Raiffeisen Bk In Unsp/Adr

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

Good afternoon, ladies and gentlemen, and thank you for taking the time to join the call. I'm pleased to be reporting on a strong second quarter today. which to some extent reflects an improved economic backdrop as well as a more favorable rate environment. Consolidated profit boasted a 66% year-on-year increase, driven primarily by lower risk costs. Net interest income for the first half was down 8% compared to 2020. However, it is important to note that it increased by 5% in the second quarter on the back of higher volumes and rate hikes. The second quarter was one of the strongest we have had for fee and commission income. We generated close to 500 million, which I will come to in a few minutes in more detail. Loans continue to grow steadily. We have now firmed up our outlook for 2021 and we are guiding for loan growth in the mid to high single-digit range. This guidance does not yet reflect the pending consolidation of Equipax. We have also revised our outlook for 2021 risk costs down to approximately 50 basis points, assuming that there are no renewed lockdowns. The integration process in Czechia is making very good progress, which I'll also address in more detail later on. We have been busy on the green bond side as well this quarter. Issue and activities included our first tier 2 green bond as well as green MREL issuances by our subsidiaries in Czechia, Slovakia, and Romania. And with this, I turn to the next page where we see the more detailed quota on quota comparison. I mentioned already the net interest income. I mentioned the very exciting development on the fee and commission income. We saw a slight increase in staff expenses by 3%. We saw a substantial more increase in other administrative expenses. These includes, one might say, regulatory costs, costs for the bank supervisor, which had been due in this quarter, to lower a couple of small additional amounts on advertising, In the staff expenses, we also had some rising incentive compensation components. As you have seen, we enjoy the good growth. And we're also continuing our investments in IT, cloud services, all this exciting stuff, but also in a couple of innovation ideas. and the other results I will also comment a little bit later. When talking about the core revenue trend, I'm happy that we now see what we have been talking quite a while, that around 770 net interest income should be the bottom, and we should now see the increase. In the 804, we have to make you aware that we also recognized 9 million of TLTRO bonus, which we did in the second quarter. As always, given this high liquidity and what we tried to achieve also with the takeover of the ING clients in Czechia, the net interest margin is inflated substantially and I think for a while this is not a strong key performing ratio. I talked about the net fee and commission income and if you look at the the lower box, the table on the right hand side, you see that actually the improvements have been almost everywhere in the second quarter. If we turn to the next page, we have a few more details on Raiffeisen Czechia. So as I said before, we closed the ECWA transaction on 1st of July. We are now in preparation of the legal merger, which will happen in the first quarter next year. And we are also working in very detail now on the operational merger. We want to have one brand and a consolidated system. It's about 480,000 customer relationships. It's about 2 billion customer loans where we We're especially proud of with this acquisition is that Equa has built a strong consumer lending engine. They have some distributional skills, what we did not develop in Ryfas and Czechia, and we are happy to add and use it in the then merged entity. And of course, to build something like this, you need quite a lot of talented people, and we are happy that they join us. We have ING. Here again, we are more than happy. We had this agreement with ING that we recontract the customers. They would recommend us as the preferred bank. And with having acquired now more than 150,000 customers with deposits of about 2 billion, we are very happy with this, much more achieved than we had hoped for. And, of course, in a rate environment where I see rising rates, this per se sounds very favorable. But I think our offer, what we have prepared for these customers, is also a very interesting one. We are proud of our cross-selling skills of our people there. And I think they will, by exploring the needs of the customers, they will find the right products, which makes the customer exciting. Bausparkasse, this is something which is important for the Czech Republic. You know this was an intergroup transaction, so it doesn't make a big change in the overall numbers, be it customers or deposits or allowance outstanding. But again here, the colleagues found ways for cost synergies. Here I can report that about two-thirds of these customers integration is already done and we will soon see some additional benefits. But again, here, also interesting, we hope for and plan for some cross-selling activities. Again, this is an interesting channel because, you know, Bosch Per Cousins or Building Society products are to a large extent driven by brokers and if you If you get it right with them, you can achieve much more. So happy about that. I will now turn to the next page. And so we have prepared two pages which somehow are perceived as a burden which keep quite a lot of management attention and attention of our people. I start with Belarus. You are aware of all these sanctions and the negative reports what we receive from the country. Just for those who are not so close to us. We have acquired the Priobank stake from EPRD already in 2003. This was the time when we all believed that the market will enter in a broad liberalization phase. Here we had for sure too high hopes and it did not materialize in the way we wanted. On the other hand, I'm I'm still proud that I think to whatever the improvements happened in this economy, the little changes, what we have seen, I think our bank could contribute to some extent to that. Overall, the impact of our, um, bank is not so big. So we have a market share of about 6%. Uh, in total, this means a 1.1 billion loans to customers, which is, uh, a little bit more than 1% of our group lending the equity. What we employ in the country is about 300 million euros, which is a little bit more than 2.5% of the group equity. If you want to look at the exposure of what we have, so this is now not only loans, but everything what you define as exposures of guarantees, committed lines, and, and, and. What you see here, it's an exposure of a little bit more than 2 billion euros. Are you aware of sanctions against the state-owned companies? We have given here a little breakdown. If you look at the structure, 14% of these exposures are to corporate state-owned entities. We have 5%, so around 100 million, to government, and we have about 10% 180 200 million to the um national bank and you're being close to banks for you it's clear that this is um this is an area where where banks have to be for their liquidity management uh yeah and we have uh from the targeted sanctions, we have to report that around 111 million of exposure is related to oil and gas, fertilizer, potash, and potato producing companies. The rest of the portfolio, so the bigger part is with private sector, corporates, but also households and SMEs, and of course, some foreign companies. When turning the page, then the second Big topic, what we have also, I have to say, not much development in the recent few weeks is our Swiss franc mortgage portfolio in Poland. It's about 1.1 billion euro terms outstanding. It's close to 29,000 loans. We have an amortization of about 100 million euros per year, so you see it's still a a long-term maturity portfolio. You are aware that the risk weight is different than what you usually have with a mortgage business with 118% risk weight. And, of course, what's the biggest issue is this litigation situation, which is increasing. The inflow is high, about 300 cases per month. In total, we have now about 5,500 cases. We have shared with you the model which we use for litigation provisions. And, of course, we have to adjust the parameters. So maybe to remind you, what we use is the inflow, the numbers at court, and what we observe, the decisions which first instances mainly and to a small extent or the second instances do in their rulings. These rulings have in the recent past been very much in favor of the consumers. The good thing, we will see what the Supreme Court will rule on, but the good thing is that the Supreme Court has invited five Polish authorities to give their opinion on this specific problem. You know that the Supreme Court, with all the members, will decide, will give a ruling on six questions which had been formulated by the President of the Supreme Court. Very important questions for the further developments. Probably not all of them touched, but we will see what maybe they would even go further to touch all the problems which are... part of this ruling with the various potential outcomes. What I found somehow confirming our view and what we talked about the last many years was a statement by KNF and the National Bank of Poland. The way I read it and I give you now my short brief summary is that overall the KNF came to the conclusion that at the time the loans were granted, the conditions under which the banks did it is deemed to be fair and not unfair. So this using this effects clause, the tableau, so the way it was communicated, the way the customers were informed were absolutely according to the standards of that period of time. I think the second, which is not important for us, but maybe important for the the public is that finally an authority, a neutral authority stated that some claims in the public that this is a a zero-sum game and that whatever the customers are losing, it's to the benefit of the bank. This was clearly proof that this is a totally wrong perception. So we'll see if this makes any impact on the public perception of this issue. Yeah. So 2nd of September, it was announced that the full civil Chamber of the Polish Supreme Court will meet again, and we'll discuss the six questions. I don't see enough to the provisions. OK, so maybe to the provisions, 195 million. To repeat that, we added 77 mainly based on the inflows and the decisions. To make that clear, we are now at a little bit above 10%, which I think is what I sense from the market is in line. Of course, there are two banks who are rather urging for a voluntary settlement with a different approach. Looking at slide number 10, I already mentioned that we have seen customer loans growing. about 2% quarter on quarter. The good thing here is that we now see also an increasing demand from the retail customers, especially in the unsecured part. You are aware that the mortgage business was doing quite nicely also the last couple of quarters, but now we see it also in the unsecured part. The areas where we still... before pre-pandemic had a little bit better outstanding developments in the credit card and in the overdrafts of the accounts by the private individuals. Here, given the high liquidity, this might take a little bit longer that these sources will be used also. If we then move to the next slide, so here we see... the 13.3% CET1 ratio and the other two. So I think it's a nice development what we have here and nicely covering the buffers. If we turn to the next page, here you see some explanation how it developed. We have driven mainly from the loan growth some 34 basis points or CT1 requirements in addition, and we had a change in the rating model for sovereigns, which is more granular now and which required additional 10 basis points. Retained earnings are up by 39 basis points. I am now at slide 13. I think in this time of over liquidity, there is little value in discussing liquidity ratios here. I just want to again sum up what I did at my introduction. We had a 500 million tier two subordinated green bonds on the first subordinated green bond. And we are also happy with the developments in the emerald area. Slovakia came with a 300 million green bond, Czech Republic with 350 green bond. And also in Romania, we had a green bond issue. This supports our emerald requirements. I think the countries where we didn't approach the markets, they're rather with small needs like Hungary, Croatia, and Bulgaria. With this, I come to slide 14, which is our outlook. And what we see here is that given this progress in vaccination, and I want to say the very skilled approach now in how to deal with increasing and reducing infection rates, I think overall brought very good fundamental for on the one hand for the government's dealing with infection rates on the other hand keeping the the economies of the countries in good shape and we see this in the gdp developments for 21 and 22 if you compare it with earlier forecasts from rifle and research then you see many improvements there and a couple of countries in our environment might already be at the level where we had been in 2019 with the GDP output. And those who do not fully reach it will be there in 2020. One might even say that in some countries, the positive trend could soon be reached. And so maybe after a few years, we will tell that we didn't lose too much on growth over the longer period. These positive developments and everything set under the assumption that because of the Delta version of the virus and other developments we don't see another sharp lockdown leads to a slightly revised outlook. We adjusted the loan growth where we say new lending accelerated in the second quarter and we now expect mid to high single digit percentage loan growth for 2021. And here, ECWA is not included in that number. Risk costs, Hannes will talk about it, is now expected to be around 50 basis points. Cost-income ratio is confirmed to 55 basis points. Here, we are eager for 2022, but there are some uncertainties still there. Profitability, we Stick to our midterm 11% target, CET1 ratio midterm 11%. And as some basic topics in our environment have not changed, we still have this broad range of payout ratio of 20% to 50%. Final remark before I hand over to Hannes. When talking about the 13.3% CET1 ratio, I did not mention that the one euro dividend, what we wanted to pay out in 2020 for 2019, this is still as a profit carried forward. And as soon as the ECB has dropped its strong recommendation not to pay our dividend. We approached them with our idea that we're going to pay dividend again, hopefully in the fourth quarter of this year. discussions with them and why discussions at all you might ask yourself so when reading their recommendation they made this reference to capital planning which is nothing more than an invitation to first talk about capital plans and then about dividends and this is what we plan to do our request for talks had been sent as I said on the day when and they lifted the pennant with this, I hand over to Hannes.

Thank you, Johan. Well, I'm very happy talking to you and either you already enjoyed your holidays or hopefully holidays are just ahead of you. Well, from my point of view, when talking about the way of the CEO main messages, I think we are observing and enjoying a very strong economic rebound with a strong GDP momentum. And this leads also, of course, to a strong increase in financial demand, meaning our credit exposure is increasing. Well, if I look at the second quarter, the sum up is easy. We have risk cost of 31 million euros. We have an MPE ratio of 1.7%. We have a very good coverage ratio, still best in class of 60.3%. And having said all this and giving this very strong economic environment we are enjoying, it was obvious that we had to adjust our risk-cost guidance to around 50 basis points. Let me now go into the details on page 17. If I look at the total exposure, which increased on a total sum by 1.5%, but please go with me into the details. So we have seen, as said by Johan Straubel, very good demand on the corporate and on the retail side, giving us an uplift of 4.4 billion euros. Given the strong still liquidity inflow and also merger with Equibank, we see an IG taking over the clients, a strong increase on the sovereign exposure of 4 billion euros, and it was partly offset by the financial institution exposure. Here we have changed our approach. In all days, we have shown on the derivative part the mark-to-market plus the add-on, Now it's the mark-to-market plus the potential future exposure on a net basis. Well, and if I lost you, I'm sure you will raise a question. So I move on to the next page on page 18. When talking about the provisioning, what you can see, and I would like to start the chart from the right-hand side, Q2 was showing we had 31 million euros of provisioning needs in total. 23 million euros coming out of stage three. And we also have allocated another 30 million euros for the Belarus sanction for the stage two. So having said this, the second quarter would be even zero risk cost if we would have not again used the IFRS environment to pre-provision, so to say, part of the Belarus sanctions. If you look at the first half year of the 110 million euros, you could also split up the 110 million euros into 30 million euros for sanction risk in Belarus, 21 million euros on post-model adjustment, and only 68 million euros are comprising real new defaults, a little bit more pronounced on the retail side, less so on the non-retail side. On the non-retail side, we even enjoy repayments also from default clients. not to lose on the minus 9 million euros on stage one and stage two. This comes because we see uplifting ratings and we also see early repayments. Well, I move on to the page 19, talking about foreborn exposure and moratorium exposure. Well, we thought in this quarter we would like to emphasize a little bit on the foreborn exposure because in the first part of the crisis, of course, we have provided liquidity were needed. We gave our industry assessment. And what we now see for the industries, where I would introduce a new letter of the alphabet, so not anymore V-E-L and U, it is this K shape. There are some clients who now need forbearance measures, which we're happy to provide because usually in the hodl sector, you have a very good collateral. What are the typical things? What is being requested? Is it a an extension or a covenant holiday. These are the things that are being asked for. And the other bigger part is still, you know, that demand when it comes to airports is not yet back on 2019 level. On the lower part of the chart, you can see still, you know, how the clients who made use of the moratoria, how they are performing. On the retail side, 93.3% completely resumed repayment They are in their repayment schedule. Some 1.9% have asked for further restructuring and 4.8% defaulted on the corporate side from the change from the last quarter. We see now that 94% are being back on the regular schedule. 4.2% and this is consistent with the increase in the foreborn exposure. 4.2% have asked for further restructurings and 1.3% out of those who have made use of of the moratorium defaulted. Let me move on to our RWA developments. Consistently, if you see good credit demand and increasing credit demand, of course, also RWAs are increasing. We have a slight effect also because of the migration effects. So 0.6 billion euros are being caused because of some lower ratings. And the other thing what I would like to make you aware of if you look at the bullet three is the market risk by another 0.5 billion euros. And this is given the environment also with the sanction language and in Belarus, we have slightly increased our rubble hedges leading to RWAs by the end of Q2 of 84.9 billion euros. This brings me already to the well-known and last page of my SWIFT presentation, To sum up, MP ratio 1.7, MP coverage 60.3%. Please be aware that we have a very good coverage if we would also include stage 1 and stage 2 of 89%, and this figure does not include any guarantees or collaterals. Well, having said all this, we are now more than happy to take your questions.