Ladies, and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call Operator. Welcome, and thank you for joining the Eurobank Holdings Conference Call to Present and Discuss the First Quarter 2024 Financial Results. All participants will be in 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. Fokion Karavias, CEO. Mr. Karavias, you may now proceed.
Thank you. Ladies, and gentlemen, good afternoon, and welcome to the Eurobank First Quarter 2024 Results Presentation. Together with me is our CFO, Harris Kokologiannis, and the Investor Relations team. We are starting with key recent developments, then we will present our results and answer your questions. The macroeconomic background remains supportive in Greece and in our two other core markets, Bulgaria and Cyprus. In Greece, this is evidenced by the recent S&P rating outlook change to positive, the fiscal outperformance with primary surplus above expectations, and the highest improvement in the debt to GDP ratio among EU countries in 2023. Investments following a slower than expected 2023 are catching up this year. As such, credit growth in 2024 will be higher, something already reflected in our first quarter results.
Restoring a level of investments in line with the rest of the Eurozone remains essential to secure the resilience of the Greek economy. Globally, the expectations for a fast pace of interest rate cuts have recently softened, and our assumption for 3 rate cuts by the ECB in 2024 is in line with current market views. Now, let's see our financial results for the first quarter of the year, as highlighted on slides five to nine. Eurobank recorded strong figures across the board in the first quarter, with our adjusted net profit reaching EUR 383 million and a return on tangible book value at 20%.
The tangible book value per share increased by 23% year-on-year and quarter-on-quarter, respectively, to EUR 2.14, after accounting for the full 2024 voluntary exit scheme cost in the first quarter financial results. In more detail, core operating profit reached a new record of EUR 407 million. This figure does not include the Hellenic Bank quarterly contribution of EUR 41 million, which in this and the next quarter is reflected in income from associates. Net interest income was up 14% year-on-year, and broadly flat compared to the previous quarter. Fees and commissions were up by 5% year-on-year, while operating expenses were stable on a like-for-like basis. As a result, core pre- provision income was up by 17% year-on-year. On asset quality now, asset quality improved further.
The NPE ratio dropped another 50 basis points to 3%. Cost of risk decreased to 68 basis points, while coverage reached a new high of 93%. Our regional operations continued their strong performance, with net profits of EUR 145 million, increased by 21% year-on-year. Cyprus net profit, including our 29% share in Hellenic Bank, reached EUR 92 million, and Bulgaria's EUR 48 million. In the first quarter, the fully loaded CET1 increased to 17.2%, while the total capital ratio stood at 20.2%. Overall, our first quarter performance is a great start for the year, and makes us confident that our 2024 plan will be delivered, with return on tangible book value of at least 15%. In addition to the strong operating performance, it is important to highlight that all our strategic initiatives are on track.
For Hellenic Bank, we expect the final regulatory approvals over the next few weeks, and then we will proceed with closing the outstanding transactions and the mandatory tender offer. It is noted that Hellenic Bank agreement to acquire CNP Cyprus is an initiative that enhances further its franchise and should make it a leader in the local insurance market. Last but not least, on shareholder reward. We have submitted the application for dividend distribution out of 2023 profits to the SSM. The payout ratio proposed is 30%, which corresponds to a cash dividend amount higher than EUR 0.09 per share. The supervisory clearance is expected in June. Dividend distributions will take place right after the AGM approval in late July. At this point, I would like to ask our CFO, Mr. Harris Kokologiannis, to present our first quarter results in detail before opening the Q&A session.
Thank you, Fokion. Let's now provide more insight into the first quarter results. Starting on page 18, on lending growth. Performing loans increased organically in the quarter by EUR 400 million, in line with our expectations. Growth was mainly driven by the corporate portfolio in Greece and by the retail in Bulgaria. Group deposits on page 19 decreased slightly by EUR 100 million, as the seasonal decline of corporate deposits in Greece was offset by increases in the other countries. Net loan to deposit and LCR ratios remain stable at 72% and 100% respectively, as shown on the left of page 20. As regards managed funds on page 22, in the first quarter, the wealth sector continued its strong performance. Quarter-on-quarter, managed funds increased by EUR 600 million, and year-on-year are higher by 34%.
Private banking assets and liabilities reached EUR 11.7 billion, increased by 19% year-on-year. Moving to profitability on page 26, net interest income was almost stable quarter-on-quarter at EUR 571 million, which is better than budget. NII has been boosted by the last two quarters' loan and bond growth. On the other hand, it has been affected by the deposit and the MREL cost, as well as by the base effect. On a year-on-year basis, NII, NII is higher by 13.7%, and net interest margin in the first quarter reached 287 basis points. On page 27, commission income is higher year-on-year by 4.9% at EUR 136 million. This performance is driven by better transaction and asset management fees, and is in line with our budget trajectory.
On page 28, operating costs are lower year-on-year in Greece by 2.1%. Specifically, lower administration costs and the discontinuance of resolution contributions offset the increase of staff costs related to variable compensation accruals and the higher IT expenses. On a group basis, costs are stable quarter-on-quarter, but also year-on-year, taking into account the impact of the BNP Bulgaria consolidation in the middle of 2023. Finally, in this page, cost to core income ratio for the first quarter reached 32.4%. At this point, let me note that a VES in Greece was recently completed with circa 650 FTEs. The cost, which has been included in Q1 results as below the line item, amounted to EUR 96 million after tax. The annual savings corresponding to the participated FTEs amount to circa EUR 30 million.
On page 30, we summarize operating performance for the first quarter. Core NII is higher year-on-year by 17% at EUR 478 million, mainly driven by the base effect and higher loan and bond volumes. These offset higher deposit and MREL costs and lower lending spreads. Loan loss provisions for the period amounted to EUR 71 million or 68 basis points. As a result, core operating profit is higher year-on-year by 21%, reaching a new record level of EUR 407 million. On top of that, there is EUR 41 million additional income, which corresponds to the 29% stake of Hellenic Bank's quarterly performance and is currently recorded as income from associates. Upon reception of regulatory approvals for the additional 26%, Hellenic Bank results will be consolidated line by line.
This will happen as of the second half of the year. Moving on to asset quality on page 32. NPE ratio decreased further this quarter by another 50 basis points to 3%. As a result of topping up the perimeter of loan portfolio by another EUR 240 million, reaching in total EUR 640 million. Furthermore, NPE coverage increased to 93%. Moving on capital and on page 37. Quarterly organic profitability boosted our fully loaded CET1, CET1 ratio by circa 90 basis points.... This more than offset the impact of asset growth, the full VES cost, and the synthetic securitization amortization in the context of its dynamic management. As a result, CET1 ratio reached 17.2% at the end of March. Finally, on capital, and on page 38, our total capital ratio stands at 20.2%.
The overall first quarter performance reaffirms our full year 2024 financial targets in terms of profitability, asset quality, capital, and ultimately Return on Tangible Book Value, which is expected to be at least 15%. This completes my presentation, that we may now open the floor for your questions.
Ladies, and gentlemen, at this time, we'll 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 question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Mehmet Sevim with JP Morgan. Please go ahead.
Good afternoon, and thanks very much for the presentation, and thank you for your time. I have just two questions, please. Firstly, maybe starting with loans, you, it seems like you've managed to deliver some loan growth in the first quarter in Greece as well, which was a seasonally slow quarter. So may I ask what has driven this relative to your peers, and how do you see the pipeline evolving in the coming quarters? And the second question on NII, which I think we all agree was quite strong, given it was more or less flat this quarter. If I look at the breakdown of it, I would like to understand better, particularly the hedging component.
Would you be able to provide more color here, whether you have any negative carry in the quarter, what the size of the book is, et cetera? That would be very helpful. Thanks very much.
Thank you for the questions. Starting from the loan growth, indeed, we had a good start in the quarter. That was driven by both the corporate portfolio in Greece and the retail portfolio in Bulgaria. This also continues in the second quarter of the year. So overall, we are quite confident that we will reach our target for the year. That it is a growth, net credit growth of EUR 1.3 billion in Greece and EUR 1 billion in Southeastern Europe, overall EUR 2.3 billion for the group.
But, as you said, considering that it is a traditionally weak quarter, we are confident that we are going to reach our full year target as stipulated in the business plan, in the budget for the year. As regards NII, actually, the major positive driver for the performance of first quarter was the loan growth. Not only of this quarter, but also the carryover of the fourth quarter of 2023. That actually offset any headwinds that we had from the deposit beta, some gentle erosion of lending spreads and the higher MREL and the higher MREL cost.
As regards hedging, actually, we had a low figure for the first quarter. We increased our hedging position in March, something that actually will appear in the second quarter, whereby we expect the hedging cost higher quarter-on-quarter by EUR 8 million-EUR 10 million. Overall, the big picture for NII is that Q1 was better than our expectation for the reasons that I mentioned before. Actually, compared to the budget, we had a milder than expected growth in deposit beta and a milder than expected decline of lending spreads, plus a good growth on volumes.
And Q1 actually points to a better than budget performance. However, it is quite early in the year, and at the moment we are not revising our forecast. As every year, we provide an update with our first half results at the end of July.
That's very clear. Thanks very much, Harris.
The next question comes from the line of Eleni Ismailou with Axia Ventures. Please go ahead.
Hello, and congratulations for this great set of results. I've got a couple of questions from my end. My first question is a follow-up on loan growth. Whether you can help us understand when should we expect the early repayments effect to start fading away, as we still see printing in the numbers? And when should we expect, like, mortgage loans to pick up pace? And whether you have any pre-agreed pipeline that we should have in mind for the other quarters in terms of loan growth? And that, that's question number one. And question number two, it's with regards to the NPE formation. We see that, mortgage formation came in elevated compared to the previous quarters. Could you kindly explain the drivers there, and whether there is any seasonality that we should be factoring in? Thank you.
On loan volume growth, actually, the repayment was an intense evidence as during the first half of 2023. As of then, it has started to abate. Of course, we have repayments, but this now have been offset by new disbursements. As regards the pipeline, actually, I'm not gonna enter into detailed figures. All the numbers converge to reaching the yearly targets that we have presented to the budget of growth at the level of higher than EUR 2 billion as we have stipulated that in the budget. As regards to mortgage loan book, it continues the low flights.
The evidence that we have from the market are not yet so encouraging. So even in the budget, we have put conservative figures, but not some good news on that market. On asset quality, I pass to Fokion for an overall view of asset quality.
Overall, in terms of the asset quality dynamics, we don't really see something materially different than in 2023. Overall, credit conditions remain supportive as unemployment continues its declining path. Real estate prices remain quite strong. We see some measured increases in wages, and overall, we operate in an economy that grows nicely. Your question refers on page 33 of the presentation, where we see a slightly higher number in mortgage formation. I think this is more noise at low numbers.
It is slightly higher than the third quarter and fourth quarter of 2023, but lower than the second quarter of 2023. So I would consider that.
Ladies and gentlemen, we apologize for the pause. Please hold your line, you will be hearing music until the session resumes.
I'm afraid we had a technical problem, and the line was disconnected. Eleni, I'm not quite sure at which point you lost me.
The line was cut off when we were saying that it's lower than the second quarter of 2023, where it's 2.42, and that it's mostly-
Yeah.
Thank you.
Yeah.
Thank you very much.
I was saying, I was saying that what we have seen is mainly noise of low numbers. The trend has not really changed in any material way. And I was adding that outside Greece, in Bulgaria, as per page 13, the NPE ratio at 2.6% is broadly stable. And the same applies also in Cyprus, page 14 of the presentation. The NPE ratio at 2.3% is slightly below the previous quarter. Coverage remains high at the group level, but also in our subsidiaries. Overall, we expect that the NPE ratio for the full year 2024 to remain at the current levels, so circa 3%. We may see a few basis points higher or lower over the next few quarters.
As such, it appears that there is room for cost of risk lower than our initial guidance. As you can see on page 32, the first quarter cost of risk decreased to 68 basis points from 85 basis points in 2023. In the previous call, we said that we were expecting cost of risk below 80 basis points for the full year 2024. We may move lower than this initial guidance, but as Harris mentioned, we will provide you a full update. We may provide you a revised guidance when we have the second quarter financial results.
... Excellent. Thank you both. This is very clear, and again, congratulations for this great set of results.
The next question comes from the line of Gabor Kemeny with Autonomous Research. Please go ahead.
Hi. A couple of questions from me, please. The first one would be on the voluntary exit scheme, where I think you mentioned EUR 30 million savings on an annual basis. So, regarding the cost outlook for the rest of the year, shall we take the proportionate amount of this savings? Shall we take out from your costs, or are there any other factors we should consider when we model the cost for the rest of the year? The other question would be on Hellenic. How do you think about the likelihood of achieving a more than 55% stake in this asset, which is arguably pretty earnings accretive? Thank you.
I'll start with the VES, and then I pass to Fokion for Hellenic Bank. The deal was completed at the end of February, so as of March, some savings have started to be recorded. These 650 FPs will gradually leave the bank, the majority of them by the end of the year, and a few of them in 2025. So, as of the second quarter, there will be more evident the impact of VES.
But it will be a gradual saving towards until the end of the year to the major part. So I pass to Fokion for now.
In terms of the Hellenic Bank process, as I mentioned during my introduction, over the next few weeks, we should receive the pending approvals, and we should be able to close the outstanding transactions, driving our percentage at 55%. Then the mandatory tender offer will follow, and I'm sure that you appreciate that ahead of such process, we cannot really provide any sort of estimate about any potential participation in the tender offer. In terms of the accounting, as Kai has mentioned, the first quarter and also in the second quarter, the Hellenic Bank contribution will be reflected in income from associates, which is going to switch into consolidation line by line in the third quarter onwards.
Subject to the regulatory approvals in the second quarter, we should also record any negative goodwill that we may have from the pending transactions.
Thank you. Very clear. Just another small question, please. What are your thoughts on MREL issuance for the rest of the year? Thank you.
Sure. On MREL, actually, we just completed a EUR 650 million issuance. We are already ahead of 2025 MREL interim MREL target. There are some chances that we top the market towards the end of the year, the fourth quarter of the year, with a benchmark size issuance, of course, subject to market conditions.
Very clear. Thank you.
The next question comes from the line of Menis Kouloumannis with Ambrosia Capital. Please go ahead.
Hello, many thanks for your time and the presentation. Just, two things on my side. One, on the staff costs, in particular for Greece, we see mid-double digit, around 15% growth. Is that the type of growth we should see for the rest of the quarters this year? That's my first question. And then, in capital, the synthetic securitization amortization, is that a quarterly accrual figure we should expect to see for rest of the year, or maybe the business plan? Any more color would be very helpful. Thank you.
Sure. Actually, the staff cost incorporates, as of 2024, an increased accruals for variable compensation. That is being almost fully offset by the elimination of resolution contributions. But, I think you should see OpEx base overall, in the first quarter, on a group basis, we are like for like, flat, like for like, excluding the effect of BNP. And in Greece, we are minus 2.1%, year-on-year. And, this marks are fully in line with our full year 2024 outlook as presented in the budget for the year.
So excluding, to be more precise, excluding the effect of Hellenic Bank consolidation as of the third quarter of the year, cost base will be more or less higher year-over-year by close to 3%. So, as regards your second question, in regards the synthetic securitization, you may see going forward some fluctuations up or down in the capital impact coming from either repayments or new synthetic amortization. This has to do with cost optimization, actually, of the various transactions that we have done and the opportunities that we have going forward for cost optimizing this very useful tool.
So, for example, most probably in the second quarter, we are going to see the reverse impact, a positive impact coming from a new synthetic securitization, but it is under preparation.
Understood. Thank you very much.
The next question comes from the line of Robert Brzoza with PKO BP Securities. Please go ahead. Mr. Brzoza, can you hear us?
Hello? Can you hear me?
Yes. Yes.
Oh, thanks. Good afternoon, everyone, and thank you for the presentation. I have a quick question regarding the one-off close to EUR 100 million, which you had registered in the first quarter. Could you provide us more information what this was related to? Thank you.
Sure. As I said to my script, that relates with the cost of voluntary exit scheme of 650 FTE that was completed in the first quarter.
Thanks very much. Thanks.
I'm sorry, Marge, if you would like to ask a question, please press star one on your telephone. The next question comes from the line of Juliana with Goldman Sachs. Please go ahead.
Good afternoon. Thank you very much for your time. Just one quick question. Thank you for the very helpful breakdown on slide 12 around your real estate portfolio. Can you give us a bit more color around your office portfolio, which locations and what LTV do you have there? Thank you.
[audio distortion] anymore.
I'm not sure your question refers to the investment property portfolio, but what exactly is your question?
If you could give us a little bit more color around your office portfolio, please. In terms of locations and, any other-
Y-y-
Things you could not-
Okay, you refer on page 12 of the presentation. We have 60 assets in terms of office and with a book value of EUR 441 million. These are many offices in Athens, the vast majority, and a few in Thessaloniki. But the vast majority are in the metropolitan Athens area.
Thank you.
Is this what you asked?
Yeah. Thank you.
Yeah. Thank you very much.
Once again, to register for a question, please press star one on your telephone. As a final reminder, to register for a question, please press star one on your telephone. Ladies, and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karavias for any closing comment.
Oh, apologies. We do have another question. The next question comes from the line of Duncan Olivier with BNP Paribas. Please, please go ahead.
Hi, good afternoon. Thank you for taking my question. I just have a question about your capital structure: Could you consider optimizing it a bit, notably with an AT1? Thank you very much.
Thank you for, for this question. In our business plan, we have not assumed any AT1 issuance. We have a capacity of 180 basis points to optimize the use of core capital, to optimize return on tangible book value, and accelerate further dividend distribution over and above the levels that we have already announced in the business plan. But so far, we have not envisaged the issuance of AT1 for the coming period.
Perfect. Thank you very much for the answer.
The next question is a follow-up question from the line of Dimitris Manalis, Ambrosia Capital. Please go ahead.
I just, on the distribution part, you mentioned, 30% proposal for dividend payout ratio. Does that include any buybacks? In general, how should we... I know we have discussed this maybe in previous calls, but, in a very top level, perspective, buyback-
Correct.
forward. Thank you.
Let me clarify. For the shareholder reward of this year, out of 2023 financial results, as I mentioned in my introduction, we have proposed 30% payout ratio, all in cash, cash dividend. So, you should not expect any share buyback. The full amount, which is, EUR 0.09 + per share, is going to be in cash. As we have said also in our previous communications, for next year, we envisage a higher payout ratio, towards 40%, and, in 2026, this may reach towards 50%. Now, for next year and the following, we may consider a mix of, cash dividend and, share buyback.
Thank you. So the 40 would potentially include buybacks? Buybacks would not be additional.
Yeah. It is an option that we're going to consider.
Understood. 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.
No, I think there is one more question, please.
The next question comes from the line of Panagiotis Gavalas with Cyprus. Please go ahead.
Thank you very much for your presentation. I would like to comment about the recent Hellenic Bank deal with CNP Cyprus, and what means this deal to Eurobank? Thank you very much.
This is a transaction that has been initiated and agreed by the current management of Hellenic Bank. As I mentioned during my introduction, this is a transaction that enhances further the franchise of Hellenic Bank and makes Hellenic a leader in the local insurance market. So this is a transaction in the right direction and in line with our plan to boost the bancassurance business in Hellenic.
Mr. Gavalas, have you finished with your questions?
Yes. Thank you very much.
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. I would like to thank you all for your time and for participating in this investor call, and obviously to thank you for the very interesting questions. We would be available for any follow-up questions. Our investor relations team would be available any time, and we may meet some of you in any of our future roadshows. Thank you.
Ladies, and gentlemen, the conference is now concluded, and you may disconnect your telephones.