Ladies and gentlemen, thank you for standing by. I'm Poppy, your conference call operator. Welcome, and thank you for joining the Piraeus Financial Holdings conference call and live webcast to present and discuss Piraeus' Nine-Month 2023 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. 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 Piraeus Financial Holdings CEO, Mr. Christos Megalou. Mr. Megalou, you may now proceed.
Good afternoon, ladies and gentlemen, and welcome to today's conference call on our nine-month 2023 financial results. This is Christos Megalou, Chief Executive Officer of Piraeus Group, and I am joined today by our CFO, Theo Gnardellis, Chryssanthi Berbati, and Xenofon Damalas. Piraeus Bank's strong operating performance in the nine-month 2023 period confirms that we are well on track to meet or surpass our targets. In the third quarter 2023, we have delivered yet another quarter of solid results, maintaining our focus on net revenue growth and operational excellence. Before diving into the details of the bank's performance, I would like to comment on the macroeconomic environment. In 2023, the Greek economy maintains its growth momentum, with first half real GDP increasing by 2.4% annually, higher than the Eurozone average of 0.9%.
The recent announcement that the Greek sovereign has regained its investment grade status marks another milestone for the country and the banking sector in the journey of convergence with the European Union. Let's start our presentation with slide five, which displays our impressive performance in the third quarter and nine-month 2023 period. Third quarter profit increased strongly, continuing the positive trends of previous quarters, supported by top-line overperformance, improved efficiency, and normalization of loan loss provisions in line with our expectations. Slide 6 points out the highlights of our third quarter performance. We generated normalized earnings of 0.21 EUR per share, running ahead of full-year 2023 guidance provided in July. We produced return on average tangible book of 17.6%.
We delivered 9% net interest income growth versus the previous quarter on the back of continued net interest margin expansion and deposit costs containment. We recorded historically low operating expenses, down 8% year on year, despite the inflationary environment, with best-in-class cost-to-income ratio of 29% from 32% in Q2. Our asset quality dynamics remain resilient, with the NPE ratio standing at 5.5% and NPE coverage at 57%, up 50 basis points versus the previous quarter. We achieved a EUR 240 million net credit expansion in the quarter and EUR 830 million in the nine-month 2023 period, building on the strengths of our franchise.
Our CET1 ratio stands at a solid 12.9%, 54 basis points higher quarter-on-quarter, while we have already met our January 1, 2024 MREL target of 21.8%. The remaining relatively manageable NPE portfolio of EUR 2 billion, as shown on slide 14, is on a clear path to run off through a combination of organic strategies. On slides 15 and 16, we present the movement of our performing loans. Q3 was a solid quarter, with net credit expansion of EUR 240 million, that drove net credit expansion for the nine-month period to EUR 830 million. The expansion has been supported by Piraeus' strong take-up of the RRF. We have already disbursed close to EUR 270 million to approximately 50 credit Greek businesses, two-thirds of which are SMEs.
This corresponds to more than 40% market share. Piraeus has a superior liquidity profile presented on slides 17 and 18. Our deposit base is granular, stable, and of high quality. Our liquidity ratios are all solid, as evidenced by the 242% liquidity coverage ratio and the 62% loan-to-deposit ratio. Both in the top percentile of the European space. Turning to our capital base on slides 19 and 20, the Q3 capital position is already at par with our full year 2023 target, led by elevated capital generation of 130 basis points in nine months, twenty twenty-three, while accruing for 10% dividend payout. This drove the CET1 ratio to 12.9% and total capital ratio to 17.6% in September 2023.
Moreover, on slide 21, our new wealth and asset management strategy continues to produce strong results, with assets under management reaching EUR 8.5 billion at the end of September, recording a 4% increase in Q3. Finally, as slide 22 shows, it is clear we are well on track to meet or exceed our 2023 financial targets. Our established track record of financial transformation makes us confident in our ability to deliver in the longer term. We offer an attractive and sustainable opportunity for our investors, both in terms of returns and profitable growth. In slide 24, we summarize the competitive advantages of Piraeus Bank across all areas. The commercial positioning of, and the financial strength of the bank indicate why its valuation remains attractive compared with its local and European peers.
From slide 25 to slide 32, we present the drivers behind this performance and where we stand against our domestic and European peers. We benchmark ourselves in terms of Net Interest Margin, Net Fee Margin, Cost-to-Income Ratio, NPE Ratio, and Capital Ratio. In all KPIs, we are now either at par or best -in- class, while we are growing our already sound capital buffers at an accelerated pace. We expect to generate significant value for our shareholders. With that, let's open the floor to take any questions you may have.
Ladies and gentlemen, at this time, we will 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. Those participating via webcast, please review related information in the Q&A live session tab, should you wish to ask a question. For those participating the question and answer session, 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 Mikhail Butkov with Goldman Sachs. Please go ahead.
Good day. Thank you very much for the presentation, and congratulations on strong results. I have three questions. The first question is on net interest margin outlook. In the short term, let's say on the one-year horizon, what dynamic do you expect as we enter the period of stable rates, probably for until the second half of next year? And beyond that, do you have or work on any hedging strategy to extend the high net interest margins before the rate cutting cycle starts? That's the first question. The second question is, S&P has recently upgraded the sovereign grade of Greece. Do you see any positive implications from that on any risk exposures on your balance sheet? The third question is on assets under management.
You recorded quite substantial growth year to date, 23%. Was it related to the fact that customers relocate their funds into securities or mutual funds, or you actually see market share gains from the competitors there? So that's the third question. Thank you very much.
Hi, Mikhail. On NIM outlook, I mean, we are looking at the high- twos right now. So, I mean, we saw Q3 in itself was 2.7%. We're looking at the NIM at the 2.5% area. I would say, assuming that 2024, we have stable interest rates, as you said, the, there's no reason to move from that level, right? So 2024 on average is expected to be most like 2023, is on average, so rather a static situation there. Then on obviously, I mean, with the current midswaps curves are speaking for a long-term hedging strategy. Structural hedging on the liability side is a big strategic priority for the balance sheet.
We have a strategy in place. We will be executing it over the coming months, so as to contain the NII and potential NII erosion, as interest rates go into a dropping cycle. On your question about ratings, yes, rating upgrades help, not directly linked to the S&P upgrades, but generally, upgrades are helping. There will be some RWA relief from that, on particular exposures, especially on the corporate side. We haven't budgeted for it yet. We're still quantifying the impact. I think we will know more, especially as of the new year.
Mikhail, on assets under management, our wealth and asset management division is a key strategic focus of ours for this year and the next years to come. It is a result of a restructuring, reorganization, and an acquisition that we have concluded last year, and we see the benefits of the work that is being done in the division this year, and we expect to see this continuing over the next few years to come. The increase is mostly coming from an increase in penetration of asset management products in the market.
We have already observed that as a percentage of GDP, the asset management products in Greece are at the lowest part of the European spectrum, and we expect this trend to be reversed. We gain our fair share and more of- of this increase, through the work that we have done in putting together a wealth and asset management division that is doing quite a lot of work on new products and are reaching out at segments in the market that we have not reached before. What we have seen up to now is the benefits of this work, which I, as I said, we expect this to continue.
Thank you very, thank you very much for the answers. Thank you very much for the details.
The next question comes from the line of Eleni Ismailou with Axia Ventures. Please go ahead.
Hello, and congratulations for this set of results. Just couple of questions from my side. One is, how do you see the evolution of credit spreads and your lending expansion, and how can this affect profitability in the outer years when rates will flatten and then start going down? And the second one is, I just wanted to ask, how should we think of the asset quality in the coming quarters? Thank you.
Hi, there. Well, the spreads have been, I would say, one of the positive surprises of the story so far. We started out on the way up, talking about pass-throughs of 60 and 65%. Now the pass-throughs are around 80%, 70%, 79%. Now, on we are seeing a contraction of spreads in the new production. There is about a 30-40 basis point erosion of the latest loans versus the stock. So I would say that we do expect, and we are budgeting for an erosion of the overall spread of, at those levels, between 30 and 40 basis points. But still, at quite high levels of above 2%.
We're expecting spreads to stay at those levels on the way down. We don't, we don't expect them to widen, so the pass-throughs are gonna reverse. But still, with the deposit payoffs that, that we have kind of, observed, together with these spread levels, net interest margin is expected to stay at, at high levels, even then. So the strategic target for, above 2% area, seems to be feasible. But we'll come back with, with more information on the, on the three-year outlook, with the Q4 results. On, asset quality, look, I mean, the, the, the inflows have been quite, quite low. Even with rising interest rates, we have not seen, any deterioration.
Formations are neutral, the stock is static, the NP ratio is dropping, and we'll continue to have erosion of the stock with curings and organic things that we're doing. It looks like a positive story. It is a risk going forward, especially depending on how long the interest rates are gonna stay at these levels. But given the trajectory that we have, that we're now looking at, it's not a major concern.
Thank you, clear. Thank you very much for your answers. Again, congratulations for the results.
The next question comes from the line of Goodacre Sam with JP Morgan. Please go ahead.
Good afternoon, Christos and Theo. Thanks very much for your time. Just continuing with the theme of NIMs, and in particular, net interest income. So you've obviously outperformed, deposit betas are effectively at, come September, where you think they will settle potentially, and spreads are higher than expected, with a stable NIM outlook. I think what the market is grappling with is when we actually reach peak, the peak in terms of net interest income, and arguably you keep going higher than market expectations. So from an NII perspective, can we now assume you have peaked in the third quarter?
And then the second question is on your, your guidance, because from, from what I can see, you're not making any revisions to the guidance for this year, yet you've effectively delivered a very substantial amount of your targets, and in particular, you have outperformed on costs and, and cost of risk. So what, what sort of extent of upside to the very near-term outlook might we expect, and is it going to continue to be on these two line items? Thank you.
I mean, the NII peak has been the big bet of the year, and every time we say we're at the peak, and every time we're beating the peak, so I'm not sure exactly how to answer that. Look, I think after October twenty-sixth, and the announcement of ECB, that we're kind of plateauing on the DFR, at least for now, they suspended all action. Let's just say that we have reached, you know, the peak of the mountain range, right? Maybe there's an extra peak somewhere next to it, with a few tens of millions higher than what we are right now, but I think we are now at the NII of Q3, what was it? EUR 531 million.
I think we are now at peak area, right? Q4 might have another good surprise for us for a few tens of millions EUR, but I think it's safe to say that we have reached a plateau of peaks. Now, how long that's gonna stay there? On interest rates, I think it depends on how long the Euribor stays there. The assumption right now is at 24. You know, we are gonna stay at that plateau. Deposit beta has been very good, as you said. We could expect a further erosion of the mix in 2024, so a slight increase, even given a rate, but generally a good NII story, I would say. I think it's trying to simulate EUR 10 million up or down.
I think the 2.5% NIM is what people should be anchoring themselves to as long as interest rates stay where they are. And to the guidance story, I mean, obviously, as you rightly pointed out, both in terms of returns and EPS, the forecast and the guidance kind of already beaten. So sticking to it or kind of reiterating would definitely be an ultra-conservative statement. We have a nine-month return of about 15%, 15.5, if I remember correctly. We had a quarter of 18. We have an NII that looks static, so there's practically no way that we're gonna close the year, I mean, upwards at 14%.
We're looking at about 15% return for this year, and EPS is probably gonna beat EUR 0.70. So, all the stuff that you mentioned on OpEx and cost of risk are organic, sustainable. They're based on actions that have been done for many, many quarters, years. So there's no one-off there. This is what the bank looks like right now. At these interest levels, we can say Piraeus Bank is returning 15%.
Very clear. Thank you, and from me, congrats once again. Thanks.
As a reminder, if you would like to ask a question, please press star and one on your telephone. The next question comes from the line of Daniel David with Autonomous Research. Please go ahead.
Hi, all. Congratulations on the results, and thanks for taking my questions. Just wondering, just sticking on NII slightly, is there any guidance you can give for sensitivity to rate cuts? That'd be interesting to hear. And the second question, just on slide 40, I'm noticing that on deposits, you're seeing some outflows in the corporate sector. It's clearly offset by inflows in other sectors, but just any commentary you can give around what you're seeing for corporates there would be interesting. And then the final one is just on MREL. I note that you're kind of bang on your target for the start of the year, start of next year.
Any interest in tapping markets before year end to build a bit of headroom, or should we assume that you're just gonna build some via the organic capital creation? And then, just into 2024, any guidance on issuance activity would be interesting. I note that you've got a Tier 2 coming up for call in June. Is that the first order of business, or potentially, would you look at senior markets before that? Any guidance would be useful. Thanks.
Hi, Dan. I mean, on the NII sensitivity, as we are right now, a 25 basis points volatility would translate with current pass-through rates between EUR 35 million and EUR 45 million of NII volatility. This is a number that's very sensitive to hedging levels as well as pass-through assumptions. But right now, given where we are, I think that's what you can use. Nothing to comment on your deposit movement on corporates. The erosion, I think you're looking at of what is that? Something around EUR 500 million. It's really a seasonality story, nothing to write home about. On MREL, we don't need to do anything, as you pointed out, for 2023. Especially on the senior front, I don't expect that we will.
Well spotted on the Tier 2 for 2024. As we approach June, and depending on market conditions, there probably will be Tier 2 action on our side to replace on a cost-effective manner, that paper. I would say that is the number one priority, given the organic profitability of the bank. There will be senior action as well, but I think, again, well spotted. Tier 2 is the number- one priority right now.
Thank you very much.
The next question comes from the line of Osman Memisoglu with Ambrosia Capital. Please go ahead.
Hello. I wanted to ask if you have, maybe I missed it, if you have the latest feeling on the deposit mix. Given the very slow progression, where do you see it approaching in the middle of next year or end of next year? That's the first question. Then tied to that, given to your comments just a few minutes back, is 15% the kind of the preliminary figure for ROTBV next year, assuming, you know, rates do what the swap markets expect them to do? Those are my questions. Thank you.
Hi, Osman. Let us wait until Q4 until we confirm a returns number for 2024. As I said before, the elements and the constituents of the profitability are such that assuming a static interest rate environment with stable cost of risk, we don't see much room or reason for change versus 2023. But let us numerically confirm that in Q4. On the deposit mix, look, I mean, right now, yes, it has been much slower. We thought that our 17% TD mix at the beginning of the year, you know, could reach the thirties. It's currently in the low twenties. But we do have an assumption that the erosion will continue throughout 2024 at current rates.
This could be conservative. People might say that, you know, if people have moved, they have moved, and the rest are not going to, and we have a big granular deposit base. That's true. But right now, I think, as long as we're not seeing any dramatic change in interest rate expectation, I think it's safe to assume for the erosion to continue at current levels.
Okay. Thank you for that. Maybe if I can squeeze in on asset quality. You mentioned inflation is neutral. Was that just for Q3, or are you seeing, you know, muted or benign trends for Q4 as well?
Q3 was neutral, given a seasonality on the curing front, where we had kind of reduced curings in Q3 on the business front. This is something that we expected, 'cause we're looking at the cases are now so few that we're looking at them case by case. Q4, we do expect a higher curing rate. There are some cases that will flow into stage two. This is also the way that the NP ratio from its current 5.5 is gonna drop to below 5% that we have guided for. So yeah, I mean, I don't wanna comment on formation, but in terms of nominal outflows, we do expect a higher number in Q4.
Perfect. Thank you.
The next question comes from the line of Alberto Nigro with Mediobanca. Please go ahead.
Yes, thanks for taking my questions. First one on capital. In light of the strong capital generation in this quarter, can you talk about Q4 evolution, and if there is any headwind coming into Q4 that has prevented you not to upgrade the capital target for this year? The second one is on cost, if there is any specific item in G&A cost that has led to the reduction we have seen in Q3. And the last one is on digital euro. What do you see as a risk opportunities of the digital euro implementation? Have you budgeted the impact to your business model, and can you share it with us? Thank you.
Hi, Alberto. Look, Q4 is expected to be a big growth quarter. So I would say that is mainly the reason, together with, with some one-off costs that we're gonna be having in Q4. That's mainly the reason why we're not, we don't expect a dramatic kind of upsizing of the capital target, enough for us to change guidance. So a big credit expansion expected for Q4 to meet our guidance, as well as the restructuring costs that we're gonna be burning throughout Q4, given a voluntary exit program that's going on right now, to substantially reduce, to do yet another substantial FT reduction in the profile of the bank.
So that's mainly the reason. Nothing, nothing to report, particularly to report in G&A. This is all very granular structural work that has been doing, has been done across all lines. So you're really, looking at, run rate situations. On digital euro, yes, I mean, we, we, we've looked at the initiative. We understand the, the, I would say on the qualitative basis, what could be pluses or minuses. We are now quantifying them, and they will be baked into, our new business plan, and we'll come back, in the Q4 result to, to give you its impact.
Thank you so much.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Megalou for any closing comments. Thank you.
Thank you all for participating in our nine-month 2023 results conference call. Very soon, on November 27-28, we'll be in London for the Athens Stock Exchange Greek Investment Conference. So we look forward to see you there, discuss with you during our investor outreach program as well, which will unfold also in 2024. In the meantime, have a relaxing weekend.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling. Have a good afternoon.