Raiffeisen Bk Intl Ag Ord

Good afternoon, ladies and gentlemen, and welcome to the Q3 2024 results conference call of Refisen 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, ladies and gentlemen. Thank you for joining us today for our third quarter results call. For the first nine months of 2024, we can report consolidated profit excluding Russia and Belarus at €156 million for an ROE of 8.6%. With decent earnings in the quota and stable RWAs, the CD1 ratio for the group on the worst-case scenario in Russia improves to 15.3%. This is a nice sprint, of course, but our guidance for the full year remains in the 14.7 area. I will touch on this in more detail in just a minute. On slide five. Loans to customers were pretty much flat in the quarter with some loan growth in our networks and a very wide third quarter for GC&M. Revenues are broadly stable with NRI decreasing. All bad, not as fast as we had expected. And fee income is holding up well despite the very slow lending activity. Operating expenses are up 6% versus the first nine months of 2023. And the cost income ratio for the period just under 51%. Before we look at these trends in closer detail, allow me to update you on the progress we are making in Russia. Last quarter we shared with you the key measures we have taken to accelerate the reduction of our business there. These measures have now been fully implemented and we are already seeing tangible results. Loans to customer decreased 23% in the quarter. With very few exceptions, we are not landing. Our loan book will shrink according to the maturities in our portfolio. Some of the drop that you see in these results Thank you very much. Thank you. We will continue to exercise what levers we have to reduce deposits, including pricing at 0% and maintenance fees where possible. Terms deposits have already nearly run off and we are not accepting new ones. We have implemented a near-blanket ban on outgoing payments in foreign currencies and our volumes have collapsed accordingly. We are still working our way through a very small list of customers with whom we may do business going forward. Again, this will be large internationally active customers and for each of these we will complete a new individualized compliance statement. We continue to explore ways to exit, partially or fully, and until we do, This accelerated business reduction is our central scenario. At the end of the summer, we made an announcement regarding the court proceedings which have led to a ban on the transfer of Reichsweisen Bank Russia shares. The only comment I can make is that these proceedings will add further delays to our exit timeline. There is nothing more I can add at this stage. One last comment on this slide and the RWA development in Russia. As we discussed last time, the shift of excess liquidity to the CBR came with higher risk weightings compared to where we had placed our excess liquidity previously. The shift is largely completed and going forward, there is not a big difference between the risk weighting in our loan portfolio and on deposits with CBR. This means that as the loan portfolio amortizes and liquidity is moved to CBR, we do not expect significant upward pressure on our WAS. Moving to our next slide. Core revenues in the quota are slightly down. Net interest income excluding Russia and Belarus is down 1% and the trend is clear. With that being said, net interest income this year has not decreased nearly as much as we initially feared, and specifically the two businesses where we feared the biggest drops, GCNM and Hungary, the decline has been more benign than expected. For the full year, our guidance is confirmed around 4.1 billion euros. Fees? All main products are stable in the quarter and in the first nine months of the year. Romania was the bright spot this quarter, where the corporate book was up 5% and the retail book up 3%. In our other network units, growth was modest. In head office, however, new business origination was very weak, which combined with scheduled maturities led to a net decrease in the quarter. Looking at it by product, New mortgage and personal allowance origination again showed signs of life and confirming the positive trends already seen in Q2. New corporate origination was down in the quarter largely in head office, as just mentioned, and in Hungary as well. On the deposit side, while we do see a drop in the quarter excluding Russia and Belarus, upon closer look we see that for the most part this is coming from non-retail deposits. The drop in corporate deposits was primarily in head office Ukraine and Hungary. Corporate deposits are usually more price sensitive and the excellent liquidity across the group means that we do not necessarily have to compete to retain these deposits. More importantly, deposits from households were up 4% in the quota in Euro terms and 1% excluding the effects conversion. Which leads us to my next slide and an overview of liquidity across the group, which is very stable in the third quarter. Liquidity coverage ratios for the group, key network units, and head office are all stable in the quarter at very comfortable levels. Let's now look at the capital slide, starting with the CD1 development in the quarter, which is stable at 17.8% for the fully consolidated group. In this 17.8%, we have accrued a dividend based on the regulatory guidelines, using the payout of the previous year. This is no indication for our dividend plans for the fiscal year 2024. And like in previous years, we will make a proposal with our preliminary Q4 results, which is based on our C to 1 ratio, excluding Russia. By year end, we expect to be around 17.3%. This drop is largely coming from the yearly recalculation of operational RWAs and to some extent higher market risk RWAs. We do assume some loan growth in Q4 as well. Let's move to slide 12, an RCD1 ratio in a scenario where the Russian subsidiary is lost. From 14.7% in Q2, we now stand at 15.3% and an MDA buffer of 344 basis points. RWAs were down in the quarter, which combined with decent retained earnings explains the increase. In Q4, the recalculation of operational RWAs and assumed long growth that I have just mentioned will also impact this X-Russia C-to-1 ratio. This is why we can already guide for a reversal to around 14.7% at year-end. Moving to slide 13. Current capital ratios and requirements. Only one comment from me here. From January, the OCI buffer increases by 25 basis points, bringing our combined buffer requirements to 588 basis points. I won't bore you with the details, simply that this relates to a temporary cap on additional buffer requirements introduced in 2022, which has now been removed. On slide 14, our MREL ratio, which like last quarter is comfortably above its requirement. All of our local resolution groups are also comfortably above their requirements. 2024 has been a busy year for us in capital markets with senior issuance. This is out of the Czech Republic, Slovakia and Hungary. Three senior bonds placed out of head office. including our first two non-preferred seniors and more recently a very successful Tier 2 placement. Looking to the year ahead, we expect another three senior benchmarks out of Vienna with the split between preferred and non-preferred still in discussion. Moving to the macro slide, here is the update of our Raiffeisen research. which I think to a large extent is a confirmation of what we have seen in recent months of course with some adjustments and these adjustments I will not go through it we see improvements in 2025 in almost all the markets we see some impact at least the way I read it from the Weak development in Germany for countries which have a close link to Germany. Western Balkans with a different economic structure are better, of course. And on the inflation and key rate forecasts, we have seen the decline in inflation in all the countries. This will continue at a lower pace in most of the markets. In some, there will be even an increase potentially. Probably to a large extent driven by tax increases. And derived from that, you find also our key rate forecast for the most important markets for our network banks. And now to my final slide, our updated outlook for the full year 2024. NII is confirmed at 4.1 billion euros, even after the adjustment to the treatment of intra-group transactions, which we announced two weeks ago. On a like-for-like basis, this confirms the positive development in the NII, which throughout 2024 has proven to be more resilient than we expected at the start of the year. Fees are confirmed around Euro 1.8 billion, SR OPEX at 3.3 billion. Risk costs might be up to 35 basis points. The return on equity is revised down to 7.5% driven by the risk of further provisions in Poland and an expected windfall tax in Ukraine in Q4. And with this I hand over to Hannes.

Thank you, Johann. Good afternoon, ladies and gentlemen. Allow me a few words to summarize the developments this quarter. First of all, the operating environment remains fragile. The economic recovery is still on track, as you see from the macro forecast that Johann just shared with you. Inflation appears contained, and the lower interest rate environment should also provide some relief. At the same time, corporate balance sheets have exhausted many of the buffers which were built up during the pandemic and in the brief recovery that followed. And closer to home, both Austria's and Germany's macroeconomic indicators continue to disappoint. On the positive side, employment and consumer demand have supported the recovery. Besides the economic weakness in our region, geopolitical tensions can flare up at any time with consequences on energy prices and supply chains, among others. With that being said, the quality of our portfolio as measured by internal ratings and default probabilities has remained remarkably stable over the past 12 months and I remain confident in our underwriting standards. Risk costs remain around 30 basis points here to date and we can guide for no more than 35 basis points for the full year of 2024. In this environment, looking ahead to 2025 is no simple exercise. But I know that you anyway will ask. And so my best guess for risk cost next year would be in the range of 40 to 50 basis points, excluding Russia and Belarus. This will bring us close to our normalized level of risk costs before any usage of potential management overlays. Mentioning overlays, excluding Russia and Belarus, We have over 490 million euros, which is around a worn year's worth of normalized risk costs. This number was stable in the quarter, with slight releases coming from lower interest rates in Hungary, as well as a small amount allocated to actual defaults in Croatia. You will have also noticed the decrease in overlays in Russia and Belarus, which is simply a function of the accelerated decrease in credit exposure. We are making good progress on our business reduction plan, and as this progresses, we have to expect to continue to release further of these Russian-specific overlays. Reading through the first round of research notes, I agree. Poland remains a painful topic for us this year, and I fear that we will need to take further provisions in 2025 and perhaps even 2026. You will have seen in the following risks slide the breakdown of our cases. For the active Swiss-ranked part of the portfolio, we have taken substantial provisions and already assumed that almost every case ends up in court. For this part, I would venture to say that we are well covered. Our model-based provisions already capture over 90% of the cases, and for each of these, the model assumes a near 100% loss. The uncertainty going forward comes from the rebate Swiss francs portfolio as well as the Euro denominated mortgages. For these we have still only seen a very few court cases and therefore our forward-looking models contain a higher degree of uncertainty. Furthermore, the trends in court have stabilized. Inflow of active Swiss francs cases have declined, rebate Swiss francs are stable at the very low level and Euro cases are for now very viewed. Finally, there may be some relief from our settlement program. We are now rolling it out to more and more customers. The benefits go beyond the sole enrollment cost and include savings on the court fees, legal bills, and penalty interest rates. Dear all, before we take your questions, let me touch on RWA development going forward. First of all, as Johann mentioned, We will see an increase in OPRISK-related RWAs in Q4 of up to 2.5-2.6 billion euros. This is simply because under the standard model, OPRISK RWAs are a function of operating income averaged over a three-year period. As a reminder, Russian operating income is still fully considered in this model and in the coming months, 2024 will replace 2021 in the three-year average. Russian Operating Income, so the op-risk model currently consumes around 65 basis points, and this will increase to around 80 basis points at year end. Finally, from January, CRR3 will become binding for all European banks. For RDI in its current form, this actually means a day one RWA relief of around about 4.2 billion euros. and about 3.7 billion euros for the group without Russia in Belarus. As the transitional features roll off, the fully loaded impact will still provide a net RWA relief in the range of Euro 2.3 billion euros for the group ex-Russia. Main positive drivers of the CRR3 relief in credit risk includes removal of the IRB scaling factor, the reduced unsecured LGDs and reduced credit conversion factors. Ladies and gentlemen, this is my brief risk update for Q3 and we are now eager to take your questions.