Good day, and thank you for standing by. Welcome to the BAWAG Group Q3 2026 results webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded, and there will also be a transcript on the company's website. I would now like to hand the conference over to your first speaker today, Jutta Wimmer, Head of Investor Relations. Please go ahead.
Good morning, everyone. Before we start with the call, let me remind you of the following. In regards of the planned transaction of Permanent TSB, be reminded that the transaction is regulated by the Irish takeover rules, and therefore are restricted in information we can provide on this call. As a result, we will not take Q&A in relation to the PTSB transaction, and any updates will be communicated for regulatory announcements. With that, I hand over to our CEO, Anas Abuzaakouk .
Thanks, Jutta. I hope everyone is doing well this morning. I am joined by Enver, our CFO. Let us start with the summary of third quarter results on slide three. We delivered net profit of EUR 248 million, EPS of EUR 3.18, and a return on tangible common equity of 27% during the third quarter. The operating performance of our business was very strong, with core revenues of EUR 599 million, up 8% versus prior year, pre-provision profits of EUR 425 million, and a cost-income ratio of 30%. We continue to realize the benefits of investments over the years as we build out a pan-European and U.S. banking group.
Total risk costs were EUR 79 million, translating into a risk cost ratio of 56 basis points. We have a low NPL ratio of 1% and continue to see solid credit performance across our businesses. In terms of our balance sheet and capital, average customer loans were flat, and average customer funding was down 1% quarter-over-quarter. We have a fortress balance sheet with EUR 13 billion of cash, equal to approximately 19% of our balance sheet, an LCR of 197%, and overall strong asset quality. During the first three quarters of the year, we worked diligently to ensure we positioned ourselves to fully self-fund the PTSB transaction.
As of the third quarter, we landed on a CET1 ratio of 17.1%, translating into over EUR 1 billion of excess capital required to self-fund the deal. We have invested considerable time and resources in the PTSB transaction, and we look forward to the upcoming High Court decision at the end of the month in receipt of the remaining regulatory approval. We started this process in November of 2025 when we made a strategic decision to enter the announced public auction. We spent six months of due diligence as part of a competitive auction process that required thorough analysis, planning, and coordination, and we were pleased to emerge from that process as the successful bidder.
After the signing of the transaction and subsequent shareholder approval in July, we have spent a significant amount of time communicating with regulators, the PTSB Board and leadership team, and many other stakeholders introducing ourselves and our business. Our goal has been to listen, learn, and prepare for a smooth and seamless integration. We are confident in having put our best foot forward, being patient, staying disciplined, working constructively and transparently at every stage of the process, all while rising above the noise.
If the PTSB transaction is approved, this will be our 15th acquisition since 2015. Acquisitions are a key plank of our strategy as we continue to build a pan-European and U.S. banking group with the capabilities and scale to effectively compete and deliver sustainable results long into the future. PTSB would be our first public company acquisition with different dynamics, but always staying consistent to our principles. We focus on delivering results through our actions and avoiding empty slogans and self-promotion, as our actions speak louder than our words. We have been consistent about our views of the Irish market and key focus.
Ireland is one of the most attractive markets across Europe, with all the ingredients for successful banking. Pro-growth economic policies, rich in human capital, and a bridge to the EU, the U.K., and the U.S. We aim to drive competition through significant investment and innovation, supporting PTSB's customers and, more broadly, the Irish economy while delivering long-term sustainable growth. We are excited to get to work and embrace the journey ahead. We will provide an updated midterm outlook with full-year earnings, assuming a successful close of the PTSB transaction.
Excluding any potential PTSB impact, we reconfirm all of our 2026 targets, with net profit over EUR 960 million, return on tangible common equity over 20%, and a cost income ratio under 33%. Moving to slide four. As far as capital development, our reported CET1 ratio landed at 17.1%, equal to over EUR 1 billion of excess capital above our CET1 target of 12.5%. This puts us in the position to fully self-fund the PTSB acquisition, which requires approximately 450 basis points of capital, subject to High Court and regulatory approvals.
We generated 116 basis points of gross capital from earnings during the third quarter. RWA growth accounted for approximately 30 basis points of capital, reflecting the changing asset mix and growth in our consumer and SME business. Which has been on a positive trajectory the past few quarters. We also restarted our dividend accrual, accruing 100% of earnings in the third quarter, equal to EUR 248 million of net profit or EUR 3.21 per share, and plan to do the same for the fourth quarter as well. With that, I'll hand it over to Enver.
Thank you, Anas. Moving to slide six, our P&L and balance sheet overview. We delivered a strong third quarter with net profit of EUR 248 million and a profit before tax of EUR 335 million. Net profit was down 3% versus prior quarter due to a positive tax effect in the second quarter, following a participation sale, while profit before tax was up 1%. Return on tangible common equity was 27%, based on a current CET1 ratio of 17.1%. Core revenues amounted to EUR 599 million, up 8% versus the prior year and 2% versus prior quarter. Pre-provision profits reached EUR 425 million. The cost income ratio was below 30%, with synergy gains materializing faster than anticipated.
Risk costs amounted to EUR 79 million, translating into a risk cost ratio of 56 basis points, reflecting the changing asset mix. Underlying credit performance remained solid, with an NPL ratio of 1%. Earnings generated 116 basis points of gross capital during the third quarter, supporting a reported CET1 ratio of 17.1%. We also resumed the dividend accrual at 100% of third-quarter earnings, which is already deducted in the CET1 ratio. In terms of balance sheet, average customer loans were flat and average customer funding declined by 1% quarter-over-quarter.
We continue to maintain a fortress balance sheet with EUR 13 billion in cash, representing 19% of total assets and an LCR of 197% and a strong asset quality. Moving to slide seven, core revenues. Net interest income increased by 2% in the quarter, with customer loans flat in Q3 2026 and supported by continued positive trend in consumer and SME, including credit cards. Mortgage volumes remain subdued. Net interest margin at 350 basis points reflects the ongoing changing asset mix, while the deposit beta decreased to 28%. NII rate sensitivity is unchanged.
Every 25 basis points increase delivers EUR 25 million per year after 12 months and EUR 50 million per year after 24 months. Net commission income with a stable development at EUR 102 million, results across business lines of Retail & SME continue to perform well. For the fourth quarter, we expect net interest income to grow gradually at a stable development in net commission income. On slide eight, operating expenses amounted to EUR 181 million, representing a 2% quarterly decline with a cost income ratio of below 30%. Our initiatives across the group developed better than anticipated, therefore expect to outperform our outlook.
Risk costs for the quarter came in at EUR 79 million, up EUR 3 million versus prior quarter. The increase reflects continued shift in asset mix toward higher margin consumer and unsecured lending. Importantly, underlying credit performance remained strong with an NPL ratio of just 1%. On slide nine, the Retail & SME segment delivered net profit of EUR 280 million, a return on tangible common equity of 35.8%. Pre-provision profits amounted to EUR 379 million, 4% higher than the previous quarter. Risk costs amounted to EUR 75 million or 77 basis points, driven by the asset mix change, while credit quality remained solid with an NPL ratio of 1.6%.
We expect continued growth across the franchise. On Corporates, Real Estate & Public Sector, the segment delivered net profit of EUR 35 million, with a return on tangible common equity of 23.2%. We saw more redemptions in the quarter, but our focus remains unchanged on disciplined underwriting and risk-adjusted returns. Finally, on slide 10, we are entering the last quarter of the year.
Profitability remains robust, capital generation continues to be strong, asset quality is resilient, and we remain on track to deliver our 2026 targets while preparing for the next phase of growth through the planned acquisition of PTSB. As mentioned earlier, we will provide updated midterm targets with our full-year results in February. With that operator, let's open the call for Q&A. Thank you.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to the first question. One moment, please. Your first question today comes from the line of Gulnara Saitkulova from Morgan Stanley. Please go ahead.
Hi. Good morning. Thank you for presentation, and thank you for taking my questions. The first question on the deposit momentum and NII. Can you please unpack the key drivers behind the deposit outflows, with the Corporates, Real Estate & Public Sector down 26% year-on-year and Retail & SME down 2%? Where are you seeing the most intense competition across products and geographies for the deposits? Looking ahead, where do you expect the deposit volumes to stabilize by segment? How should we think about the pricing trends across key products?
Related to that, to what extent can the shift towards high-yielding lending offset funding pressures and support NII growth? When should we expect the benefits from this asset mix shift to become visible in NII? The second question on risk-weighted assets. How should we think about the risk-weighted assets growth relative to organic growth going forward, particularly as the portfolio shifts towards high-risk assets? Do you expect the resulting capital headwinds to persist going forward? What levers could you pull to mitigate the impact on capital generation? Thank you.
Okay, great. Hi, Gulnara. That was a lot to digest. Enver?
Yeah, let me take the first piece. I think you asked about the deposits momentum, the outflows. So more of the same that we have seen in the past. It is mainly two products. One is the online German deposit business. We decided a few quarters ago not to compete in the market because we think it is overpriced, and we are still seeing outflows in that segment. The second one is the Austrian public sector deposit base, where the competition comes from the Austrian Bundesschatz, so the government offer, which is again, bulk and that is why we decided not to compete.
But all the other franchises, all the other deposits are quite stable or growing. You ask about stabilization. Well, I think once that normalizes, but we see already lower outflows compared to the prior quarters in that segment. I think the second block of questions was about asset growth, I guess, and also RWAs. There was just Yeah. Is that right, Gulnara?
Yes, correct. If you look about the moving parts of NII—
Yeah.
—to what extent the shift towards high-yielding lending to unsecured lending can offset these funding pressures and support the growth.
Yeah. I think on the consumer SME side, we'll see that trend continuing. It was quite stable over the last couple of quarters. What is harder to predict is mortgages. We did expect more growth this year, but competition was really very intense in terms of pricing levels. That's why we stayed very patient, and that's why you see a small decline there. Also in Q3, we had more redemptions in the non-retail segment, especially on the real estate. Again, it depends on the overall market. For us, nothing changes. We will be disciplined and will not chase volumes in a particular quarter, but more a look at it from a long-term perspective.
When it comes to risk-weighted assets?
Well, it will grow in line with the asset development. The only thing that we have not disclosed is obviously that we are working on different measures, including SRTs, to potentially offset these.
You don't expect these headwinds to persist going forward, that they had the 30 basis points headwind that we saw from the mix shift. You expect this to phase out, essentially, to not persist going forward?
No, it's the same. As long as we have that asset mix change, you will see high front book RWA density, obviously, given the mix of the assets. The only thing I said is we will work on different measures to offset that RWA growth, and that's not reflecting Q3 and might be different in the coming quarters.
Thank you.
Thank you. Your next question today comes from the line of Amit Ranjan from JP Morgan. Please go ahead.
Yes, hi, good morning, and thank you for taking my questions. I have two, please. The first one is on risk costs. How should we think about the 50 basis points outlook for 2026? You have 56 basis points during the quarter, 52 basis points year- to- date. Can you talk about the drivers here? I think you mentioned solid underlying trends. Anything that you can give split between asset growth and stage three coverage provision-based. The second one is on cost. You are running well ahead. Should we expect this trend to continue? Anything seasonal that we should keep in mind for Q4 that could drive the number higher, please? Thank you.
Thanks, Amit. On the risk of outlook, pretty much the same answer as I gave to Gulnara is, as long as we see that asset mix change going on, you will see high risk cost ratio. What is hard to predict is the redemption profile. If you see earlier redemptions than expected, as well as the mortgage growth, which was more muted than what we expected, which then becomes a technical thing of a denominator. If you then look at the risk cost ratio, it might be a bit elevated. I think we are still confident that we will be around the 50 basis points for the full year. On OpEx, yeah, I think trend is very obvious. Q3 lower than Q2. It should be quite stable for Q4, I would assume. We don't expect any one-offs or any seasonal effects for Q4.
Okay. Thank you.
Thank you. Your next question today comes from the line of Máté Nemes from UBS. Please go ahead.
Yes, good morning, and thank you for taking my questions. Two of these, please. The first one would be on your cash balances. I was just wondering if you could update us on potential deployment of cash into higher yielding securities. I think you've been feeling uncomfortable with the spread environment. Now they've seen some spread widening, clearly. Any updated thoughts on that?
What's holding you back? What can hold you back from larger deployment going forward? The second would be just a quick update on your lending pipeline on non-retail. I hear you, it's hard to predict redemptions or repayments. But if you could just talk a little bit about opportunities, particularly in corporate lending and also perhaps in real estate, what you're seeing in the market at the moment. Thank you.
All right. Thanks, Máté. Cash deployment. We are seeing the spreads starting to widen across certain asset classes. Obviously, sovereign, I think is first and foremost, which we have almost no exposure. It's pretty de minimis, under 1%. But that's been the case for a number of years. I think we'll be patient. There's a lot going on. We see some areas that we think could be attractive, but we're going to be disciplined and patient and just assess the overall market as we think risk is repricing generally across the board. That's something, hopefully, we'll be able to be the beneficiaries of as we've been patient for a number of years now.
Then on the non-retail, I think that's a good question. The reality is you see a pipeline build up. In those times, you see pretty fast redemptions that are unexpected, and that's one that we just got to be patient. We're not going to manage it by quarter in terms of volume growth. We feel pretty good about the pipeline that we have going into the end of the year. But that's just cyclical. To be quite frank, it's hard to pinpoint in any given quarter, let alone, I guess, across the whole year or so. But we'll be patient. We see some good opportunities, but we're never going to chase anything for the sake of volume growth. Thanks, Máté .
Thank you.
Thank you. Your next question today comes from the line of Gabor Kemeny from Autonomous Research. Please go ahead.
Yeah. Morning. Firstly on the NII outlook, please. I know you commented on the deposit flows. How much competitive pressure do you see on deposit spreads? Looking at your NII sensitivity guidance, I guess, how much kind of offset can we possibly assume from deposit spreads drifting a bit from the current levels, limiting the upside from higher rates? That's the first one. Secondly, coming back to costs. You keep beating on consensus and on expectations. Can you comment on what levers have you found to improve the cost efficiency? Is this kind of fully in line with your budget, or are there any trends which have been more supportive than you assumed initially? Thank you.
Yeah. Gabor, on deposit competition, I mentioned the two examples. We have seen quite an intense market in Germany, especially for the online deposits as well as the Bundesschatz offer in Austria. Overall, we would assume that the competition will pick up. If you look at it differently, what we have seen early days is not so much the deposit pricing that has picked up, other than few offers that we see in the market. But it translated into much higher mortgage pricing intensity. The mortgage spreads dropped significantly over the last couple of months, which we think is a reflection of the higher deposit margins that we see on the other side. But going forward, yes, we would expect more intense competition in the market overall.
I will just say on the cost side, Gabor, I would say it is no different than how we have approached it over the past decade now that we have been a public company. It is every quarter, you try to strive for just getting a little bit better, and we talk about continuous improvement. There is no silver bullets. It is not AI, which I think is a bit of a cliché. AI is an enabler, just like every other technological improvement that has happened that we have seen. So I think the key is being disciplined.
The approach in terms of taking an absolute cost focus as opposed to just looking at cost income ratio. There is a lot of things that impact the denominator and the cost income ratio. So yeah, just more of the same and being very disciplined. We are starting to see more broadly the benefits of a scalable platform. When you really understand your technology stack, what we call technology operations or tech ops, I think that makes a real difference in being able to control that technology when you insource as opposed to relying on third parties. That is something that I think has been consistent over the years.
Interesting. Thank you.
Thank you. Your next question today comes from the line of Jordan Bartlam from Mediobanca. Please go ahead.
Good morning, and thanks for the questions. One firstly on other income or fees specifically. The fees and commissions was flat on the last quarter, and you're continuing to guide for a stable development for the rest of the year. Just curious what's causing that line not to grow more from here. The advisory type revenues seem like they should be growing a bit quicker.
I think the track record there has been pretty stellar. Why is this not really translating to more growth? That would be my first question. Secondly, on the cost side again, you flagged a few of the drivers. I just wonder how much more we could expect in terms of cost synergies from the Knab and Barclays deals. Are they largely done at this stage? Those are my two questions. Thank you.
Yeah. Let me just take the cost, and then we'll address your other question. Jordan, it's not so much any one particular acquisition. We look at it at a group level. That's how we manage things centrally. It's hard to pinpoint to any particular entity or acquisition. It's just part of your continuous improvement cycle. I think that's a competitive advantage that we look at things centrally, and we try to manage, in terms of the overall platform.
I mentioned the tech ops, but it also is in the central functions. Commercially, obviously, that's more local in terms of customer-facing roles, but I think there's still quite a bit to do on this front. Technology is like the greatest enabler, right? Coupled with having a centrally steered business, I think is a competitive advantage. Enver?
Yes, Jordan, on the fee income question. In reality, we were ahead of plan in the first three quarters, especially Q3 and Q2 were stronger than what we expected. So keeping it stable is actually above what we initially forecasted for the fee income. That's the main reason. The second reason is just given the seasonality of it, certain fee lines are cut off basically before Christmas. If you think about advisory and the likes. There's that seasonal effect, and again, we are ahead of plan on the overall line. That's why we think being stable in Q4 is actually a strong outcome.
Thank you.
Thank you. Your next question comes from the line of Jovan Sikimić from ODDO BHF. Please go ahead.
Yes, good morning. Thanks a lot for the call. Maybe at this stage, if you could provide, what is your rate outlook for the next quarters? And of course, in kind of, let us say, combination with organic loan growth outlook, where would you see actually NII trajectory going into 2027? Of course, I am now talking a bit including PTSB. And I think it is also, I think somebody asked in the call about what is the likelihood of deploying cash into high-yielding security. So overall, where would you see, let us say, on current run rate of NII improving next year or not? Thanks.
Yeah. Thanks, Jovan. I do not want to start talking about next year's forecast, but I think I can provide some guidance how we think about it. We do not have a rate opinion, so we try to be very neutral in terms of our positioning. But the underlying franchise obviously has a rate sensitivity as we have disclosed it, especially on the deposit side. So I think if you go through the main drivers, obviously the positives are higher rates, higher sensitivity, higher deposit margin. That is something that we will expect to see in Q4 but also going into 2027.
The asset mix change on unsecured consumer and SME is a positive driver. And that is also reflected in the prior quarters. I would say on the more cautious side, I think competition deposits will pick up. So that will add, obviously, to the deposit beta. They should go up. The other thing is, not so much, it doesn't matter so much in the short term, but we see obviously very intense pricing on the mortgage side, and that's why loans have been low. So there's a mix. I think overall it's a positive trend that will continue, but there are a couple of things that we need to look out for.
Okay. Very helpful. Thanks a lot.
Thank you. Your next question comes from the line of Domenico Maggio from Jefferies. Please go ahead.
Hello, good morning. One on credit, if I may. So you have this—
Yes.
Hi. You have this very useful slide on MREL, where you basically mentioned that you intend to have a single point of entry with PTSB, and that you expect existing MREL resources to still count during a transitional period. I just wanted to check with you, is the transitional period basically 2027? From end of the year 2027, you'll basically get a requirement for the combined entity, and therefore the existing MREL from PTSB will not count in 2028?
Yeah. Thank you, Domenico. We are not in a position to disclose that yet. We'll disclose it as soon as we have it, and we'll make it public.
Okay. Capital is AT1 and Tier Two are still expected to count. Is that correct? On the slide you just touch on MREL. Just wanted to make sure that there are no nuances between the two.
No.
Is there a transitional period also for capital?
No. Previously we already did capital on a group level, and MREL was done at the opco level, and that is going to migrate to group level. I think that is the reason why.
Okay, so no transitional period for AT1 and Tier Two?
No, I would not assume that.
They would still count. Okay. Thank you.
Thank you.
Cool.
Your next question comes from the line of Jeremy Sigee from BNP Paribas. Please go ahead.
Morning. Thank you. Could you just come back onto any areas of organic growth where you see attractive opportunities? Could you just talk a little bit more about that? Perhaps linked to that or perhaps not, I do not know. What opportunities do you see in the U.S. market at the moment? You emphasize your identity now as a Pan-European and U.S. banking group. I just wonder what that sort of second part of it means at this point in time, where you see opportunities to do good business in the U.S.
Thanks, Jeremy. We have been in the U.S. market for, 15 years, so this was not a recent development. Just more broadly to your question, or specifically to your question around opportunities. I think Enver touched on it. The one area that is the most challenged is mortgage volumes. Not so much from a volume standpoint, right? People are lending out there. It is just from a spread standpoint, it is pretty anemic. We will be patient. We will stick to our credit box. Consumer and SME, whether it is credit cards, consumer loans, specialty finance, that has actually gone pretty well, I think better than expected this year.
So that has been an interesting dynamic or interplay between mortgages and kind of non-mortgages in the Retail & SME. On the Corporates, Real Estate & Public Sector, real estate has been the one that has been the most volatile. We've had, I'd say, unusually high redemptions this particular year. But we have a good pipeline. Not to front run, but we think hopefully that should materialize in the fourth quarter. Then in the Corporates, it's a tough slog in terms of just where corporate lending's at.
That's a lot of volume that we don't see really attractive spreads at the moment. In public sector, we'll see how things reprice, given just the developments more broadly. But AI has been a big area of focus for a lot of banks and private credit platforms. We don't have any exposure there. That's something that we've just never been able to get our hands around, to be quite honest. So we'll be patient. We see some good opportunities.
Thanks. The U.S. bit, obviously, I'm aware you've been there for a while. It's just whether there's any growth opportunities, whether that's a better place to deploy capital at this point.
I think on the commercial real estate front, particularly when you think about resi, industrial, even some idiosyncratic office opportunities. I think the U.S. is pretty attractive. But also the U.S. is where we've seen the highest redemptions, Jeremy. So it's interesting in the market. We'll be patient, but we see pretty good opportunities. Question is, will they materialize?
Okay. Understood. Thanks very much.
Thank you.
Thank you. That was our final question for today. I will now hand the call back to Anas Abuzaakouk, CEO, for closing remarks.
Thank you, operator. Thank you, everyone, for joining this morning. We look forward to being in touch in the coming weeks, in the coming months, and at year-end, if we don't speak before. Take care. Have a nice day.
Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.