Raiffeisen Bk Intl Ag Ord

Good afternoon, ladies and gentlemen, and welcome to the full year 2021 conference call of Reifeisen Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Welcome to all of you on this 2nd February 2022 at 2 o'clock. You see, I appreciate the favor my colleagues did to me. Sometimes we find numbers which we love, and I hope that you will also love the numbers what we report to you. It's our full year, still preliminary result, but what you see from the numbers is we have changed our processes, so we are definitely faster than what we had been before. In the past, and I'm very happy that we also achieved that. The numbers 1.372 billion. This is above the pre-pandemic result. And what we see is after a slow first quarter, we are encouraged by the progress shown every quarter in lending in revenues and in customer acquisition. and more importantly, the strong fourth quarter confirms the strong trends from Q3 and gives us a great momentum heading into 2022. The net interest income increased by 7% year on year, reflecting not only the better rate environment, but also a very strong demand for loans in both corporate and retail. We're also very pleased that with another record quarter in fee and commission income, which was 561 million and this was driven by an excellent business trend. A very good core revenues growth has brought our cost income ratio down to 53.5%. While we have some exceptional integration costs in 2022 relating to the acquisitions we made in 21, we continue to focus on scale and efficiency across the organization. Our loans to customer grew by 15% last year with strong organic growth in all our key markets. And this includes also the acquisition of Equibank. We expect the strong loan growth to continue in 2022, although perhaps not at such a high rate. Our CT1 ratio stands at 13.1% and the consolidated return on equity is 10.9%. Just below our midterm target of 11. I now move to the next slide, number five. And in light of these good results, but also in consideration of the good growth prospects for the coming year, the board will propose a dividend of 1.15 euros per share at the upcoming shareholder meeting. This represents a payout of 28% on the Consolidated Profits Since our last investor call, we have announced the sale of our Bulgarian bank and expect it to close towards mid-year. This was not an easy decision. And we are very proud of the work done by our Bulgarian colleagues to build one of the best banking franchises in the country. We believe that we fully realize the value of our subsidiary in Bulgaria and the capital generated by this transaction will allow us to accelerate our growth in other key markets. I would also like to highlight the very good progress we have made in retail and specifically in driving the digital transition across our markets. We have reached or exceeded our 2021 target and have now set ourselves further ambitious targets for 2023. We have over 7 million digitally active customers Many of which are active on mobile and we now aim to reach 10 million by 2023. Mobile penetration is in line with our target and more importantly we have significantly increased the mobile penetration in our lowest scoring market. Our share of digitally initiated sales has continued to improve throughout 2021 and more than half of our personal loans are initiated online by the customers. As we look ahead, we will focus on fully end-to-end digital sales across all core retail products. Finally, in 2021, we have signed the United Nations Principles for Responsible Banking. This is an important first step towards integrating ESG into our steering and risk framework. We have performed the impact analysis of our portfolio and we have chosen to focus on climate change and resource efficiency as these are the impact areas most relevant to RBI. Next, we will set our targets in line with the science-based targets in 2022. We will, of course, update you on our progress in this regard. I'll now move to the next slide. And here, We have the traditional quarter on quarter results. And I think what I should rather than talk a little bit more in detail on the next slide is on the net interest income and the net fee commission income. What you also have seen here is a substantial increase of OPEX. This comes from some staff increases. But also quite a lot of marketing expenses in some of our markets, TV and online marketing. And of course, we had higher consultancy fees given our M&A activities than what you usually have in the head office. If I may move now to the next slide, then here I have to focus your attention on the Fantastic NRI in the quarter, but you have to be aware that after a detailed discussion what we have within our finance division, we came to the conclusion that our preferred approach, so to account the bonus what we get from the TLTRO over the full period might not hold in any Thank you very much. Thank you. In the fourth quarter, everyone has to be aware that in addition to that, we had some positive impacts like FX this time was positive on the NII from Rugal and from the Krivna. We had a significant loan growth, which adds more than 20 million. And of course, the rate increases were also contributing Well above 30 million to the overall improvement. The other thing what we like very much is also the NFCI. You can see that we are well above the pre-COVID level as Q1 2020 was still a year without a quarter without COVID. And so we are very happy that in all the areas we were able to improve substantially. Moving to the next slide, here I have to report on the exposures what we have which are related to the geopolitical tensions what we face. I think this in a very, very, very positive environment is, let's say, the focus point which might somehow have a negative impact in the near-term future. We'll see. It's mainly about the sanctions. If they will come and if they will come and in which way they will come. So you are aware that we have over the years unfortunately got quite a lot of experience how to deal with sanctions operationally, technically. Currently we We can only monitor the sanction language, what we see from the US and the Europeans. And on the other hand, of course, we closely monitor what's going on in the countries itself. Just as an update for you, we have a loan portfolio in Russia, which is 11.6 billion. And you see in the lower part of slide number eight, How it splits, so we have a considerable volume in households in the SME. We have half of it in the corporate private sector. And if we follow the sanction language of international community, then you see that we also have some exposure with potential targeted legal entities in Russia. Our own exposure, so RBI direct exposure is, as the bank in the country is fully funded, is mainly the capital, which is equity plus some additional tier one and subordinated, it's 2.4 billion. The bank in Ukraine is substantially smaller with a loan portfolio of 2.2 billion. Our equity exposure is 320 million, but here you have to be aware that 30%, which is not included here, is owned by EBRD. Both banks, you know this from the numbers already, both banks have been doing very well in the recent years, and especially last year, contributing substantially to the overall consolidated profit of the group. If we move to the next slide, then There is the second pain point, what we have in our portfolio, which is the Swiss franc mortgage portfolio in Poland. Here the current situation is, and many of you are well aware of it, so the exposure is around 2 billion in Euro terms. It's close to 29,000 loans with an amortization of about 100 million a year, so a long-term portfolio. The litigation got quite a lot of attention. The law firms and the funding units for these litigations are well organized, which leads to more than 7,000 cases already at court at the end of December. And we see a strong inflow also for the coming This huge inflow and some changes also in the rulings at court made us change our assumptions what we use. So we have a model and of course input factors have to be adjusted from time to time. So we did it by the year end. and this led to a substantial increase of the litigation provisions by another 133 million in Q4. So the current exposure is now, so that the current litigation provisions, the stock is now 364 million. When this is a substantial burden in the BNL, but also if we consider the provisions, Thank you very much for your attention. If we now move to the next slide, number 10, you see that also in the last quarter loans to customers grew by another 4% and this was the positive impact I have been mentioning already before. What you see is a continuous improvement in the long-term corporate loan demand. What we face here is indeed more investments, but also, at least anecdotally, the one or the other who considers the high inflation and rather wants to have a little bit more of leverage because of that reason. There is a very good and stable development in retail, unsecured and mortgage loans. At relatively stable levels and historically also relatively high. It's a couple of quarters statement and where I have nothing to add that the liquidity situation is very good. Moving to the next slide, you can see here our capital ratios. Given the very good loan demand, the CET1 ratio is at 13.1. Biller 2 requirement as of February 1st is 2.2. And the Biller 2 guidance of 1.25 now is solely covered by the CET1. I do not go into detail for the combined buffer regime. It's more for the reading. If you look at the waterfall to the capital, you see a very balanced approach. We had this nice growth. In the loan portfolio, we had a couple of offsetting activities like securitization, which you probably know quite well, and retained earnings helped us to be above the 13%. Moving to slide 13, here is an outlook what we expect in our issuing activities. You know that we are now in the process to build the MREL requirements. So what we plan to do in 2022, you see the five countries here, Czech Republic, Slovakia, Hungary, Croatia, Romania. and also the quality what we have what we want to do and Romania could also be denominated in RON and of course also in head office function we will have some some further activities in the lower part again just for reading you see the current MREL ratio requirements moving to the next slide 14 Here we share with you our current expectations on the loan growth in the markets, which is somewhere around 7-9% in the core markets, which gives us a quite positive outlook also for this year. Next slide, this loan growth is based on a solid GDP development and here I do not even have to go into the details as more or less all the countries in Central Europe and South Europe are in the range of 4-5% and the East Europe is back to the growth potential at around 1.5%. Belarus suffering a little bit from the sanctions what we have already and hopefully Ukraine will do fine. Moving to the next slide, we decided because of this special impact to differentiate between 2022 guidance and the medium term targets. In 2022, we expect that also the NII will grow by high single-digit percent and the net fee and commission income. We still believe that the mid-single-digit percent is possible. I already mentioned the loan growth, which will be in the range between 7% to 9%. We face pressure on OPEX for a couple of reasons. But for sure, wage pressure, also some digital investments, what we still continue. And in addition to this high single-digit percent OPEX growth, you have to be aware that because of the integration of Equa Integrity Agricultural Serbia entity by additional 100 million, and so we expect that If we would exclude the one-off integration costs, our cost-income ratio could be again back to the 55%. Talking about risk costs, Hannes will talk in more detail about it here just to be complete. We expect around 40 basis points. And this would mean that if we consider also the sale that proceeds from the Bulgarian sale, the ROE might be or should be above the 11% and to see the one ratio will be again around or above the 13%. And if we then move to my last slide, Thank you, Johann. Good afternoon, ladies and gentlemen. From my side as well, let me wish you a well-worn welcome. And thank you for joining us today.

I hope you're healthy and I know that you are looking forward to the end of this pandemic as much as I am. As usual, you know, I would like to start with giving you an overview where we are and when reflecting on 2021. Risk cost amounted to 295 million euros in 2021 and this would translate itself to provisioning ratio of 30 basis points. Stage 3. Thank you very much. Looking at 2021, we also have increased our precautionary provisions for sanctions and geopolitical risk in Eastern Europe by 73 million years. In addition, we have added another 81 million years when it comes to potential COVID-19 effects. What is now important for me, if you look at it, we have now an accumulated stock of 450 million years of provisions, including 150 million years for sanctions and geopolitical risk. and 250 million euros for non-retail book. You know it, but just to re-emphasize it, the quality of our portfolio remains very strong, measured posed by the record low MP ratio of 1.6% and the very prudent state three coverage ratio of above 60%, having a very strong and low BD of our portfolio. As you have heard from our CEO, we have grown our loan book nicely this year and I'm satisfied that this has been done without any compromise to our underwriting statements and standards. Since I may assume that anyway there will be the one other question when talking about Russia and Ukraine, maybe I could already cover the one of these questions up front. And let us remind ourselves, and you know it very well, those who are following us closely, we always And we did so to manage our overall exposure to Eastern Europe in a way which is consistent with our risk appetite in terms of capital allocated, liquidity, and risk management approaches. Secondly, in both Russia and Ukraine, we started the year with an excellent portfolio quality, again measured by VDs in our long portfolio, and as well as you can see, with a very low MP ratio and with a good coverage ratio. Throughout the second half of the last year, we have increased our FX hatching to protect our CD1 ratio from the FX volatility. It goes without saying that in situations like this, you beef up your liquidity and business contingency measures are being introduced and executed. I have mentioned the additional provisions we already have taken for sanctioned geopolitical risk. And of course, we do regularly review our assumptions for the risk-cost sensitivity 3DB. Just to remind, in total we have now a stock of 150 million euros in this specific bucket. Lastly, I would also like to give you a hint on what we have done since 2018. We have included in our loan documentation all the sanction clauses, which would allow either not to further provide financing or even to accelerate the repayment. Moving on to the credit outlook and listening to our CEO and to macro forecast, I can confirm the very positive trends I have shared with you last time. When talking to our custom corporate customer and also looking of course to industry surveys, we see continuous and good filled order books. Also strong confidence. Supply chain disruption seems to have lower impact from time to time going on. When thinking about our retail portfolio, employment is back on the pre-pandemic level and in some countries we are nearly at full employment. Consumers are spending and we expect to build up savings to continue to support demand in the coming years. Those without saying, and I have to do this, let me make you aware also of the wild cards.