that's my first question please and then secondly thanks very much for providing your new slide on the capital deployment my questions here firstly on the 60% plus payout do you see any possible movement in the 25 distributions So I'll take the first question NII. Indeed in our path towards the end of the year, we assume that there will be another aid card in September.

So if that materializes, our expectation is that there will be a slight decline in our NII in the following quarter and plateauing from there onwards. That provides us with the confidence to guide for the 9% year-on-year decline on NII towards the end of the year. Now, obviously, our guidance on increased loan expansion versus the original one, as well as any upside, let's say, on the benchmark rates going forward, will provide some upside risk, but most of that benefit will not be, you know, materializing this year. It's something that will probably benefit next year's NII. So, slight decrease in the next quarter, and then plateauing from there onwards until the end of the year. Pavlos will answer the second question.

Okay, on the, as you noted on page 12, we have outlined our capital allocation strategy what we haven't put in here and is difficult to describe to you is timing okay for now we have the 60% payout for 2025 we plan to increase it but this requires discussions with the regulator but that is the objective to increase payouts now on the other items on the list. Clearly we want to increase earnings organically or not organically. We mentioned here the international syndications. We mentioned the re-performing assets which are sort of in between organic and inorganic. And then we have the clear plain vanilla inorganic. Here we're looking at transactions which would be value accretive. and they need to be transformational, either in terms of their size, in terms of the business, i.e. digital, whether it's an adjacent market. We have shown over time that we have the patience and we will not do anything to destroy value. So, again, timing is you always want to know about timing. Unfortunately, these type of transactions, timing is difficult to commit to. So, hopefully, that gives you the direction of travel. Unfortunately, we cannot give you much more on the timing.

That's very helpful. Thank you. Just one small follow-up on the payout comment. So, you're saying that you might increase the payout about 60% this year from 25% if your discussions with the ECB moved in that direction.

Let's rediscuss this in the next call.

Okay, thank you.

The next question comes from the line of Memisoglos, Man with Ambrosia Capital. Please go ahead.

hello many thanks for your time two on my side one trading income has been strong for your peer yesterday as well but for you as well just wanted to get some color if you can on the drivers and what's the outlook for the rest of the year and then apologies if I missed it will the q4 interim dividend be all in cash and related to that any color on how your latest thoughts on mix of the distribution going forward. Thank you.

I'll take again the first question on trading income. We did have a very nice run with regards to trading income especially in the first quarter. The main driver of the profitability there has to do with some rebalancing on our bond portfolio and also we tried to optimize the bid on the stimulus of the interest rates which effectively justifies this very healthy result so far. As we also said during road shows in the past few weeks, we don't expect an equally strong second half of the year, but nevertheless we're very happy with the result that we've achieved so far in the first seven months of the year.

Okay, the interim dividend will be only in cash. Now, going forward, the split between cash and buybacks is to be determined. We will maintain buybacks as long as the price of the share makes it attractive.

Thank you.

Good day. Thank you very much for the conference call. I have a few questions. Firstly, a technical one on performing loans growth. If I look at the slide 19, the year-to-date growth, the explicit one would be 0.8 as it's seen on the left chart, but the net credit expansion is 1.5. What's driving the difference of 0.7 between these two numbers. That's the first technical question. The other one, as we look in 2026, as far as I recall, your guidance is based on policy rate of 2%. Can you give us some sensitivity of your NII to 25 bit cut and also Assuming that rates go lower, do you feel confident in 2026 guidance on NIA? And lastly, maybe could you give any color, is there any progress on syndicated loans and which countries do you consider? Is it Europe or beyond? Thank you very much.

Okay, let me take the questions. So, first of all, the bridge, let's say, from the credit expansion of $1.5 billion to $0.8 billion, as you very well pointed out, effectively has to do with two things. The first one is the foreign exchange, especially on U.S. dollar shipping exposures. And the other one is something that we also discussed in the first quarter results. We had a contingent, a deferred consideration for the transaction that we've executed a few years ago that was repaid in the first half of the year and that explains the reduction, the extra reduction to the effects. Now with regards to NII and our expectations upon policy rates, current guidance is assuming that there will be another rate cut in September. So our base case is 1.75% of deposit facility rate for this year. Given this point of reference, our sensitivity to falling rate is 35 million for every 25 basis points. You asked whether the rates go further down. I would say that if the rates move below 1.5%, which is not the base case expectation at the moment, we would expect the sensitivity to go slightly up. That's because we don't expect the repricing on time deposits to continue with the same pace if rates go that low. Obviously, as we discussed before, a key supporting item for an NII going forward is growth, which is coming in stronger than expected, and also other elements of supporting NII have to do with refinancing of our MREL stock at the moment. as well as the continued repricing of our time deposits, which is, as we said, picking up compared to the first quarter of the year. The third question, Pavlos, we'll take.

Okay, on the syndicated loan, it is almost all in Europe. The risk-capitae framework allows exceptionally small amounts outside Europe. We'll see if that change is going down the road, but for the moment it is mostly European exposure.

Good. Thank you very much for the answers. Very helpful.

The next question comes from the line of Nelly Simon with Citibank. Please go ahead.

Oh, hi. Thanks very much for the opportunity. I just have a quick question on the capital walk. So I see that the core tier one increased by over 200 million euros in the quarter, but 40% of your profit would have been like 120 million. So can you tell me what's driving the better increase in core tier one capital of the quarter?

There are two elements that supported the capital in addition to profits. One of them was the fair value gains on our head to collect and sell portfolio. That was around 10 basis points for the quarter. And the second one had to do with the closing of a transaction. We had frontier three. We have another question from the line of summit, Savit Mehmet with JP Morgan. Please go ahead.

Good morning, thanks very much. If I may ask on the planned interim dividend payment and whether this could be something recurring in the coming years, would you please just share any comments on what drove this decision already this year and whether we can see that repeat in the coming period? And then secondly, just if you could please clarify the one-offs this quarter. It seems like there has been positive gains, and I see there is a MBG Egypt branch recycling. If you could please clarify what that was, that would be very helpful. Thank you.

Start with the second question, Sabine. So with regards to one-offs, Other than the FX recycling on Cairo branch, we discussed also in previous quarters that our intention is to close the branch. So we're trying to recycle FX losses that we have in our FX reserves through P&L. So that's it. And the other one was closing of an NP transaction that benefited a bit the P&L. So we reorganized that as a one-off. That's it. There's nothing new other than this in our one-offs.

Okay, on the second one, the interim dividend is a request from investors. So we responded positively and if it could be done in the future, yes, I think it could be done definitely in the future.

Okay, very great. Thanks very much.

We have another question from the line of Dimitriou Alex with Jefferies. Please go ahead.

I had just two questions for me. So just on the transformation program and the new core banking platform, can you maybe just expand a little bit on how you have a competitive advantage over peers in that regard? And secondly, can you just elaborate a little bit more on some of the digital partnerships and strategic partnerships you've entered more recently and just kind of the profits or progress that you're seeing there? Thank you.

Okay. On the tax transformation, I think... First of all I want to remind you that we started early on changing all our IT both core as well as peripheral systems going back four or five years ago. We are near the end of that journey having spent I think about 100 million more than our peers per year. It is leading to us moving up on digital technology from being the country laggard to being among top European banks as per international benchmarking on the core specifically it's a painful process to do it gives us great flexibility we can introduce products in a matter of days versus previously which took months it is more efficient as well in terms of how much it costs us and it is also providing better cloud capabilities so it is I think if I can put it this way it is something that all banks will have to do in Europe. And here we're almost at the end of this difficult road, not just in terms of costs, et cetera, but in terms of operational risks. So it is going to be a great relief for this to be done. In terms of the partnerships, these are mostly, there are two types of partnerships that we have. One is Jason Markets Partnership, which is the Epsilon Net. an ERP for small businesses that allows us access to these small businesses, and there are about over 100,000 of them who are customers of EpsilonNet. The other one was NBG Pay with global payments. That's JV, NBG Pay, and there it's a question of... not being able to be experts in tech everywhere and we're piggybacking on global payments expertise in acquiring business to relieve us and to push us in having the best acquiring features and functionalities. So those are two. A third one is the another one in the adjacent market we are in the real estate business we have a platform which is putting on some of our own and some of our partners real estate assets it's an end to end platform from purchasing either directly or through auction all the way to everything to refurbishing insurance etc so it's an end to end real estate platform which I think is timely in view of the housing crunch that exists in Greece currently. I think that's it for the three main ones.

Thank you very much.

We have a follow-up question from the line of Nelly Simon with Citibank. Please go ahead.

Hi, just one follow-up. I was wondering what the nature of the 9 million other impairment was and then maybe a more strategic question. I mean, this new IT system that you have, I assume it's scalable. Other banks have to do something similar at some point, and you have a lot of capital. Would you consider a domestic M&A, and do you see the opportunities coming in the future?

Christian, you take the first one on the 9th.

Or do you want me to go first? I'll go first. Okay. Absolutely right on the scalability and the competitive advantage. I think you've heard me say before that though we're finding difficulty in cross-border finding value in cross-border M&A the if there are banks that have not done their homework on their core banking systems we will have a new expandable core bank system that gives us the

an advantage there so yes definitely that is something that we will have that was it so on the second one that's a few minor things that sum up to 8-9 million that has to do with ECL provisions on government bonds as well as some others on state guaranteed loans so that's it there's nothing big there ok

thanks thanks so much The next question comes from the line of Novoselsky Elijah with Bank of America please go ahead Hi just one quick question one of your peers yesterday said that in the second half they'll have some extra provisioning on step up mortgages and they have some on sweet frank mortgages so are you going to have something similar and are there any other cost of risk or other types of one-off that we should know about for the second half. Thank you.

Let me give you the quick answer and then Chris will give you the more details. Very little Swiss franc exposure and it's all well performing so I don't think there's going to be any issues there.

and on the step ups that was we dealt with those type of products a long time ago so we don't have any issues on that so there's nothing more to say our balances on CHF loans are very low and those that we have are performing nicely so any legislative intervention on this will not have any impact for us And with regard to step-ups, as Pablo said, many years ago, four or five years ago, we took care of that issue. So, again, we don't have material balances with regards to step-ups at this stage in time. So you should not expect any volatility on our cost of risk going forward. I think I made that clear also in my remarks. And that's why we've revised upgraded our guidance with regards to cost of risk from less than 50 basis points to less than 45 basis points the asset quality trends that we see and obviously the capital and provisioning buffers that we have in our balance sheet makes us very confident with regards to what's expected to come with upside risk also to be expected rather than downside risk to be expected

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Milonat for any closing comments. Thank you.

Thank you all for participating on the call. As usual, we'll be on standby despite the end of the month becoming of the summer holidays. We'll be ready for any of your questions. And with that, let me take the opportunity to wish all of you good and relaxing holidays and we'll see you all in September