Raiffeisen Bk Intl Ag Ord

Please stand by, we're about to begin. Good afternoon, ladies and gentlemen, and welcome to the Q2 2023 results conference call of Rafeisen 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. Ladies and gentlemen, welcome to our Q2 2023 update. Thank you for taking the time today. I'm pleased to report stable operating trends, stable deposit volumes and stable capital ratios. Asset quality trends remain excellent and Hannes will talk about all the details in a few minutes. As expected, loan growth continues to be very subdued, while the high level of provisions in Poland are the unusual and disappointing development in the quarter. We will go through each of these points in the following slides. But let me first address a few of the other topics which I am sure you are interested in. Regarding our options in Russia, first of all, We continue to engage with the many regulatory authorities as we seek to either sell or spin off the Russian business and we are as committed as ever before to reaching a solution. In our last call we mentioned 30th September as the earliest possible date for the spin-off and as of today this appears unlikely. We will continue to work on this option now aiming for the end of December The sales process is equally still on the table, of course, and there is little more I can add today. Remaining in Russia, but on an unrelated note, the intragroup subordinated instruments, which were issued by a Russian subsidiary and placed in Vienna, were repaid in full. The Central Bank of Russia approved the early call and repayment of these instruments based on the very high CT1 ratio of our subsidiary there. Regarding the OFAC request for information, I can confirm that we have produced all the information requested and we have already started to answer some of the clarification requests based on what we have submitted and of course on the many reviews I am convinced that our systems are robust and we will fully satisfy the requests from OFAC. When looking at the results including Russia and Belarus, we have earned 1.2 billion in the first half of the year with a very high headline contribution for these two countries. I believe it is worth taking a closer look however. Due to the weakening of the ruble FX rate, Russia's total contribution to group equity is actually negative this year. The large negative FX move, which goes through OCI, more than offset the headline profit reported in Russia. Excluding Russia and Belarus, we can report a consolidated profit of about 500 million and the return on equity of 7.6%. This ROE is below our full year guidance of 10% and it includes the bulk of the governmental measures and contributions which are booked in Q1 as well as the much higher than expected provisions for litigations in Poland. The high provisions in Poland follow the negative European Court of Justice decision in June which has led to a surge in new cases in our model, both observed and expected. The capital ratio for the group excluding Russia improves to 13.9%, which I will discuss in a few minutes. Moving to my next slide, loans to customers are flat year-to-date, which will not come as a surprise, I guess. You recall that the loan growth in Q1 was largely driven by short-term business and repos, which was largely reversed in Q2. Core revenues, on the other hand, continue to be very resilient and we have slightly increased our guidance for NII and fee income. OPEX are up in Q2, largely reflecting a combination of wage increases and vacation allowance booking. Moving to slide 6 and taking a closer look at NIIN fees. Excluding Russia and Belarus, NIIN improves 4% in the quarter with increases in group capital and markets in our key CE and SCE markets. Generally, what I can say is that we're still seeing some benefits from higher Euro rates, not least in the countries outside the Eurozone where we have very stable deposits. In the CE currencies we do see some depository pricing in Hungary and in Romania and in Czechia our net interest margin has stabilized. We can now guide for 2023 NII excluding Russia and Belarus of somewhere between 3.8 and 4 billion euros. Fees and commissioning come down slightly in the quarter Again, looking at the ex-Russia-Belarus view, and this is largely driven by a drop in group corporates and markets. And here we see a reduction in Russia-related business, such as payments, clearing, and defects. And it's also having an impact on the head office. In extraordinary fee businesses, The business here in Vienna was down, we continue to see a decent NFCI growth in our key CE and SCE markets. We continue to see a drop in fee income, which is both a reflection of our efforts to reduce specific activities there and a sharply lower Euro-Rubel rate. Full year guidance for NFCI, excluding Russia and Belarus, is slightly increased to 1.8 billion. Moving to the next slide, the balance sheet developments are now in slide seven. We look at loans and deposits. And as I mentioned before, loan growth very muted again, very much as expected. You will recall that Q1 loan growth was largely driven by short-term and repo business in head office, and this was reversed in Q2. Retail lending has slowed noticeably, in particular mortgages, and corporate volumes are pretty flat. On the deposit side, we've seen increase in CE and SE, whereas in head office, we saw further reductions in the very short term. Price-sensitive deposits. These deposits have no value to us from a liquidity perspective, and considering our very comfortable liquidity position, we prefer not to pay up for these, and this brings me To my next slide, where we take a closer look at liquidity, which is slide 8. And here I'm very happy to report that liquidity is very good. Our coverage ratio and the NFCR are excellent as always. And each of our individual units are solid. Head office, as you know, is wholesale funded and does not accept retail deposits. The ratios here are equally strong, and as I mentioned to you last time, we run a very conservative, very conservation runoff scenario when we stress our liquidity. If you assume 100% outflow on all liabilities, including, of course, all deposits over the next 12 months, we will still be very liquid. Last quarter, we reported over $1 billion of excess liquidity after 12 months, In this extreme simulation and in this quarter, the result has increased to around 2 billion. As I said last time, I don't think that you can have a more conservative approach to manage your liquidity position. Coming now to slide 9, what you see here is a stable C to 1 ratio. We had a couple of Fx-related negative impacts compensated by the retained earnings of 58 basis points. To remind you, on the lower part of this slide, the earmarked 80 cents per share CET1, which are 27 basis points in CET1, are deducted, of course, from this regulatory capital. and what I also have to mention is this is a transitional number we benefit from the IFRS 9 by some basis points. Coming to the next slide which is the outlook so here we say on total group we expect to be above 16% and you see the drivers which are retained earnings which are On the negative side, some RWA increases. We expect a small loan growth, but also we expect higher market and operational risk-driven RWAs. We have a positive impact from the effects, which is based on our rate forecast. And then we have some inorganic effects, which should be positive. Since a while we share a very harsh simulation which is a price book zero deconsolidation of our Russian entity and we have set The target to be above 13.5, which actually is at the end of June, it would have been at 13.9. The basic assumptions are 4 billion of IFRS equity and 14.5 billion of RWAs, which for clarification are not only the RWAs in Russia, but also on head office levels. RWA for the market risk for the structural position what is not included in the 13.9 is a potential upside from the operational risk currently we have a 40 pips impact from the operational risk because of the good Income Situation in Russia and here it in case of the consolidation it would be in the hand of the ECB if they would allow an immediate impact on that or the standard phase out approach. Yeah, I think the the next slide 12 is more for your documentation as you are all aware of the various requirements what we have and the forecast of additional requirements till end of the years to be used by early next year. I would move to the next slide 13 which is some information on the MREL requirements and the funding plan In RBI AG we currently have a solid 14.6 emerald ratio with all the details what you see here and all I can say is that this of course is a result of the fundings what we did earlier this year. We consider in the course of this year senior non-preferred issuance to maintain the loss-absorbing capacity and support credit ratings. When looking at other members of the group, what you see is that most of the countries, Czechoslovakia, Hungary and Croatia are above the requirements for this year and Romania still has a little while to go there. One update on Russia. Here I have to make you aware that, of course, as we throw out the report in euros, you see a further reduction in loans to customers year to date. But the large part of this minus 21% comes, of course, from the ruble devaluation against the euro. The net cross-border exposure was reduced further. You might remember we had on 1st of March last year 600, we are now down to 170. And what I explained from the loans to customers, what you see here as well when we discussed the RWA impact in Russia under IFRS, here you see a bigger part comes from the FX impact, from the reduction. When looking at the bank in Russia, you see a very strong bank with a CDT-1 ratio of 13% pro forma and a significant buffer, which in absolute terms would be 3 billion above the minimum requirement, and also the liquidity ratio With an LCR close to 400% is very strong, which is not a surprise when you look at the loan-deposit ratio, which is down to 42%. We have seen, coming now to the outlook, we have seen a slowdown in Europe in the first half of the year with Hungary and Czechia entering into recession. Recovery will come in the second half of the year. We see mainly the manufacturing industries which suffer, especially those countries which have close relationships to the German partners, whereas in the southern part where tourism is significantly more important, we see a relatively positive development. Inflation and high interest rates have an impact on household demand. Thank you very much for your attention. A scenario with a rebound in 23 driven by some fiscal measures. Yeah, on 16 you see our inflation report on these countries and also what we expect in the key rate developments. It's easy to say that with the exception of Serbia, we expect that we have seen the peak already. and those countries which started earlier have very high key rates. We expect already this year a reduction, what you can see here. This brings me to slide 17, the guidance for this year. I have mentioned it in the introduction. Net interest income somewhere between 3.8 and 4 billion, fee and commission on 1.8 billion. This is the group excluding Russia and Belarus. On total group, this would be 5.3 to 5.4 and fee and commission income 3.2 to 3.4. Small loan growth in the non-Russian Belarus area, OPEX around 3.1 or 4 respectively. Low risk costs, profitability around 10% on let's call it the core group and on the total group rather 17% and see the one ratio I have mentioned already above 13.5 and 16 respectively and with this I hand over to Hannes.

Johann, thank you. Good afternoon, ladies and gentlemen. Thank you for joining us today. Following this call, and maybe after a few other earning calls, I hope you enjoy your summer holidays. I will be briefed this afternoon with relatively straightforward developments in the second quarter. I'm sure you have seen it. Asset quality remains very good, and we are still not seeing any big up in insolvencies and defaults. Accordingly, the risk costs in the quarter are very low, For the core of the group, four basis points are 50 million euros driven by small incremental overlay bookings, while for the group including Russia and Belarus, we actually saw net releases. This is the result of overlays being released in Russia in line with exposure reduction in the country. Regarding overlays, we now have a level of 865 million euros. As mentioned, we released some in Russia and booked a small amount in the core of the group. You recall from our Q1 call, we conducted an internal stress test on our commercial real estate portfolio. This exercise confirmed that our provisions in Austria and group corporate markets are adequate, and we took a few extra provisions in Czech Republic and Hungary. Also in the first half of the year, we participated in the IBER stress test, for which the results are announced on Friday. This process is always a very demanding one, and I'm very proud of the way my colleagues have delivered all the calculation and data on short notice. A big thank you to my colleagues who have executed on this stress test. The outcome for RBI is very satisfactory. Our capital depletion in the adverse scenario is 360 basis points, below the average of the European banks, and more importantly, The outcome, if you exclude Russia, is broadly unchanged using similar assumptions. You also will have noticed that both Moody's and SMB affirmed our ratings this quarter. In fact, Moody's even upgraded our VI group. Putting together the stress test and the rating information can confirm that our business model and balance sheets are extremely strong. Finally, as just mentioned by Johann, We have updated parts of our guidance for 2023, and this includes some changes for the risk-cost expectations. For the group including Russia and Belarus, we can now guide for around 60 basis points, while for the core, including those two countries, we expect up to 45 basis points. Keep in mind that of course the core includes Ukraine, We expect around 30 basis points of risk costs this year. As I promised, to be brief, I have tried my best. Let's now run through the slides and more interesting move on to the Q&A. I would now move on to the page 20 where you can see the details of Stepanenko, Magistrate Marie-Valerie Brunner, Sabine Abfalter, Harald Schönauer, Helmut Breit, John Carlson, Peter Schmutzer Maybe as a background information, usually we try to deploy the concept of overlays in a manner that whenever we see exposure reduction, that we have to and that we can release on a pro-rata basis also the allocated provisions, which leads then finally to a release of provisions of 42 million euros in the second quarter. I'm on page 21, and if you look at the RWE development, we have finished year-end A quarter end 31st of March with 98.6 billion euros and the first half year we have finished with 99.2 billion euros. What are the biggest changes? The one is the inorganic effect. We have updated our rating models on the FI side on specialized lending and at the same time we also have seen a pronounced FX impact of 1.7 billion euros leading then finally I'm already on page 22. And I want to give you an update on the Poland Swiss franc situation. So we have currently cumulated stock of provisions when it comes to litigation provisions of almost 1.2 billion euros. So you can see that in the first half year, we have increased If you also consider what is our capital consumption from credit risk RWAs and impairments, we would have a current CAD1 equivalent coverage of €1.5 billion. This €1.2 billion of level of litigation provisions is around about 63% of the outstanding cross-exposure. Well, page 23 would just highlight the MP ratios per segment and with the respective coverage. But as I said, I'm aiming for being very brief and being more curious about your questions.