Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining the Eurobank Holdings Conference Call to Present and Discuss the First 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. Fokian Karavias, CEO. Mr. Karavias, you may now proceed.
Ladies and gentlemen, good morning good afternoon and welcome to Eurobank's Q1 2021 and Presentation. Together with me is our CFO, Kajal Gokhanotiannis and the Investor Relations team. I will start from an overview of recent developments before we present our results. Looking first at the macroeconomic background, sentiment is positive as shown by all indicators of domestic Economic activity. The vaccination rate has recently accelerated and the economy is operating up.
In spite of the anticipated strategic contract during the Q1, economic growth is expected Above 4% 6% for this year and 2022, respectively, according to the latest EU estimates. Strong stake support measures have been extended in 2021 and this is reflected In our equity conditions and continued stock deposits, it contained unemployment And increasing real estate prices. And last but not least, investment asset quality trends As evidenced by lower than initial anticipated NPE inflows from loans under moratorium. However, we will keep monitoring asset quality evolution as paid support teams are eventually removed in the second half of the year. Every signs for the tourism season are encouraging And the estimates currently point to 50% revenue on the 2018 season versus 20% last year.
Greece, together with Portugal, were the best countries to submit a robust plan for the resilience and recovery into funds And approval is expected until the end of June. Additionally, the grid cutting system has accelerated the NPE reduction and tap the markets to strengthen its balance sheet. Such initiatives are reflected in relation of grains by trade trading Thank you for the sovereign and the macro system. Eurobank was the most proactive in enhancing its capital base through the merger with Trivalia and executing an accelerated NPE reduction Responding Balanu will be more than adequate to support the expansion of the loan portfolio. As such, Our focus now is shifting towards recent development in all our core markets and profitability.
Let's now focus on our financial results for the Q1 with highlights shown on Slide 5. Our net profits for the Q1 reached €72,000,000 On a year on year basis, Corporate provision income was up 3%, as lower NII was offset by higher fees and commissions. Operating expenses were down 2.2% year on year with Greece 3.1% lower. Our income stream remains well diversified with profits from international operations, reaching EUR72,000,000 in the Q1. Now on asset quality, we have Positive NPE formation of €72,000,000 which is substantially lower than initially expected.
The cost of risk was at 1.4%, resulting in stable NPE coverage at 62. Our total capital ratio, incorporating the full year 2021 regulatory transitions and adjustments Rates up 15.5%. The CET1 ratio was 13% and 11.9% On a transactional and fully loaded basis, respectively. Deposit gathering continued to the Q1 With $1,000,000,000 from deposits, while the loan disbursements exceeded $1,000,000,000 and are expected to accelerate further In the second half of the year, the normal deposit ratio declined to 78%. Finally, as you know, We successfully tapped the debt capital markets with a 5 year senior note in April.
This is our 1st MREL issuance and there was strong demand, especially among international investors. Let me now continue with an update on the NEX consolidation and our company has returned to. On Mexico, the discussions with stakeholders Regarding the trancheng are well advanced. The pre rating has been received and relevant economics are better We intend to apply for HairPlus 2 and SRP in the next few weeks, Then reclassify the secrete bank portfolio as compared to the 3rd quarter And the consolidated fees in the form. As a result, our NPE ratio will decline growth to 8% by the end of the year.
Regarding the capital and cash flow transactions, namely the And the strategic partnership for the Meson acquiring business, We are also on track to close both transactions before year end. So Based on the above update and the Q3 results, we remain very attractive as the certainty Our 2021 business plan has increased. In this context, we reiterate our outlook For this year's profitability, NPE ratio decline and capital plan as presented in the previous earnings call. Overall, we keep delivering in a consistent way on our business plan. At this point, I would like to ask our CFO, Kai Krogliannis to present our Q1 results and the outlook before opening Thank you, Christian.
Let's now provide some more insight on the Q1 results. Starting from the capital position and on Page 7. In the Q1, our fully loaded CETOR ratio remained stable close to 12%. The sales in total capital ratio amounted to 15.5%. The main drivers of the previous movements were the full year transitions, The new definition of default and an increase in other delays due to investment securities benefits.
The above were mitigated by organic profitability of the quarter. The regulatory transitions and adjustments We have been fully reflected in the capital plan presented in our previous call. Furthermore, account for the impact of Mexico And the announced capital investment initiatives. The outlook remains for a total capital ratio and the fully loaded CET1 At 16% and 12.8%, respectively, at the end of the year. Moving on funding and liquidity On Page 8, as shown on the right part of the page, OIBDA deposits increased in the Q1 by €1,000,000,000 Ending the last 12 months by 3 years.
The increase is largely associated with extensive state support measures to the economy and the increased 2020 loan disbursements. Then loan with deposit ratio received in the Q1 to 78% And LTR ratio increased 4 41%, as shown on the left of the page. Furthermore, The group is making use of €8,800,000,000 LPRO3 at a rate of minus 100 basis points. In combination with the positive increase, this has led to a substantial decrease in the balance of other funding instruments and to a conventional deduction funding cost. Finally, in April and in the context of meeting our Everard's traditional target, the bank topped successfully the debt markets with a 500 Moving on Page 16 on land growth.
During the Q1 of the year, performing the also increased slightly to €35,300,000,000 which is mainly associated with the current liquidity conditions as explained above. However, The reopening of the economy following the notable progress of vaccinations, the pickup of several high degree investment projects that are in the pipeline As expected, leverage from our RARE, point for an acceleration of new lending as of the second half of this year. Moving to profitability on Page 18. Net interest income increased quarter on quarter by 1.26 percent at €335,000,000 This is due to the higher contribution from the ITRO and the further decrease of wholesale funding costs, which offset the impact of these effects and the reciting of these EBIT. As regards to the point of margin, the impact of increasing volume has been offset by the continued decrease of client rates.
On a year on year basis, net interest income is lower by 1.4%. On Page 19, commission income decreased quarter on quarter by 9.3% at €99,000,000 The decrease is mainly due to the record capital market shift in the previous quarter, while all other fee drivers On Page 20, operating expenses are lower year on year by 2.2%. On grades, costs are lowered by 3.1 percent as higher IT and D salary related expenses are offset by sub costs, which is lower by 11.2% year on year due to reduced headcount. Further of pre provision income on Page 5. On the top left of the page, core PIKLIA increased quarter on quarter by €2,000,000 Pre provision income amounted to €231,000,000 including €13,000,000 of trading and other income.
Moving on asset quality and on Page 6. As shown on the top left of the page, NPE formation in the first quarter amounted to €72,000,000 significantly better than our initial estimates. NPE ratio increased likely to 14.2% And pro form a with Mexico's Secretient ratio amounts to 7.4%. Despite better than expected information, We remain conservative on provisioning with cost of risk at 1.4%. Going forward, Although we should keep monitoring the behavior of our clients as the government measures are gradually lifted, the evidence we have from the 1st month of this year Together with the expectations for a strong economic recovery in the second half, show that the decrease of NPEs for 2021 May be at least 30% lower than initially expected.
In this context, it is envisaged that the cost of risk for the year Should be at the area of 1.1% to 1.2%, lower than the 1.3% provided in our guidance. Overall, as regards to profitability guidance provided in year end 2020 results, we reiterate our quarterly outlook. Despite the risk weighted with deposits, growing price of certain loans. However, This is indicated by a better outlook on asset quality. As a result, our profit before tax guide outs This concludes my presentation and we may now open the floor for your questions.
Ladies and gentlemen, At this time, we will begin the question The first question comes from the line of Jonas Floriani with Expeo Ventures. Please go ahead.
Hi, guys. Good afternoon. Thanks for the presentation. I have a few questions. The first is Regarding Mr.
Xavier's comments on the Mexico utilization, now that you could go to the pre rating received. So if I'm not mistaken, I've heard something about better economics for the deal. I remember that the guidance were for a 50 basis points impact to Capital. So I just want to make sure we should expect that this guidance will be changed or maybe it's less than 50 basis points impact. Then the second question is on your real estate portfolio, Slide 19.
I was just wondering if there's any outlook you can give us in terms of How this picture could look by year end, just wondering about specific number of assets or if There's any area of this portfolio you're focusing or preferring over the others. And also Maybe some thoughts on the outlook for the yield of the real estate assets. And then finally is on the NPE formation. So I As you mentioned, it's better than expected, but I couldn't say anything on the outflow. So if you could I'll explain a bit how is the Q1 performance on the outflow side, that will be helpful.
Thanks.
Okay. Johan, thank you very much for your questions. I will answer the first and the third and Harriss will We'll discuss about the loan portfolio and the outlook for it. So in terms of Thanks for the transaction. As I mentioned already, discussions about the transient We received the pre rating letter and the economics appear to be Better than it is estimated.
We had, as you said, very broadly a CAD impact of 50 basis And it appears that the impact is going to be way below this figure. The next steps are to apply for Help US2 and SRP The next few weeks. Then the metering non binding offers Should be received in late July and combining offers for the Medallion by the end of September. And as I mentioned, the assets will be classified as self contained in the Q3 and we're going to have full year recognition Closing by Jarek. Now following the completion of Mexico and taking into account The net inflows that we expect for this year and I will elaborate further about it shortly.
The NPE ratio is expected to decline from the current leverage to Close to 8% by year end. Now in terms of asset quality, which was your first question, The trends we have seen so far are better than initially anticipated. And this hold both for the Q1 In which NPE formation was €72,000,000,000 If you also look at Page 22, In which we provide the segmental analysis, you can see that this good performance is across all segments. But also in the Q2, we observe a similar pattern and based on the current data Most likely information in the Q2 is going to be lower than the one in the Q1. However, As I also mentioned during my introduction, we should keep monitoring the asset quality evolution, Especially for the second half of the year, which is the time between the state support measures will be in excess.
Overall, I can say that we are optimistic about the asset quality patterns, But we have to remain also cautious at the same time. Now during the last analyst call, We have projected about €900,000,000 increase in the stock of NPEs. Based on the data that we have today, we should revise downwards this increase by, let's say, 30%. So to go from €900,000,000 to €600,000,000 an addition that drives also lower The cost of risk for 2021. In the Q3, it was 1.4%.
Our guidance for full year 2021 was at 1.3%, which is what we mentioned during the previous And we revised that downwards to 1.1% to 1.2%. So this is about the asset quality and let me pass over to Aris about the second question.
Yes. I think I mentioned the wrong slide, Slide 11.
First is shown on Page 43 of the presentation. There, We may underline that despite the COVID outbreak, the growth Of retail prices both in apartments and in office continued At a slower pace, but continued. So we see a very resilient market There are something that continues in the 1st month of 2021 as evidenced The latest data of Agua Greece show the Real estate market is very resilient, something that has and continues to have positive impact both on our investment portfolio Now on Page 11, we can comment that The growth yield remains above 7% and the mix of the portfolio It was very successful through the crisis as the sectors on which this portfolio has been invested Actually, we have not been affected in the majority by the COVID outbreak. The return on capital volume of this segment is again expected to reach Or exceed 10% for 2021. And overall, we are, I would say very optimistic for the developments of the real estate.
And on that front, we continue deploying our medium term strategy For a €500,000,000 investment property, new investments, out of which, The sectors presented in Page 11, while the rest €600,000,000 will be invested in the years 2021, 2020 and 2022 are their majority.
Thank you.
The next question comes from the line of Alexandros Plougouis with Wood and Co. Please go ahead.
Yes, hello. Two questions on my end. First is on the guidance on core PPI. In your Presentation in your last presentation in March, you had a guidance for €875,000,000 if I remember correctly. You mentioned that this should be slightly lower because of the negative impact on NII.
I think that was minus 3, I think, in the previous presentation. So what What is your new guidance on this, if you could clarify? And the second question regarding NII, if you could Provide a bit of color on TLTROIC, it's €33,000,000 in Q1 from €10,000,000 in Q4. And what is the level that we should Expecting the following quarters, maybe in Q2 and Q3, just to get a color for the full year TLTRO impact. And one more question on this on NII.
Just to get a bit of better understanding, I see the loan margin that is A bit down Q on Q, although spreads are quite stable. I mean, if you could explain the reason for that, that would be useful. Thank you. Sorry?
The last part of your question was about loans margin?
Loan margin, the loan margin, which on Page 18 of the presentation, which is down, I think, EUR 8,000,000 per quarter on quarter.
So I was trying
to see. So the spreads are quite stable. So I was wondering what is causing this
Sure. So let me start from the core PPI and the profitability outlook in general and And we'll go to this specific matters. So Output that we provided in the year end results call was about a KPI of €8 €75,000,000 As regards net interest income, we provided for a slight decrease Low syndicated decrease versus 2020 coming From a point in contribution from BSPRO, wholesale funding, lower cost and higher NII Group International. On the negative, we said lower bonds and margin and the impact from the NPEs in app of portfolio. On commission income, we provided for another strong year with A lot of business increase with the main drivers being the assets under management and mutual funds acquiring rent and And from operating expenses, We expect staff and the digital cost to continue to decline in 2021, channeling a It's part of the savings in accelerating the digital transformation of the bank and the upgrade of core banking system in some of our facilities.
Now we expect we expect it and continue to expect in 2021 total OpEx to be flat versus 2020. Now as regards the picture in the 1st month of the year, despite the look down that I repeated in the Q1 of 2021. The effect on households and business has been mitigated by As a result, deposits continue growing further and the real estate prices, as I mentioned before, Continuing, Chris. In terms of operating performance, Q1 results are fully in line with full year 2021 and its guidance. However, as I said before, there is some risk associated with the higher anticipated increase of deposit flows, especially compared with the respective growth of loans.
As regards the latter, it is expected to accelerate in the second half of twenty twenty one Together with the economy rebound. At any case, any low risk for core PPI We'll be offset by a better cost of risk. So from 1.3% to the area of 1.1% to 1.2%, We will be the result of lower than initially anticipated NPE flows from moratorium. So overall, The profitability target remains intact as I said before. Profitability at the area of Approximately close to €500,000,000 before tax.
Now coming to the TTRO, 1st quarter includes 13,000,000 Benefit not accrued in the second half of twenty twenty and overall amounts of €30 €3,000,000 For the full year, we expect close to €90,000,000 impact From TLTRO and another similar amount in 2022. Now as regards loan margin on Page 18, Here, we have the data that is not shown separately, but it is included in the loan margin. So here, we have An impact of €4,000,000,000 Then we have a rate impact by €2,000,000 coming mainly from small business portfolio. And we have another €2,000,000 but it is One off recovery interest in the Q4 of the year. So the absence of this one off creates another €2,000,000
Okay. Thank you. Thanks for the detail. Thank you.
The next question comes from the line of Mehmet Savim with JPMorgan. Please go ahead.
Good evening. Thanks very much for the presentation. I have three questions, please. First of all, on loan growth, you disbursed about $1,000,000,000 in the first quarter and you mentioned that you expect it to pick up in the second half. Based on the latest trends, what kind of a figure would you expect for the full year?
And secondly, many of your peers are also talking about Significant loan growth opportunities in Greece with the flow of the EU funds, etcetera. Against that backdrop, How would you see the competitive environment going forward, so let's say in 2022, 2023? My second question is on capital. You've taken a 30 basis points regulatory adjustment. Will there be any further adjustments that you would expect given you've been guiding for approximately 50 basis points or should that be the full amount?
And finally, just if you could comment more broadly on your international strategy, please. At one point, If I remember correctly, your ambition was that 40% of NII would come from international operations. Where do you stand today against that? And Strategically, what are your thoughts, given you have a very meaningful franchise in Bulgaria, more upscale in Serbia, etcetera? Thanks very much.
Thank you for your questions. Starting from the lending growth evolution. Overall, for the year, We should expect a net increase of performing loan balances, a data of €1,000,000,000 to €12,500,000,000 Expect to accelerate, reaching €2,000,000,000 per annum for each of the next 3 years as a result of economic recovery and the impact and leveraging of RRS. Now as regards the regulatory adjustments of 70 basis points, this is fully in line with the capital The overall impact from new DoD amounted to 50 basis points. This is See our guidance for the full impact and there is no change on that.
Actually in All of the drivers that we presented in the capital plan, We are still there and we reiterated our guidance. Apart from Mexico, but we should expect A better and initially estimated impact. Now I pass to Fakion to talk about the Competitive environment of loans in Greece and about the strategic perspectives on international. Okay. More specifically about the RLF and the push that this would provide to Lonro, This is Nernli.
Should be expected Nernli in late 2020 1 2020 2 onwards. These funds could be directed to investment projects And also working capital. And I think each of the banks will get its Fair market share in terms of the logic of these funds. You know that we are very active as a bank In the financing of big deal projects, for instance, we are one of the main banks financing the Evinikon project, This big real estate project in Athens. We are very active in renewables.
And Therefore, we expect that we're going to have a significant participation in the IFRS. If we should quantify We expect net drag path increase in loans 22 onwards, about €2,000,000,000 per annum to €2,500,000,000 per annum for the next 3 years or so definitely IRS is going to be a good contributor to this delta. Now let me come to our strategy about our international subsidiaries. We have mentioned a number of times that Eurobank operates in 3 core markets. 1 is Greece, the second is in January, the third is Hi, Bruce.
Therefore, in these markets, we want to grow both organically, but also through any potential acquisition, There is a good opportunity for that. You may recall that when there was such opportunity in Bulgaria, We took advantage of that twice in the past. In terms of The contribution of the international settlement in our profitability, As we speak in terms of core PPI, the international subsidiary is considered about 30 And we expect this to continue going forward because both the business In Greece and the business in the other four markets will grow So this ratio will remain more or less unchanged.
Great. That's very helpful. Thanks very much for your comments.
The next question comes from the line of Osman Lemusoglu with Ambrosia Capital. Please go ahead.
Hi. Thank you very much for your time and presentation. Just 2 on my side. One is just a clarification on TLTRO. The $90,000,000 that you mentioned, I assume it includes the $13,000,000 that was kind of accrued for last year.
That's the first one. And then The second one, given that you're lowering your cost of risk guidance for 2021, Should we assume if this trend continues some level of reduction for your Cost of risk guidance for the future years, particularly 2022? Thank you.
Sure. The answer is yes. The answer is yes. €13,000,000 is part of the €90,000,000 but it is the expected Overall impact for TLTRO for this year. Now the impact of cost of risk in the previous Analyst 4, we We have indicated a cost of risk of 60 basis points for 2022.
We I think it It would be premature to revise this figure. As I mentioned before, we are optimistic, But we should remain a little bit cautious about the asset volume in the second half of the year as the State support measures are lifted. Therefore, we revised the full year 2021 From 1.3 to 1.2, 1.1, 1.2 and We keep the 60 basis points for 2022 at the moment unchanged.
Okay. Thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karavias for any closing comments. Thank you.
Thank you. Let me thank you all for participating in this call. Let me also thank you for your questions. We would be available for any sort of clarifications that you may need. And we may meet some of you in some video calls that we're arranging for the next couple of weeks.
Bye bye.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant evening.