Raiffeisen Bk Intl Ag Ord

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

Good afternoon ladies and gentlemen and thank you for taking the time to join the call. I am pleased to be reporting on a strong second quarter today. which to some extent reflects an improved economic backdrop as well as a more favorable rate environment. Consolidated profit boasted a 66% year-on-year increase driven primarily by lower risk costs. Net interest income for the first half was down 8% compared to 2020. However, it is important to note that it increased by 5% in the second quarter on the back of higher volumes and rate hikes. The second quarter was one of the strongest we have had for fee and commission income. We generated close to 500 million, which I will come to in a few minutes in more detail. Loans continue to grow steadily. We have now firmed up our outlook for 2021 and we are guiding for a loan growth in the mid to high single-digit range. This guidance does not yet reflect the pending consolidation of Equipax. We have also revised our outlook for 2021 risk costs down to approximately 50 basis points, assuming that there are no renewed lockdowns. The integration process in Czechia is making very good progress, which I'll also address in more detail later on. We have been busy on the green bond side as well this quarter. Issue and activities included our first tier 2 green bond as well as green MREL Assurances by our subsidiaries in Czechia, Slovakia and Romania. And with this, I turn to the next page where we see the more detailed quota on quota comparison. I mentioned already the net interest income. I mentioned the very exciting development on the fee and commission income. We saw a slight increase in staff expenses by 3%. We saw a substantial more increase in other administrative expenses. These include, one might say, regulatory costs, costs for the bank supervisor, which had been due in this quarter, to lower a couple of small additional amounts on advertising, In the staff expenses, we also had some rising incentive compensation components. As you have seen, we enjoy the good growth. And we're also continuing our investments in IT, cloud services, all this exciting stuff, but also in a couple of innovation ideas. and the other results I will also comment a little bit later. When talking about the core revenue trend, I'm happy that we now see what we have been talking quite a while, that around 770 net interest income should be the bottom and we should now see the increase. In the 804, we have to make you aware that we also recognized 9 million of TLTRO bonus which we did in the second quarter. As always, given this high liquidity and what we tried to achieve also with the takeover of the ING clients in Czechia, the net interest margin is inflated substantially and I think for a while this is not a strong key performing ratio. I talked about the net fee and commission income and if you look at the The lower box, the table on the right hand side, you see that actually the improvements have been almost everywhere in the second quarter. If we turn to the next page, we have a few more details on Raiffeisen Czechia. So as I said before, we closed the ECWA transaction on 1st of July. We are now in preparation of the legal merger, which will happen in the first quarter next year. And we are also working in very detail now on the operational merger. We want to have one brand and a consolidated system. It's about 480,000 customer relationships. It's about 2 billion customer loans where we We're especially proud of with this acquisition is that Equa has built a strong consumer lending engine. They have some distributional skills what we did not develop in Raiffeisen Czechia and we are happy to add and use it in the then merged entity. And of course to build something like this you need quite a lot of talented people and we are happy that they join us. We have ING. Here again, we are more than happy. You know, we had this agreement with ING that we recontract the customers. They would recommend us as the preferred bank. And with having acquired now more than 150,000 customers with deposits of about 2 billion, we are very happy with this, much more achieved than we had hoped for. and of course in a rate environment where I see rising rates, this per se sounds very favorable. But I think our offer, what we have prepared for these customers is also a very interesting one. We are proud of our cross-selling skills of our people there and I think they will, by exploring the needs of the customers, they will find the right products which makes the customer exciting. Bausparkasse, this is something which is important for the Czech Republic. You know, this was an intergroup transaction, so it doesn't make a big change in the overall numbers, be it customers or deposits or allowance outstanding. But again, here, the colleagues found ways for cost synergies. Here, I can report that about two-thirds of these synergies integration is already done and we will soon see some additional benefits but again here also interesting we hope for and plan for some cross-selling activities again this is an interesting channel because you know Bosch Per Cousins or Building Society products are to a large extent driven by brokers and if you If you get it right with them, you can achieve much more. So happy about that. I will now turn to the next page. And so we have prepared two pages which somehow are perceived as a burden which keep quite a lot of management attention and attention of our people. I start with Belarus. You are aware of all these sanctions and the negative reports what we receive from the country. Just for those who are We have acquired the Priobank stake from EPRD already in 2003. This was the time when we all believed that the market will enter in a broad liberalization phase. Here we had for sure too high hopes and it did not materialize in the way we wanted. On the other hand, I'm I'm still proud that I think to whatever the improvements happened in this economy, the little changes what we have seen, I think our bank could contribute to some extent to that. Overall, the impact of our bank is not so big, so we have a market share of about 6%. In total, this means 1.1 billion loans to customers, which is... A little bit more than 1% of our group lending the equity. What we employ in the country is about 300 million Euro, which is a little bit more than 2.5% of the group equity. If you want to look at the exposure of what we have, so this is now not only loans, but everything what you define as exposures of guarantees, committed lines, and, and, and. What you see here, it's an exposure of a little bit more than 2 billion. You all are aware of sanctions against the state-owned companies. We have given here a little breakdown. So if you look at the structure, 14% of these exposures are to corporate state-owned entities. We have 5%, so around 100 million to government, and we have about 10%. 180-200 million to the national bank. Being close to banks for you, it's clear that this is an area where banks have to be for their liquidity management. And we have... From the targeted sanctions we have to report that around 111 million of exposure is related to oil and gas, fertilizer, potash and potato producing companies. The rest of the portfolio, so the bigger part is with private sector, corporates, but also households and SMEs and of course some foreign companies. When turning the page then the second Big topic, what we have also, I have to say, not much developments in the recent few weeks is our Swiss franc mortgage portfolio in Poland. It's about one point billion euro terms outstanding. It's close to 29,000 loans. We have an amortization of about 100 million euros per year, so you see it's still a A long-term maturity portfolio. You are aware that the risk weight is different than what you usually have with a mortgage business with 118% risk weight. And, of course, what's the biggest issue is this litigation situation, which is increasing. The inflow is high, about 300 cases per month in total. We have now about 5,500 cases. We have shared with you the model which we use for litigation provisions. And of course, we have to adjust the parameters. So maybe to remind you, what we use is the inflow, the numbers at court, and what we observe, the decisions which first instances mainly and to a small extent or the second instances do in their rulings. These rulings have in the recent past been very much in favor of the consumers. We will see what the Supreme Court will rule on, but the good thing is that the Supreme Court has invited five Polish authorities to give their opinion on this specific problem. You know that the Supreme Court, with all the members, will decide, will give a ruling on six questions which had been formulated by the President of the Supreme Court. Very important questions for the further developments. Probably not all of them touched, but we will see what maybe they would even go further to touch all the problems which are Part of this ruling with the various potential outcomes. What I found somehow confirming our view and what we talked about the last many years was a statement by KNF and the National Bank of Poland. The way I read it and I give you now my short brief summary is that overall the KNF came to the conclusion that at the time The loans were granted. The conditions under which the banks did it is deemed to be fair and not unfair. So this using this effects clause, the tableau, so the way it was communicated, the way the customers were informed were absolutely according to the standards of that period of time. I think the second, which is not important for us, but maybe important for the The public is that finally an authority, a neutral authority stated that some claims in the public that this is a A zero-sum game and that whatever the customers are losing, it's to the benefit of the bank. This was clearly proof that this is a totally wrong perception. So we'll see if this makes any impact on the public perception of this issue. So 2nd of September, it was announced that the full civil Chamber of the Polish Supreme Court will meet again and we'll discuss the six questions.

I don't see enough to the provisions.