Welcome, and thank you for joining the National Bank of Greece conference call to present and discuss the first quarter 2024 financial results. All participants are in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.
Good morning, everyone. Welcome to our first quarter 2024 financial results call. I'm joined by Christos Christodoulou , Group CFO, Greg Papagrigoris, Group IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to Q&A. Let me begin with an overview of Greece's economic environment, which provides a consistently positive backdrop to our strong and sustainable financial performance. Then I will turn to the key highlights of our financial results. So let's begin. Economic activity in Greece since the beginning of the year shows signs of acceleration, bouncing back from the temporary slowdown of the second half of 2023, induced by the floods. In fact, in the first quarter of 2024, most leading and conjuncture indicators have improved versus the fourth quarter.
Specifically, employment growth has accelerated to over 2% so far in the first quarter of 2024, from about half that rate in the fourth quarter of 2023, and combined with real wage growth of 2%-2.5%, results in very healthy increases in disposable income. Business turnover, excluding the energy sector, accelerated to nearly 11% in the first quarter, indicating strong corporate profitability. Higher capacity utilization rates and buoyant government investment point to a significant pickup in fixed investment. Exports climbed to new highs on the service side, with tourism revenues and arrivals up in the high teens year-on-year in the first few months, while export orders climbed to multi-month highs in March 2024. Indeed, manufacturing volumes have gathered pace 3.5% in the first quarter so far.
Last but not least, Greece's fiscal discipline continues, evidenced by a primary surplus of 1.9% of GDP in 2023, versus a target of 1.1%, already near the 2024 target of 2%. Looking forward, supportive credit conditions and normalizing interest rates, combined with the impact of the RRF facility, the bulk of the spending of which is all ahead of us, as currently only 20% has been spent in the economy, will allow Greece to continue to close the investment and deployment gap with the euro area. This will result in sustained strong GDP growth rates. Our estimate is 2.5% in 2024, and at similar healthy rates in subsequent years. Now, let me turn to the first quarter results of the bank.
In this positive economic environment, combined with the accomplishments from our ambitious, ambitious and still ongoing five-year transformation, as well as NBG's inherent comparative advantages, notably our balance sheet strength and the trust of our customers as the bank of choice, the bank's performance has continued to be quite positive. In terms of profitability, we have delivered a first quarter group core profit after tax of EUR 320 million, against guidance for a full year core profit of EUR 1.2 billion. Our typical profit after tax was even higher at EUR 360 million. This performance implies a core return on tangible equity of 17.6%, compared with our guidance for over 15% for the full year 2024.
Among the key highlights of the quarter, which Christos will analyze in more detail, is the small drop in our NII relative to the fourth quarter of 2023, which only reflects hedging costs as well as additional MREL issuance. It is important to note that the increase in loan NII continues to apace, pace that of deposit NII. Corporate net credit expansion in the first quarter has been sluggish due to seasonality as well as continued cash management optimization by Greek corporates, especially some of the larger ones. However, disbursements have picked up sharply in March and April, with our April disbursements nearly matching those of the entire first quarter. Moreover, corporate credit approvals outstanding, but expected to be disbursed as the projects are executed, approached the EUR 3 billion mark over and above April's disbursements.
Also noteworthy, disbursements in the retail portfolio accelerated in the first quarter, more than 30% year-on-year, and matched repayments for the first time in many years, despite the headwinds from an old vintage mortgage book. As a result, we stand by our guidance for our net loan expansion, expansion similar to 2023. Other key highlights of the first quarter results are the impressive growth in fees, up by 15% year-on-year, and well, as well as the ongoing gradual normalization in the cost of risk as formation continues not to be significant year to date. Our sustained high profitability further enhanced our capital buffers. With our CET1 ratio rising by 80 basis points quarter-on-quarter to 18.6% after netting off the quarterly dividend provision.
Our CET1 ratio currently far exceeds our internal targets of around 14%, which enhances our strategic flexibility, including with regards to shareholder remuneration. On that note, we expect the SSM to respond to our request for a dividend by the beginning of June. Please bear with us a bit longer, and we'll receive an unqualified answer soon. Turning to liquidity, despite our full repayment of the TLTRO, the corporate loan repayments, and the switch to mutual funds, our excess cash position increased and stands at over EUR 9 billion. I'm sure you saw yesterday's announcement by DBRS regarding their rating upgrade of NBG to investment-grade status, basing their decision on the strength of our balance sheet and our sustained high profitability. Certainly a set, a testament to our successful transformation and strategy execution.
As a result, after nearly 15 years since the outset of the Greek financial crisis, NBG is rated once again pari passu with the Greek sovereign. Looking forward, our results will reflect the support of macro trends in a buoyant banking environment, as well as our inherent comparative advantages, including our transformation program, which is bringing rapid and efficient change, most notably in technology. The decision to invest early and heavily in technology has been distinguishing us already on digital banking and the concomitant superior customer experience, but gradually and steadily also on our agility and innovation. With that, I would like to pass the floor to our Group CFO, Christos, who will provide additional insight into our financial performance before we turn to Q&A. Christos?
Thank you, Pavlos. Let's start with the profitability highlights on slide 15. Our core profit after tax increased by 45% year-over-year in Q1 2024, driving attributable profit after tax to EUR 358 million, nearly 40% higher year-over-year and 14% higher quarter-over-quarter. This translated into a return on tangible equity of 17.6%, equivalent to 19.7% on an attributable part basis before adjusting for excess capital. The year-over-year momentum in core profitability was driven by higher NII, up 22% year-over-year, strong fees up by 15% year-over-year, with operating expenses kept under control in the low single digits on a like-for-like basis, and our cost of risk steadily normalizing to 55 basis points in Q1 2024, well inside our guidance for the full year.
Going into more detail, our net interest income on a quarterly basis remained above the EUR 600 million mark, just off the Q4 2023 peak, with NIM at 326 basis points, despite the negative impact from the hedging costs on demand deposits, higher volume-driven wholesale funding costs, and the calendar base effect, all of which were partially absorbed by growth in lending NII, as shown on slide 20. Towards providing support to our NII when ECB rates start to come off, apart from putting in place structural hedges, we have also gradually increased our exposure in fixed rate assets .
In the meantime, the healthy lending spread normalization we have seen has been in line with our expectations, implying a loan pass-through rate of circa 70%, while our strong and stable core deposit base, comprising nearly 80% of our deposit stock, has kept our blended deposit beta lower 12%. Time deposit yields in Euro terms came in at 195 basis points in Q1, implying a beta of circa 50%, in line with our guidance. As regards fee income, the positive momentum has been maintained, with our fees higher by 15% year-on-year, following a seasonally strong Q4.
As shown on slide 25, main contributors to this performance were our retail fees, witnessing double-digit growth across products, while corporate fees were also positive, yet affected by seasonality in Q1, already looking much stronger in Q2 on the back of accelerating originations and the pickup in economic activity. The most notable contributions within the retail business were investment products, up by 38% year-on-year, driven by increased financial activity and higher mutual fund volumes, showcasing our successful efforts to cross-sell, with lending fees also having a strong performance, up by 30% year-on-year. Moreover, our digital transformation continues strong, producing consistent results, with e-banking transactions up by 26% year-on-year and total customer transactions higher by 15% year-on-year.
Cost discipline continues, allowing our cost-to-core income ratio to drop below the 30% mark, well inside our full year 2024 target. On a like-for-like basis, adjusting for the base effect from variable remuneration built up in the second half of 2023 versus evenly over 2024, the carrying operating expenses were up by just 3% year on year after factoring in the union agreed wage rises in December 2023, as seen on slide 26. Our ongoing IT and digital transformation continue strong, enhancing our operational efficiency and further improving our commercial offer. Now let me give you a review of the highlights of our balance sheet, summarized on slide 16.
Loan expansions stood at EUR 1.1 billion year-on-year to over EUR 30 billion of performing loans, mostly driven by corporate. Retail disbursements have gathered pace in Q1 2024 to EUR 0.4 billion, up by 32% year-on-year, driven by SB and consumer loans, while repayments were fully absorbed across all lines of business for the first time in many years, as the CEO said. Corporate disbursements have recovered strongly in April, while the approved loan-to-get-disbursed pipeline currently stands at nearly EUR 3 billion, providing comfort to our full-year 2024 credit expansion target. Domestic deposits were affected by Q1 seasonality, as well as cash management optimization by large corporates, while retail deposits were fairly stable despite a small shift of depositors to asset management products.
Our fortress balance sheet on slide 18 is characterized by our best-in-class liquidity and capital profile, with the latter underpinned by continuous organic capital build-up . Both our balance sheet superiority and our solid and sustainable core profitability dynamics have been officially acknowledged yesterday, allowing us to become the first Greek bank to regain investment grade status after nearly 15 years, ranking pari passu with the Greek sovereign. With regards to liquidity, we are also the first bank in Greece to fully repay our TLTRO exposure in Q1 2024, while our net cash position increased further to over EUR 9 billion, steadily at the high end of the sector. With deposits comprising circa 95% of our funding, we remain the lowest funding cost in Greece, with our loan to deposit and liquidity coverage ratio standing at 60% and 250% respectively.
Turning to asset quality on slides 27-29. In Q1, net NPE flows were practically nil, well inside our guidance, allowing cost of risk to normalize further with our domestic NPEs net of provisions close to zero. NP cash coverage stood at 86%, with our coverage across all three stages being at the high end of the European banks spectrum, as shown on slide 29. Moving to capital on slide 17. Our impressive capital generation in 2023 continued in Q1 2024, fueled by strong profitability. Our CET1 ratios stood 80 basis points higher quarter on quarter, at 18.6%, with a total capital ratio at 21.3% after factoring in dividend accrual for next year's payout.
Moreover, our MREL ratio settled at 26.5%, exceeding the January 2025 requirement of 25.3% by more than 120 basis points. On slide 31 and 32, we provide a snapshot of our key ESG priorities. We remain committed to our ambitious net zero target, underpinned by our climate and environmental strategy, while we have also launched flagship social initiatives, including on financial literacy and inclusion. In sustainable energy, we recently co-signed a milestone deal to finance the construction of four photovoltaic projects of 730 MW installed capacity under the green pillar of the RRF. While earlier this month, we entered in a strategic partnership with Public Power Corporation for the offering of home energy upgrade loans.
Summing up, our solid core profitability momentum was maintained in Q1 as we continued to capitalize on the distinct strengths of our balance sheet, as well as our successful operational and digital transformation. Our profitability is on a strong and sustainable path, further increasing our capital buffers, translating into a return on tangible equity of circa 18%, indicating that we are well on track to sustain high returns and keep generating shareholder value. Testament to these efforts and our results, NBG has become the first Greek bank to have regained investment grade post the Greek financial crisis. With that, let's now open the floor to questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star, followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your questions for better quality. Anyone who has a question, may press star and one at this time. One moment for the first question, please. Mehmet Sevim with JP Morgan, please go ahead.
Good morning. Thanks very much for your time, and thank you for the presentation. Just a couple questions from me, please. So first of all, on the deposit outflows, you’re noting they’re seasonal, but they were also quite sizable this quarter. Could you please provide a little more color on what’s driven this and whether you expect them to reverse in the coming quarters, please? And secondly, what was the negative carry from the hedging activities within NII in this quarter, please, if you could quantify that and maybe any other color you can give on the hedging strategy and position, that will be helpful. And finally, would you be able to quantify also how much you’re accruing in your capital for 2024 dividends, basically that will be paid next year?
Maybe any other color you'd like to share on capital return at this stage will be helpful. Thanks very much.
Okay, let me start with the first question. Clearly, there's a seasonal impact in the first quarter in Greece. Most notably, there are double salaries paid in the fourth quarter, which then get spent and lead to a drop in deposits.
... during the first quarter. What I think is notable for us is, despite this seasonal effect on the side of the individual, we saw a very small decline in deposits, which equals more or less the shift to mutual funds. So despite what would have been expected to be a seasonal low, we didn't see it on the individuals where there's a higher seasonality. We did see a drop on the corporate side, and that is, in our interpretation, a reflection of the early repayments that we saw, especially by some of the cash-rich largest firms in Greece, especially ones in energy, in the energy sector.
But some of the other large corporates, as well as shipping, which is also seeing a quite a big boom in rates, and therefore they're cash-rich as well. So, it's—I think if you look at it this way, it's a relatively positive message that we didn't see the expected seasonality on individuals, which is the biggest part of our deposits. And we did see it on the corporates, and again, it's due to the early repayments. So for me, it's a relatively strong sign on deposits. Now let me turn to Christos for the other questions.
Okay. So let's start with the negative carry on the hedges. Effectively, what we discussed a few weeks ago when we had the year-end results, it stands. As we have discussed then, we have placed about EUR 10 billion of structural hedges on demand deposits. Most of it last year, and some of it at the beginning of this year. The negative carry out of this strategy in the first quarter was in the area of EUR 16 million. Obviously, you have to bear in mind that this is assuming that the rates are now at 4%, so while rates normalize in the future, that cost may become less in the future. And currently, we are monitoring the strategy. We have no intention to make any immediate changes, but nevertheless, we are on top of it.
With regards to our accrual for dividend out of 2024 profits to be paid in 2025, as the CEO said in his remarks, first, let's see what we get for this year. Nevertheless, we've started our accruals. What we have in our Q1 capital waterfall is something between 20 and 25 basis points. We will build that up towards the end of the year, when we know how we fulfill the strategy of the payout collected.
That's super. Thank you very much. And on this year's dividend payment, is there anything new that you can share at this stage? Probably not, but just wanted to check. Thank you.
As I said in my remarks, I know it's a key question of interest for investors. Patience for another approximately one month.
Fair enough. Thanks very much.
The next question comes from the line of Eleni Ismailou with Axia Ventures. Please go ahead.
Hello, and congratulations for this strong set of results. We've got three questions from my side. The first one would be a follow-up on the natural hedges. We see that you increased your exposure on the fixed rate assets further in this quarter. Could you provide us with your hedging strategy outlook going forward in terms of the fixed rate assets, whether you will keep increasing the book in the other quarters? And if you could confirm the average duration of the book, as well as the target portfolio yields. That's question number one, in terms of protecting the NII. The second one would be on the NPE calendar shortfall that we read, some headlines a few weeks ago, related to the Greek state-guaranteed exposures.
If you could let us know whether there would be any impact on your CET1 capital, and if yes, when we should be expecting it? And the third question would be, if you could help us understand what the interplay with the pricing in terms of the spread in the pre-agreed pipeline you mentioned that you have in place that will accelerate credit growth in the other quarters? Thank you.
Okay. On the fixed income portfolio, we are comfortable with the level of securities we have. Don't expect any significant increase. Point one. Point two is that, given where we are in the interest rate cycle, we had previously explained how we were fully hedged when rates went up. Now, we clearly don't need to be fully hedged, because we think rates are at their peak. So there'll be the hedging is on the long end, while on the short end of the curve, it's been lifted. So that's it on the securities portfolio. Christos, you can take the-
Yeah.
If you want to add anything on that one, and take the other two.
The tenor of our book has been extended. It's just below 15 years before hedging. That's it, actually now. Let's move to your second question with regards to the state guarantees. Effectively, this is a potential treatment on all state guarantee loans, granted under special circumstances to vulnerable groups, using the Addendum calendar shortfall . In our case, claims mostly relate to collateralized mortgage loans, so pretty confident with that. Claims against the state guarantees currently are around EUR 500 million with state payments actually increasing significantly in the past 24 months. We've already taken a prudential adjustment of about EUR 100 million so far.
Any additional adjustment will be correlated to the repayments, and, if, we don't expect it to be more than EUR 150 million-EUR 200 million, in a year from now. And to be honest, it's expected to come down, because this capital, burden is a temporary thing. With repayments, you will be getting back, whatever you, provide, proactively. So, we will see it coming back into play in the following, quarters. Our business plan initial guidance, obviously, already accounts for this. I think the last question was on the spreads?
The spread, the spreads on the yet to be dispersed, I would say, are around 2%, 200 basis points.
Excellent. This is all very clear. Thank you very much. And again, congratulations for the strong set of results.
The next question comes from the line of Gabor Kemeny with Autonomous Research. Please go ahead.
Hi, Gabor from Autonomous. First question would be on the loan growth outlook. I saw your disbursement accelerating, and actually, if I add up your pipeline with the disbursement so far, I think it's somewhere around EUR 5 billion, which is 70% of the total disbursements you made last year. So my question is: what makes you cautious when you assume, like, similar net credit expansion for this year? Or in other words, what could be the potential upside to your loan growth target? Another question just on the net interest margin. How would you expect the NIM to evolve in the next few quarters? Because it seems that the deposit costs are trending better than you may have expected. Thank you.
Good observations on the loan growth. We have a tendency to be conservative on our projections, so we don't need to we could only surprise on the upside and on the downside. And the repayments continue to be stronger than we expected, so we're being cautious on the net. Let's see how long these repayments keep coming. As I said in my introductory remarks, they are from a very few number of corporates, but of very large amounts. And these are corporates which, for various reasons, are seeing quite a good profitability, energy and shipping being two sectors, specifically. So those are the two tendencies: stronger, stronger disbursements, but also stronger repayments. And we see, and we predict that it'll be the same as last year.
We could see positive surprises, but let's hold off a little further before we make that statement.
Now, let's answer the question on the NIM. As you've seen in Q1, we've landed with NIM at 326 basis points. Our guidance for the year, based on the business plan, is just around 290 basis points. I think we are well on track to do slightly better than that, but it's a bit early now. You know, the headwinds and the tailwinds. We have the expectation of the rates, which would be a big factor going forward when those will come down. We also have to pay attention to the dynamics of the deposit betas, as well as the other deposit mix, which again they look quite positive if we take the first quarter of the year as a first point of reference.
And of course, embedded costs, which whatever insurance we have planned, we have executed in Q1. So the path towards the end of the year is obviously a gradual reduction, but yet again, we're very confident that we'll be more than comfortable with the guidance of 290 basis points.
And if I can add, the key question here is clearly what the ECB will do. And not wanting to preempt what the ECB will do, but it seems that if the Fed delays, it argues that ECB could also delay disbursements. So let's see.
Yeah, fair point. Thank you very much.
The next question comes from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hi, Manny, thanks for your time and the presentation. Just a few clarifications, I guess. First, on the dividend payout ratio, you mentioned 20-25 bps. Just want to make sure I heard you clearly. This is a starting point, because if my calculations are right, this suggests similar payout ratio to 2023. So if you could confirm that you're looking to increase payout ratio for 2024? That's my first question. Second, you mentioned that you are unwinding some hedges on the securities book. What would be the level broadly these days? What portion of the securities book is hedged? And then third, your RWA has come down a bit in Q1.
I'm wondering if there's anything special, or is it just the loan book, you know, balance sheet coming, asset size coming down? Thank you.
... Okay, let's start with the dividends. Let me clarify that this accrual doesn't correlate, at this point in time, with the payout that we'll be giving next year. Obviously, as I said, let's get this year's payout out of the way, and then we'll build up the accruals, depending on the payouts that we'll discuss with our board towards the end of the year, like we did last year. If you remember, last year, we built up the payout towards the second half of the year. Now, with regards to the hedging, obviously, you know that when the rates were low, we were fully hedging our, you know, hedging in our securities portfolio.
As you may well expect, given the direction of the rates from this point onwards, we have been lowering our hedging ratio, and the strategy is being revised very often. And let me add here, we are careful here. On the long end, on the long maturity bonds, we continue to hedge. Any reduction in the hedge has been on the short end. Now, with regards to risk-weighted assets, nothing special there. The small reduction has to do, obviously, with the fact that we had a minor reduction in the loan book in the first quarter.
And to add to that, we had the closing of the securitization in the first quarter of the year, which had a small release in the risk-weighted assets. I think 15 basis points come from that, and that's about it.
Perfect. And maybe if I can squeeze in a general question: Very strong results, obviously. Where, where are the upsides? Could you comment? I know it's a bit early, but looks like you do have quite a bit of upside to guidance in number of areas.
I mean, I think the answers to our previous questions, we hinted at a couple. One is clearly, I think the ECB will probably not lower as fast as we had budgeted in 2024. We had said the DFR at 3% at the end of the year. That may be a bit too far. The repayments on the corporate loan side may abate faster than what we have conservatively assumed. And clearly, I think the last line that you may see some upside is on the cost of risk, which I think we are being quite conservative.
Great. Thank you very much.
As a reminder, if you would like to ask a question, please press star and one on your telephone. The next question comes from the line of Simon Nellis with Citi. Please go ahead.
Hi. Thanks very much for the opportunity. Most of my questions have been answered. Just a quick one. On the trading results, if you could just elaborate on what was driving that. It seemed to be well above the quarterly run rate from the last several quarters. And then I see that there's also around EUR 22 million of one-offs. I think EUR 9 million of that is the LEPETE. But what's the rest? If you could just give us some color on that. Thank you.
With regards to our trading result, this is something that has to do with some disposals of securities in the process of rebalancing our bond portfolio. So we crystallized some gains in the first quarter of the year. I wouldn't expect it to be a recurring thing every quarter, so it depends on how we continue the rebalancing of the bond portfolio. But I think you've seen the best of it in the first quarter of the year. And with regards to your question on one-offs, yes, most of it has to do with LEPETE, and the remaining is one-off minor one-off items that we have, that are not part of our recurring franchise going forward.
But they're not less restructuring-related?
Of course, of course. They are minor restructuring expenses that have to do with part of our rebranding project that ran in the first quarter of the year. If you remember, in January, we had we launched the rebranding of NBG, and that's associated with that.
Okay. Thank you very much.
The next question comes from the line of Alberto Nigro with Mediobanca. Please go ahead.
Yes, thanks for taking my question. Very quick one on capital. Can you give us more details on the quarter-on-quarter evolution? Is there any reduction in any capital deduction this quarter that explain also the 15-20 basis point increase Q on Q after the retained earnings? Thank you.
The drivers of our capital quarter-on-quarter is more primarily profits, that accounted for over 100 basis points of the first quarter's capital. We have a DTC accrual for the quarter, which is just over 10 basis points, as it is for every quarter. We had our dividend accrual. As I said, it doesn't serve as a point of reference for what the payout will be, but we started accruing as we started last year, and then we'll see how to top it up towards the end of the year. We have minor volatility from our fair value through OCI, but that is slightly positive. We had the positive effect of the closing of our securitization, which helped a bit our capital waterfall.
The accrual on state guarantees, we discussed a bit before, about EUR 100 million on that one as well. And I think that sums it up. That's more or less the constituents of our capital dynamics in H1.
Thank you.
Once again, to register for a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I would like to turn the conference over to Mr. Mylonas for any closing comments. Thank you.
Thank you all for joining us for this results call. We're, as usual, available for any follow-up questions you may have. And, for that, let me wish Happy Easter to all the Greek Orthodox on the call. And we'll talk to you soon after Easter. So,
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant day.