Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome and thank you for joining the Eurobank Holdings Conference Call to present and discuss the 2nd Quarter 2021 Financial Results. All participants will be in a listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session.
At this time, I would like to turn the conference over to Mr. Fulquion Caravillas, CEO. Mr. Caravillas, you may now proceed.
Ladies and gentlemen, good afternoon and welcome to the Eurobank First Half twenty twenty one Results Presentation. Together with me is our CFO, Harel Fokotiannis and the Investor Relations team. Let us present our results and key recent developments before we answer your question. Starting with the macroeconomic front, despite the spread out of the delta variation, sentiment remains positive Real estate prices are going upward and the asset quality trends remain resilient And better than even revised estimates. At the same time, foreign trade investments are accelerating Moving higher than the 2018 leverage in the Q2.
The tourism season Chris, we've retained approval for its plan for the resilience and recovery in new funds It expects €7,500,000,000 dispersion this year, of which €4,000,000,000 was already received. It appears that the strong growth will extend into the 2021, 'twenty six period For which we expect annual activity growth of 3.54% on average and the theme by the average. The above trends together with the 3 pattern system delivering the balance that we have from legacy fees Make a sovereign credit rating upgrade to investment grade likely in the next 15 to 18 months. Now let's see our financial results for the first half of the year as highlighted on Slide 4. Our profits in the first half of the year reached €195,000,000 of Page 123 in the 2nd quarter.
Corporate provision income was up 2.4% on a year on year basis and 4.5% from the previous quarter. In line with our guidance, net interest income was lower by 2.8% in the first half of the year And stable than with the previous quarter. Comissions increased strongly On our call now, the better than expected trend continued into the 2nd quarter With organic and information being negative by €43,000,000 the cost of risk ratio that is 1.2% In the first half of this year, our total capital ratio stands at 16.6%, While the fully owned CET1 increased by 20 basis points last quarter and reached 12.1%. New loan disbursements, in managing business loans, raised €3,400,000,000 in Greece in the first half of this year. Deportals were up by €2,400,000,000 in the same period and the loan to deposit ratio declined to 75%.
Finally, in our international operations, we recently announced 2 initiatives, 1, CELTIA, The merger with Dinepla Bank and the second in Cyprus and minority participation is Chilean Bank. This is in line with our strategy to further diversify and strengthen our business in these countries. The existing operations continue delivering in the meantime with net profits of EUR73,000,000 in the 1st calendar year. Now moving beyond the Q2 financial results, We successfully completed the 2021 SSM success as shown on Slide 5. Eurobank ranks among top European banks based on the fully loaded CET1 division of 4.33 basis points under the adverse scenario in the period 2020 to 2023.
This is the best performance among local BNP and EPS and reflects the NPE reduction already in season. As the capital depletion under the address and I is a key input for the shareholder valuation, this will be positive Let me now continue with an update on the next fiscal presentation, Highlight of which on Slide 6, on Nexo we have a binding offer from Dubai. We intend to reclassify the Secretariat portfolio as held for sale in the Q3 and be consolidated to the Q4. Our NPE ratio pro form a for Mexico stands at 7.3 As a result of the better than initially expected cash selling back of Mexico, Our full year 2021 total count is estimated now at 16.4%. That is 40 basis points higher than the pre processed.
Regarding The other 2, capital and health transactions, our plan for a strategic partnership to the investment acquiring business, We received competitive combined offers. We aim to be signed on the preferred reserve in the next few weeks and signed the agreement in the Q4. And the synthetic securitization So in summary, Eurobank delivers on all its priorities, The operating performance is in line with our expectations for 2021 and the outlook For 2022, it's even better as macro trends in Greece improve. In a strong economic environment And having already the best of course in metrics and the most diversified business model in the sector, Eurobank is in the full position to expand its profitability in the coming years Finally, it is important to me as legacy fees are behind us and the bank has started generating On dividends, this is Chris. At this point, I'd like to ask our CFO, Christophe Horciani, to present you Thank you, Fakir.
Let's now provide some more insight on the second quarter results. We start from the capital position on Page 10. In the Q2, our fully loaded CET1 ratio Increased by 20 basis points, allowing it to 12.1%. The savings total capital ratio reached 15.6%. The drivers of the year for this capital movement shall be fully anticipated for the 20 21 capital plan Moving on Page 19 on lending evolution.
Flow disbursements increase continued to be strong at EUR 3,400,000,000 In the 1st couple of years, performing loans increased by TRY 1,000,000,000 year on year, driven by corporate in South Eastern Europe. We expect loan growth for the group in the second half of the year On Pages 2020 21, we present a mortgage of the R and S pillars and the limited investments. The program size is split between grants and loans. As shown on Page 21, The loans part may leverage up to TRY 30,000,000 investments to be funded at very attractive credit cost. Eurobank is well positioned to take the most out of this opportunity.
And to this extent, Participation of Alaris combined with the underlying credit expansion driven by the solid growth of the economies over the next 3 years I expect to accelerate loan growth for the group to see a DKK2 billion per annum for the period 2022, 2024. Moving on funding and liquidity on Page 22. As shown on the right of the page, Group deposits increased in the first half of the year by EUR 2,400,000,000, largely driven Net loss to deposit ratio exceeded in the 2nd quarter to 75% and NPL ratio We are addressing the increasing severance liquidity cost challenge through 2 main strategies. 1st, compressing deposit cost, We are approaching the 0 level as shown on Page 24 and second, by intensifying our efforts Moving to profitability on Page 75, net interest income was 10 quarter on quarter at €335,000,000 The lower contribution from TLTRO and the lower lending margin, mainly related with corporate portfolio spread On a year on year basis, net interest income is lower by 2.8%, in line with what was anticipated. Furthermore, still on Page 25, on the upper right bar, we focus on the qualitative composition of interest income.
Specifically, we show that contribution of NII to total NII decreased from higher than 70% before QNAP On Page 26, condition income rebounded strongly in tandem with the resumption of economic activity, Focusing more on Wealth Management on Page 27, the bank maintains a leading position in a fast growing market, Spending its clients through 4 private banking centers in Greece, Cyprus, Luxembourg and London A domestic heavy light technology in the new platform, the group secures a competitive advantage versus its peers and its position well To become significant financial players in West Manas. On Page 28, Operating expenses are flat year on year. Increased costs are slightly lower by 0.4%. As highlighted, the strategic expenses are offset by sub costs, which is lower by 7.5% year on year Moving to the app quality on Page 8. As shown on the top left of the page, NPE formation in the 2nd quarter was negative by €43,000,000 Continuing to better than expected trends.
SEK ratio decreased to 14% And Cofona with Mexico is reduced to 7.3%. Most of this call, the quarter Declined 1% of net loans and for the first half of the year to 1.2%. Coverage in the second quarter On next page, we'll summarize the core operating performance for the first half of the year. Core CPI is higher year on year by 2.4%, mainly driven by non repeat related NII, Higher commission income and lower staff costs, which more than offset the lower income from NPEs by EUR 82,000,000. As a result, core operating profit is higher year on year by 75% up €221,000,000 Finally, Let me close with an update on the full year 2021 profitability guidance provided in March.
On core PPI, we expect to be in line with our initial estimate of €875,000,000 Cost for risk, taking into account the latest asset quality trends, is estimated for the full year At 1.1 percent of net loans, the above 0.2 full year profit before tax over €500,000,000
Ladies and gentlemen, at this time, we will begin the question and answer session. The first question comes from the line of Floriani Jonas with Axia Ventures. Please go ahead.
Hi, guys. Carispera, thanks for the presentation and well done on the results. I have a few questions. First of all, at group level, just wondering how you see the early indications of what's it called And that was also reflected on your guidance for the cost of risk, which now I see that is at the lower end of the range you gave before, the 110 to 120. So just wondering now in this 1st couple of months, how are you seeing that developing?
Yes. So that would be interesting to hear from you. And second, also on the real estate side, Any views on the resumption of auctions? And how can that change Your real estate portfolio and if that also is linked to the investment pipeline that you have, I remember that your number for 2021, 2022 in terms of real estate investments was in the range of 300,000,000 So just wondering if this number still holds at that level? And then finally, on-site, as I've seen that this quarter, you booked Quarter low provisioning rate in the country, meaning that your bottom line was relatively higher than the previous quarters.
So just wondering what drove that and if you expect the provisioning level to remain in line with 2nd quarter or maybe to reverse to the, let's say, to the average we've seen in the previous quarters. Thanks.
Okay. Thank you very much for your questions. Let me take the first one and then Haris will take the other 2. So as you correctly pointed out, the first half of the year asset holding debts We're better than expected. For instance, out of the €4,900,000,000 of moratorium In 2020, circa 5% only have defaulted, Why 85% have returned to normal payments either on own BIMs or through the to you bridge programs, the Yesilah programs.
There is a 10% of moratoria, Which is expiring in the second half of the year, but these are related entirely with the hotel sector. I already mentioned that tourism has done very well above its pace. I was just reading that the international airport of partners Tuition arrivals have reached in the end of August 70% of the 2018 future. Therefore, we are not concerned at all about the performance of these customers For which, operator are ending in a few months. Now in the second quarter, we recorded and negative information.
On Slide 30, we present the information of the loan segment. And as you can see there, the trends are very similar in all 4 loan segments. For the Q3 and based on the information we have so far, we expect a slightly positive And now let's say below TRY 100,000,000. In the previous analyst call, we projected for the full year 2021 an increase An organic increase in the stock of NPEs of about EUR 600,000,000. And based on what we have seen so far And what we expect for the Q3, this figure appears to be on the high side.
However, State support measures are gradually lifted. We prefer to remain cautious And continue monitoring the asset quality trends. And let me clarify Although we recognize that this €600,000,000 is on the high side, at the moment, we don't provide this figure So based on all these, we expect that at the end of this year, The NPE ratio will be close to 8%, including the effect of Mexico. As Haris mentioned, the cost of risk for the full year will be at 1.1% versus 1 point 2% that was in the first half of the year. And this should bring the NPE coverage More or less at the same levels as we are today.
And we believe that This high mark would allow us to support lower cost of risk in 2022 and going forward And further decrease in fees towards the 5% area as areas next year So this is how we see things in the area of asset quality. Let me now pass over to Haris for the other two questions. Regarding coming to the auction question, it looks that as of 1st September, Auctions are well resuming. In the board categories apart from the A vendor of households for which there are very strict income wealth And level of deposits preconditions, which are for the moment on hold as well as some Options in the bank specific areas increased that were hit by recent wildfires. All other auctions are just starting to progress quite well and we should expect For the sector close to 3,000 auctions to take place by year.
Actually, this is what has been scheduled. And not only that, but the This one more in card sync signal as regards and proceeds from foreclosures. So in tandem with a good level of collections as of the Q4, we expect a good resumptions of auction process. Apart from that, we had also some recent changes in the bankruptcy codes and accelerating Auction Processes as well. In parallel, we are executing a schedule of our program on Investment Property Expansion and the outlook that he has provided in the previous calls for Our investment plan at the year of €300,000,000 for the next couple of years still holds.
Now as regards The provision charge in Cyprus in the 1st couple of the year, we had provisions of €3,000,000 That was quite lower from our budget that was close to €5,000,000 For the second half of the year, The outlook is for close to €5,000,000 However, If the underlying credit quality trend continue to be better, maybe a bit lower, but €4,000,000,000 to €5,000,000,000
Got it. Thank you.
The next question comes from the line of Mehmet Ozman with Ambrosio Capital. Please go ahead.
Hello. Many thanks for your time and presentation. I have two questions. 1 on the Spread trends you're seeing lately, particularly as we approach potentially more volumes regarding related to recovery fund, If you could give us any more color on that front, what are you seeing lately and what you're expecting Q4 and beyond? And then the other thing is on your international business thinking.
Obviously, you've made some transactions, particularly one in Cyprus It was a minor at stake. If you could give us a bit more color on your strategy in Cyprus and maybe in other Geographies, what we should expect on that front? Thank you.
Starting from the spread side, On the lending side, in the last quarter, we see some There is a decline of the corporate lending spreads. This was related to, Of course, about the competition, but also to some high yield large ticket of loan repayments Welcome to the Q2. Going forward, we should not be surprised if we see Some mild slides of the corporate lending spreads. In view of the competition, Matoso, as you Already pointed the increasing volume that is expected, the increasing demand going forward. On the retail business, especially the household Mortgage and consumers, we don't expect any material movement from the level we stand today.
We should also raise a point as well on the deposit side where we have made a very good progress on decreasing deposit client rates at levels approaching the 0x. So as we speak, the stock of time deposits is at 15 basis points. However, the new production, it is at 6 basis points. So there is a positive, Let's say pipeline is being incorporated in our P and L going forward and the effort is continuing Both in Greece and Thailand and our subsidiaries mainly in Bulgaria and Sykes. Now as regards our strategy for international response to Fokiro, sure.
Let me elaborate a little bit on the Renkbank transaction. We bought a minority stake, we believe in a very attractive value reasons. However, we have already A very successful operation in Cyprus. This is Eurobank Cyprus. And our plan is to expand Our business there in an organic way, further going through Eurobank side.
Now with respect to Helenik, We don't intend to increase further our stake at least in the near term. In the meantime, we will support the Hellenic Bank Management In all the initiatives and all the priorities that we may have, including the cleanup of the balance sheet, which is underway, But also in the effort to improve materially the cost to income ratio, which is on the high side in this bank.
Thank you.
The next question comes from the line of Sveem Mehmed with JPMorgan, please go ahead.
Good afternoon and thanks very much for the presentation. Just two quick questions from me. So first of all, you mentioned on the call that you'd like to start exploratory talks with the supervisor on dividend distribution. Could you please give us any additional color on this, for example, in terms of timing, etcetera? And second question, You also told us that the new capital impact expectation from Mexico is just 10 basis points now.
If I recall correctly, that was 50 basis points initially. So could you please tell us what the reasons are leading to the smaller expected capital impact versus the initial expectations, which is obviously very positive. Thanks very much.
Sure. Let me start on the dividend side. As I mentioned during my introduction, We have a number of positive developments with respect to our capital position. One is the result of the stress test, but given that the capital depletion The other scenario is one of the critical inputs of SREP. We expect this performance, The performance will be reflected positively in the minimum capital requirements of the bank and we should have some more concrete feedback from the regulator on this front before year end.
The second positive development was that we have revised upwards Our estimate for the year end capital ratio from 16% to 16.4 And for the fully noted set 1 and set 3.2, which Which brings us forward in terms of our capital plan. And last but not least, even this year, This trend will accelerate further in 2022. So taking into account all these Our facts together with the fact that P and P cleanup is behind us, We feel that all the necessary preconditions are in place when you see this supervisory dialogue in dividends. Now on your question on when we should do it, I think the most appropriate time is when we announced our full year 2021 financial results in the beginning of next year, When we should be able to show in place and in our numbers everything that I have just mentioned. And that would be the best time for us to start this dialogue for with the regulator, So in the beginning of 2022.
Now on your second question, What has what was different, we moved from an estimate, In the initial estimate of minus 50 basis points to minus 10, I think this is a combination of A number of different factors here. One of them is the tranche of the transaction that was Better than initially anticipated. As a result of improved real estate prices That has helped the value of the portfolio collaterals. Another factor is The secondary market increase is becoming deeper and that has been reflected on the price that we received on the mezzanine note. So these are two important factors that have driven
Great. That's very helpful. Thank you very much, Okay. And maybe just one follow-up to my colleague Osman's earlier question on the international franchise. It does sound like the Hellenic Bank was a valuation opportunity, but you also then But you've also done direct name Serbia, which sounds a lot more strategic.
And that was one market you previously didn't consider as a core market as far as I remember correctly, but now it sounds like that you want to grow there, which is obviously a very interesting and attractive market top down. Is it reasonable to assume that you may explore further inorganic opportunities in those markets? For example, now you're in Serbia, Bulgaria as well
and maybe even beyond. And do
you have any specific targets for international Contribution to the group figures in the longer term. I remember there was a for example, at some point you were saying 40% of NII which come from international over the longer term. Is there a thinking like that that you still have today?
As we speak in terms of the Corporate provision income, the contribution of international is about 30%. In particular about Serbia, we have not concluded before Serbia in our core markets, we were saying that the core markets for us were Greece obviously with Gideon Cyprus. Now in Serbia, the reason that we have not put it as a core market was that our presence there was another suboptimal. Our subsidiary there was another small bank. Definitely through The transaction with Direct Mah Bank will increase our size, but still the size remains approximately.
Therefore, we may use any other opportunity that we may have To further increase our size of the earth or even exit if there is Any such opportunity. But in order to consider Serbia core market, definitely Our presence there should increase quite substantially from the current leverage even after the Tidekra acquisition. It's decreased Either organically or through another sort of acquisition. The market there is In a consolidation mode, there are still a lot of banks, a lot of small banks and therefore we will keep monitoring the market to see about the right opportunity. Now on your question, what is the optimal contribution Of international, in our profitability or income, I think that over the next few years and given that Greece has Enter the growth phase, we would expect that the Greece the income coming from Greece should Increased quite nicely.
And therefore, I would not expect even if we move with other transactions that the international would be materially more than the 30% level, which is today. In other words, I would expect Both international and technical operations to grow at the same pace maybe Greece will grow faster than the other markets because we have entered, as I mentioned during my introductory Note, to a period of 5 or 6 years with a growth Of about 3.5% to 4% on our balance.
Okay. That's all very helpful and clear. Thank you very much.
We have a follow-up question from Mehmet Ozman with Ambrosia Capital. Please go ahead.
Yes. Hi. Just on the fee performance, along with your peers, it was an impressive quarter. What's driving it? Any more color you can provide, obviously, economic activity and so on.
But how should we think about this for the next couple of Any color on this would be appreciated. Thanks.
Sure. It is It is true that we had a negative quarter, the Q2 of the year after Following the one off lockdown with fee recognition leasing and annualized level of 60 3 basis points over assets. And actually, this is An area where we believe it's a major driver for income growth in the coming years. I would say that the growth drivers of CECLFINS, the conditions is 4th 1. Starting from the increasing lending and investment activity in the country And on that topic, we should mention Not only the level of new investments in lending, but also the very high level of FTI And the very high five of the FDI that took place during 2021, all this creates High levels of lending and capital market related fees.
Capital market is an area where Investment Banking, Capital Markets, an area where Eurobank is a leading position. The second pillar is the network transactions Credit cards, which are very closely related with the economic activity and the tourism level. And there we had a very strong Increase as regards to expectation of tourism this year, really exceeding the levels of 50% compared to 2019. And of course, Looking forward 2020 onwards are much more Creating expectations are reaching or exceeding 2019. The 3rd pillar It's Pankaj Suresan, West Management.
And on Page 27, We show that we have a leading market share on mutual funds at a Very fast growing market, whereas on private banking, we have The payment position to be able to sell our clients from 4 private banking centers in Greece It's actually signed with production working on bolt on. And here, this is an area that we have increased our target on investment amounts, Mainly on implementing and bringing forward a new platform for asset management. And I'll explain the 4th pillar that is completely discussed to Eurobank is taken from investment property. Well, as I said before, apart from the €1,300,000,000 investment property portfolio, There is close to €300,000,000 to €400,000,000 for the next 3 years in the pipeline to be invested. So All these 4 pillars create a very good mix for which we expect Welcome to SACL growth for the next 2 to 3 years.
And I repeat that
Perfect. Thank you for the color. I appreciate it.
Ladies and gentlemen, there are no further questions at this time. I'll now turn the conference over to Mr. Coravillas for any closing comments. Thank you.
Let me thank you for participating in this call. Let me also thank you for your questions and give us the opportunity to elaborate
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.