Raiffeisen Bk Intl Ag Ord

Good afternoon ladies and gentlemen and welcome to the conference call of Reifeisen 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 sir.

Thank you very much. Good afternoon and thank you for joining the call today. You have already seen the 2020 numbers which we published last month. We rather focus on some of the details and some additional initiatives which we started or implemented in the last couple of months. I would like to begin by saying that all things considered, the business came through the year in a good shape and we believe that we are well positioned to benefit from the expected economic recovery. Solidated profit for 2020 was, however, down by 34% year-on-year, reflecting the impact from lockdowns on economic activity, higher risk costs, interest rate cuts, and in some CE currencies, also depreciations. I should highlight that at the end of 2020, CDI ratio of 13.6% includes the deduction for the 2020 dividend proposal, of 48 cents per share plus a deduction for the original 2019 dividend proposal. This adds up to a total deduction of 62 basis points at the end of 2020. Loans were slightly down in Euro terms year on year, primarily due to FX movements. We continued to see growth in local currency terms in most of our markets. We have taken some interesting strategic steps in recent months, and are excited by the upcoming expansion of our operations in the Czech Republic. I'll come to this in more detail on the next slide. When moving to the next slide, some explanations to one of our key markets, the Czech Republic and the recent developments. In our perception, this is an extremely interesting market. Both from an economic but also from the digital perspective. Our existing operation already has a strong position and the transaction we have announced recently will enable us to build on this and gain further market share. Raiffeisen Bank in the Czech Republic is the largest bank in our CE network with 11.7 billion in customer loans. It is one of the best banks in the Czech Republic when it comes to cross-selling. and ranks among the global leaders in terms of digital offering. We've also been strongly focused on efficiency as we have throughout the group and we have executed a number of initiatives to improve the leanness and flexibility of the operation. Taking these factors together, we believe that it is now the right time to gain scale. The acquisition of Equibank with almost half a million customers We'll improve our market ranking in retail to number four and put us in a very strong position to attract further new customers. Additionally, we have recently entered into an agreement with ING and announced the acquisition of Accenta, which will generate further growth momentum. I'm moving now to slide six and give you more details on what I have addressed already. We are working with Finalta, which is a third-party benchmarking provider, to assess the position of our Czech corporations on the global level in terms of our digital offering and benchmark our performance against other banks in the Czech market. The digital bankmarking exercise involved over 200 banks and the results are encouraging, ranking our Czech bank among the top 10% of banks globally. We have summarized some of the data on this slide, from which you can see that our services are almost all available digitally, and the vast majority of our customers are using digital channels. Usage of digital channels increased by 14% in 2020, which was the fastest rate in the market and reflects our efforts in growing and improving the digital offering overall. We are also the local market leader in terms of products per personal client and loan balance per active personal client, with average revenue per customer 27% above the market average. In gross selling, we rank second. We rolled out many upgrades to our digital offering in 2020 and continue to do so in 2021. These include in a real-time CRM tool, Thank you very much. As summarized here, most of the actions were completed in 2020 and the full effect will be realized in 2021. Additionally, we are streamlining our operations by integrating our local building society into the bank, which will not only lead to further cost savings, but also provide additional cross-selling opportunities, considering that most of the 500,000 building society customers We currently use only one of our products. Let us now move to slide 7, which explains the inorganic growth initiatives. We expect the acquisition of 100% of Aqua Punk to be closed in the coming months. We anticipate The purchase will generate synergies of 50 million euros per annum, of which around 75% will be on the cost side. Acquisition is also interesting from a digital perspective. Ecopunk is very good at online distribution and has also been successful with digital channels and these capabilities will be integrated into RPIs. Equus achievements in this area reflected in compound annual loan growth of 11% over the past three years. With the acquisition, RBI will become the fourth largest retail bank by loans in the Czech Republic. I've mentioned that. The transaction not only brings 480,000 new customers, but also complements our business model very well. As you can see from this slide, around 30% of ACWA portfolio consists of consumer bonds. Another interesting point is that cross-selling across the ACWA customer base has been significantly below the level of our existing operation, and we therefore see strong potential in this area. In recent months, we have also entered into a referral agreement with ING and announced the acquisition of Accenta, an effects and payment provider. These two initiatives will provide some additional growth impetus for our business in the Czech Republic. To sum up, we are excited by these new developments. We believe that the work we have done on our digital and cross-selling capabilities along with the efficiency gains provide us with a strong foundation. We are looking forward to scaling up the operations and focusing on further growth in this market. After this exciting news, I think it's worth to still mention a few details on the Q4 numbers. And what we see there is, you do remember it probably from Q3, what we indicated. We see now it's a stabilization of the net interest income, which is at a similar level what we have in Q3. Before this, 765 million. Net fee and commission was up by 8% compared to Q3. But here it's more important if you really want to get the impact from the pandemic to compare the year-on-year number where we are 5% behind the year before. Staff Expenses, similar story, we have some seasonality, usually in the Q4, and so it's also worth to have another look at the last year, and here we are down 9%. Same applies to other administrative expenses. This all together leads to... Operating result of $447 million and with impairment losses on financial assets of $133 million, we end up with a consolidated profit of $205 million in Q4. Moving to the next slide, here I can only once more confirm what I said before, net interest income Thank you very much. Thank you. Split up of the Net Fee and Commission Income on the lower part of the page. Moving to the next slide, OPEX, I touched already the elements, maybe a few more additional information which gives a broader background. The one is that in 2020, you might remember we have talked the year before several times about the A project to reduce costs at head office. Out of this exercise, we saved 56 million. And I think that's a clear result. And in addition to that, we have industrial subsidiaries to a large extent achieve the target of 20 million cost savings. Looking ahead and what we have started already, so in the network, one element will be branch optimization exercise, which will also bring to a closure of some 300 branches. I think even more important is that we change the focus, the digital sales models in the branches. which will support to a large extent and educate customers how to deal with digital channels. Overall, this will bring an improvement by around 60 million. And there are some other areas where we can reduce our OPEX as well and we work on this very forcefully. Slide 11 shows the segments, the regions, and what you see is that you feel it anyhow that the Net interest margin stabilized in all the markets and looking forward to the further development. I think I can move further in terms of assets. I would say we are stable. One has to be aware that of course this comes with Some fluctuations and is to a large extent also driven by the currency depreciations which I mentioned at the very beginning of this call. In the left hand lower box what you can see is the pandemic impact on lending activities. By the end of the year, we see in the corporate area and in the retail area some improvements. In the unsecured, this of course depends more on the lockdown measures. Moving to the next slide, capital, I mentioned the CD1 of 13.6 already. This compares to a requirement of 10.42 and which gives a buffer, an MDA buffer of 322 basis points. If we move to the next slide you can see some of the further developments in the from Q3 to Q4 in the CD1 some details there had been RWA effects developments Then there had been some benefits by the treatment of sovereign exposure in EU currencies. There was a securitization. And it was also helpful that there was finally a solution for the non-deduction of software assets, which brought a good improvement by 22 basis points and retained earnings also supported by 17 basis points. MREL on the next slide. This is an important topic here. I have also the pleasure to announce that there will be another call, which is already scheduled, where you get more insights. In a nutshell, what I want to keep this short here, what I can say is there are four countries which in the midterm future We'll need sizable volumes, whereas in Austria we have currently no need. There is Czech Republic, Slovakia and Romania. You see the potential sizes here with 4, 3 and 400. So this could address capital markets. Whereas the others Hungary, Croatia, Bulgaria are rather smaller. One Hungary doesn't have any needs and in the other two Croatia and Bulgaria probably the amounts what we need are rather small. So this indicates rather in an area of private placements. In talking on the next slide. Funding, I mean this probably I should skip in these days where everyone is flooded with liquidity. It's not so much of interest. Moving to the next slide, 70, one more update on the digital in the retail area. I think here I can repeat what I said several times in earlier calls. Definitely the pandemic and the changed behavior of retail customers is supportive for the digital development, for the use of digital channels. I think we made good developments in customer growth. This was not so easy during a pandemic year with quite a lot of closure and less activity also in lending. The mobile penetration I mentioned developed nicely. This is a boost which will help us. Digital sales came out much better than we had expected, but here, to be fair, it's held on a lower base. But we are optimistic also for the future. Some of you might have, and this leads to slide 18, My staff also recognized that we just recently announced our new thermal coal policy. This ESG development is something which will keep us busy over the next many years and I think year by year adjustments will come. Here we come with a first element which is, as I said before, the new thermal coal policy. Which is an adjustment over time, so we are committed to customers. It's a gradual moving out. We offer quite a lot of advice on how to deal with such situations. And overall, by 2030, we will be out of that part. And we will be very restrictive in doing new business. This leads me to slide 19, which is the macro outlook GDP. The recent one, of course, everyone is aware that this might be adjusted more frequently than what you usually do, as it's to a large extent driven by the lockdowns, by the various measures of governments to deal with the pandemic. Overall, I think it's after the difficult year of 2020 It's good news. Yeah, it's built on the assumption that Q1 is still difficult because of the high infection rates and the low vaccination numbers we expected in Q2. Vaccinations will improve substantially so that a bigger part of the population in all the countries have received probably the two doses of vaccines. And Starting from Q3 we will be back to normal and back to normal will be exciting. I mean after all the money in the accounts, in the bank accounts and I don't know where else also it's huge money which is available there which is going to be spent. I think socially the population needs this time also to recover from these very long pandemic restrictions. And so, of course, given the infections and the different industrial structure of the countries, the recovery from country to country will vary, but one might say It's quite reasonable to assume that's around between 3% and 5% for 2021 and higher in 2022 as we then have the benefits of all this development. Coming to the outlook, we, and I think it will not come to a surprise after the restrictions in the first quarter, and the required element processes for vaccination in the second quarter. Lung growth in the first half of the year might be modest. We'll see. Maybe there is more uptick already in the second quarter, but for sure we see an accelerating lung growth in the second half of the year. Risk costs... Around 75 basis points, Hannes Mosenbacher will elaborate on that. As an appetizer, the experience with the moratoria is very positive so far. Cost-income ratio, of course, with the need to grow the income, we see some Some pressure on that, and it will be, we'll see, depending on the development over the next couple of months, if we can achieve the 55 in 2020, in 2022. Profitability, I hope and expect that we are above what we delivered in this year. And the CO2-1 ratio, you are aware of this, is around 13%. And the payout ratio we keep unchanged somewhere between 20 and 50%. And with this, I hand over to Hannes.

Well, thanks for the introduction and for the nice handover when it comes to moratoria. Dear all, thanks for participating and also a warm welcome from my side. Well, if I would review 2020, I think we as an RPI group, we started with a very strong and solid portfolio into this pandemic situation. And the industry outlook we have chosen guided us very well towards the year. And just to remind all of us, RPI's portfolio to the most heaviest impacted industry is 1.4% only. I'm talking about the most impacted one. I'm talking about hotels. I'm talking about airports, airlines. The second thing which was quite supportive for us is in the finished year end with an NP ratio of 1.9%, having a very good coverage of 61.5. So meaning focus was on the existing business and not on the business which was in default. Risk costs summed up to 630 million euros. Stage 3 bookings summed up to 288 million euros. and we made heavy use of the post-model adjustment which were used with the first quarter in 2020. Ratings have been upgraded and updated. Moratories are running off and of course we do a continuous review of all our industry allocations would lead us to giving the guidance on the risk cost of 75 basis points still a little bit above the long-term average or through the FICU and MPE ratio might slightly increase. I'm now on page 22 where you can see that the total portfolio increased by 7.2% to slightly over 200 billion euros. The biggest dynamic when talking about growth came of course from the liquidity inflow, the one which needs to be employed. We have done so with the central banks and by investing into sovereign bonds. In the Eastern European region, We have been quite heavily impacted by the depreciation of the local currencies, Russian Ruble and Ukrainian Hryvnia. And I move on to the page 23. Here you can see on the lower left chart, the total risk cost summed up to 630 million euros. Stage 3 bookings were 288 million euros. The two blocks on the macro and covered most model adjustment I would see together helping us to manage the potential future inflow and the 16 million euros on the lower left chart is being argued by new business and by rating migrations. Let me talk a little bit more about this post-model adjustment. You could say one third of these 217 million euros are being allocated to retail and also in the retail we have followed an industry approach. We have, of course, also allocated a substantial part to the portfolio being affected by the moratoria. And we also still believe that if some of the supportive measures are being taken away, that we could have the one-hour delayed default. That was the reason why we have allocated about one-third retail. Two-thirds are being allocated to non-retail. And the industries, the ones which I have continuously affected, and so it shall not come for you as a surprise. Well it's already announced by Johann Strobl the moratoria and our first learnings because of course this moratoria was a complete new vehicle for us and it was difficult to assess what could be the potential default rates coming out of the moratoria. So what you can see that in the peak we had 10.7 billion years are on the moratorium and currently summing up to 2.8 billion euros. We still have two countries where there is an opt-out and that's the reason why the loans on the moratorium are still summing up to 2.8 billion euros. Colleagues have provided a very fancy slide on the right-hand side and I want to run you through. So what we have looked at is asking ourselves what is the behavior of the client three months After the moratoria has finished. And talking about the households, you can see that with 92.5% of the clients, they perfectly reassumed honoring their monthly installments and obligations. 2.9% of them have asked for further restructuring. And of course, we have various support developing them. 4%, 4.6% out of the full portfolio under moratoria, On the corporate side, the numbers are even more supportive. 98.9% immediately resumed their repayment. Only 1% out of those €2.1 billion defaulted. This is summing up to €21 million. Page 25, you see the RWA dynamics. One could make the life easy saying, well, it's 78 billion. You're in the beginning at 78.9 billion in the end, so let's move on. I would like to clearly link you to the dynamics where you can see on the second pillar, the net rating migration. So we have run our re-rating exercise for the full portfolio. How did we mitigate part of this uplift We have conducted two securitizations and the other heavy impact of course was the FX development on the right hand side, summing up to again 78.9 billion Euros in RWAs. Well and I think the last slide is so well known to you that it's more for documentation before running you through. We would be more happy taking your questions and learning what is on top of your mind when it comes to RBI Group.