Good morning, this is the Chorus Call Conference Operator. Welcome, and thank you for joining the BPER First Half 2024 Consolidated Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Nicola Sponghi, Head of Investor Relations at BPER. Mr. Sponghi, please go ahead, sir.
Thank you, and good morning, everyone. I'm pleased to welcome you to our Second Quarter 2024 Earnings Conference Call. Before I give the floor to our CEO, Gianni Franco Papa, please note that our slide set and press release can be found on our corporate website. I would also advise you to take note of the disclaimer on slide two of the presentation document. That said, after the presentation, our CEO and our CFO, Simone Marcucci, will take care of the Q&A session. I will reiterate that this is reserved for financial analysts, whom I will kindly request to ask a maximum of two questions each, so that everyone will have the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of BPER.
That's it. Okay. Good morning to everyone. Thank you, Nicola, for your introduction. Before I start walking through the presentation slides, I would like to inform you of the recent appointment of Simone Marcucci as Group CFO. In the same way, I would like to thank Gianl uca Santi for his very valuable contribution as CFO. Now, let's move on the presentation on slide four. As you can see on slide four, the bank continues to post strong results throughout the first half of 2024. Revenues grew by four percentage points, reaching EUR 2.8 billion, underlining the strong resilience of our business model. Profit before tax was up by almost 16% at EUR 1.1 billion.
Allow me to add that this figure has been adjusted, excluding approximately EUR 150 million related to the gain on the disposal of the NPE servicing platform in Q1 2024, and excluding approximately EUR 174 million of HR-related actions in Q2 2024. Our cost-income ratio remains stable at 50.6% in the first six months as a result of our continued focus on cost discipline. As already mentioned, the cost-income ratio excludes EUR 174 million of HR-related actions. We achieved further progress on cost of risk, improving the ratio to 41 basis points, underlining the high quality of our portfolio. Reported adjusted return on tangible equity stands at a robust 16.5%, along with a CET1 ratio reaching 15.3% thanks to our strong organic capital generation. Finally, the bank's liquidity profile remains robust, with LCR and NSFR ratio broadly in excess of the minimum threshold required.
Let's move on to slide number 5.
As you can see, we have been able to demonstrate a positive performance throughout all P&L drivers. We will provide you with an in-depth review of each and every item along this presentation. For now, I would like to underline the important progress of adjusted net profit generation in the last quarter, which almost increased by 26%, as you can see on the slide. That said, I think that for purpose of clarity, it is also noteworthy to comment on progress of stated net profit, which was lower both year-on-year and quarter-on-quarter, mainly due to a very limited tax rate reported in Q2 2023 and Q1 2024. Moving on to slide six, I'm delighted to state that on the basis of the bank progress, we have revised our guidance of net interest income to stable, and we have revised our cost of risk guidance towards an improved outlook.
On the other end, our guidance on operating cost has been revised very moderately upwards. All in all, we confirm our 2024 guidance on all other items. Now, I would like to move on to the core part of the presentation on slide eight. Total revenues increased by 4.1% in the first half of 2024 versus first half of 2023. This was achieved thanks to resilient core revenues, which were up by 7% half-on-half at EUR 2.7 billion. I would also like to highlight the strong improvement in productivity with the net revenues to risk-weighted assets ratio, which increased from 8.6% to 9.6% between Q1 2023 and Q2 2024.
Among the main drivers of total revenues in Q2 2024, I would highlight the following: resilient NII in spite of lower rates with stable contribution of the Ecobonus, a strong contribution of net commission income on the back of higher fees from asset under custody, asset under management, and non-life insurance products, and finally, materially higher dividend income, which is a customary item driven by the seasonality of dividend payments in the second quarter. Let's move on to the next slide. Focusing on net interest income, let me say that net interest income growth in the first half of 2024 was very satisfactory. Half-on-half, NII was up by 8.9% and up 2.4% comparing Q2 2024 with Q2 2023. In the quarter, NII performance was resilient given the overall macroeconomic scenario. NII was affected by lower spreads. The volume effect was merely positive given the slight increase in customer loans.
That said, treasury-related activities related to the bond portfolio, interbank lending, etc., produced high revenues. As you will appreciate, commercial rates stood at a slightly lower level in the second quarter. Finally, I would like to highlight that our sensitivity to 100 basis points movements equaled to approximately EUR 130 million. Now, let's move on to the development of net commission income. Before I comment on the slide, I need to highlight that the bank carried out a recasting exercise in the second quarter of 2024. In practice, net fees and commissions include charges for payment services provided and other administrative expenses that have been netted against recoveries of costs for services ancillary to lending. In the interest of comparability of results, similar reclassifications have been made for all quarters.
The overall effect of the mentioned recast has an overall positive effect on cost and by the same token on net commission of approximately EUR 40 million per year. Moving back to net commission income, this showed strong progress, increasing by 4% half-on-half and by 7.6% year-on-year. The main contributors to the strong performance were the robust sales of high-quality non-life insurance products and the good progression of fees deriving from asset under management products. Commission from banking services continued to be the major contributor to overall net commissions income, amounting to approximately EUR 270 million, up by 1.2% quarter-on-quarter. Let's move to the next slide, which focuses on the progression of total financial assets. Similar to net commission income, total financial assets grew by 6.3% year-on-year, mainly driven by asset under custody and asset under management.
In the quarter, the major drivers were the deposit conversion into asset under custody and asset under management, thanks to customer demand for government bonds and other asset management products. The latter was the main beneficiary of deposit conversion. Life insurance almost flat quarter-on-quarter. I would like to highlight that despite the asset conversion, BPER is able to fully recapture customer liquidity. Let's move on to our performance on the cost side. Before I describe progress on cost, it is important to highlight two non-recurring items. As you can see, there have been two HR-related actions, one that affected Q4 2023 in the amount of approximately EUR 295 million, and the other in the amount of EUR 174 million in Q2 2024. The last HR-related action derived from the acceptance of around 600 additional retirement applications.
All in all, in the first half of 2024, total costs were up by a mere 4.2%, reaching a cost-income ratio of 50.6%. As you can see, HR costs increased due to the National Collective Labor Agreement and new hires, while decreasing by EUR 88.4 million deriving from HR-related synergies. Finally, non-HR costs grew by 6% in the first half of 2024, mainly influenced by the NPE servicing agreement with Gardant. Let's move to cost of risk, where the bank showed very good progress. As you can see in the slide, in the first half of 2024, loan loss provision came down by 34.1%, landing at EUR 175 million, bringing the cost of risk down to 41 basis points in Q2 and in Q2 at 39 basis points, underlining the high quality of our portfolio.
I would like to mention a couple of other points which have been key in the context of the quality of our loan book. Firstly, our overlays rose to EUR 222 million, underlying our conservative risk approach. Secondly, our total coverage ratio at 53.3% remains one of the highest in the Italian banking sector. As a matter of fact, the reason why the total coverage ratio came down to 89 basis points was mainly due to the inflow of UTPs characterized by a better LGD profile and hence with lower coverage requirement. Let's move on to asset quality on the next slide. The fact that BPER benefits from a higher quality loan book is further highlighted by the NPE ratio, which you will appreciate remains one of the lowest in the Italian banking sector at 1.3% in Q2 2024.
As far as asset quality dynamics is concerned, gross NPE remains stable year-over-year, while quarter-over-quarter NPEs increased by EUR 300 million. Noteworthy is the strong reduction in Stage 2 loans by approximately EUR 900 million, which partly flowed back to bonus and partly into UTPs. Let me add that the increase of EUR 200 million of UTPs was also driven by the delay in the implementation of the new servicing platform and topical considerations on reaching critical mass of the loan books for disposal, affecting the speed of NPE disposals. Allow me to reinforce my statement on the very high quality of BPER's loan book. Having finished with asset quality, let's move on to the development of the bank's risk-weighted assets. As you can see in the slide, in Q2 2024, our total risk-weighted assets remained flat quarter-over-quarter.
This result was achieved primarily on account of our improved risk profile on the back of our prudent credit policy. Credit risk-weighted assets increased from €44.1 billion to €45.3 billion, up by €1.2 billion quarter-on-quarter. Let's move to slide 16. In terms of capital, our significant organic generation further reinforced our capital strength with a C/T1 ratio of 15.3%. Our organic capital generation was 199 basis points in the first half of 2024. Net of the capital gain from the disposal of the NPE servicing platform to Gardant and the HR-related actions, the organic capital generation stands at 194 basis points. The impact of regulatory models amounted to only 4 basis points in Q2 2024, much lower than in the previous quarter. The MDA buffer gradually improved to 612 basis points in Q2 2024 from 315 basis points in Q1 2023.
All in all, allow me to say that our shareholders' value creation was significant, with first half 2024 earnings per share standing at EUR 0.512. Moving on to liquidity, let me point out that the bank liquidity ratio remained high. LCR reached 161.4% at the end of June 2024 versus 160.9% at the end of 2023, even after the EUR 1.7 billion repayment of the last TLTRO tranches at the end of March. NSFR increased to 134.6% from 128.4% at the end of December 2023. The improvement in both ratios was achieved thanks to positive commercial dynamics in customer deposit, positive net wholesale bond issuance on the market, and in particular for the NSFR, also thanks to disposal of non-high-quality liquid assets. In first half 2024, the loan-to-deposit ratio stood at 75.7% versus 74.3% at the end of March 2024, thanks to the positive commercial efforts on new loan production.
Turning now to the bond portfolio, on slide 18, we point out that Italian government bonds amount to EUR 8.9 billion and account for around 36.1% of total bonds, down 13% year-over-year. After quarters of downtrend in our stock of Italian government bonds, the stock was up by 2% quarter-over-quarter, plus EUR 200 million, and as we took advantage of market opportunities. Our securities portfolio duration was confirmed at two years, as was that of Italian government bond portfolio at 2.4 years. The annualized average yield on the security portfolio was 2.7%. Slide 19, focusing on our latest bond issuance. In May, BPER successfully placed its second senior preferred bond qualifying as green, targeting institutional investors for an amount of EUR 500 million. With regards to the ratings assigned to the bank, in May 2024, Moody's rating upgraded the bank's standalone long-term issuer rating from Ba1 to Baa3 investment grade.
In June 2024, Morningstar DBRS revised the bank trend from stable to positive. All key ratings assigned to the bank by the various rating agencies are now investment grade. Ladies and gentlemen, before we start with questions, I would like to reemphasize some of the key points of our presentation. The positive growth in our total revenues was driven by resilient core revenues and operational efficiency. We continue to focus rigorously on cost control. Our utmost risk discipline remains unchanged, and our asset quality stands at the highest level within the Italian banking sector. We continue to generate organic capital, further strengthening our CET1 ratio which reached 15.3%. And finally, as you have appreciated, we remain on track to achieve our 2024 guidance.
Before we move to the Q&A, I trust I will see you all at our Capital Market Day on October 10th, where we will present the new business plan. Thank you.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. The first question comes from Giovanni Razzoli of Deutsche Bank.
Good morning to everybody. I have two very quick questions. The first one, if you can please update us on the impact of the Basel IV and what are the different moving parts, especially the operational risk. And the second question is on the detail on the upfront fee contribution in the second quarter vis-à-vis the Q1.
My impression is that after a strong Q1, banks, I mean, at least your peers have decelerated a little bit this contribution. So if you can share with us also your trend for BPER, thank you.
Yes, thank you. So inasmuch as the Basel IV impact, we will have an impact of 70 basis points, of which the operational risk is of 40 basis points, whereas in 2024, the impact is zero. Inasmuch as the second question is concerned, so details on the upfront fees, we have in the second quarter upfront fees for EUR 29.2 million, up from the first quarter of EUR 26.5 million. The increase is due to the fact that in the second quarter, we have the subscription of BTPs. So for the BTPs placement of securities being issued in the amount of EUR 2.2 million, mostly BTPs.
So on average, we have around EUR 20 million-EUR 25 million of upfront per quarter.
The next question is from Marco Nicolai of Jefferies.
Good morning. My first question is on the guidance. So you upgraded NII and also the cost of risk guidance, but you left unchanged the bottom line. So is it costs absorbing all the improvements in the other two lines, or you're just being prudent in terms of net profit? And can you share with us the various moving parts here? And secondly, on the restructuring cost, could you please share what's the expected benefit in terms of personnel expenses that you expect from the measures you booked today? In terms of headcount, how many people do you expect leaving the firm this year and also next year, not only considering this latest measure, but all in all, also considering what you booked in the past?
So these are my two questions. Thank you.
Yes, thank you. So yes, we are prudent because we mentioned also last quarter that we have a prudent approach to the numbers. We changed the guidance on cost. The change of guidance on cost is a technical one and is deriving from the reclassification that I mentioned during my presentation of cost to passive or negative fees. Overall, the effect of this recast has a positive effect on cost of approximately EUR 40 million. But in 2023, this recast in terms of rounding has brought the figures down from EUR 2.8 billion to EUR 2.7 billion just for rounding matter. Therefore, we had to review the cost side in as much as the 2024 is concerned because of that.
In as much as the second question is concerned, you know that after the agreement enter in the two agreements, the one that was signed on December 2023 and the one on July 2024, we will have roughly 160,000 resources that will leave BPER Group, of which 900 will be leaving in 2024 and the remaining 700 will be leaving in 2025. So these two agreements, as you know, entail a one-off cost for a total amount of about EUR 458 million, of which EUR 284 million were accounted for in 2023 and the difference in EUR 174 million in 2024. And we will have saving for an amount of around EUR 48 million in 2025 with a view to having steady state savings of about EUR 83 million by 2026, considering exits and new hires at a ratio of one new hire every two exits.
This was the agreement that was signed with the unions.
The next question is from Noemi Peruch of Mediobanca.
Good morning. Thank you for taking my questions. I have a question on NII and in particular on the quarterly bridge that you show. I see EUR 6.5 million from non-commercial items. And I would like to ask you to comment on the nature of this and also if they are recurrent or not. And then I see that market risk, I believe, declined Q1 by around EUR 1 billion, what you call other risk. And I was wondering if this is sustainable. Thank you.
Okay. We'll let the first answer by our CFO, Mr. Marcucci, and second question by our CRO, Mr. Cristini, please.
Thank you very much, Mr. Papa. Okay. Thank you very much, Mr. Papa.
Regarding the first questions, the EUR 6.5 million non-commercial, let me say that this EUR 5.5 million is split like EUR 5 million positive from bonds, EUR 14 million from ECB, and EUR 12.5 million from derivative hedging on bond. With regard to RWA related to market risk, it's worth highlighting that the RWA as of the end of March includes EUR 1.2 billion of prudential add-on, which was introduced in accordance with Article 3 of CRR. This prudential add-on was introduced in order to anticipate the effect of an update of the internal rating system, which was implemented as of the end of June. So after this implementation, this add-on was almost completely removed.
Therefore, in summary, we can conclude that the RWA related to market risk is stable of about EUR 900 million because, as I have just highlighted in the first quarter, EUR 1.2 billion included in other risk were related to credit risk. Thank you.
The next question is from Ignacio Ulargui of BNP Paribas Exane.
Thank you very much. Thanks for taking my questions and for the presentation. I have two questions, if I may. The first one is on the capital build-up. I mean, the bank keeps on doing a very strong capital build-up quarter after quarter. Could you just elaborate a bit on what should we expect for the payout in 2024? I will leave the 2025 outlook onwards for the strategic plan, but how should we think about the payout from here given the capital path that you are having?
The second one, if you could elaborate a bit more on the NPE increases. And I mean, you gave some color on the presentation, but just to understand a bit better, how should we expect NPEs going forward and when the disposals will happen? Thank you.
Thank you, Ignacio. So in as much as the first question is concerned, you know that at the moment, we have accrued EUR 0.30 as dividend, was EUR 0.16 in the first quarter and EUR 0.14 in the second, equal to around 60% of the net profit. I remind you that the current plan provides for a 50% payout, so we have already above it. So the yield, if you look at the yield as of today, is at 12.5% on the current share price.
As you know, on October the 10th, we will present our new business plan, and we will give new guidance update on the dividend payout. For the second question, we have Mr. Cristini.
First of all, it's worth highlighting that there are no particular signals of deterioration of the credit risk profile of our portfolio, namely, the default rate is stable, about 1% in line with our expectations. The probability of default is stable too. As I highlighted in the presentation, a relevant decrease of stage two exposures was registered in the last quarter. This is a very important aspect because stage two classification is the most predictive indicator for a potential transition to a non-performing status. Finally, a relevant portion of UTP exposure is characterized by high level of collateralization.
This light increase of the NPE stock is mainly registered in the first half of this year, is mainly driven by two factors. First of all, in the first part of this year, as I talked about our CRO in the presentation, in line with market trends, our bank didn't perform massive disposals. That has been done in the last part of this year in order to reach a sufficient amount of exposure to sell. Secondly, the activities of the outsourcing platform for NPE management started at the beginning of this year, and its implementation is still in progress. So in the first part of this year, the cure rate is lower than the previous period. Anyway, it's worth highlighting that the cure rate of the second quarter registered an increase, and we think that it will further improve in the second half of this year.
Finally, as I laid out in the presentation, with regard to coverage ratio, our bank adopts a very conservative approach, both for performing and non-performing exposures, and its coverage ratios are among the highest in Italy. So in summary, we can affirm that the asset quality remains stable. Thank you.
The next question is from Domenico Santoro of HSBC.
Hello, hi. Good morning. Thanks for the presentation and for taking the questions. Everything is very clear. I just want to understand a bit more given that you have been here for a while, and I know that you are going to present the plan in October. I just want to have your thoughts about cost and provision going forward for this bank.
Considering also the answer that you gave to the colleague on the savings on the personal cost going forward, I just want to understand how could be the direction of cost in 2025 and beyond, and also at which cost of risk you think this bank can run this business going forward, given that there might have been a little bit of conservatism in the past when it comes to cost of risk for these banks. Just an indication of tax rate for this year. I have noticed that there was a step increase in the second quarter and how we can model tax for the rest of the year. Thank you.
Thank you for the questions. So I will answer the first one about cost, and then I will let Mr. Cristini answering about the quality of the asset as a question-on-question.
As you know, we are really focused on cost discipline, both in terms of cost reduction and optimization of budget allocation. This in order to achieve a lower and sustainable cost base. We have planned actions to reduce the cost base as compared to the initially budget level starting from this financial year. Among these actions, the most significant one includes the reduction of inertial component of personal cost, to which cost-cutting actions were added with particular attention to consultancy and management cost, whereas on the other end, in this context, the branch closure does not really add much to the cost-cutting driver. The focus will be more on cutting costs linked to processes going forward. Further and more incisive structural actions will be defined as part of the business plan that is currently prepared.
So in October, we will present our plan, which of course will touch also the cost, the overall cost income ratio, bearing in mind, as you know, that the interest rate scenario is for interest rate going down, but we are working on a further reduction on cost, and the plan will be presented, as I mentioned, in October. I'll pass now to Mr. Cristini.
Yes. With regard to the evolution foreseen for the cost of risk, I can confirm what I have previously highlighted. No particular signs of deterioration of the creditworthiness of our portfolio are registered, namely PD and default data stable.
In addition, we have already adopted a very conservative approach in provisioning, so we can say that in the upcoming periods, the cost of risk will remain stable, taking into consideration the high level of coverage that we have already registered both for performing and non-performing exposures. And now Mr. Marcucci will answer on tax rate. So as you know, we are preparing the multi-year plan that will be released on the third quarter. For this reason, in the second quarter, we are not taking into account the DTA on fiscal losses. From the third quarter, after the approval of the plan and the related reassessment, we will start again to take into account. Therefore, for the next quarters, we expect around 30% of tax rate again. Thank you.
The next question is from Fabrizio Bernardi of Intermonte.
Hi. Hi all.
I would like to ask if we may expect some other one-off cost in the fourth quarter in order to ease the entry in 2025 and so into the new business plan that will be presented in October.
Thank you for the question. Do you have some other question?
No. No, no. It's a very general question. I'm not talking about OPEX or SG&A or risk provision, but any one-off items that may impact the, let's say, stated bottom line relative to the guidance that you gave.
No. I can say that so far, for the time being, at least, we don't foresee any further actions in terms of extraordinary actions in cutting costs because the major one was the reduction of the staff. We had, as I mentioned before, an extra request of over 600 colleagues that asked to retire.
So we deemed necessary to put in place this action. We discussed with the unions, and therefore, in the second quarter, we had EUR 174 million. I think we are done for the year. We are, as I mentioned, already working on an exercise of reduction of cost day by day, but we don't see any further extraordinary action on it.
And if I can go on with a very aggressive question, I know it may be very early, but how do you stand in terms of M&A? Because this is a question that investors are always asking. So I know that maybe you cannot give us a forward-looking statement, but maybe you can give us some flavor or color about what you think about enlarging the size of the bank going forward. I mean, we know you are our main shareholder.
We know the stake it has in other banks. It is always in the press about taking other stakes in other banks. So we'd like to understand what do you think about the size of the BPER group and if the size may be, in any case, increased sooner or later.
So inasmuch as our shareholders are concerned, you should ask our shareholder because obviously, I can talk only about what is in the future for BPER. What I can tell you as of now, as of today, is the fact that we're preparing a business plan that is based on organic growth because we see a great opportunity of organic growth thanks to the presence of the bank in the richest areas of Italy, to the strong capital that we have, the strong liquidity that we have.
So I wouldn't comment further on possible M&A that, in any case, is not for us on the table today. Thank you.
The next question is from Hugo Cruz of KBW.
Hi. Thank you for the time. Also two questions. One on the loan growth dynamics. I think you showed some good loan growth Q1Q. Are there any one-offs in there and what you're seeing for the coming quarters? And then second, you already said quite some interesting things on the new business plan, talking about the focus on costs. I think you mentioned as well, I missed it a little bit, but it sounds like you said EUR 0.30 of dividend accrued, and you could double that for the rest of the year, right? So a focus on capital return and increasing the dividend payout compared to last year. Anything else we should expect from the new plan?
Any details you could give on the focus on organic growth there? Thank you.
Well, I wouldn't take away the thrill of the new plan to be presented on the 10th of October. So I can't anticipate much. In terms of loan growth Q1Q, we did have a loan growth, and this is thanks to the strong commercial dynamic of the bank. We have put a lot of gasoline into the engine, and now we have very positive commercial dynamics throughout the different divisions of the bank. So we have growth in retail, in corporate, and in private banking and wealth management.
In terms of cost, I already mentioned that we pay particular attention to cost reduction or at least to be able to keep costs at bay given the inflationary drift that we have and given the fact that we do expect other rate cuts in terms of cost income ratio. We might see a worsening of this, but we will work very hard on the further cost reduction. In terms of dividend payout, I already mentioned that we will have a new guidance with the presentation of the new business plan on the 10th of October. It's a matter of fact that if you look at the EUR 0.30 that we have put aside today, we are at around 60% of the payout ratio, which, as I mentioned before, is well above what was foreseen by the current business plan.
I wouldn't like to go further than that because we live in a certain time and I want to be able to look at the numbers of the third quarter before deciding what action to take from this 60%. Thank you. Thank you. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your touch-tone telephone. Once again, for any questions, please press star and one on your telephone. Okay. I guess there are no further questions.
So I thank you very much for being patient with us presenting on the 7th of August, the numbers. I promise next year we'll try to be earlier. And I wish you a good vacation, and thank you again. Thank you. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.