Raiffeisen Bk In Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the conference call of Rifeson Bank International. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Johann Strobel, Chief Executive Officer.

Good afternoon, ladies and gentlemen, and thank you for joining the call today. I will start by taking a brief look at the first quarter numbers, and then, of course, we will also update on our outlook. The operating result was up 33% year-on-year, which we like very much, and this is driven by a 7% increase in net interest income and even more so by an 11% rise in the net fee and commission income. The net trading income and the fair value results also increased following the introduction of hedge accounting for certain portfolios and the reduction in consolidation effects. You might remember that last year we suffered from inefficient hedging, but this was improved substantially with two of our subsidiaries. On the other hand, we see already the first negative impact of these extraordinary times. The consolidated profit for the first quarter reflects 165 million negative impact, which is due to the COVID-19. Out of these, 96 million are related to risk costs. and this includes also updated macroeconomic scenarios and post-model adjustments. And Hannes Mösenbacher will talk about it later. We also felt the negative impact of the COVID-19 in some impairments on investments in associates and goodwill, which came in total to 61 million euros. And we had, out of the moratorium, in two countries already calculated the MPV impact from these contract modifications namely in Hungary and in Romania and this amounts to 8 million euros. We saw a very good loan growth in almost all of the markets in local currency and this had been very good numbers throughout the first quarter just in the recent weeks of the month when we saw a substantial depreciation of some local currencies this was reduced in Euro terms to a small growth of just one percent on group level and the second part of the negative impact came from came to the or relates to the C to one ratio where we see somehow 40 basis points impact from this currency movement and a 30 basis points growth in the credit risk weightings, but I'll come to this later on. In the numbers, so in the consolidated, sorry, in the CD1 ratio, there is still the dividend proposal for last year incorporated, so it's not part of the CET1 ratio. We postponed our annual shareholder meeting to October. Currently, it's planned to the 20th of October, so this gives us the opportunity, following the EZP-EBA requirements, that we have a second look on the development process. in our markets and get a deeper understanding of the potential future impact. If we then move to the next slide, which shows some more details on KPIs, The one thing is the very positive that we could keep the net interest margin at 243 basis points, the same level then in the first quarter of 2019. Also, we have to make you aware that this number will increase. decline a little bit. There are a couple of reasons for that. The one is that we have seen in a couple of countries which are important for us substantial central bank rate declines and what we also see in or have seen in April also continuing in early May that given the impact of this goes down that there is a lower demand in unsecured loans from private individuals. In terms of volume, this is more than compensated by corporate loans, but are you aware that corporate loans and mortgages usually have a much smaller margin than what we earn on unsecured loans? The cost-income ratio looks very positive, but again there it's clear for all of us that given the shutdown in the various markets with the negative impact not only on the net interest income, but also in the fee and commission income, we will see a deterioration in the cost-income ratio throughout the quarter. coming quarters. The consolidated profit leads to a return on equity of 5.6% in the first quarter. If we continue with a short update on how we do our business, I can say that we have been very successful in changing from the traditional way of working to the safe one which means home office for most of the people which also means to secure way of dealing with customers in the branch environment we had hardly any infections and if we had to close branches and it was only for a very short period of time. We worked very well and we could address all the customer requirements and could virtually by virtual means meet all our customers. This was working very well. The other report I would give and you for sure follow these numbers very closely is the impact on this pandemic in our core markets. And what we see is that the fatalities calculated as a number per million inhabitants is low in all our countries compared to the big developed ones. There might be many reasons, and the future will show via analysis what really worked, but what we have seen is that most of the countries took really restrictive countermeasures, limiting the movement of the population substantially, and currently this is the assumption that these worked very well. We will see further analysis on that and I think it will be important to understand what works and what does not work. What we also see is given the good progress that in some countries like Austria, Czech Republic and Slovakia, we already see the first ease in restrictions and we think this is very important because For all of us, for our economy, it would be very, very good to come back to more or less normal activity. When talking about the virus, we also have to mention the various support mechanisms which have been established, and we are now on slide seven. There are a couple of them. It is different. It varies from country to country. Some have packages announced which seem very generous in terms of percentage to GDP. It varies also in the structure, being it direct supports from the state budgets or be it indirect supports where guarantees, payment deferrals, and so on. Of course, it will take a couple of more weeks to understand how these instruments really work and how how fast they will contribute to also overcome these difficult days, and we will see how much they will also be supportive to bringing us back to a normal working environment. In addition to that, we see a couple of additional support measures. We have seen in many countries, probably different to historic experience, that countries which were used to increase central bank rates to defend their currency in earlier crisis, they now were able to reduce central bank rates, and you see it in the box at the lower right end. And on the other hand, there had been, in addition to what the ECB announced, within the euro area, we also have seen... announced ECB swap plans for Croatia and Bulgaria, those who soon will join the Euro. And then we have another program for the Western Balkan countries. We have seen the IMF activities, and we see also in some countries quantitative easing measures like bond purchases in Hungary, Romania, Croatia, and the Czech Republic by the central banks. If we move to the next slide, I talk a little bit now about our segments, corporate. What we see in the corporate area is after, let's say, two weeks or so where our customers were reorganizing their own operations, we had intense talks with them about their potential needs. We saw drawings from them and it seems now that after a couple of weeks of intense discussion everyone is clear what they need and what the future could be over the next couple of months. Of course it also led to a repricing following the the capital market, the price developments. And, of course, we have a very specific industry approach, depending on how sensitive the various industries to the COVID close-downs are. The state guarantee schemes look similar from country to country. As I said before, it might take a while until we have figured out how they really work. In some countries, there are still talks about the details because it's the one thing is to set up the guarantee, but the other is to come with all the various details and conditions. What we see in countries that mainly smaller corporate customers start to make use of the moratoria. In many countries it's not that big, but it's one instrument which is also used by our customers. When talking about moratorias, we should also have a look at retail. You are aware that the moratorias look similar in most of the countries, but varying in detail, so we have seen periods ranging from three months to the year end. We have seen opt-in concepts in most of the countries but on the other hand also opt-out concepts like in Hungary, Serbia and it does not come as a surprise that countries which offer an opt-out concept there is the usage substantially higher and in those where there is an opt-in. In total, it's about 12% of the portfolio where customers make use of this concept. Moving to the macro outlook, I have to say that compared to the last time when we talked to you, there had been Further developments, we had assumed at that time a short, severe lockdown, but then coming back rather soon. What we figured out meanwhile, what we had to learn is that in most of the countries, the lockdown is considerable longer, and this also has a negative impact on the macro outlook, so we adjusted that. Starting with Austria, we substantially reduced to minus 7.2. We had also adjustments in most of our markets, and you see the decline is now significantly higher. Probably the biggest change to last time is the one in Russia, where we had zero last time, and which is now at minus 5 around. The reason for that is at that time we only had to consider the low oil price. Now came in addition also a lockdown in Russia given the increasing number of infections. With that, I think I should move, as it's the standard in our procedure, to the outlook based on what I have seen. explained to you throughout my presentation, we are slightly adjusting our outlook. In terms of loan growth, we now expect a modest loan growth in 2020. In terms of risk costs, we expect a provisioning ratio of around 75 basis points. Of course, this will depend also on the length and the severity of this disruption. I already mentioned the actual cost income ratio and the pressure on that because of the current development. We still aim to achieve a cost income ratio around 55% in the medium term. And of course, we have to evaluate the impact of this development on the ratio in 2021. In terms of profitability, we still believe that in the long term, a consolidated return on equity of 11% is a target for us. Today, and based on our best estimates for this year, we expect a consolidated return on equity in the mid-single digit. And we confirmed a C to 1 ratio target of around 13% for the medium term. And finally, we also confirm our payout ratio between 20 and 50% of the consolidated profit. If we now move to more details, the one is the CET1 ratio on slide 13. I have already explained the drop from 13.9 to 30. We have a capital requirement and the CD1 ratio being adjusted because the structure of the pillar 2 requirement was changed and we now can fill this up by CD1 as well as by 81 and tier 2. And this means a reduction in the CT1 requirement by 98 basis points, which have to be filled up by the other two components. We had our additional tier 1 and tier 2 optimized to that level. So currently with this With this change in regulation, it somehow shifted more the bottleneck to the total capital, which will change as soon as we would optimize again our capital structure. Yeah, I think I had explained to a large extent already the development in the CD1 ratio, as I said before. This mainly came from the FX impact from the currencies where we had seen a significant devaluation. Ruble, Krivonam, Belarus Ruble, also Czech Corona and Hungarian Forint. So this was substantial. And this led to this development. Yes, in local currencies there had also been a long growth, which I had been mentioning before. If we move now to slide 15, at the beginning of the crisis, the biggest question always is what is the impact on liquidity? So what we can report, this crisis is understood by all participants as a health crisis, which has a very negative impact on the real economy, which on the other hand means that the trust in the banking system and the financial system is there, and we can see this in very stable conditions. liquidity ratios like the LCR, which on group level is at around 140%. And yeah, I think to spend a few words also on the quarterly results, I mentioned already the good improvement in net interest income in the comparison first quarter last year to this year. If we compare to the fourth quarter, then we have to be aware of some seasonalities, which we see in the fee and commission income on the one hand, but we also see in the operating results also some improvements in On the one hand, on the other hand, we see also quote-on-quote a negative impact, which comes to a large extent from the Software 1 IPO. You know that we had in the fourth quarter the Software 1 IPO, which was very helpful to the result of that quarter. The very good share performance led to more gain than at year-end, and Software 1 had also... felt in the first quarter the pressure like any listed company. So there was a reduced share price to be considered at the end of the first quarter. And then there had been some other positive or negative results like litigation provisions and some more And with that, I would like to move forward maybe to the costs. Similar to the operating income where we have seasonalities, and I should have mentioned the fee and commission income usually at the year end, and you have seen this in the comparison at the year end is always very strong. So this is fourth quarter to the running quarter lower. I have mentioned that. On the other hand, there have been also some sales last year, like the MasterCard shares, which were positive in the fourth quarter. When talking about the general administrative expenses, we also should be aware that, again, there is this seasonality pattern which supports us very much in the first quarter. So mainly in the fourth quarter, we see higher increases. So the starting point for the beginning of this year, I think, is quite good. When talking to the various countries, so our regions in Central Europe, we have given the Depreciations in foreign and in the Czech Koruna, if we consider this, then I think the minus 1% in loan to customers in Euro terms is a good result. Yeah, we could find an improvement in the NIM and also in the cost income ratio, but there I have already talked about also the seasonalities. Also a positive picture in the Southeastern Europe segment with good developments in all the segments. Some countries already suffer from from being at the banked levels or contributions to some of the funds, which is also a traditional pattern. But overall, I think we can be fine with where the starting point is. In Eastern Europe, on slide 20, we are aware that, with the exception of the effects rate, This had been a very positive quarter, and you see it in all the numbers with strong results in Russia, Ukraine, and Belarus. And also the corporates and markets, we had a very good loan growth in the first quarter. So this is in euro terms. This gives you an idea of what the potential of the bank in normal terms circumstances is. And with that, I hand over to Hannes Mösenbacher.

Thank you, Johan. Also, welcome from my side and thanks for participating. Well, when looking at the first quarter, we have taken 153 million euros of loan loss provisions and the majority you could consider and classify as preemptive and you may also say forward-looking and making use of the methods and the requests by the IFRS 9. Having said this, if you look at this 159 million euros, some 28 million euros needs really to be clearly allocated to stage 3. And then, of course, based on some loan growth, we have a stage 1 booking, but the remaining part can be clearly allocated into this forward-looking manner, is it the macro-adjustment and also the BOST model adjustments. Before I start running you through the slides, let me also again reflect on our starting point, which is a very strong one. We go into this crisis with an MPE ratio of 2% and a coverage ratio, which I would consider best in class among European beers, with 62.4%. And also our portfolio is a very healthy one. having an average BD on the corporate side of some 1.15%, on the retail side slightly above 2%. Having said all this, I would now like to proceed on page 23, where you can see that the total exposure was almost not moving, but please bear in mind that we had this strong devaluation on the FX side as mentioned, so total portfolio was up by 0.8%, keeping FX rates stable, the growth demonstrated in the first two months would have summed up in total to 6 billion euros. On the right-hand side, we have added for transparency reason also the portfolio and industry split to be here complete transparent how our portfolio is being set up because I think what is very important and as we have talked in the second week of, second, third week of March, Besides that, it is a health crisis. Of course, this health crisis makes its toll completely to different industries in a different magnitude. Committed lines, also one of the usual questions we have already taken this question upfront how the drawing behavior of our clients came in. In total, some 1.2 billion euros were drawn in addition And it was funny to realize that some of the corporates with the beginning of this lockdown period made use of their committed lines at the same time placing back the money with the bank. So it was just testing whether or not the line is working. I could say so, but this is not enormous money. And of course, a bank like ours is taking care, can easily manage this drawing on the committed lines. On the next slide, on page 24, going more into this industry perspective, and we have clustered it quite straightforward, just having three main sectors being shown here, the high-risk sector, moderate, and low-risk sector. You might recall when we talked to each other last time, I was using this L-shaped, so I think this would hold true for the high-risk sector, where the impact is a strong one and the recovery may take us even a couple of quarters. Then on the moderate risk sector, you could attach this U-shaped recovery, so a strong drop, a period of finding the new equilibrium, and then a good recovery because basic demand is given. And then last but not least, we also consider that the biggest part, almost 90% of our total portfolio, we consider as a low-risk sector, and here there would be some not suffering at all and some others where you would see a V-shaped recovery. Just to give you one reading example on the high-risk sector, what do we understand as indicated last time? It's tourism, it's leisure, it's airlines and airport services. So we have a total gross exposure of 2.2 billion years, but at the same time we have good collateral giving us a net exposure of 1.5 billion euros. Well, I move on to the next page on page 25 and giving a little bit more insight when talking about RWA's asset. And you're following our bank quite closely for some time. The FX always is working on both sides of the equation. In this case, also on the RWAs. So the RWAs on the non-retail side were up by 165 million euros. Excluding the FX effect, the RWAs would be up by 1.5 billion euros, and retail risk came down by this FX impact by 635 million euros. As usual, in times like this when volatility starts increasing, in this specific case even soaring, we have seen that market risk RWAs have been up by 804 million euros. I move on to my next page on the IFRS 9 provisioning in the Q1 2020. As I stated in my initial statement, total was 153 million euros. State 3, 28 million euros. So very low inflow of really defaulted loans, summing up of risk costs need of 28 million euros. And the remaining big part, you could consider as loan loss provisions, forward-looking as the request by the IFRS 9 method. So we have added another 28 million euros for the macro assumptions, and we already allocated, as of today, 68 million euros when it comes to the COVID-19 post-model adjustment. And as I said beforehand, of course, you know who is heavily impacted. These are the industry on the tourism side, consumer good, but also, of course, segment-wise, we see that for the micros and for the SME, this is a very challenging and demanding environment. For you to have a good transparency and to see what did we do in which segment and region, we have also split up this IFRS 9 provision according to the different segments. So it's in total some 66 basis points And the reason why we have adjusted our forecast to 75 basis points is also to accept the truth that now the macroeconomic forecasts came in more bleak. And when we have talked to each other last time, the forecast on Russia was almost 0% GDP impact. And now also here we see a quite negative outlook when it comes to the GDP development. Having said all this, it brings me to my last slide before opening up for questions. Let me just make some three, four highlights on this page. As you can see, we have an NP ratio of 2%. Being capable to bring down the NP ratio another time down by 10 basis to 2%. we have really a very good and high MP coverage ratio with 62.4%. And the third bullet, what I'm very happy about is that out of our Polish exposure in the due course of the M&A activity, there were some corporate exposures which have been left with our branch, and here we had some good results on the workout environment. It was a difficult and demanding workout situation, but now what you can see is that also the coverage ratio in Poland is jumping up to 69.3%. Well, having said all this, we are now more than happy to take your questions. Please go ahead.