Ladies and gentlemen, thank you for standing by. I am Yaeli, your call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the third quarter 2024 financial results. 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 afternoon, everyone, and good morning to those joining from the U.S. Welcome to our third quarter financial results call. I'm joined by Christos Christodoulou, Group CFO, Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to Q&A. So let's begin. Let me start by providing a brief overview of Greece's economic developments and outlook, which provide an important backdrop to our financial performance. The Greek economy remains strong, with growth accelerating to 2.3% year-on-year in the second quarter. Business has been leading the expansion, including sizable fixed capital investment, with a strong labor market following suit. Moreover, forward-looking indicators are all positive. All in all, we expect full year 2024 GDP growth near 2.5% and about 2.3% for 2025.
It is important to note that the solid fiscal performance results in a further risk re-rating of the economy, thus improving its attractiveness despite the challenging external environment. Three important observations regarding the macro outlook that are important drivers of loan expansion. First, gross fixed capital formation is set to strengthen further in 2024 from the nearly 16% of GDP in 2023. The main drivers are the all-time high capacity utilization rates in both industry and services, a multi-year high in business profitability, and increasing public investment, including RRF funds. Clearly, higher fixed investment is a positive for corporate lending. On the household side, the labor market continues to strengthen, with inflation-adjusted employee compensation up 3%, employment growth up nearly 2%, and the unemployment rate continuing to decline steadily. These developments are positive for consumer lending.
Third, the residential real estate market remains buoyant, with house prices recording a broadly 10% year-on-year increase in June 2024. The limited availability of new apartments is expected to support a stronger pace of residential real estate construction, as well as demand for housing. These developments are clearly positive for mortgage lending. Now, let me turn to the results of the bank. The sustainable growth of the Greek economy, combined with our balance sheet strengths and our ongoing and highly effective transformation program, has allowed us to continue to outperform across all key metrics throughout the year. In terms of profitability, we have delivered a nine-month group core PAT of nearly EUR 1 billion, up 15% year-on-year, which is in line with our 2024 guidance. Similarly, our nine-month performance applies a core return on tangible equity of 17.5%, again comparing favorably with our full year 2024 guidance.
It is important to note that our quarterly core PAT, which stood at EUR 337 million, was slightly higher than that of the second quarter, up 4% actually, despite successively lower year-over-year rates throughout the year. Thus, a key highlight of the third quarter, on which Christos will go into more detail, was the resilience of our NII edging marginally higher quarter-on-quarter. This occurred despite year-over-year rates that were 40 basis points off their peak, with a lagged impact on NII of about three to six months. Four factors offset the impact of the lower market rates on NII: one, strong credit expansion, two, increasing exposure to fixed income securities, three, an improved deposit mix, and four, a lower carry on our structural hedges. Specifically, we achieved loan disbursements in excess of EUR 5 billion during the nine months, resulting in net loan expansion of nearly EUR 1 billion.
It is important to note that we have a large pipeline of approved but not yet disbursed credits, over EUR 2 billion, on top of a new corporate credit origination of nearly EUR 1 billion that occurred in October. Both developments bode well for loan expansion. Indeed, as we speak, we have already exceeded our revised fiscal year 2024 performing loan expansion target of EUR 1.5 billion. Other key highlights of the third quarter results are: the sustained double-digit growth in fees, up by 14% year-on-year and 2% quarter -on- quarter, with growth led by our retail investment product business. Two, the continued discipline in containing our recurring operating costs, which remained in mid-single digits. Three, our cost of risk, which continues to decline at a steady pace, nearing 50 basis points in the third quarter, reflecting the continued absence of new NPE flows over the past several quarters.
As a result of sustaining a high profitability, our capital buffers were further enhanced in the third quarter, with our CET1 ratio reaching 18.7% post-dividend accruals for a 40% payout from this year's earnings. Our CET1 ratio is now more than 450 basis points above our internal target of around 14%, which allows for strategic flexibility as regards capital utilization going forward, including as regards our efforts towards increasing remuneration to our shareholders. Having said that, decisions on the payout of the 2024 profits will be taken in early 2025, and the total payout could end up being higher than the current accrual of 40%. In that direction, we have been exploring options improving the perceived quality of our capital with regard to the levels of DTCs.
We are planning to adopt a principled approach through which to accelerate the amortization of DTCs on a prudential basis, over and above the current amortization schedule. In this manner, we expect to reduce by approximately half the remaining years to full amortization. The incremental impact on our capital will be comfortably absorbed over an approximately eight-year period, while at the same time, and most importantly, we will be improving conditions for accelerating remuneration to shareholders. Turning to liquidity, our net cash position of around EUR nine billion remains highly supportive of our NII, reflecting another comparative advantage of NBG. It is important to note that our core deposit stock increased by about EUR 1.3 billion year-on-year, while time deposits edged successively lower on the back of retail clients' ongoing shift to fee-generating mutual funds.
These movements led to an increase in the share of our core deposits to total deposits to nearly 8% at the end of the third quarter. Within core deposits, it is important to note that low-cost savings accounts have been increasing at a significantly faster pace than the market now for several quarters. On the other hand, our corporate side deposits have been choppy from quarter to quarter, reflecting usage of working capital facilities, i.e., drawings and repayments. Looking forward, our class-leading investments in technology and our digital transformation remain at the heart of our strategy. They are combined with the commitment of our people to support our transformation efforts in order to increase efficiency, agility, and to continue to improve the experience of our clients. We remain committed to playing a leading role in supporting our clients as they lead the Greek economy forward, adding value to our shareholders.
With that, I would like to pass the floor to the Group CFO, Christos, who will provide additional insights to our financial performance before we turn to Christos.
Thank you, Pavlos. Starting with the profitability highlights on slide nine, we reported a solid core profit after tax of EUR 983 million for the nine-month period, up 15% year-on-year. This translates into a core return on tangible equity of 17.5% before adjusting for excess capital, comparing favorably with our end-of-year guidance of above 16%. Key drivers to this performance were the resilience of our NII, posting a 9% year-on-year increase, the impressive growth in fees, up by 14% year-on-year, as well as a sustained normalization in our cost of risk, landing close to the 50 basis points mark for the nine-month period, well inside our full year 2024 guidance of below 60 basis points.
Importantly, in a lowering market rate environment, Q3 core profit after tax increased by 4% quarter-on-quarter to EUR 337 million. Going into more detail, as shown on slide 15, our Q3 NII edged marginally higher quarter-on-quarter, displaying resilience in the face of lowering market rates, which have dropped by 40 basis points since the peak in the fourth quarter of 2023. Higher loan volumes, increased exposure to debt securities, improving deposit mix in favor of low-cost core deposits, and the lowering hedging costs mitigate the impact of market rates on our NII. Moreover, lending spread normalization has been tapering off, as shown on slide 16, while time deposit spreads have edged lower quarter-on-quarter, as our deposits have not been repriced in Q3.
Our net interest margin stood at 322 basis points on a nine-month basis, with the Q3 NIM remaining strong, nearly flat quarter-on-quarter at 320 basis points, partly due to the repricing time gap of our loan book, but at the same time aided by the improving mix of our deposits. Given the structure of our balance sheet and despite lower market rates in the second half of the year, NII for the full year 2024 will end up higher compared to last years, while NIM will comfortably be above the 300 basis points mark. Momentum in fee generation also remains strong, with net fee income increasing by 2% quarter-on-quarter and by 14% year-on-year for the nine-month period, creating upside risk to our full year guidance for a high single-digit growth.
As shown on slide 19, key drivers were the retail business, up 17% year-on-year, spearheaded by investment products, which were up 35% year-on-year, as well as lending fees and payments. Corporate fees were also up 8% year-on-year, benefiting from loan origination, as disbursements picked up by 15% year-on-year. The performance in fees has been aided by the continued shift towards our e-banking channels, with related transactions up 23% year-on-year, driving the total number of customer transactions 12% higher year-on-year, underlying the quality of our digital offering. This highlights our ongoing efforts to enhance the bank's fee-generating capacity, also leveraging our digital capabilities. Going to slide 20, our operating expenses were well contained despite the collectively agreed wage rises in December 2023, the bank's strategic IT investment plan rollout, and abating yet still high inflationary pressure.
OpEx growth stood at 4% year-on-year in the nine months, normalized for variable pay accruals accounted for in the fourth quarter of last year. Cost discipline, combined with the strength in our core income, kept our nine-month cost-to-core income ratio at 30.5%, well inside our end-of-year target of below 33%. Going forward, we will continue managing our OpEx base through further optimization actions, leveraging our new core banking system, the replacement of which is due to be completed in the next 15 months, further supporting improvement in our product and service offerings and overall customer experience. Now let's go through the highlights of our balance sheet summarized on slide 10. Performing loans in the nine months increased by circa EUR 1 billion year-to-date, despite the seasonally weak third quarter.
Loan expansion reflects corporate disbursements of over EUR 4 billion year-to-date, up by 15% year-on-year, diversified across sectors, mostly energy, infrastructure, hospitality, and shipping. The retail business also maintained a positive momentum across products, with disbursements exceeding EUR 1 billion year-to-date, up by 33% year-on-year. Looking to the fourth quarter, as the CEO said, corporate origination in October was very strong, coming in at circa EUR 1 billion, while our corporate pipeline currently stands in excess of EUR 2 billion. Therefore, we are confident we will far exceed the full-year 2024 loan expansion target of EUR 1.5 billion. Deposit balances, as shown on slide 17, were up by EUR 0.7 billion year-on-year and flat quarter-on-quarter, with the quarterly movement impacted by repayments of working capital by corporate clients, as well as our efforts to continue shifting our premium clients to fee-generating mutual funds.
Importantly, the improvement in the mix of our deposits was on the back of inflows to core deposits from retail clients, offsetting the outflows from time deposits, thus resulting in lower deposit costs. Moving to capital on slide 11, our strong profitability drove our class-leading CET1 ratio higher to 18.7%, a level which currently exceeds our internal target of 14% by more than 450 basis points, while total capital ratio increased by 130 basis points year-to-date to 21.5%. Our end-of-period ratio settled at 26.6%, well above the January 2025 requirement of 25.3%. Currently, our capital ratios include an accrual of 0.9% for payouts in 2025 out of 2024 profits. However, as our CEO just stated, decisions on the level of the final payout for the current year will be taken early next year.
Now, as mentioned from Pavlos earlier, on slide 12, we illustrate our principle-based initiative that will allow the acceleration of our DTC balance amortization, dropping them to zero levels by year 2032 versus 2041 before. This acceleration initiative is a prudential treatment and therefore has no impact on our tangible equity and profitability. Furthermore, the incremental impact from accelerating DTC amortization on our capital buffers is immaterial, given that it is spread over a period of approximately eight years. Moreover, in our illustrative example on the left-hand side of the slide, we show a sensitivity of this treatment whereby increasing the payout ratio by 10 percentage points results in just 5 basis points of additional capital charge. Clearly, this prudential acceleration framework allows us to improve the quality of our capital much faster, while at the same time, it considerably improves our capital deployment and distribution options.
Our well-capitalized and highly liquid balance sheet, as depicted on slide 13, remains a key comparative advantage, underpinned by a leading net cash position of EUR 9 billion, supporting both our NII and NIM. Our loan-to-deposit ratio stands at 60%, while our liquidity coverage ratio of 270% stands out at European level. Finally, our total funding cost improved further to 73 basis points, with deposits comprising 95% of our total funding. Turning to asset quality on slides 21 to 23, NPE stock stood at EUR 1.2 billion in Q3, just EUR 0.2 billion net of provisions, with our overall asset quality profile continuing to improve. In the absence of net NPE flows, our cost of risk normalized further to 52 basis points in Q3, or 54 basis points for the nine-month period versus 66 basis points a year ago.
Our provision coverage reached 86%, with coverage across all three stages being at the high end of the European banks' spectrum. Summing up, we delivered a solid nine-month financial performance that compares favorably with our full year targets, reflecting our firm commitment to strategic growth and operational excellence. As we move forward, we remain confident in our ability to seize growth opportunities while continuing to create and return value to our shareholders, and with that, let's now open the floor for questions.
The first question is from the line of Nida Iqbal with Morgan Stanley. Please go ahead.
Hi. Thank you for the presentation. I have three questions. My first question is on the accelerated DTC amortization. Just wanted to get a better understanding of what this means for 2024-2026 capital return.
I understand you mentioned that there could be upside to the 40% accrued, but if you can provide additional color around how we should be thinking about payouts for 2025, 2026, and how fast could we get to being closer to the European average of around 70% payout? My second question is on margins. This year, of course, has been very resilient for margins and NII, with lower rate cut expectations ahead. Are you able to comment on whether you're still comfortable holding your 2026 margin and profit guidance? And if so, what rates are you assuming now versus the 2.25 previous budget? And my final question is on loan growth. I'm just interested in getting your views on the mortgage and consumer loan growth side of things and whether you see that as a driver of upside to loan growth as we think about 2025, 2026. Thank you.
Okay. Three questions. The first one on DTC acceleration. We had provided guidance about a path for gradually increasing payouts from 30% towards 50-plus %, going up the steps of about 10 percentage points per year. So think of an acceleration to that schedule. For 2025 out of 2024, something like the 40% going maybe up to 50%, okay? Up to. Now, on the margins, on the NIM, clearly we still are doing better than expected with holding up our NIM. The guidance still holds. Clearly, the drop in ECB deposit facility rate will come down slightly faster than we had anticipated in our previous business plan. We're updating the business plan, and we'll be providing you that in early next year at the time of the Q4 results.
So I think the 26 we had said close to the 23, I think that is more or less there, but the ECB rates are coming down a bit faster than we had anticipated. On loan growth, I think we're seeing a pickup compared to our previous guidance. You're seeing it happen, not only us, I think the other banks as well. So we'll see with the GDP growth holding up and doing better than expected. I gave you the drivers of loan growth at the beginning of my comments, so that's all bodes well for loan growth. So I think that, again, we'll be providing the official guidance at the time of the revised business plan, but I'm optimistic on loan growth doing as well, if not better than we had previously projected.
Thank you very much.
The next question is from the line of Gabor Kemeny with Autonomous Research. Please go ahead.
Yes. Hi. A couple of questions on similar topics, please. First one is maybe on the NII outlook after this solid Q3 delivery and the fact that loan growth is accelerating. How do you see your capacity to keep NII stable in the next few quarters? And in relation to that, if you could please update us on your NII sensitivity to lower Euribor rates. And the other topic on the DTCs, I mean, just given this very comfortable capital position you have, you mentioned 400 basis points of excess above your target. What do you think is the scope for amortizing DTCs even more quickly? And would you see this as a way of increasing your capital distribution yet further? Thank you.
Okay. Now, with regards to NII in the next quarters, as we said, the resilience of NII in Q3 was remarkable. Part of that, though, was due to the time lag of the repricing of our floating rate balance sheet. So as I covered in my remarks, we are in a position to say that the NII for this year is going to end up being higher compared to last year. But nevertheless, in Q4, it's going to be a quarter where we are going to experience a reduction in NII around, I would say, mid-single digits. NIM is going to be strong still, and I can surely assure you that it's going to be much higher than the 300 basis points mark that we had communicated during the guidance, more likely to be more than 310 basis points.
Now, going forward, as Pavlos said, we are currently revising our balance sheet and our business plan in general, the profitability. So I would say that 2025 is a year that we should be expecting a reduction in the NII, which will start picking up from 2026 onwards. Now, with regards to our NII sensitivity, our previous guidance stands. So for every 25 basis points, the sensitivity in our NII is around EUR 35 million. Obviously, this is on a static balance sheet. As the balance sheet continues, the metric will change, and with regards to the DTC amortization, we have a framework. It's an illustrative example that you have shown today. So it's premature to talk about the path that it will follow. 7-8 years is the path that we want to follow.
That assumes that at some point, we are converging to European averages with regards to our payouts. But I would say one step at a time. We're going to initiate with this plan in 2025, and we'll take it, as I said, one step at a time.
Okay. Fair enough. Thanks very much.
The next question is from the line of Osman Memisoglu, Ambrosia Capital. Please go ahead.
Hello, Many thanks for this. A couple of questions. One is on coming back to the distribution angle. Apologies if I missed this. When can you start buybacks? I'm guessing it'll be in 2025, but if you could give us any color to the extent you can. Then on OpEx outlook, we've been seeing a bit of increase in staff costs in Q2, but also in Q3.
Is there any one-offs in there, or how should we think about the outlook for staff costs and OpEx in general? And then finally, just a modeling question. If you could share with us the hedging cost in Q3 that's included in the deposit figure. Thank you.
Okay. Buybacks. Yes, clearly, we would like to include a buyback component in the 2025 distribution based on the 2024 profitability. So I don't have a clear number there, but put it this way. A good chunk of the increase from the current level of 30% that we had in this year versus 2023 would be in the form of buyback. It would be our preference.
Okay. I'll take the next two questions. Now, with regards to staff costs, indeed, in Q3 and Q2 for that matter, we had some variable remuneration paid to our employees associated with targets.
So we have some seasonality there as well. And that explains the pickup in our costs. And with regards to our negative carry, with regards to the NMD hedges, the cost that we had in the quarter was just below EUR 20 million. And as you can appreciate, as the rates go down, this thing is also going down. And hopefully, at some point in early 2025, we'll start to get the benefit back. So that's the numbers for this quarter.
Perfect. Just if I can follow up on the so the 30%, if I heard it correct earlier, will be going up to 50% out of 2024 earnings. That's the remuneration.
I said we would like to see if we could get it up to 50, so based on the approval for the.
Okay. Thank you very much.
The next question is from the line of Petros Tsourtis with Optima Bank. Please go ahead.
Hello everybody. One question, if I may. We have read in the press in the previous days that you might intend a new VES in Q4. Can you give us more color, please?
Yes. I think that as I picked up on the fact that we are designing a new VES, we want to rejuvenate the staff. It's aimed at the people who have the most years and are the oldest. And that will be coming out at some point in the next month, I'd say.
Thank you very much.
The next question is from the line of Alberto Nigro with Mediobanca. Please go ahead.
Yes. Thanks for taking my question. I have just one on the DTC.
Just because you don't have any DTA deduction from your capital, are you absorbing part of the DTC acceleration with your taxable income? So the impact to capital is lower than the absolute amount of, let's say, EUR 145 million that you put in the slides. Thank you.
As you said, given that we don't have too much DTA over and above DTCs in our structure, that gives us the flexibility to optimize with regards to the burden, to the extra charge that we will have with this DTC acceleration model. So we have some optionalities and strategic flexibility there.
Thank you.
The next question is from the line of Can Demir with Wood & Co. Please go ahead.
Yes. Hi. Good evening. Thank you for taking my question.
I was wondering what would be a good tax rate to use at the group level because I think it's been volatile over the quarters, ranging between 20%-29%. So that's the modeling question, I guess, and I also was wondering about the one-offs you booked this quarter and whether you can break it down for us. Thank you very much.
Okay, so with regards to the tax rate, the base case is to use the corporate tax rate for Greece, for Greek banks. That's 29%. And as you can assume, given that companies in Greece, other than banks, have a lower tax rate at 22%, that kind of normalizes the rate to lower levels. Also, you have to take into account some profits we have from international operations, plus whatever tax computations we have to do.
So that's how we come out with the effective tax rate, which in essence moves or hovers between 25%-28%, I would say. With regards to the one-offs, which is the bridge from our core profit to our attributable profit, it's solely the cost that we had for the placement that has taken place at the beginning of October. That EUR 20 million is the reconciling item.
Super. Thank you very much.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Mylonas for any closing comments. Thank you.
Thank you all for joining. I know it was only a brief month since we talked at great length for the placement. But if you do have further questions, we will be available. There are a couple of conferences that we'll be traveling to in London in the next month.
So we'll also have an opportunity there to meet in person. So any questions, call us. Otherwise, we'll see you in London in a few weeks' time. Thank you very much.