Good morning. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the BPER's Third Quarter 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. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Nicola Sponghi, Head of Investor Relations of BPER. Please go ahead, sir.
Thank you, and good morning, everyone. I'm pleased to welcome you to our Third 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 kindly request to ask a maximum of two questions each, so that everyone has the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of BPER.
Good morning, everyone. Thank you, Nicola, for the introduction. As you can appreciate, on slide four, the bank continued to post strong results throughout the first nine months of 2024. Revenues grew by 2.9%, reaching EUR 4.1 billion, underlining the resilience of our business model. Adjusted net profit was up by over 2% at EUR 1.1 billion. As I mentioned in Q2, and as a further reminder, net profit has been adjusted, excluding the gain on the disposal of the NPE servicing platform in Q1 2024 and excluding HR-related actions in Q2 2024. Our cost-to-income ratio is lower at 49.5%, mainly due to seasonality of HR costs and lower consultancy and marketing costs. We achieved further progress on the cost of risk, further improving the ratio to 39 basis points, underlying the high quality of our portfolio.
Adjusted return on tangible equity stands at a robust 17.4%, along with the CET1 ratio, which reached 15.8% thanks to our strong organic capital generation. Finally, the bank's liquidity profile remained robust, with LCR and NSFR ratios broadly in excess of the minimum threshold required. Let's move on to the net profit drivers on slide number five. As you can see, in the first nine months, we have been able to demonstrate a positive performance throughout all P&L drivers. Worth noting that the bank demonstrated a steady quarterly bottom line growth in the last four quarters. In the pages to come, we will provide you with an in-depth review of each and every item. Guidance remains substantially unchanged, in line with what was presented at our Capital Market Day, as we are confident in the delivery of our results.
Noteworthy is the revised guidance on the CET1 ratio, from above 14.5% to approximately 15%. 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 seven. After our Capital Market Day presentation on October 10th, I am pleased to share our progress towards building a stronger, more resilient bank for the future. Our strategic plan includes 38 target initiatives organized across our three pillars, which I reiterate: unleashing our clients' full value, focusing on delivering the maximum possible benefits to our customers, capturing the full potential of economies of scale using our growth to increase efficiency, and leveraging our strong balance sheet, ensuring stability and creating lasting opportunities, and a cross-enabler of modernizing the operating machine, improving and simplifying our operations to serve clients better.
I'm proud to report that 55% of these initiatives are already underway, and we are on track to fully implement all of them by the end of the first half of 2025. Let's now turn to our financial performance. As you can see on the slide, total revenues increased by 2.9% in the first nine months of 2024 versus 2023. This was achieved thanks to resilient core revenues, which were up by 5% at EUR 4 billion. Among the main drivers of total revenues in Q3 2024, I would highlight the following: resilient NII in spite of lower rates, a lower contribution of net commission income given the effect of the summer months on sales, and finally, stable dividend income. To be noted, the continued solid trend in productivity, with the net revenues to risk-weighted assets ratio, which increased from 8.6% to 9.6% between Q1 2023 and Q3 2024.
Let's move on to the next slide, which focuses on net interest income. Net interest income growth in the nine months of 2024 was encouraging, given decreasing interest rates. In fact, nine months on nine months, NII was up by 6%. In the quarter, net interest income performance was resilient, given the overall macroeconomic scenario, increasing to over EUR 840 million. Spreads were slightly lower in the quarter by a matter of single-digit basis points, while volumes more than compensated the negative effects of rates. In addition, treasury-related activities produced flat revenues. Finally, I would like to highlight that our sensitivity to 100 basis points movements equaled to approximately EUR 160 million in the quarter. This increase from EUR 130 million in Q2 2024 is mainly attributable to the repricing on floating-rate mortgages. Now, let's move on to the development of net commission income.
Nine months on nine months, commission income grew by 3.5%, reaching EUR 1.5 billion. As a result of the focus the bank is placing on capital-light, high-quality, non-interest income, the most important contributor was fees for banking services where the bank was able to post resilient revenues. Fees from non-life insurance and from assets under management reported the most important increase. That said, fees quarter on quarter were down by some 5.4% due to seasonality, which characterized net sales in the summer months. In this context, I would like to underline that recurrent AUM and AUC fees continue to show good progress, increasing by approximately 10% in the last 12 months. Let's move to the next slide, which focuses on the progression of total financial assets. Total financial assets grew by 6.8% in the last 12 months, driven by assets under custody and assets under management.
In the quarter, total financial assets grew by almost EUR 5 billion. These were driven by an increase in AUM and AUC thanks to positive market effects and customer assets conversion. In fact, the bank was able to capture deposit conversion into assets under custody thanks to customer demand for government bonds and other financial products. Let's move on to our performance on the cost side. Nine months on nine months, total costs were up by a mere 4%, reaching a cost-to-income ratio of 49.5%. In Q3, total costs increased by 8.3%, mainly thanks to seasonality in HR due to the holiday period. As you can see in the waterfall chart, the key drivers of HR costs were the National Collective Labor Agreement, new hires, and HR-related cost synergies, which had a positive impact of EUR 80.4 million.
Non-HR costs decreased by 2.1% quarter on quarter, mainly influenced by lower consultancy and marketing costs. Looking at the end of the current year, we expect some seasonality in Q4, translating into a pickup in both HR and non-HR costs in line with Q4 2023. Let's move to cost of risk, where the bank showed very good progress. As you can see in the slide, nine months on nine months, loss provisions came down by almost 30%, landing at EUR 254 million, bringing the cost of risk down to 39 basis points. Similarly, the cost of risk has shown a very positive progression, falling from 63 basis points in Q1 2023 to 35 basis points in Q3 2024. Needless to say that this underlines the high quality of our portfolio.
I would like to mention a couple of other points which I deem key in the context of the quality of our loan book. Total cumulative overlays stood at approximately EUR 220 million in line with Q2, and our NPE coverage ratio increased from 53.3% to 54.4%, underlying our conservative risk approach. Our conservative approach is further confirmed as we report a nine-month coverage ratio on performing loans at 0.73%, among the highest in Italy. Let me remind you that our total coverage ratio at 54.4% remains one of the highest in the Italian banking sector. One final remark regards our guidance towards a cost of risk below 48 basis points in Q4. In the last quarter of 2024, given current macroeconomic uncertainty, we expect an increase of the cost of risk due to a more conservative approach to coverage and increased sales of bad loans.
Let's move on to the asset quality on the next slide. The quality of our loan book continued to show a very healthy state. From a bank perspective, gross NPEs remained flat year on year at EUR 2.5 billion. The fact that BPER is characterized by a high-quality loan book is further highlighted by the net NPE ratio, which, as you can appreciate, remains unchanged and is one of the lowest in the Italian banking sector at 1.3%. Stage 2 loans were slightly up by EUR 300 million quarter on quarter at EUR 8.2 billion, with a coverage ratio of 5.3%, anticipating macroeconomic uncertainty. 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 Q3 2024, our total risk-weighted assets slightly decreased quarter on quarter.
This result was achieved primarily on the back of a proactive portfolio management exercise, which overcompensated higher risk-weighted assets deriving from business dynamics. Credit risk-weighted assets remained stable at around EUR 45.3 billion, while the reduction in market risk-weighted assets was mainly due to the sale of equities held in our portfolio. In terms of capital, we continued to post a significant organic capital generation, reaching a CET1 ratio of 15.8%. As such, our organic capital generation was 295 basis points in the first nine months of 2024, amounting to an outstanding EUR 1.6 billion of CET1 capital generation. Let me add that the MDA buffer gradually improved to 659 basis points in Q3 2024, from 315 basis points in Q1 2023. Moving on to liquidity, let me point out that the bank's liquidity ratio remained high.
The LCR reached 168.7% at the end of September 2024 versus 161.4% at the end of June 2024. Similarly, the NSFR increased to 136.1%, from 134.6% at the end of June 2024. The improvement in both ratios was achieved thanks to the issuance of a covered bond, coupled with a reduction in tax assets and other assets in the third quarter. In Q3 2024, the loan deposit ratio was 66.2% versus 75.7% at the end of June 2024. Turning now to the bond portfolio, we point out that the Italian government bonds amounted to EUR 10 billion and account for around 39% of total bonds. Since Q2 2024, the bank started to increase the stock of Italian government bonds to take advantage of market conditions. The duration of our securities portfolio was materially reduced.
In fact, the duration of the portfolio was tactically reduced to 1.7 years, and with reference to the Italian government bonds portfolio, it was reduced to 1.9 years. A brief look at our latest bond issuance is important. In August, we successfully reopened the Italian public bond market after the summer break and priced a new EUR 500 million five-year covered bond. This is the second covered bond transaction of 2024 for us, and the third one following the implementation of the new European Covered Bond Directive in Italy. The issuance also represents the fifth successful foray in the institutional bonds market for BPER in 2024, highlighting its status of frequent issuers and investor appreciations for the name. Ladies and gentlemen, before we start with questions, a brief summary of the most important achievements of this quarter.
Revenues were up by almost 3% nine months on nine months in spite of lower interest rates. Our net interest income remains resilient both in the nine months and quarter on quarter thanks to our commercial dynamics. Our risk discipline remains unchanged, and our asset quality stands at the highest level within the Italian banking sector. Our cost control remains extremely thorough. In the first three quarters, we continued to generate significant organic capital amounting to EUR 1.6 billion or 295 basis points. 55% of our business plan initiatives have already been launched, and finally, we are on track to achieve our 2024 guidance. We have only revised upwards our CET1 ratio guidance to approximately 15% from 14.5%. Before moving on to Q&As and as stated during the Capital Market Day, we will provide you with a segment reporting for each business line starting from Q4 2024.
We are now ready to take your questions. Thanks.
Thank you. 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 under touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Andrea Lisi, Equita. Please go ahead.
Hi, thank you for taking my question. I have two questions. The first one is on the CET1 guidance. You have a CET1 that is close to 16%. You updated the guidance from above 14.5% to 15%, even including the EUR 1.2 billion increase in operational risk-weighted asset.
I expect the CET1 to land above the 15%, just to understand if there are other elements that can lead the CET1 lower, so close to only just 15% and not above 15%. And anyway, if moving the CET1 target above 15% or in the 15% area can open up the possibility for you to extend the 75% payout already on 2024 profits. The second question is on the full year guidance. You did not revise the upwards. Anyway, you have achieved EUR 1.1 billion in adjusted net profit in the nine months, so it seems that is super conservative. What made you—what are the reasons why you did not improve the guidance for 2024? If there are some elements that should be taken into account, and where do you prefer to take the most of the conservatism you have?
So if you can provide more color on that, thank you.
Thank you for the questions, Andrea. So the first question, yes, we are at 15.8%. We have updated our guidance to approximately 15%, and this is mainly driven by, as we mentioned already, the increase in the capital requirements for operational risk, because, as you know, we have at the end of the year the annual update of the relevant indicator, and we think this will be approximately 35 basis points. We also believe that we'll be able to have quite good dynamics in the growth of loans, and therefore this would also increase the risk-weighted assets, and therefore we will have around 20 to 25 basis points of CET1 ratio dedicated to that. Plus, towards the end of the year, we have a conservative approach generally, and then we believe that we will stay at around 15%.
In as much as the dividend is concerned, we have already set aside a dividend for the quarter of 20 basis points. All in all, we are talking about 50 basis points to the third quarter, which equals to around 64% on the adjusted net profit and 62.5% on the stated net profit. So we want to see how the fourth quarter will perform, but this is the indication for the dividend for the year. In as much as the full year guidance is concerned, so for the net profit, we reconfirmed the guidance. It's true we are at EUR 1.1 billion at the end of the third quarter, but as we mentioned, towards the end of the year, we have in any case a pickup in cost because this is related to the seasonality of, for instance, invoicing coming from suppliers.
We will have also a pickup in cost in terms of HR because we had a decrease in cost in HR due to the holiday season, but then in the fourth quarter, there is always a pickup. So we have for sure a conservative approach. As you know, prefer to have a conservative approach. Therefore, we have confirmed our guidance at EUR 1.3 billion.
Thank you.
The next question is from Azzurra Guelfi, Citi. Please go ahead. Ms. Guelfi, our line is open. Maybe your line is on mute. Ms. Guelfi, we cannot hear you. Maybe your line is on mute. So the next question is from Domenico Santoro, HSBC. Please go ahead.
Yes, hi. Good morning. Thanks for the presentation. I have a couple of questions.
First of all, on the NII, I remember, I mean, if you can give us a bit of direction for 2025, specifying also what's the level of rate that is assumed in this guidance. And also on trading, because I don't remember you in the plan giving any specific guidance on this. Now, this line can be quite volatile. Ideally, in a reducing rate environment, this could be a bit larger, but I understand there are also other technical components that can affect this line. And then a curiosity on the other operating income in the third quarter, this line is getting bigger and bigger in your P&L. What could be a running rate and what was the reason for the large number in Q3? Thank you.
Thank you for the question, Domenico.
So, in as much as the NII in 2025, I would say that we believe that we will be conservatively in line with the NII of 2023. So this is the range we believe we'll be staying in. In terms of trading, we have around EUR 20 million revenues from trading per quarter. So this is the numbers. And we are forecasting also for the years to come at around EUR 20 million per quarter going forward. In terms of other income, I left the question to Simone, our CFO.
Yes, thank you very much, Mr. Papa, regarding the increase in the third quarter, EUR 30 million compared to the second quarter. This is due to some positive one-off. We had some cash in for, let me say, law issue that we had. Then we have EUR 17 million revaluations, but this is also a one-off.
Then we have some minor issue. This has to be intended as a one-off. In the next quarter, they will come back at the level of the previous quarter.
Sorry, just a follow-up because it's important. Did you just say that you expect NII in 2025 stable vis-à-vis 2024? And if this is correct, I mean, what could be the mitigation?
Not 2024, 2023. I said that we will be conservative in line with what we have achieved in 2023.
All right. Again, the question is, what are the mitigating actions at this point to get such a number? Because, of course, consensus it does have a leverage instead embedded in the numbers for 2025.
As we presented also at our Capital Market Day, we will have a growth in, we believe we will have growth in loans, and this will allow us to cover the drop in interest rates that we have already foreseen in our numbers for 2025. For 2025, we foresee the interest rates at 2.5% on average across the year. So mainly, the mitigation is driven by the growth in loans.
Thank you. Thank you.
The next question is from Hugo Cruz, KBW. Please go ahead.
Hi, thanks. This is very helpful. But can you talk a little bit about the NII as well for Q4? Because your guidance is, the number is quite broad, so it could be very different numbers Q on Q. But also a curiosity on the bond portfolio. You start to increase a bit, but the duration is quite short.
How do you think about the size and the direction of the size and the duration in the coming quarters, please? Thank you.
Thank you, Hugo, for your question. So for the fourth quarter, we believe that the NII will be broadly in line with the third quarter. So there will be a small decrease, but broadly will be in line with the third quarter results. In terms of the duration of portfolio or the bond portfolio, I'll let Simone answer.
Yes, thank you very much, Mr. Papa. You see that we have a decrease in the duration of the portfolio in the third quarter. At the end of September, let me say that the duration is approximately 1.9 years, from 2.4. The reduction is largely due to the purchase of CCTs with an October repricing. So the coupon of this is around 4%.
Therefore, we will have technically an increase in the duration in the next quarter. This is also part of our strategy. You know that we have an amount of fixed rate and mortgages close to EUR 35 billion. So we have to see this bond strategy linked to the strategy overall of the bank in the hedging.
Thank you.
The next question is from Fabrizio Bernardi, Intermonte. Please go ahead.
To everybody, just a question about the strategy. Yesterday, one of your competitors made a tender offer on an asset manager, which was really unexpected. So I was wondering, given your capital position is technically probably better than expected, apart from the number of the third quarter, I was wondering whether there is any, let's say, sector or financial sector in which you may decide to use the portion of the capital.
I understand that there are some headwinds coming in 2025, but in any case, the capital position seems very, very strong. I know all your, let's say, partnership in asset management, in life bancassurance, and so on. I know that there is an insurance that is involved in this partnership. I know that you share with another bank all these partnerships. So I was wondering whether we may expect also a BPER to have an interest in other financial assets. The second question is, if not, can we expect BPER to go on with additional, let's say, let's call it one-off cost or one-off provisions in order to improve even further your balance sheet strength in order to have the 2025-2026 even better than expected? Thank you.
Thank you very much, Fabrizio.
I think you, inasmuch as the first question is concerned, you gave yourself also the answer, so apart, we are not in the same position of Banco Popolare, and because we don't have an insurance company within the group, first and foremost. Secondly, if I understood correctly, this transaction will take place only if the Danish Compromise will be recognized and awarded to the bank, and we are not in a position to have this possibility because, as you mentioned, we have a joint venture. We have Arca Vita. We own 19.9% of this company together with another banking partner and with Unipol, so we are not in a position to do that. We have a very strong partnership with Unipol. We are very happy, as demonstrated by the results that we are delivering on the bancassurance activity.
And therefore, we don't see why it would be counterintuitive for us to set up or to buy a small insurance company and then to start all over again when we have such a strong relationship and partnership with one of the strongest insurance companies in Italy. So for the time being, we stay the way we are because we are happy with that. We are fully concentrated, though, on the execution of our new business plan that we presented last October. As I mentioned several times, we are fully committed to the targets announced, and we are proceeding in this direction. Therefore, our excess capital will be deployed to further develop the bank. We are not foreseeing also any extraordinary action in terms of cost. We have already done it at the end of last year, December 2023, and in June this year.
We are going to reduce our staff by 1,600 elements. We analyze also our current situation, and today would not make any sense to have a further extraordinary action because the cost would be too high compared to the benefit that we would achieve in setting up the same action that we did last year and in June this year. So no extraordinary action.
Thank you.
The next question is from Marco Nicolai, Jefferies. Please go ahead.
Hello. Thanks for taking my question. On commission income, you are growing about 2.5% year on year this quarter. In the plan, you project more of a 4% CAGR. When do you expect to step up in terms of year-on-year growth in terms of commission? Shall we expect a step up already in the fourth quarter of the year and then 2025? Thank you.
Yes, thank you for the question, Marco.
So we had quite a good quarter in the third quarter, although we had a decrease in commission compared to the second quarter due to the seasonality. During summer months, also sales dropped for many banks and dropped also for us. We already see a good fourth quarter coming into the picture. Therefore, we believe that the fourth quarter will be very positive in terms of commission for us. So this is already the step up that we foresee coming. And of course, we have, as announced at our time by Capital Market Day , we are putting a lot of effort to increase the commission-based transaction activity in order to also replace the net interest income drop that we'll have because of the reduction in interest rates. So we believe that also in 2025, we will have a further increase in commission.
Thank you.
The next question is from Luis Pratas, Autonomous. Please go ahead.
This is Luis from Autonomous. Thank you for taking my questions. The first one is really a follow-up on the 2025 NII guidance. You highlighted that loan growth will be the main driver to offset the rate impact. Do you expect to reach the loan growth target of 3% already in 2025? And are you seeing already some signs of loan demand picking up? And then my second question is on the overlays. Are the EUR 220 million overlays tied to a specific portfolio, or are these unallocated? And under what conditions can they be used or released? Thank you.
Thank you, Luis, for your questions. So increase in the loan portfolio. We do see already a pickup. We have a very good pickup in terms of mortgages.
So we believe that we'll be closing the year with a very good growth compared to last year and compared to the budget also. And also on the corporate side, we will have a pickup. We see the decrease of interest rates will drive also investments drive from corporates. And we are already placing ourselves with our customers. So during our capital market day, we provided for a growth of 3% CAGR in loans across the plan. And with the progressive growth going forward, not the famous hockey stick plan. So we believe that also on the situation of growth in the retail, mortgages, and consumer financing, but also corporate, we'll be reaching the 3% growth. In terms of overlays, I'll pass the question to our CRO, Emanuele Cristini. Please.
Yes, thank you. Thank you for the question.
Generally speaking, there is no particular concentration of these overlays in some particular sectors. Generally speaking, around 70% of these overlays are related to high-risk sector. In fact, in our IFRS 9 framework, we adopt a vulnerable framework in order to manage the so-called vulnerable sectors. Around other 70, 73 million EUR of overlays are related to a conservative approach adopted in the management of the so-called multi-scenario. Namely, we adopt a conservative weighting of the so-called severe scenario. So the total amount of overlays is around 220%. Generally speaking, there is no particular concentration on overlays on some particular sectors.
Okay. Does that mean that those overlays are indeed already used?
Yes, yes. We have defined this amount of overlays in order to manage the macroeconomic concerns that these.
We will evaluate after monitoring the evolution of our credit portfolio the use of these overlays. But generally speaking, this is a conservative approach in order to manage the macroeconomic and geopolitical uncertainties related to the current environment.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Noemi Peruch, Mediobanca. Please go ahead.
Good morning. Thank you for taking my question. I have just one on tax loss carry forward. I was wondering if you could share with us the amount of tax loss carry forward that you absorbed in the quarter and your forecast for Q4 and 2025. Thank you very much.
Thank you, Noemi, for the question. I ask Simone to take the question.
Yes. Thank you very much. For this quarter, we had around EUR 60-65 million.
We think also for next quarter to have something not at this level, but below. For 2025, let me say that it depends on the final law that has been just issued. If there is, there could be something positive, but we could see. In any case, not at the level of this year, but below.
Clear. Thank you.
Gentlemen, Mr. Sponghi, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
So I thank everybody for participating to our call. Thank you very much.