Raiffeisen Bk Intl Ag Ord

Good afternoon, ladies and gentlemen, and welcome to the preliminary results 2022 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 for the kind introduction. Ladies and gentlemen, welcome to our call. It's about the preliminary 2022. Results. Thank you for taking the time out at your busy schedule today. The results, as you have seen, are very good. These include, of course, an unusually high contribution from Russia, with many distortions caused by the war. I believe, however, that the underlying trends and the performance of the rest of the bank is also very good. The overall consolidated profit is around $3.6 billion. for an ROI of nearly 27%. The underlying profit, if you adjust for Russia, Belarus, and the one-time gain on the sale of Bulgaria is around 982 million euros and an ROE of 8.7%. Please keep in mind that this includes €448 million of provisions for litigation in Poland and €253 million of risk costs. This gives you an idea of the very good earning capacity of our core businesses. As we will discuss in a minute, our CT1 ratio improves to 16% consolidated and 14% if we assume a full write-off of our Russian business. If we move to the next slide, then you see that our loan book has grown nicely in Central and South Eastern Europe, while we had reduced significantly in local currency terms in Russia and Belarus. Core revenues have improved nicely as well, in particular for the business excluding Russia and Belarus. Our adjusted cost-to-income ratio of 50% is also very satisfactory. Let me move to the next slide. Let's first discuss the dividend. On the one hand, the very good results across the group in 2022 and the strength of our balance sheet mean that we are able to pay a dividend. The proposed 80 cents per share are roughly 26% of our normalized earnings. On the other hand, considering the uncertainty ahead, we need to be prudent and will wait for more visibility. We have made a lot of progress on the CT1 ratio, and as we stabilize around the current levels, we will be in a better position to distribute. Until the decision to distribute is made, we will deduct the 80 cents per share from our capital ratio, as this amount is earmarks for our shareholders. As mentioned, our ability to propose a dividend is also a reflection of our very strong balance sheet. The net of the proposed 80 cents per share, we have strengthened the RCT1 ratio to 16%, and more importantly improved the RCT1 ratio excluding Russia to 14%. At the same time, we have grown the loan book in our key markets, digested the RWA inflation from rating downgrades and other inorganic effects, and provisioned conservatively. We have also improved our MRL buffer over the course of the year. I would like to take a minute to highlight the remarkable job our colleagues in Ukraine have done and the excellent performance of our bank there. First, by ensuring business continuity in the early days of the war and again when the country's energy infrastructure came under attack. There was extensive preparation done before the invasion, including for blackout infrastructure such as generators, diesel power banks. Within weeks, all data and critical systems were successfully moved to the cloud. Most importantly, we experienced no downtime of any consequence. Reifersen Bank Ukraine is a major contributor to the banking infrastructure in Ukraine and one of the best performers under these extreme circumstances. The feedback from both customers and authorities alike has been anonymous. Second, Raiffeisen Bank Ukraine has strengthened its capital position while also taking a very conservative approach to risk costs. The revenue potential of the bank is also intact with a stable customer base and market shares. In fact, among the privately owned banks in Ukraine, we have seen the smallest loan book reduction and we have the highest share of customer assets relative to the balance sheet. In critical industries, We have maintained our lending exposures or even written some new business. Operating income benefited from the high interest rate environment as well as excellent fee business and trading results. This has allowed us to absorb their significant risk costs without showing a loss for the year. More importantly, Reifhausen Bank Ukraine demonstrated very strict cost discipline which largely offset The unexpected OPEX pressure caused by the war, such as cloud migration and relocation costs, financial assistance and donations. All in all, I am very proud of the job done by our management and colleagues at Raiffeisen Bank Ukraine. Let's move to the next slide. As mentioned already on the second slide, we have seen very good growth in core revenues this year. And you can see this on slide seven. We have seen both NII and fee income growth for eight consecutive quarters. In the most recent quarter, we have again seen excellent growth in the core group, excluding Russia and Belarus. We continue to see benefit of higher rates through resilient liability margins, both in euros and domestic currencies. In the Czech Republic, you will have noticed a 38 million drop quarter on quarter. Now, to a large extent, this is coming from a line shift in revenue recognition on a fixed derivatives. If we focus on the underlying business trend, we see a small drop in the quarter, around 8 million, which is coming from the deposit mix. We have seen some of the current account volumes move to saving accounts and term deposits, which of course have a better yield. Fees and commission income is largely driven by Russia this quarter, and elsewhere growth was lower. Looking at the core part of the group, FX business saw lower volumes. And of course, the loan and guarantee line usually tracks the lending volumes, which were also muted in the quarter. Let's move to the next slide. And what you see here is what I have mentioned earlier in the business areas, excluding Russia and Belarus. You saw a nice loan growth by 6% year on year. And I think also the deposit growth is very good within the group. I leave you with this slide and move to the next one, which is the Waterfall of the CET1 ratio development for Q4. And what you see is a significant improvement by more than 130 basis points to 16%. Coming from various areas, reduction in the loan book, some other credit risk reduced, and market and operational risk. So overall, Also important to have the retained earnings to be considered. Negative, we have seen, of course, the effects rate, which happened rather at the year end. And of course, I should mention here, as it stated, the earmark dividend is excluded from the 16%, and you should be also aware that these are numbers from the traditional application of IFRS 9 where the benefit is about 44 basis points. If we now look at the outlook on capital for 2023, so you see our assumptions on organic impacts from retained earnings and the RWA Thank you very much. Thank you. And what you see here is the impact of a deconsolidation scenario in Russia. Of course, redress expectatively on the 31st of December 22. We would have landed at 14%. And if we look forward, we will steer the group in a way that for sure we should be above 13.5 if this would happen. The core The numbers are the 4.2 billion of CED1, which would be deconsolidated without compensation in this calculation, and then RWA, deconsolidation of 15.8 billion. Be aware that the subordinated instruments which are held by the group are not deducted in these numbers, so if we wouldn't get any compensation for this as well, this number, 14%, would be lower by 30 basis points. On the next slide, 12, you see an overview for your convenience for the core numbers on group level and the various MDA triggers, MDA buffer, and the available distributable items. I think the numbers speak for themselves. You see the increases in some of the The buffers on the right-hand side of this slide. Moving to the next, you see a good improvement. So this 13, what you see is a good improvement over the year on our MREL and funding. And you might have also seen that in addition to what we report to year-end, we had another MREL eligible issuance at around 1 billion at the beginning, just recently in January. If we then move to the next, you see a few information on liquidity and MREL resolution groups. You know, we have this multiple entry point concept. The LCR very well improved. NSFR, very good. So I think we have in all these aspects very good numbers and for your information you see also the upcoming funding needs to meet also in the other resolution groups the respective requirements. Moving to the next slide, this is the second part of the Russia update. What you have seen is A huge decrease in RWAs, 6.3 billion, half of it was the FX development and the other elements, reductions in the credit RWAs, but also in the liquidity, in the RWAs required for liquidity, and yeah, I think But one might also mention here, to give the total view, we have net cross-border risk to Russia of slightly more than 200 million. And as we also reported, our trade finance guarantees to Raiffeisen Bank Russia, which are about 80 million. Of course, with these very good results, the Russian entity is more than well capitalized with a CO2-1 ratio on local standards by more than 27%, which is an enormous buffer. And also, if you look at the liquidity ratios, the numbers are very strong. Coming to the next slide, which is 16, an updated macro outlook from our own sources, Raiffeisen Research. The basic assumption is that the beginning of the year sees, of course, a slowdown, maybe a slow recession, but then also some recovery in the course of the year so that overall in Central Europe we expect that the year brings a small growth of about 1%. Lightly more as the structure is different, the industry structure is different in Southeastern Europe with on average around 2% and Austria 0.5% after the strong 5% growth in 2022. We see a stabilization in Ukraine after the huge drop because of the war by a third in 2022. and we see a further decline in Russia by around 4%. Next slide gives you our view on interest rate developments and also some flavor on where we expect inflation will be. It seems if you look here that in some markets we already have seen the peak of this rate cycle and in the second half of the year we already expect Great decreases like in the Czech Republic and in Hungary, stable development in Romania, Serbia and the Euro, of course, we see some further increases. Coming to my last slide before I hand over to Hannes. I think here it's... I would abstain from, in the reading exercise, this slide is full of numbers, the best what we can share with you, what we expect within these years. This probably might also answer most of your questions already, what you usually had. But with this, to Hannes. Hannes, please.

Johann, thank you very much. Good afternoon, ladies and gentlemen. I hope you have had a good start to the year, and thank you for joining us for our first update of 2023. Before we discuss the coming year, however, I would like to spend a minute on where we stand after a challenging year. Johann has mentioned the positive development of our balance sheet, and there is but little for me to add. We finished the year with a non-performing exposure ratio of 1.6%, stable on the year, and again, a very good stage 3 coverage ratio of 59%. In most of our countries we saw few insolvencies which allowed us to build up our overlays and BOST model adjustments. Please bear in mind we have 729 million years of overlays available to us for any risk costs beyond what is already budgeted for the next year. There have been a number of RWE headwinds this year and I believe we have managed them well. We have been proactive all year in reviewing our exposure in our internal ratings, initially with the war in Eastern Europe, followed by inflation spikes and energy crisis. This has been definitely a very busy year for risk manager. I shared with you some of these portfolio analysis performed during the year, and I'm otherwise satisfied that our portfolio is fully reviewed and up to date. Not to forget the bank's liquidity situation, which is excellent, both on the group level and each of our individual countries. While there was some initial volatility in March, this did not last, and we have seen consistent liquidity inflows since then. And of course, you're aware of, since I'm not getting tired in repeating, our rating has been confirmed by Moody's and S&P already in March. Focusing on Eastern Europe, I would also like to highlight the very good performance of the Ukrainian colleagues. The cost of risk, unfortunately, reached our initial guidance this year. And yet, despite this, the capital situation of our bank in Ukraine is sound. In local currency terms, we have maintained our loan book roughly flat, with any drop largely attributable to the increase in provisions. We wrote new business during the year, supporting the agriculture sector and related industries. In Russia, we have reduced the loan book by 30% in local currency terms. We will continue to selectively replace corporate exposure with retail exposure. Russia is an example of our active RWA management. And you will recall, of course, the rating downgrades and the liquidity inflows, which led to substantial RWA inflation in the first and second quarter. On the provisioning side, we also came to the upper end of our initial guidance. Here, however, this is largely driven by Stage 1 and Stage 2 bookings. Again, the revenues have more than made up for the risk costs, and the capital situation of the Russian bank is well above the regulatory requirements. Now, as we look ahead to 2023, we see some reliefs in otherwise challenging environments. For corporate customers, many of the post-pandemic tailwinds are now over. The very positive momentum that we saw in 2021 and the first half of the year 2022 is behind us. We were talking about the deteriorating consumer confidence, and this usually of course comes after certain lagging with economic consequences, which is now anyway the accepted new reality. But we have a complete new rate environment. What is also important for me to say is that on the other hand, the doomsday energy scenario have not materialized. Let me move on to the next page, please. What we understood from all your feedbacks that you would appreciate a little bit more color in splitting up our risk-cost guidance to the different segments. Well, on group, corporates, and markets, CE and SCE, I think the headline would go stagnation or possible slight recession in a combination with higher rates and persistent inflation. As I said, we have now already a stock of overlays of 729 million euros. And so 2023 might more be focused on state three bookings. We believe that we could see up to 440 million euros in the segment mentioned. You may consider this on the upper end. And I would dare to agree. At the same time, please bear in mind the sudden defaults, what I'm also usually flagging, and these you would most probably find in this segment. The other two segments I picked out are more difficult when it comes to risk-cause guidance. For Russia-Belarus, of course, it becomes now evident that the same sanctions are making their impact. Ongoing recession, especially if commodity prices drop and global growth decelerates. So here we would believe that risk costs could sum up to somewhere around between 250 to 270. And Ukraine goes without saying that this is more than challenging to come up here with any well-founded and sound numbers. So we again came up with this 200, 220 million euros. But please bear in mind, if you look at the risk costs from Ukraine, that also here we have an overlay for extraordinary situations of around about 50 million euros. Having said this, let me move on to the next page when talking about IFRS 9 provisions. As said in my summary, total 949 million euros and big part of it was anyway not in the stage three. So mainly in stage one and stage two. You can see here all the details, the moves between stage one and two, adding a little bit on the macro side, on the other hand side, having the capacity to release the one hour overlay. And the quarter four has been mainly driven by stage three bookings. Having said all this, I'm sure you also have recognized a strong drop on RWAs. If you look at this drop of 10.8 billion euros, I think you have three main buckets. The one is the credit risk RWAs. And here you have two effects. The one that short-term exposure has been reduced. And on the other hand side, also local liquidity placements in Russia have been reduced. and on the other hand side we have conducted in the quarter four some new securitizations and guarantees. The second big part if you try to explain the 10.8 billion euros drop in RWAs comes of course from the FX which is summing up to 4.4 billion euros. Obrisk and I will talk about this in a page. We have switched back to the standardized approach. and Markerisk RWS also have been reduced because we have reduced our USD hedging. Let me move on to one of our big blocks, what we also have allocated in our 2022 numbers, and this is about Poland. As you can see on the right hand side, we have now increased our stock of provisions for litigation to 803 million euros. and we have added another 262 million euros for new provisions for litigation in Q4. What is important for me is, as I said beforehand, we hand back our advanced measurement approach on the op-risk and therefore being capable to report reduced volatility when it comes to op-risk RWAs. I anyway was talking about the NPA and the coverage ratio on my introduction And so I would stop here my presentation and we are eager to take your questions. Thank you.