Raiffeisen Bk In Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the first quarter 2024 results conference call of the Reficent 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.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to RBI's Q1 update call. Allow me to begin with a brief overview of our financial results. Consolidated profit in the quarter was €664 million and, more importantly, €333 million, excluding the contributions from Russia and Belarus. Top-line trends are relatively stable despite modest growth and, of course, supported by very low risk costs and low resolution fund contributions. Return on equity comes in at 15% for the group and just around 10% when excluding Russia and Belarus. Finally, the COT-1 ratio is stable in the quarter, both for the consolidated group and for the perimeter, excluding Russia and Belarus. Moving to my next slide. Loan growth is around 1%, primarily from short-dated business in Vienna. In our core customer business, we saw decent new lending in retail unsecured, while mortgages and corporate lending trends were otherwise pretty tame. NIA was down a bit in the quarter, mainly in Central Europe, where Hungary and Czech Republic feel the impact from rate cuts and to a lesser extent, weaker FX rates versus Europe. Bees are down on the quarter, as we usually see in the first quarter of the year, but otherwise stable year on year. OPEX are better, with the seasonality here, of course, being positive, but up nearly 10% versus Q1 last year, which also leads to an increase year on year of the cost income ratio to around 49%. We will look into all of these. in the usual slides, but for now and on my next slide, let us focus on some of the key strategic initiatives which we are working on. As you know, since February 2022, we have been de-risking our Russian business and limiting the spillover risks on the rest of the group. This is most visible in the near complete runoff of our cross-border exposure and by the reduction of our loan book in Russia. Some of our initiatives are less visible, but no less important. For example, we have significant restrictions on payments and trade finance in place directly in Russia, but equally in many of the neighboring countries, which have seen an increase in trade flows. Many of these initiatives were implemented proactively often ahead of sanctions or restrictions being introduced. I am proud of the work done by our compliance, risk, product and customer facing teams. You are by now very familiar with our dual steering approach to capital, and we have taken equally prudent measures to ensure liquidity under virtually any scenario. At the same time, We have been careful not to reduce the Russian business too quickly, mindful to preserve the value of the franchise in order to facilitate the option to proceed with a potential sale. Our Russian subsidiary has invested significantly in its IT staff and systems, which would allow full decoupling upon the closing of a sale. The Russian business would then be fully independent from RBI Group and from Western IT providers. Which brings me to the first strategic project which I would like to update you today. As you know, we are working on a sale of Raiffeisen Bank Russia and have, over the past two years, received interest from many parties, both Russian and foreign. Needless to say that the Russian parties to whom we speak are all unsanctioned, of course. As the process continues, we will also seek to ascertain if a potential buyer would indeed to be improved by the authorities in Russia before proceeding any further. The deconsolidation of our Russian subsidiary remains our first priority. And we believe that the sale is the quickest, cleanest way to do so. The second initiative, which I'm sure is of interest to you, is the proposed acquisition of the Strabag shares by Raiffeisen Bank Russia, which would then be distributed to RBI in Vienna as a dividend in kind. The last update called the investment vehicle which holds the Strabag shares has been sold to an unsanctioned Russian investor. Prior to this transaction, the Strabag shares were frozen under European sanction law. It now needs to determine if this sale is sufficient to unfreeze the Strabag shares. Until this assessment is made, the Strabag shares cannot be transferred to Raiffeisen Bank Russia or to any other interested party. Allow me to be very clear. We will not proceed with the acquisition of the Strabag shares by Raiffeisen Bank Russia if we believe there is a risk of sanctions or other repercussions from any of the relevant authorities, including the US Treasury and OFAC. If we cannot get comfortable with the sanction and compliance risk, we must walk away from this deal. In this scenario, our plans to sell the Russian subsidiary are unaffected. We expect to know more in the coming weeks. I cannot provide more details on the timeline, however. Unrelated to the sale process, or to the Starbuck transactions, we have now received a formal request from the ECB for an acceleration of the business reduction in Russia. We are carefully analyzing the requirements and assessing the actions to be taken. In practical terms, I fear that these requirements may impact our plans to deconsulate it. Let us now move to my next slide focusing on core revenues. NII was down on the quarter, largely from Central Europe, where, as mentioned, rate cuts and weaker FX explained the drop. In Austria, NII was generally flat, with some delayed liability repricing at the Bosch Barcasse and lower corporate lending volumes offset by positive trends on the liability side. Fee income is seasonally weaker and also reflects the overall slowdown in new business dynamics. On slide eight, we see around 1% loan growth in the quarter. On the retail side, we see a rebound. Sorry, on the non-retail side, we see a rebound in repo in the head office. And more interestingly, a pickup in revolving facilities and general purpose loans. This is offset by lower project finance lending, reflecting both pricing and risk appetite. In retail, consumer loans pick up very nicely, while mortgage lending was slower than expected. By segment and country, we see a pickup in Slovakia and the Czech Republic. Also, the latter is largely offset in euro terms by a weaker Czech corona rate. Southeastern Europe was sluggish, both in euro and in local currency terms. Group capital and markets benefited from the repo volumes mentioned above and, of course, from the pickup in revolving and general purpose facilities. On the right-hand side of the slide 8, we see deposits up 2% in the core of the group driven by the Czech Republic. up nearly 6% in Euro terms and 8.7% in Czech Koruna. And Hungary, up nearly 5% in Euro terms and 8.3% in Hungarian forints. Let's briefly flip to slide 9, where we see that liquidity is again stable at excellent levels. The liquidity coverage ratio for the group is stable around 200% and NSFR stable around 140%. At our largest subsidiaries, the LCR is everywhere above 200 with a high share of insured retail deposits. In head office, the LCR is again around 150% and more importantly, our balance sheet in Vienna is 200%. structured in a way that we have sufficient liquidity to cover all maturing funding sources, including deposits, of course, over a year. I mentioned in my introduction the very prudent measures we have introduced since February 2022, and this liquidity in excess of one year of outflows is one of the key measures. On slide 10, you see the stable C to 1 ratio in the quarter. Loan growth impact on CET01 is relatively modest, and most of the credit impact comes from inorganic effects and liquidity placements in Russia. Hannes will also cover this on his RWA development slide. As we have done in the past couple of years, we accrue a dividend based on the regulatory approach. which is to use the high of last year payout ratio over the average of the past three years. In Q1, we accrued 17.3% of group consolidated profit in line with last year's payout ratio. Please remember that this is not an indication of our dividend policy. As we have done in the past few years, we will propose a dividend with the full year preliminary results based on the capital situation of the group excluding Russia and Belarus. On slide 11, the CT1 outlook for the group. Sable to slightly improve over the next three quarters. Please note that we do not assume any impact here from closing of Strabag. which in any case on a consolidated group level is only marginally negative, roughly minus 10 basis points. We should also mention here that this does not yet reflect any implementation of the ECP request to accelerate the reduction of our business in Russia. Because of the high risk weighting on excess liquidity placed at the central bank of Russia, our 17.3% group CD1 ratio may even be negatively impacted. This would not impact our CD1 ratio excluding Russia, however, which brings me to our next slide. Slide 12, where we show our CD1 ratio in the worst case scenario in Russia, meaning we have to deconsolidate with a full loss of the equity there. As of Q1, our CD1 ratio ex-Russia is stable at 14.6% and is expected to remain stable at this level in 2024. Again, we have not assumed any contribution from Strava. Slide 13 is for your information. No real change here. And with that, let's turn to slide 14 and look at our MREL ratio and issuance plans. On MREL, the Austrian Resolution Group shows a comfortable 8 percentage point surplus. We have received a draft decision from SAP which would have two main effects. First of all, there would be a drop in eligible liabilities, which would reduce our ratio by 2.7 percentage points. This is mainly coming from the exclusion of MREL instruments held by our shareholders, the Raiffeisen Landesbanks. Secondly, from 2026, we will be subject to a subordinated requirement of around 26%. Considering the very high own funds ratio at the Austrian Resolution Club, not to mention the recent non-preferred issuance. This should not trigger any significant issuance of eligible subordinated instruments. Away from Austria, you may have seen our Slovak subsidiary in the market recently. They successfully placed six non-COL5 senior preferred instruments. You should also expect our Czech and Hungarian banks to issue this year. Issuing plans from head office will focus on one or two senior preferred benchmarks. It was our intention to issue an 81 instrument and you are aware of the unfortunate circumstances which led us to pull the deal. What I can confirm here today is that we remain committed to replacing the 650 million notional bond which has now skipped a few call dates, and we will return to the market with this project. Please understand that I cannot be more specific on timing, and of course, this will also depend on pricing. Now let's move to slide 15, which is the macro outlook. To avoid a reading exercise, we see improvements, and I think the main points which leads us to this outlook for 2024 and 2025 are clearly described in the right-hand part of this slide. And so I propose to move to another important slide, 16, where we show our view on inflation and rate forecasts. And again, here, I think all fairly described, so that I suggest that we immediately move to slide 17, which is our 2024 guidance. First of all, we have suspended our outlook for the group, including Russia and Belarus. This is because of the accelerated business reduction requirements that we have received from ECB. We feel not comfortable to state numbers now. As I mentioned earlier, we are carefully analyzing what this means for the Russian business going forward. For the core of the group, the outlook is largely unchanged. Also, long growth is revised down a bit. We have seen some green shoots. here and there, but the underlying demand overall remains weak. And of course, underwriting remains cautious in the current environment. The ROE is also a touch lower, largely from a delayed, if at all, consolidation of the Strabag shares. In the new 10% guidance, we expect the contribution from Strabag is minimal. meaning that if the deal falls through, it will not change the guidance very much. And with this, I would like now to hand over to Hannes, who will remind you of the risk slides. Hannes. Thank you, Johan.

Good afternoon, ladies and gentlemen, and thank you for joining us this afternoon. Let me start with a brief summary of the asset quality trends. Well, excluding Russia and Belarus, we saw very few insolvency in our corporate portfolio and relatively limited delinquencies in retail. While we have seen very few state-free risk costs in the past two years, and again in the first four months of 2024, we remain cautious and mindful. In the corporate book, many customers have taken tangible measures to shore up their balance sheets in the past three years, and for them, the current rate environment and soft demand is manageable. In our conversation with customers and in the monitoring of our portfolio, we see clear signs that for some, there are still some very difficult days ahead. This is why we have chosen to keep our risk-cost guidance unchanged at 50 basis points for 2024. I know you will ask me in a few minutes how we can expect 50 basis points despite only five pips in the first quarter. And so let me simply say, that risk costs are not linear throughout the year. Last year, three very good quarters were partially offset by a very chunky fourth quarter. And in this environment, we need to consider this as a possibility as well. Our stock of overlays, now summing up to 777 million euros, has increased by another 22 million euros. largely from the creation of further commercial real estate overlays. You will remember that we applied some of these to a large default at the end of last year, and with these top-ups, we are now being back at the level of 180 million euros of overlays for commercial real estate. In addition to the State 3 and overlay trends that I just mentioned, we saw releases in the model-driven provisions, with rate cuts in the region being the main severity factor. Let me move on to page 21, when talking about the RWA developments, and Johan was referring to this page when talking about liquidity. In Russia, we now witness a strong reduction of the loan portfolio, and at the same time, an increased equity position. Having said all this, of course, this looks to more liquidity to be placed, and currently this liquidity place is based with the central bank of Russia. Let me move on to page 22. Besides risk costs, there's also the subject of provisioning in Poland for our legacy portfolio on the Swiss-rank mortgages. In the first quarter, we have taken a further 109 million years of provision driven by a still elevated level of new litigation cases. Our coverage on the outstanding portfolio stands at 94%. If you include the capital held against this portfolio, The coverage increases even to 99%. Last week, the Polish Supreme Court debated six questions in an attempt to harmonize the decision across Polish courts. Unfortunately, many of the European Court of Justice findings were not followed, and it appears that the Polish Supreme Court has confirmed annulment as the base case going forward. The silver lining in this otherwise disappointing outcome is that borrowers should not be able to claim compensation, which has already been the case for banks. What this means for provisioning is still unclear, and we are waiting for the written opinions. In almost all cases, our provisioning model assumed annulment anyway, and most of the loan in our portfolio have been captured, meaning provisioned, by the model. Accordingly, we leave our guidance for litigation provisions in Poland unchanged at around 340 million euros for this year, with some downside risk as we get better understanding of the reasons of being court decisions in Poland. We all thank you very much for your interest, and now we are more than eager to take your questions.