Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Piraeus Financial Holdings conference call and live webcast to present and discuss Piraeus Group's First Quarter 2022 Financial Results. 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.
Call on our First Quarter 2022 Financial Results. This is Christos Megalou, Chief Executive Officer, and I'm joined today with Theo Gnardellis, Group CFO, and Chryssanthi Berbati, Head of Business Planning, IR and ESG. This is the first quarterly call since the launch of our new business plan, and I'm happy to report that the plan is being executed at full speed, and progress is already evident. Before diving into our first quarter 2022 results and performance, let me share my views on the developing macro backdrop. Turning to slides four and five, the strong GDP growth of the Greek economy in 2021 has set the foundations for sustainable recovery in the medium term. The prospects of the Greek economy remain positive on the back of the broad economic and institutional transformation, supported by the implementation of the recovery and resilience plan.
Of course, the Russian-Ukraine war has increased economic uncertainty and has escalated inflationary pressures. While second-order effects are causing a moderation in economic activity at the moment, it is early to fully assess the long-term effect on the Greek economy and society. It is important to highlight that the policy support measures being deployed are expected to moderate the impact of inflation on households and businesses. We are aware of the challenges that the current environment entails, but we are confident that we are well-positioned to address them. Turning to first quarter 2022, I'm happy to report that Piraeus Bank delivered solid results on all fronts, demonstrating the inherent value of the franchise. We have been able to consistently execute on our strategic plan, delivering a return on tangible equity of 6% in the first quarter of the year, in line with our full year 2022 commitment.
As shown on slide 6, core operating profitability reached EUR 93 million, driven by improvement in fees, operating expenses, and impairments. The fully loaded CET1 ratio has been restored at 10% as per the plan, incorporating more than two-thirds of the 2022 NPE cleanup costs. We continued focusing on strengthening our core business. Loan disbursements reached EUR 1.7 billion in the first quarter, leading to net credit expansion of EUR 300 million, with a strong pipeline of financing projects coming into the second quarter. Asset quality trends remained favorable in the first quarter of 2022, with historical low NPE inflows and underlying cost of risk on the back of the large NPE reduction executed in 2021. Slide 7 and 8 display the improvement that has been delivered during the past 12 months across all our financial and commercial KPIs.
Net fees, including rental income, were up 37% year-on-year. Net interest income, excluding NPE accruals, increased 11% year-on-year, and operating costs decreased 6%. At the same time, assets under management have increased by 37%, driven both by organic growth and the acquisition of the Iolcus Investments. Slide 9 shows the group's multi-project execution and the high precision budget allocation that has enabled our de-risking effort. The effort continues unabated in 2022 and is expected to lead us to 9% NPE ratio by the end of the year. The 2022 inorganic NPE effort relates with the Sunrise 3 and the Solar NPE securitization, both in progress and scheduled to be completed by the end of the current year.
Additionally, a shipping portfolio synthetic securitization is on track to be concluded in the forthcoming period, resulting in EUR 400 million risk-weighted asset relief, whereas two more synthetic securitizations are works in progress for this year. Slide 10 illustrates our balanced evolution, which apart from the NPE cleanup effort, is also characterized by its ample liquidity, the increasing contribution of performing loans, and the enhanced securities portfolio. On slide 11, we present the financial performance of the first quarter 2022, which resulted in a core operating profit of EUR 93 million, as previously mentioned. Although net interest income has been impacted by approximately EUR 100 million foregone income from NPEs compared to first quarter 2021, the loss has been more than mitigated by the strong net fee income trends, the increased contribution from the fixed income portfolio, the TLTRO III benefit, and the continued cost optimization.
At the same time, impairment charges have been halved post the dramatic NPE cleanup of 2021. Turning now to our core operating lines in slide 12. We leverage our competitive strength in all our business operations, achieving resilient and higher quality net interest income while producing fees with consistent 100 million-plus mark for 4 consecutive quarters. First quarter 2022 administrative costs trended lower 7% year-on-year, including an inflationary impact of approximately EUR 2 million. Effectively, run rate decrease of G&A was around 10%. We aim to accelerate our effort in the G&A front and anticipate to attain tangible results on this front further. The EUR 44 million underlying cost of risk, which we booked in first quarter of 2022, comes on the back of an already positive second half 2021, clearly trending positive forward estimates.
On slide 13, we present a market-based scenario for higher euro interest rates, in which the ECB depo rate would be 0 at the end of the current year, and plus 0.5%, 50% at the end of 2023. A simulation of this scenario for Piraeus, incorporating benefits as well as costs, would point to approximately EUR 190 million increased net interest income by 2024. Slide 14 stresses the normalization that has been achieved in the underlying cost of risk, along with the historical low NPE inflows recorded in the first quarter of 2022. As a result, net NPE formation was negative by EUR 100 million. We reiterate our aspiration for approximately 9% NPE ratio by the end of 2022 on the back of the HAPS transactions that we are executing.
Turning to capital in slide 15, where it is depicted that the de-risked Piraeus is in a position to generate operating profits that provide the necessary capital buffers. In first quarter 2022, our fully loaded CET1 ratio has recovered to 10%, and our phased-in total capital ratio stands at 16.2%, absorbing also a large part of the loss budget from the 2022 NPE cleanup. Slide 16 illustrates the aspired evolution of our total capital ratio by year-end 2022. The expectation is for a broadly stable trajectory with sufficient safety buffers at hand. A major area of interest is credit expansion. We are witnessing credit demand across all priority industry sectors, as shown on slide 17, whereas yields are showing resilience. Slide 18 focuses on fees and commissions, which present strong dynamics for all business lines.
Financing fees, namely fees from loans, letters of guarantees, and investment banking, have shown the strongest growth in the past 12 months, but we aspire towards a more balanced mix with higher contribution from the asset management business. A rental income contribution is expected to provide further boost to net fee income as our real estate strategy unfolds. Moving on to slides 19-21, we present in brief the enhanced focus we are placing on exploring commercial and strategic initiatives in all areas of our business, which we are happy to discuss further in the second part of the call. In parallel, we are very excited with our new strategic partnership with Natech, and we have set all wheels in motion for a fast execution.
On slide 22, you can find the envisioned timeline of the transaction, whereas you can see we aim for first half 2020 date launch of the platform. On a last note, before opening the floor to questions, I am really proud to say that Piraeus Bank has been included for the second consecutive year in 2022 among Europe's climate leaders by the Financial Times, being the only Greek company to achieve this. On slide 23, we present our scope 1, 2, 3 performance and targets as part of our systematic effort to move forward in the direction of sustainable banking. With these strategic actions, we expect to serve our vision as the most sustainable bank in Greece and the first bank in the country to follow a clear and tangible path to net zero.
With this remark, let me open the floor to the Q&A session, where we are happy to take any question you may have.
The first question is from the line of Scorza Floriani Jonas with AXIA Ventures. Please go ahead.
Yes, good afternoon, guys. Thanks for the brief and objective presentation. I have a few questions. First of them is on lending. I think we see quite a good level of disbursements in Q1, probably slightly high level of repayment versus expectation, which I've seen in the presentation that you mentioned. It already eased from March. I'm just wondering how these dynamics now are comparing to your previous expectations for 2022. I think if you were to meet your guidance for the year, it means that you're going to see slightly less disbursements in the coming quarters but also significantly less repayments, right? We can get to the same EUR 1.2 billion growth in your performing loan book. My second question is on asset quality.
I appreciate your comments during the introduction that you aim to reach the 9% NPE ratio by the end of 2022. I was just wondering, you know, in light of these changes in macro environment and higher inflation that still persists, if you're seeing any change in the dynamics or, you know, high level changes at the customer level. I've also noted that the Bank of Greece already is also pointing out the risks that the high inflation could pose on the asset quality of the systemic bank.
You know, in summary, your maintenance of the mentioned target for 2022, does that mean that you're also willing to increase the efforts on the outflows if necessary in case you see high inflows so you can defend that number? Then my final question again relates to the inflation side of it. I've seen that the Q1 impact you reported is quite mild on your general expenses. Is this kind of level we'd expect to see from the end of the year as well in terms of budgeted operating expenses? Thank you.
Thank you. Thank you, Jonas. Let me take the first question, and Theo Gnardellis, our CFO, will take question two and three. We have data on page 17 of our presentation. Indeed, you know, we are on track for the target credit expansion of EUR 1.2 billion. The first quarter numbers are confirming that, even though, as you rightly said, we had more repayments in the first few months of the year. It is fair to say that March, April have been doing much better.
We see this subsiding, and we expect, given also other capital markets and macro dynamics, that will be the trend for the next few months of the year. The focus of our disbursements was on the primary sectors, and we are very pleased to see that we have started the quarter with a very good mix with manufacturing, who gives us a very good return on risk adjusted capital being the bulk of our new disbursements. Overall, we reiterate our guidance for the year. We are happy with the effort we are doing on the yield and maintaining the yield.
We believe disbursements are under control following January and February. Let me turn to Theo for the asset quality question.
Yeah. Hi, Jonas. Indeed, the single digit NPE achievement, NPE ratio achievement, remains our primary target for this year, and for it to be achieved over the coming quarters. It is primarily achieved on the back of the two remaining NPE securitizations that are in play, that are proceeding normally. And then with an increase, obviously from the expansion of the denominator, and generally assumes a neutral formation over the coming quarters. Inflows minus outflows, kind of a net zero versus the EUR 100+ million that we had in Q1. The
Obviously, it is a very dire situation out there, yet we have not seen the pressures on the payment behaviors as of now in borrowers. It's a vigilant monitoring that's going on day to day, trying to pinpoint the headwinds that we know are coming. We have run sensitivities on them against the disposable income and cost to serve of the loans. Under stress scenarios, we could be looking at some scenarios speak for something between EUR 100 million-EUR 300 million additional NPEs, which could move the needle a little bit.
Right now, versus the formation that we saw in Q1, and the payment behavior that we're seeing on the ground, we have reasons to believe that the zero formation for the upcoming quarters is achievable. That's the reiteration of the single digit NPE ratio target. To your third question about the inflationary effects on the cost base. Of course, it's an issue. The admin costs of EUR 82 million includes EUR 2 million of inflationary effect already. It has been measured overall for the year line by line. We have made our estimates and our counter moves. Our...
The extra savings that we're gonna be baking into the effort to defend our aspiration for a nominal G&A cost base for the year of something over EUR 350 million.
Thank you.
The next question is from the line of Memisoglu Osman with Ambrosia Capital. Please go ahead.
Hello. Thanks for the opportunity. Just kind of following up on the loan growth. You mentioned repayments, but if you could give latest color on disbursements. It looks like for a slow quarter, you started with EUR 300 million. I appreciate the uncertainties, but would be keen to understand if there's potential upside on that front for the year. Coming back to asset quality with cost of risk, given again uncertainties, I get that, but how do you see the trend so far in Q2? Is your 100 BPS looking potentially conservative with the things looking right now?
Linking it to capital, you mentioned in the presentation, could we say this 10%, you won't necessarily fall below that, particularly as you say you've already taken the two-thirds of the hit, in Q1 for the cleanup? Thank you.
Hi, Osman. On your first question. Just to repeat the numbers, so it's clear. We are talking about EUR 1.7 billion new disbursements, and the EUR 300 million refer to net credit growth. The trend for the quarter is in line for a total credit growth of about EUR 1.2 billion as per our guidance. Usually, we know that towards the end of the year, especially the fourth quarter is quite seasonal. The chances of going higher are there.
As we speak, with EUR 300 million net credit expansion in the first quarter, we reiterate our EUR 1.2 billion net credit expansion for the year. Turning to Theo for your second question.
On the cost of risk, the Q1 cost of risk includes both kind of underlying cost of risk as well as cleanup elements, as you said. We took in the quarter for the two securitizations of Sunrise Three and Solar an extra EUR 100 million, so totaling EUR 150 million of provisions, including the impairment we did in Q4 for cleanup. That is versus an expectation for the two deals of EUR 250 million.
The charge for this quarter includes an underlying cost of risk charge on the actual book of around EUR 50 million. We are expecting right now this to reach EUR 250 million in the total of the year, including servicing fees as well as some extra provisions we took, given the prevailing conditions on particular cases. The charge for the quarter was EUR 230 million, and for the full year, we are expecting it to be EUR 650 million, as per the guidance that we have said.
Further to the value splits, the expectation for total cost of risk remains, even under these conditions, from what we're seeing from the securitizations as well as what we're seeing on the underlying book, remains what we had in the original trajectory. Which means, to your second question, that given also the expectations we have for restructuring costs that will reduce the FTE base, we will be able to defend the 10% fully loaded CET1 as the end-year aspiration. A lot of things are in our hands in this, of course. In executing the plan, we have reached kind of the end goal for the year in Q1.
We will deploy the organic capital generated in cleanup activities, both on NPEs and on the cost base, and then continue to grow the fully loaded CET1 level through organic profit as of 2023 onwards.
Thank you.
The next question is from the line of David Daniel with Autonomous Research. Please go ahead.
Hi. Thanks for the call, and congratulations on the results. I've a couple, just one on capital and on MREL. Just for my understanding, I'm just looking at what's moved quarter-on-quarter in regard to capital. I hear what you're just saying about provisions. Could you just walk me through what's kinda moved from 8.6% fully loaded CET1 to the 9.8% reported? I'm just interested in what the organic capital generation was. Then looking ahead to your bridge, on your bridge, you've got 20 bps of other. I was just wondering if you could tell us what that other relates to. Then on a similar theme, I'm just looking at your MREL ratio, and it's gone up quite considerably in the quarter.
Could you just call out anything else that might have affected that MREL ratio, as I think it's gone up a bit higher than some of the movements in capital? Any comments you'd have on issuance throughout the rest of the year would be interesting to hear. Finally, just on TLTRO. I know in the slides you've got how much TLTRO has contributed in Q1. Could you just confirm what you expect from TLTRO in the remaining quarters of the year? Thanks.
Hi, David. To your capital question, basically what happened in Q1 and how the fully loaded CET1 basically increased it, we managed to deploy the organic capital that happened from the year, everything in, including the movements on the OCI book, onto the fully loaded indicator. The fully loaded indicator obviously does not include the IFRS phase-in. If you look at it from a regulatory capital, from a phase-in regulatory capital evolution, this is what you're seeing on page 35.
Basically, 500 million of organic capital, more or less, settled out about EUR 400 million of IFRS phase-in and EUR 100 million of OCI reserve drop on top. Overall, kind of a static picture, but the fully loaded indicator, taking out IFRS phase-in, caught up to what was the pro forma communication before. To your other question, as for the 20 bps, various things really. There's some excess tier two that does not count towards regulatory capital on the back of RWA, the recognition that's going on from the synthetic securitizations and the NPE cleanup. And then some other minor adjustments.
Happy to take those offline, and explain, if still needed. You had a question on MREL?
The MREL in the quarter seems to have increased, I think, 180 bps, which seems quite a big jump given I guess the capital moves. Is there anything else that happens in MREL that is over and above the movements in capital?
Yeah. The MREL indicator has not incorporated yet the sale scenario charges. They will come in later. The overall MREL trajectory that we have is on an enhancing part. We are expecting activity to happen hopefully later in the year. Obviously, now market conditions are not supportive for this. We will be seeing the indicator gradually increasing. Reminder that the binding target for January 1, 2022 was met, and we are in a trajectory over the next, the coming years to meet the end obligation. On the TLTRO, you had a question about how much was included in the NII.
The Q1 NII has EUR 36 million of TLTRO, a revenue unit. Of course, if you account for the payment against the cash held, the non-tiering part, the marginal element of the extra 50 basis points we're receiving within that is EUR 18 million. The rest of the year expects another EUR 36 million for Q2, and then on, we kind of drop to the EUR 18 million more or less for Q3 and Q4, with the extra 50 basis points going away as of Q3.
Thank you very much. The next question is from the line of Butkov Mikhail with Goldman Sachs. Please go ahead.
Yes, good day. Thank you very much for the presentation. You outlined some new rate scenario in the presentation with the impact for NII. My question is also, do you have any assessment on how rates can impact the cost of risk or asset quality? Or maybe you have carried some analysis on the servicing cost, debt service costs, how they will increase in response to 50 basis points for an average client or customer in your portfolio? Thank you.
Hi, Mikhail. I mean, obviously the NII sensitivity is the most straightforward one to make, and that's why we are including it, especially given the fact that the interest rate world right now is different and kind of more clear as to what it was, you know, a month ago. You know, that said, there is an expectation that as we cross the 50 points positive on the depo rate we will be seeing some impact both on the liability side of the balance sheet as well as on the cost of risk. You know, the liability side is obviously gonna be affected primarily on the time depo.
We do have an estimate in the NII trajectory that we have there, that approximately half of the rate hike is going to impair the time depo yield. This is the assumption that we've got in this scenario. As far as cost of risk goes, it really goes back to the sensitivity I mentioned before. There's two things there. One is the cost to serve, of course, from the rate hike, but also in such an environment, where you have inflationary pressures, what does that do to the disposable income?
Both things coming together, we could be looking at another extra NPE formation of something between EUR 100 million-EUR 300 million, depending on which scenario you pick. Overall, the 70 basis points cost of risk that we have seen in the past under such a scenario could come back for some quarters, not in the plan right now, or what we're seeing actually on the ground.
All right. Thank you very much.
The next question is from the line of Tsourtis Petros with Optima Bank. Please go ahead.
Hello. Congratulations for the results. Just a follow-up question on asset quality. You mentioned earlier that you have conducted some sensitivity activities, and some scenarios point to EUR 100 million-EUR 300 million additional NPEs. My question is, what is your worst case scenario for the full year?
I mean, in such an environment, Petros, to be asking about the worst-case scenario, you know, there are many worst-case scenarios that one could think about.
Yeah, I do.
The 300 million sensitivity that I mentioned, it has to do with a combined rate hike of where we cross the 50 basis points obviously by the depo rate in the year. At the same time, have a disposable income drop of around 20% in individuals and a respective cost of goods sold increase in the manufacturing sector. All of that played in, if we stress the current performing portfolio for this, that the model you know calculates EUR 300 million of NPEs. Of course, there are multiple other second order and third order factors that one you know could think about. Right now, this is what we can model and disclose to you.
Thank you very much. Thank you.
Ladies and gentlemen, there are no further questions at this time. I'll now turn the conference over to Mr. Megalou for any closing comments. Thank you.
Thank you all for participating in our First Quarter 2022 Financial Results Presentation Conference Call. We look forward to discussing with you physically or virtually during our corporate outreach program in the forthcoming weeks. Of course, our IR team is at your disposal to answer any further questions or clarifications. Thank you all.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.