Ladies and gentlemen, thank you for standing by. I am Vasilios, your corresponding operator. Welcome and thank you for joining the Eurobank Holdings conference call to present and discuss the second quarter 2024 financial results. 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 Half 2024 results presentation. Together with me is our CFO, Harris Kokologiannis, and the investor relations team. We are starting with some key recent developments, then presenting our results and answering your questions. In a European environment of uneven growth and political noise, Greece clearly stands out in terms of GDP growth and political stability. Economic sentiment gained momentum in the first half of the year, with investments accelerating, the labor market improving, while real estate remaining robust. The economic scenario continues to be favorable in our key markets, Bulgaria, Cyprus as well, with the latter earning an uplift in its sovereign rating to triple B plus. Following the Greek sovereign rating upgrade, agencies also recognized the banking sector progress.
Notably, for the first time since 2011, Eurobank has achieved investment-grade status by two agencies, Moody's and DBRS. Rating agencies noted the improvement in fundamentals as well as the fulfillment of key commitments. More specifically, in terms of M&A, we have achieved a majority holding in Hellenic Bank in Cyprus, with our ownership now at 56%. The mandatory tender offer period ended yesterday, paving the way towards full consolidation, which creates a regional banking group with a balance sheet size of EUR 100 billion. We are particularly excited about the growth potential as we will start working on synergies. Furthermore, meeting our organic growth commitment has been supported by the economic performance in our three core markets. Demand for loans has increased and deposit accumulation accelerated, meeting or surpassing our goals.
Wealth management is increasingly integral to our strategy, leading to net flows in assets under management and private banking already exceeding our full-year targets. Finally, on shareholder reward, besides the EUR 342 million dividend distribution, which is actually paid today, our recent AGM approved the cancellation of treasury shares equal to 1.4% of the share capital. Now, let's see our financial results for the first half of the year, as highlighted on slides five to nine. In the first half of 2024, Eurobank had a strong performance across all areas. As a result, earnings per share amounted to EUR 0.20. Tangible book value per share increased to EUR 2.25, while the return on tangible book value reached 18.5%. In more detail, net interest income was up 9% year-on-year, better than our projections, while quarter-on-quarter remained resilient.
Fees increased by 5% year-on-year, driven by a strong second quarter. Operating costs were stable, and the cost-to-income reached a new low at 32%. As a result, core pre-provision income was up by 10% year-on-year, at EUR 958 million. Our regional operations' substantial contribution to the above results continued. More specifically, core PPI increased by almost 40% and 15% year-on-year in Bulgaria and Cyprus, respectively. The asset quality metrics remained stable. The NPE ratio stood at 3.1% and coverage at 93%. The cost of risk declined to 69 basis points, compared to 81 basis points in the first half of the previous year. Core operating profit reached EUR 814 million, up by 16% year-on-year, while our net profits reached EUR 732 million in the first half of the year. The regional operations contributed by EUR 277 million, or 38% of the total.
On capital, the fully loaded CET1 ratio reached 16.2% in June 2024, pro forma for the dividend distribution and the Hellenic Bank consolidation. Overall, we had a solid first half with increased volumes in loans, deposits, and assets under management. We also exceeded our sustainability target, which is 20% of corporate loan disbursements classified as sustainable. We expect credit demand to maintain its pace in the second half of the year, supported by potentially lower interest rates and a strong investment pipeline. With the financial performance of the first half being above our expectations, we revise upwards our goals for the full year 2024, as presented on slide 10. We now expect a return on tangible book value to be around 16.5% for the full year 2024, substantially higher than our previous guidance of 15%.
At this point, I would like to ask our CFO, Harris Kokologiannis, to present our first half results in more detail before opening the Q&A session.
Thank you, Fokion. Before we start, let me refer to the treatment of Hellenic Bank acquisition. Second quarter includes, as income from associates, 29.3% of Hellenic Bank's previous period profits. Furthermore, following the additional 26% acquisition in June, a EUR 100 million negative goodwill has been recorded. As of third quarter, Hellenic Bank's figures will be consolidated line by line. Let's now provide more insight into the second quarter results. Starting on page 23, on lending growth. Group loans showed a strong performance, increasing in the second quarter by EUR 800 million and in the first half by EUR 1.2 billion, a trajectory which is fully in line with our full-year target. Growth was mainly driven by corporate loans in all countries and the retail in Bulgaria.
Group deposits on page 24 had also a solid quarter, increasing by EUR 1.4 billion. The increase was mainly related to the business deposits in Greece and Cyprus. Net loan-to-deposit ratio remained stable at 72%, while LCR ratio increased to 182%, as shown at the left of page 25. As regards managed funds, on page 27, in the second quarter, wealth sector continued and abated its growth pace. Quarter-on-quarter, managed funds increased by EUR 500 million and year-on-year are higher by EUR 1.6 billion, or 32%. Private banking customers' assets and liabilities reached EUR 12.2 billion, increased by 15% year-on-year. Both KPIs have already reached or exceeded their respective full-year targets. Moving to profitability on page 31, on a year-on-year basis, NII is higher by 8.6%, better than expected.
Quarter-on-quarter, net interest income slightly decreased by 1.8%, as the impact from higher loans and bond volumes was offset by the lower Euribor, higher MREL and deposit cost, and lower lending spreads. Finally, net interest margin for the first half of the year amounted to 283 basis points. On page 32 and on commission income, we had a strong output, reaching EUR 147 million, which is a record performance. This was driven by higher lending commissions, solid platform fees, and higher income from wealth management. Year-on-year, group fees are up by 4.8%, with fees over assets reaching 73 basis points and increased 79 basis points. On page 33, operating costs are lower year-on-year in Greece by 1.2%, as the discontinuance of resolution contributions and savings of render bank costs offset the introduction of variable compensation and higher IT spending.
On a group basis, costs are stable quarter-on-quarter, but also year-on-year, taking into account the impact of BNP Bulgaria consolidation in the middle of 2023. Furthermore, on this page, cost to core income ratio for the second quarter reached 32.3%. As regards the outlook for the year, we stick to our target for a low single-digit increase, excluding Hellenic Bank consolidation effect. On page 35, we summarize operating performance for the first half of the year. Core PPI is higher year-on-year by 10% at EUR 958 million. Loan loss provisions for the period amounted to EUR 144 million, or 69 basis points compared to 81 basis points in the first half of 2023. As a result, core operating profit is higher year-on-year by 16% at EUR 814 million.
On top of that, there is a EUR 72 million additional income, which corresponds to the 29.3% stake of Hellenic Bank's net profit and is currently recorded as income from associates. From next quarter onwards, this effect will be part of core profit. Moving on to asset quality on page 37, NPE formation amounted to levels similar to the previous quarter, with asset quality dynamics unchanged. NPE ratio remained broadly stable at 3.1%, while NPE coverage increased further to 93.2%. Moving on capital and on page 42, our fully loaded CET1 ratio increased organically by 50 basis points, as profitability offset the impact of a strong asset growth quarter. Pro forma with the expected effect of Hellenic Bank consolidation and the dividend, CET1 ratio amounted to 16.2%. This is in line with our full year 2024 guidance for a ratio higher than 17%.
Finally, on capital and on page 43, our total CAD ratio, also pro forma for the two events mentioned above, stood at 19.3%. The overall first half performance points to an upward revision of our full year 2024 financial targets, as shown on page 10. Core profit is now expected to exceed EUR 1.6 billion. On NII, we upgrade our outlook as a result of higher deposit volumes, better deposit mix, front-loaded loan growth, and higher bonds income. This forecast assumes two more rate cuts for the rest of the year in line with our business plan. Furthermore, we have not changed any of the assumptions related to Hellenic Bank's contribution in terms of stake participation, no synergies, and static balancing. As regards cost of risk, it is now anticipated to be around 70 basis points.
NPE ratio is expected to be lower than initial guidance and close to the current levels at circa 3%. Finally, return on tangible book value is now estimated at circa 16.5% versus 15% in our initial guidance, and tangible book value per share at circa EUR 2.35. This completes my presentation, and we may now open the floor for your questions.
The first question comes from the line of Mikhail Butkov with Goldman Sachs. Please go ahead.
Good day, thank you very much for the presentation. A few questions from me. Firstly, on the Hellenic Bank, could you maybe please elaborate a bit on what synergies you could potentially see between Hellenic Bank and Eurobank, and maybe which of them are faster to realize and which are more medium and longer term? It looks like that Hellenic Bank has fee income to asset ratio a bit lower than in Eurobank. Also, loan-to-deposit ratio is lower there, so maybe it is an area for some collaboration. And then also, just to clarify on guidance, you briefly mentioned that you anticipate cost of risk now at around 70 basis points compared to, I think, less than 80 basis points before. Is that the key reason for return on tangible equity revision upwards, or you also changed any other forecast on the other lines? Thank you.
Okay, Michael, thank you for your questions. Let me start from Hellenic Bank clarifying a couple of issues around the next steps. So, having completed the mandatory tender offer and having secured a majority shareholding to Hellenic, the next step is for the board of directors, which is going to be elected by the next shareholders' meeting, to appoint the new management. In the foreseeable future, Hellenic Bank and Eurobank Cyprus will operate as separate entities. This is fine, as their business models are quite complementary. Now, planning in terms of synergies, this is something that we will begin as soon as the new management is in place. Synergies appear to be possible in almost all lines of the income statement, and let me become a little bit more specific on that. First, we expect synergies in terms of NII through higher loan balances.
Synergies in terms of fee and commission income, as you pointed very correctly, fee and commission income is lower at Hellenic Bank, not only compared to the Eurobank Group, but also compared to its peers in Cyprus. We see opportunity there through the integration, first of all, of CNP Cyprus, but also by launching the bancassurance and asset management business in the retail segment of Hellenic. In terms of cost, we see opportunities for OPEX rationalization, and we see also opportunity in reducing the MREL-related cost of Hellenic Bank. Now, we should be able to present our full business plan about Hellenic Bank, including synergies from a quantitative point of view, in the full year 2024 financial results announcement, which is taking place early in 2025. This is the point, as you recall, that we provide guidance about the 2025-2027 three-year group business plan.
So, at that point, we should be able to give quantitative targets over this three-year period about the realization of synergies. Now, as regards the drivers of tangible book value upside, actually, I would concentrate on four categories. First, and I think the major one is NII. As I said previously, we expect higher NII as a result of higher deposit volumes first, better deposit mix, front-loaded, if not higher, loan growth, and higher bonds income. So, as a result of this, from a 260 basis points net interest margin that was our business plan, we expect a margin at the area between 270-275 basis points. So, this is an upside in euro terms between EUR 100 million and EUR 120 million. The second is cost of risk by almost 10 basis points.
The third is higher income from Hellenic Bank, both in the line of income from associates, but as well as negative goodwill. The fourth driver is other income based on the first half, actuals, and not providing for any significant amount of other income in the second half. These are the four drivers that actually drive up the TBV per share versus our business plan.
This is very clear. Thank you very much. Much appreciated.
The next question comes from the line of Mehmet Sevim with J.P. Morgan. Please go ahead.
Good evening. Thanks very much for the presentation. I have just one clarification question on the guidance. And specifically, can I clarify whether this core operating guidance that you are presenting today assumes the contribution of Hellenic for the remaining two quarters, as it's moving to line by line from associates? And that this was the assumption also in the previous guidance. So, is there any change in the core guidance that is coming from Hellenic as well? And my second question would be on NII. Remember, you didn't have meaningful derivatives hedges in the first quarter. Can I check if you have opened any new positions in the second quarter? And do the numbers that we see now show any negative carry from that? And thirdly, on capital, can I confirm that you are not accruing any dividend for 2024 in the pro forma numbers that you're showing?
Thanks very much.
Yes, I'll take the first and the third question, and then Fokion will elaborate on the second one. As regards our guidance, we have not made any change as regards the assumption on Hellenic Bank contribution. So, first of all, technically, we have not made any change in both business plan and this guidance. Hellenic Bank is assumed to be consolidated line by line as of the third quarter of the year onwards. And as regards the number assumptions, we have not made any change on our assumption either. That means static balance sheet, no synergies, and no change of our stake in Hellenic Bank. So, this is exactly the same. Now, as regards capital, your assumption is correct. Actually, our capital follows accounting. Dividend impacts capital once it is spent. Now, Mehmet on hedging.
Sorry, to clarify, once it's spent, but in second quarter results, we show capital pro forma with a dividend that actually is spent now.
Okay, Mehmet, moving to the second question about hedging. As a matter of fact, there exist hedges in our book. If you turn to page seven of the presentation, where we compare NII first half of 2023 versus first half of 2024, there is an amount of EUR 27 million negative between the two years, which is the effect of hedging. So, in the first half of 2023, we didn't have any hedges. We initiated them in June of 2023. And as a result, the impact on our NII is EUR 27 million. Because of these hedges, the sensitivity that we have now in terms of interest rates is for a 25 basis points rate cut, roughly circa EUR 25 million.
This is for a rate cut in addition to what we have assumed in the business plan, which is 2 more rate cuts in 2024, plus another two rate cuts in 2025. This is the effect that we have in our net interest income.
This is really clear. Thanks very much. If I may just follow up on this one, I do remember you had closed some of the hedging positions in the fourth quarter to take profit on them. So, my question was maybe looking at this chart, which shows the one-year trend. Has this changed in the last quarter at all? Is there any color that you can give us on?
As we have explained in previous call, hedging is a dynamic exercise, and we may have some rebalancings from quarter- to- quarter. In the second quarter versus the first, we had increased the amount of hedging, and therefore, the impact on NII was about EUR 6 million more negative effect in the second quarter versus the first quarter.
That's super clear. Thank you so much.
The next question comes from the line of Gabor Kemeny with Autonomous Research. Please go ahead.
Hi, this is Gabor here. A couple of questions from me. First one is on loan growth. I mean, I understand you talked about a solid pipeline and the support from lower rates. So, if you think about the loan growth outlook for the second half, should we take this EUR 1.2 billion organic growth as a proxy, or do you think you could possibly do better than that? And my other question was a follow-up on Hellenic, I mean, clearly a very sensible acquisition. I hear you on the synergies potential. So, I guess my question is, how do you see your willingness and your ability to reach a higher stake than this 55%-56% you have now? Thank you.
So, thank you for your question on loan growth. Actually, we had a much accelerated second quarter that brought us to EUR 1.2 billion. Our business plan assumes a loan growth of EUR 2.3 billion for the full year 2024. We are fully on track to achieve the business plan, although with some variations in the mix, not only in international. Internationally, we assumed a loan growth of approximately EUR 1 billion. So, more or less, we'll be there. On corporate, we assumed a loan growth of EUR 1.1 billion. We'll be higher than that. And on retail, we had assumed a EUR 0.2 million growth. Most probably, we are going to be a bit lower than that, although we see some stronger mortgage demand in the second half of the year.
Now, on your second question, let me reiterate what we have said also in the past, that the merger of the two banks, Hellenic Bank and Eurobank Cyprus, remains our ultimate objective. And we feel confident that this will take place over time. However, the exact timing does not depend only on us, but also on minority shareholders.
Okay, I hear you. Thank you.
The next question comes from the line of Eleni Ismailou with AXIA Ventures. Please go ahead.
Hello, and thanks for taking my questions. I have three from my side. The first one is a follow-up on your hedging strategy, which would be if you plan to keep increasing the book in the other quarters or if you front-loaded it in the first half. And what is the average duration of the book as well as the targeted portfolio yield given the rebalancing you mentioned earlier and whether this changed with the previous quarter? So, that would be question number one. The second question is on NPE formation that we saw it came in positive by EUR 125 million. And whether you could walk us through the trends that you've seen in the first half of the year and how you expect this would be different in the second half to reach the new full year 2024 guidance of 3%.
Lastly, my third question would be on the recently signed MoU with Eurizon to make Eurizon's products available into the Greek market. So, I was wondering whether you could help us understand the effect of this partnership it will have on the asset management AUM and eventually on net fee and commission income on the group level. If you could elaborate on how this collaboration would potentially fit into your broader strategic objectives, for example, in relation to Hellenic Bank and synergies that could be created there in Cyprus, given also the tax regime there. Thank you.
Okay. Thank you, Eleni, for your questions. Let me start from the question of hedging. As I said before, hedging is a dynamic exercise. We adjust it based on the views about the market, but also on how our balance sheet may change its duration. For instance, now that we are going to consolidate the Hellenic Bank balance sheet, obviously, the hedging should be adjusted accordingly. At the moment, based on the hedges that we have, the hedges have an average maturity of about five years. The sensitivity that we have in the balance sheet is what I mentioned before for 25 basis points further cuts and effect on NII of about EUR 25 million. Now, in terms of asset quality and NPE formation, overall, asset quality dynamics remain resilient in the first half of 2024 and within our expectations.
The formation of the second quarter, EUR 66 million, was more or less similar to the figure that we have seen in the first quarter. So, in total, EUR 125 million for the first half of the year, which is split between EUR 85 million in Greece and about EUR 40 million in the other two core markets, Bulgaria and Cyprus. As you can see on page 38, where we present the segmental formation dynamics, the picture has not really changed during the last few quarters. Things remain, I would say, more or less with the same trends. Outside Greece, in Bulgaria, which is on page 13, the NPE ratio is stable at 2.6% with coverage more than 100%. On page 15, we present the respective figures for Cyprus, NPE ratio at 2.4% with coverage at 90%.
Now, how we are going to maintain the NPE ratio around 3% given the formation that we see? Obviously, this can be done through write-offs that on a regular basis we deploy in our book so that the NPE ratio remains broadly stable. Finally, on the agreement, the MoU with Eurizon, this is actually one of the few agreements that we have signed with asset managers. In private banking, we have an open architecture, and therefore, we distribute funds not only of Eurobank, but also of third-party asset managers, this time including Eurizon. So, it is one more reputable asset manager within our portfolio that we offer to our customers. Overall, as I mentioned in my introductory speech, the asset management business is becoming more and more integral to our strategy.
On page 27, we present the performance on a year-on-year basis that was quite strong, 32% increase in terms of managed funds, 15% increase in terms of private banking customer asset liabilities. We have reached already the targets that we have set for the year, and we expect that for the second half of the year, we're going to continue with the same growth rates. Overall, we work in terms of asset management, private banking into an upgrade of the technology that we have. We are rolling out Temenos in Eurobank Luxembourg, which is our wealth management center. Second, we invest in people, in relationship managers, especially for private banking. Third, we are trying to increase the perimeter of potential customers, started working outside the Greek and Cypriot segments that we had so far in our focus.
Finally, we may review, if there is such an opportunity, some acquisitions in the area of asset management, either in Greece or outside Greece.
Excellent. Thank you very much. This is very clear. And again, congratulations for the result. Thanks.
The next question comes from the line of Alexander Kantarovich with Roemer Capital. Please go ahead.
Yes, thank you. Good evening, gentlemen. My question is on the funding side. If you could please help me understand the dynamic in the deposits core versus time, and where do you see this split progressing forward pre-Hellenic, let's say, middle of the next year? Thank you.
Sure. Thanks for this question. In Greece, but also this is the case also in other core countries, the mix of deposits has remained broadly stable during the last quarters, something that is positive, and it is one of our drives for better outlook. To be more precise, the time to total in Greece amounted to 33% in the second quarter versus 40% budgeted for the full year 2024. Now, the revised figure is at the area of 35% for the full year 2024. As regards now 2025 onwards, this is something that we are going to revisit in our business plan that we present as every year in year-end results call. But most probably, this better trend will be reflected in next years as well.
Okay. That's very good. Thank you so much.
The next question comes from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hello. Many thanks for your time and the presentation. Just wanted to check on your revised guidance. Maybe you mentioned it, and I missed it with the Hellenic Bank impact. You had EUR 814 for core operating profit in the first half, and you're guiding more than EUR 1.6 billion. I'm just wondering if this is somewhat conservative, particularly with potential synergies of Hellenic Bank coming up as well, and especially given the very benign deposit environment and strong fee income. That's my first question, if you have any color comment on that. And then the second one, for Q2, you had quite a low effective tax rate. Just wanted to see how you expect that to evolve for the rest of the year. Thank you.
Sure. As regards Hellenic Bank contribution to the second half of the year, as we said, we have taken a more mechanistic approach in accommodating the numbers of Hellenic Bank. We haven't taken any synergies. Anyway, the synergies affair will be something that will be reflected more in the business plan 2025-2027. So whether it is conservative or not, this is something that I'm not in a position to judge. We present the hard data and the assumptions that we have made. Now, as regards your second question, for the full year, in this quarter, we had an upside in tax from an old case that we have won at courts. But in order to facilitate your modeling for the full year 2024, you may work with an effective tax rate assumption of close to 22%.
Great. Thank you.
The next question comes from the line of Iuliana Golub with Goldman Sachs. Please go ahead.
Good afternoon. Thank you for your time. I have one clarification, please, on the point you made around optimization of Hellenic Bank's MREL costs going forward. After the full consolidation expected to be completed in the third quarter, Hellenic will be included in Eurobank's single resolution perimeter. So should we expect that any bond issues going forward will be done at the Eurobank level? Thank you.
Thanks for the question. Actually, we expect an SRB decision around this issue. Most likely, it's going to come in the first half of 2025 about Eurobank becoming the single point of entry. Until that point, any issuance of Hellenic is going to be on a standalone basis.
That's very helpful. 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 about the first half 2024 financial results. Thank you for your questions. As usual, we're going to be available, myself, our CFO, and the investor relations team for any follow-up.