Raiffeisen Bk Intl Ag Ord

Good afternoon, ladies and gentlemen, and welcome to the conference call of Reifensen Bank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead.

Thank you very much. Good afternoon, ladies and gentlemen. We are happy to have you in this course talking about the Half year results and when you look at the numbers you immediately see that we have seen two very different quarters so far with a strong growth in Q1 and the second quarter was very much impacted by the lockdowns in April and May. Good thing is we have seen a big up in activity in our market since May and we are encouraged to also see this going on, this trend. On a year-on-year basis, net interest income was slightly up and net fee and commission income was stable, driven by the strong performance of the business coming into 2020. In the fee business in particular, we are pleased to report that the month of June was close to the pre-COVID levels. Loan growth was lower in Q2, largely due to lower retail lending during the lockdowns and more recently subdued demand on the corporate side. Nevertheless, we are happy to report that retail lending in recent weeks is almost back to its pre-COVID level. The CD-1 ratio has improved by 20 basis points in the quarter to 13.2. And I would again highlight that the CD-1 ratio continues the deduction of the dividend which we want to pay or wanted to pay for 2019. If we move to our next slide, you can see the net interest margin, a substantial drop to 2.31, and this is driven by the rate reductions The Q-rate drop in most of the markets and of course there is a higher volume in short-term business and repos and both together bring it down in the second quarter and therefore also in the half year. Of course costs are an issue. and we are continuing to implement cost reduction measures as we have talked about several times and of course we got some more inspiration by the lockdown so we think that reducing office space is one measure Given the rising unemployment rate, of course, the salary pressure, the wage pressure which we have seen in the last couple of quarters is substantially less. There is one or the other area in IT where this is continuing as I think all competitors and all industries are continuing to invest in IT and further in digital. This has an impact, of course, also on the return on equity, which is at 5.9% currently. If we move to the next slide, what you can see here is A couple of graphs which show what I was speaking about at the beginning. The big up in activities after they have a lockdown in April and May. You see that since the end of May we see across all our markets this recovery of activities. And this is a very good sign as this is very positive for fee and commission income. But also retail lending is back, as I mentioned before, at least in July more than what we have seen in June so far. And of course, one One driver for maybe not so optimistic perception of the current development comes from the traveling ban, what we still see in some of the countries. Whereas inside the countries, we see quite a lot of activities. I think another good sign for the midterm development of region is that the EU Recovery Fund is very nicely and about 80 billion, which is 20% of the allocation, goes to our region. And I think this will be another very positive support for the development in our countries. If we move to the next slide, then I think what you Thinking about this, how did this COVID, not only in terms of home office, but also in banking services, impact the digital development? And I again can confirm this is very positive. And we added a couple of functions to our mobile banking. For example, onboarding, which of course was nicely appreciated, that you can fully do it end-to-end. You do not have to visit branch or other channels. We have been successful there in a couple of countries like Albania, Bosnia, Bulgaria, Croatia, Hungary. In other countries like in Slovakia and Czech Republic, in Russia, we have this function already for a while. Virtual cards have been introduced in some markets that the contactless payment without physical cards is supported very much, like in Russia, in Slovakia, in Belarus, biometrics in many countries. So for the customers, I think it's a very good improvement. We introduced Araipay, which is an Android wallet for Simple and secure payments. Again, a good process and progress. And in some countries also what we call RaiConnect, which offers additional communication means for premium and private customers. So easy video calls. Easy exchange of documents, screen-sharing when remotely advised customers. Coming to the next slide, which is slide 8. This is our macro outlook. We made a couple of adjustments since last time. In essence, what we can say is that It was revised a little bit down in the Euro area. We now believe in a minus 8.1% GDP development. But what is, I think, more important than this is that the development in our core markets in CE, SE, but also in Eastern Europe, Germany, which is very important for these markets, This is relatively positive and therefore we see positive impact here and we feel fine currently what we have seen or what we show in this macro outlook. With all these developments which I described briefly I come to slide 9 which is our outlook and here I can say that we confirm the outlook with the targets which we gave in May when we talked about the first quarter results so we expect the modest loan growth in 2020. The provisioning ratio for the fiscal year for the full year 2020 is expected at around 75 basis points of course Here, it depends on our assumptions about the lockdowns, the length and the severity of the disruptions, what we're currently experiencing. We have seen, you have seen it in the first half year, a nice development in the cost-income ratio, but one should be aware that this will be weaker, and so we, in the course of the year, What I can still confirm is that we aim to achieve a cost-income ratio of around 55 basis points per cent in the mid-term. It's too early to say what it will be in 2021. Profitability... We confirm our medium term target of 11% consolidated return on equity. And as of today, and based on our best estimates, we expect a consolidated return on equity in the mid single digits for 2020. We confirm our CT1 ratio target of around 13% for the medium term. And we keep the payout ratio between 20 and 50% of consolidated profit. Of course, in these days with the guidance, the requirements by the European Central Bank, It's a difficult discussion in these days to think about the dividend payment for 2019 or so. As I said, we still have deducted the full planned dividend payment, so this one euro per share from the capital. Which brings me to slide 11. I think here it's worth and you for sure have all seen that we did two issues to improve our capital structure to optimize it. I'll see the one ratio now stands at 13.2. And this issuance is of Tier 2 in June and more recently the 81 in July. They now allow us that also the Pillar 2 requirement is optimized and you see this in the numbers and And now this creates an MDA buffer of around 2.4%. And as I said before, we confirmed that the COT1 ratio of 13% is important for us. If we move to slide 12, so what you see is the quarter-on-quarter development of the COT1 ratio. We for a while have been discussing OPRISK and we have built in a requirement which comes from the treatment of the Swiss franc litigations what we have in Poland and in Croatia. This is around 14 basis points. It's not final. It's still in discussion with the central bank, with the ECB, and we will see what the outcome is. Yeah, and then what was very positive and you have built in here in the credit risk is that The SME support factor, which in our case is around 900 million RWAs, which is about 15 basis points, was built in already. And when considering what might support the CET1 ratio as well in the course of the year, then probably the IFRS 9 transitional provision for expected credit losses could be up to 30 basis points. Yeah, of course, depending on the conversation and clarification with ECP. And yeah, the software Thank you very much. Yeah, I think that's what I should talk about on this slide. Moving to the next, which is 13. Here, I think this brings everything to the surface, what we experienced in the second quarter. As I outlined before, the Big rate cuts in many currencies had in combination with a structural change in the new business to the less to retail unsecured more to corporates brought a reduction in the net interest income by minus 6.5% and the net fee and commission income by minus 12.5%. Costs down almost 5%. Of course, there is an FX component, but also, of course, less spending. And I think the impairments at the similar level what we had in the first quarter. Same applies for the other results. And so this leads to a consolidated profit of a little bit higher than what we had in the first quarter. I think if you're in a nutshell, what we can say is the low operating result was compensated by bank levels. You know that this is front loaded to a large extent. and was very supportive to compensate. If we move to the next slide, another one to give a quick overview is operating income, fairly similar amounts between NAI drop and fees, as I said before. The bigger part of the NRI drop comes from the lower rates. Of course, also there is, as we experienced, the lower FX rates in some important countries. There is a 17 million FX impact as well. Yeah, and OPEX 41 million from other administrative expenses whereas the staff expenses were more or less on the level of the first quarter. I think I can quickly run through the segments. Yeah, what you see is Of course, Czech Republic felt the big drop in central bank rate, so with a reduction in NII and NIM. In Hungary, it's the fee income, which we can't give them there. The lower activities. If we go to the southeastern Europe, then of course, Romania is very important for us. And here, important to say is we had low demand in April and May, but low demand is picking up substantially in June and July. which I think is good. And in Eastern Europe, here we have big rate cuts, Russia, Ukraine, Belarus, all of them. And therefore, the net interest income, as I said before, there is also an FX component in all the three markets, is down substantially. We had some hedging measures which protected the drop in the CT1 ratio as I mentioned before as well. Group markets here we saw a good demand in loan business and this was supportive also for the net interest income which Thank you very much. Thank you. There was quite a lot of uncertainty how big the demand of corporate customers using their committed lines would be. So we strengthened our deposits and later in the quarter we had the issues which I already described, spoke about, and we were also Going into the TLTRO3, of course, here we have some expectation that we can benefit from this 50 basis points support because we are confident that we can reach the required targets. And with that, I would like to hand over to Hannes.

Thank you. Also, a warm welcome from my side. Before I jump into the different slides, let me start with a sort of reflection on the first half year. Please bear in mind that January and February we have been capable to conduct a very good and normal business. But when looking at the financial numbers, the first half year on the risk-cost side summed up to 312 million euros. Here it is important to notice that stage 3 is summing up only to 36% out of the 312 million euros, meaning 113 million euros. Stage 1 and stage 2 is summing up to 199 million euros. MP ratio is at 1.9%, coverage ratio is at 63.5%, means we have a very solid portfolio as it's going into this demanding situation. I have shared with you already in March our way of thinking, and this way of thinking guided us quite well when it comes to the industry approach. And of course, besides the industry classification, it is important how does the respective company do within the industry cluster. And having said all this, this leads to the confirmation of our current risk outlook, which we are having around 75 basis points. Now I would like to proceed with the slides. I'm jumping to page 21 where you can see that we were capable to demonstrate still a decent growth. Please bear in mind that also part of this growth Thank you very much. Thank you. We have provided quite some details of where this increase is coming from. So part of it is being attributed to new business. We see the first part of the rating migrations. We have included the SME supporting factor. FX is also adding or in this case even diminishing because we have seen a depreciation. I will not talk about this 200 million euros and 400 million euros, but maybe note 30 still on this page is the 800 increase. This is including the op risk out of Polish legal cases and adding another 400 million euros as RWA increase out of the market risk. This is easily attributed to higher hedge ratio and Some higher volatility. I move on to page 23. We understood from the feedback and the intense talk we had with you that you would appreciate having a little bit more insight when it comes to the moratorium. Please bear in mind that we have different ways of how this moratorium is being structured. So you have public moratorium and you have private moratorium. For instance, in Croatia, A private moratorium was being established in all the other countries. It is a public moratorium. Even further detailing, we have two basic regimes, meaning you could have an opt-in or an opt-out. So in Hungary, Serbia, and Kosovo, We have experienced an opt-out, so meaning by this moratoria, how the moratoria is being styled, customers are being subject to the moratoria and they even had to do voluntary opt-out. Why is this important? Because it gives the appropriate context if you look at the total numbers of the 7.2 billion euros. And the 7.2 billion euros are more or less equally spread between Retail clients, private individuals segment, and also the corporate part of the presentation. What you can see further on, if you go with the column of the residual duration, if none of the current moratorium would be postponed, in six months time, only 7% of the current portfolio would be subject to the moratorium. The third thing which is at least for me noteworthy and I'm more than willing to indicate and share with you is if you look for instance on the bucket on the corporate side is that you can see that a substantial part is on a collector life spaces and even more so that those who are being put into moratorium or have asked for being that they can make use of a moratorium, only 63% out of this exposure is being attributed and allocated to the state student. I move on with page 24 and here I was sharing with you already in March our way of thinking when it comes to the industries. And I know it's a crowded slide, but let me give a trial to guide you through this page 24 and 25, because it gives quite a good insight on our way of thinking. As said, we will have different industries where you see this V-shaped recovery, U-shaped recovery, and L-shaped recovery. So this is also what is painted on the X-axis. And on the Y-axis, you can see you could have industries which have a neutral, maybe even a positive impact out of COVID. And then you have industries and part of the industries which are, of course, highly impacted. Let me give you a sort of a reading example that you see our way of thinking. You know, I think it's pretty straightforward that the entire companies acting in the food beverage industry, they have been either neutral or positively impacted by this pandemic. And of course, their shape of recovery is if at all needed, a V-shaped one. On the other end of the spectrum, if you look, for instance, what we have leveled here as a 3C, I think it's also pretty straightforward that this is an industry which is heavily impacted and their recovery may take quite some time. So typical industries we have allocated to this part of the matrix is airlines and airports, leisure facilities and hotels. So that's the one thing, you know, talking about the industry classification. But this is only halfway through. So we have thought also that we were willing to share with you what is the financial status of the different companies in the different industries. And what we have done is that we have, as a sub-cohort, shown them what are the customers currently being rated with a substandard and below. If you look for a mapping to external rating agencies, this would be somewhere around a single B, single B+. And what you can see here is we have chosen the net exposure, meaning we have also deducted the collaterals we received, that of course in total is summing up to some 1.7 billion euros. But meaning that our exposure to the most vulnerable industries and having clients which are heavily impacted because of their current financial standings is summing up to 1.7 billion euros. And in addition, purely stage two bookings on this portfolio is 76 million euros. But in addition, you could add our holistic stage two bookings we have done and also, of course, partly what we have reserved for macro impact. And I'm sure that there will be the one or other questions relating to the page 25. Let's move on to the page 26. Well, it's 158 million euros in terms of total risk provisions in the second quarter. 85 million euros must be attributed to the stage 3. IFRS 9 macro is again consuming some 41 million years and we still made use of the BOST model adjustment also still in the second quarter year-to-date we also made use of some 90 million years when it purely comes to this BOST model adjustment. Coming to my final slide, as I said We have a strong portfolio, we have a strong starting point. We have an MP ratio of 1.9% and we have a coverage ratio of 63.3% belonging to the best banks in Europe when it comes to coverage ratio on the State 3. This was my contribution, this was my insight and now we are more than happy to take your questions.