Piraeus Financial Holdings S.A. ( OTCPK: BPIRY) Q1 2023 Profits Teleconference Might 5, 2023 8:00 AM ET
Business Individuals
Christos Megalou – President
Theo Gnardellis – Chief Financial Officer
Teleconference Individuals
Iqbal Nida – Morgan Stanley
Butkov Mikhail – Goldman Sachs
Memisoglu Osman – Ambrosia Capital
David Daniel – Autonomous Research Study
Gerstenkorn Maximilian – Jefferies
Operator
Ladies and gentlemen, thank you for waiting. I’m Poppy your Chorus Call operator. Invite and thank you for signing up with, the Piraeus Financial Holdings Teleconference and Live Webcast to provide and go over Piraeus First Quarter 2023 Financial Outcomes. All individuals will remain in a listen-only mode and the conference is being tape-recorded. The discussion will be followed by a question-and-answer session. [Operator Instructions]
At this time, I want to turn the conference over to Piraeus Financial Holding CEO, Mr. Christos Megalou. Mr. Megalou, you might now continue.
Christos Megalou
Great afternoon. Ladies and gentlemen, and welcome to today’s teleconference on our very first quarter 2023 monetary outcomes. This is Christos Megalou, President and I’m signed up with today by our CFO, Theo Gnardellis, and by [Indiscernible].
2023 began on a strong foot for Piraeus Bank. The strength of our industrial franchise is launching the bank’s prospective and the effective management of our balance sheet is providing strong outcomes. In the very first quarter, we continued to develop sustainable and growing success. Our constant development throughout all functional KPIs is shown on slide 5. Success, performance, property quality, capital adequacy, all revealed enhancement in the very first quarter of the year.
On slide 6, we report the highlights of our quarter one efficiency. We created stabilized revenues per share of EUR0.15. We produced a return typically concrete book of 13%. Both EPS and return on concrete book run ahead of full-year 2023 assistance offered in late January. We provided 24% net profits development each year. On the back of a 56% net interest earnings boost and a 15% net charge earnings development. We tape-recorded best-in-class expense to core earnings ratio of 36%. We decreased our NPE ratio to 6.6%. We increased our NPE protection to 55% and we even more enhanced our capital position by 60 basis points in the quarter reaching a CET1 ratio of 12.2% and an overall capital of 17%.
I am happy that since the very first quarter of this year, we remain in a position to accumulate for a 10% circulation in our capital figures. This leads the way for our goal to disperse to our investors out of 2023 earnings topic naturally to the achievement of our targets and supervisory authorization.
In the following slides, we provide the development tape-recorded in principles. Slides 8 to 10 download all the info concerning net interest earnings intrinsics’. Our loan pass-throughs are trending at 70% to 75%, while our deposit beta is amongst the most affordable in the European area at 10% at the end of March. Net interest margin stood at 2.4% In addition, our expense containment efforts continue unabated, in spite of the inflationary difficulties. We are drawing out any staying inadequacies from our company, while purchasing changing and reinforcing our bank for the future. The strength of our functional performance is displayed in the best-in-class 36% cost-to-income ratio as revealed on slide 12.
Slide 13 supplies a summary of our property quality signs. This is the 7th successive quarter of unfavorable NPE development, and the 6th quarter of listed below a 100 basis points natural expense of danger. Our NPE ratio dropped to 6.6% from 13% a year earlier, and our NPE protection is now at 55% above the European average of 50%. Piraeus has strong liquidity profile. Our deposit base is granular, steady and of high quality. Our liquidity ratios are all strong as evidenced by the 220% liquidity protection ratio and the 62% loan-to-deposit ratio both on top percentile in the European area. These exist on slides 14 and 15.
On slide 16, we provide the quarterly motion of carrying out loans and deposits. Beginning aside early year seasonality, the Group’s carrying out loan portfolio grew 8% each year and there is a strong pipeline of company tasks for this year, consisting of RRF sponsored strategies where Piraeus has actually currently carried out the 4th tranche leveraging EUR1 billion funding. On top, we have had an extremely strong begin in the freshly introduced program, My House, co-sponsored by the Greek State and the Greek banks for which Piraeus Bank has actually presently gotten more than 40% or 10,000 out of overall market applications.
Likewise, our deposits have actually grown by 4% or more than EUR2 billion each year. The very first quarter of the year, we experienced both seasonality, along with an extremely strong property management items efficiency.
I’m closing our efficiency analysis with a capital base upon slide 17. Organic capital develop, got speed with 60 basis points increase in quarter one, all natural. At end March, Piraeus was at 17% overall capital ratio, conveniently above requirements and supervisory assistance. Our strong monetary efficiency and the encouraging macro environment places us to exceed our 2023 targets. We for that reason update our 2023 assistance and we likewise offer upgraded 2025 monetary aspirations together with essential underlying presumptions. All the appropriate information can be discovered on slides 20 to 22.
For 2023, we now target a 12% return on concrete book versus 10% formerly or EUR0.55 revenues per share versus EUR0.45 formerly. Net interest margin is anticipated to be above 2.2% this year. We likewise update our NPE ratio target for the year to roughly 5% from listed below 6% formerly. For 2025, we target above EUR0.65 revenues per share, 12% return, 3% NPE ratio and 14.5% CET1 ratio post-distribution to investors.
Lastly, we are happy to be the only Greek business to be consisted of for the 3rd successive year in the Financial Times list of Europe’s environment leaders in 2023. Our energy shift company lines will be more broadened and I will remain in a position to go over more on this front in the following months.
And with that, let’s open the flooring to take any concerns you might have.
Question-and-Answer Session
Operator
Ladies and gentlemen, at this time we will start the question-and-answer session. [Operator Instructions] The very first concern originates from the line of Iqbal Nida with Morgan Stanley. Please proceed.
Iqbal Nida
Hi, thank you quite for journalism discussion and the strong set of outcomes. My very first concern is on the NIM growth, it’s continued rather perfectly this quarter, deposit betas were low. Can you speak about your expectations moving forward for deposit betas and likewise loan pass-through. I see that there hasn’t been much repricing on the unsecured portfolio?
Second of all, the property quality, you understand, plainly, the unfavorable NPE development is extremely remarkable. However with rates of interest increasing, what are the dangers that you see? Exist any particular sectors you’re keeping track of or you understand, any color on the property quality side would be fantastic. And after that lastly, on the 2025 RoTE assistance of 12%. Can we much better comprehend what the rate of interest presumptions are here, please? Thank you.
Theo Gnardellis
Hi, Nida. So you got 3 concerns. Initially one, our net interest margin and how that’s prepared to progress. The truth is that we are delighting in today an extremely low deposit beta of approximately 9%. The exit run rate of the quarter is around 10%. And the assistance that we’re providing is based upon ’17. So the existing strategy presumes that throughout the year, we will continue to have a pass-through of about 50% on time table, it’s still 40% presently. Which the mix of TD is going to alter from the existing around 20%, 21% to near to 40% by the end of the year.
There is some upside danger there, since as the Q2 develops this mix shift, which based on strategy ought to currently be occurring is not occurring as strongly. So there is a little bit of upside there, however I believe we’ll have the ability to talk more after Q2 outcomes. The loan pass-through once again presently at 75%. The presumption on the NIM is that this will be around 55%. The– what you see there in regards to lowered pass-through on the unsecured front is deliberate. The unsecured book is mostly non-durable based, is admin rate-based. And we have actually decided not to be increasing these admin rates, especially to enable debtors to continue servicing their financial obligation and to prevent inflows.
And thus this well observed lowered pass-through. However in general the pass-through is presently at 75% versus the budget plan at 55%. So– however then on that more in Q2 as spread pressure, we do anticipate to be occurring in the market.
2nd concern was around property quality, I believe in regards to inflow danger. Yes, so certainly, as you see today from the impact of Q1, absolutely nothing specific going on. We are keeping track of the book throughout huge and smaller sized direct exposures, along with keeping track of positive KPIs on the retail front. The circulation rates on the early pails are still– they do not mention risk. However we do have– we have actually proactive relocations done. You’re all familiar with the cap rate troubled home loans, along with other proactive directions would want to do even if that developed some Phase 2 inflation throughout the year to prevent the inflow.
So I would state things once again much better than what the strategy presently suggests. To the RoTE 12% in 2025, that is based upon a dropping NIM and which is once again driven by a dropping the 5%, the presumption is 2% for the deposit center rate of the euro. And typically the strategy presumes a peak of 3.25%, which we have actually simply seen take place which to be sustained throughout 2023. And begin seeing the build-up since early 2024 to reach a dominating 2% in 2025.
Iqbal Nida
Thank you quite, [Indiscernible]
Operator
The next concern originates from the line of Bhotkov Mahari with Goldman Sachs. Please proceed.
Butkov Mikhail
Great day. Thank you quite for the discussion and congratulations on the strong outcomes. My very first concern is on healthy on the financing and liquidity position. So you have rather great enhancement in the financing over the in 2015 and previous quarters and your loan to deposit ratio had actually been reduced and now it stands at 62% ratio. So what is the ideal loan to deposit ratio? Do you see over the medium term? And likewise what’s your method to assign the excess liquidity particularly in between the realty repaired earnings and the other sources, so that’s the very first concern.
And the 2nd concern is on dividend. So you have a dividend accrual of 10%. Is this the level of payment you budget plan for revenues for the year 2023 or in fact it is subject for some more modifications and increases throughout the year? And when you think of the future years, what level of dividend payment do you budget plan in 2024, 2025? Thank you.
Theo Gnardellis
Hi, Mikhail. So in regards to liquidity, certainly since of its witness in deposits, Piraeus is now delighting in an extremely liquid position and they’re resulting strong NIM. Likewise by the truth that it’s a money favorable bank. Even post TLTRO today by about EUR3 billion. Our extensive targets, provided the truth that we are tactically located specifically in Greece is to support the loan growth of the nation. So we are releasing the liquidity that we have actually entered broadening the credit swimming pool.
There will be some growth on securities also, extremely, extremely targeted on a NIM play especially. However I would state if one was to take a look at regarding how the balance sheet is going to develop, it is going to develop broadening deposits from intrinsics and from protecting the marketplace share that we have actually got on deposits and after that releasing, I would state two-thirds of that into loans for a steady, sort of, 65% LDR throughout the approaching duration.
Christos Megalou
And Mikhail, on the dividend concern. Firstly we have actually developed the circulation policy, which was authorized by our board for dividends 10% of the 2023 outcomes is possibly being accumulated which’s our goal for 2023. This totals up to EUR18 million, the real circulation either by method of dividend or by method of buyback, naturally, undergoes supervisory approval post last 2023 monetary outcomes. Since the method we are taking a look at dividend circulation moving forward, we are intending to be at let’s state 10% as I stated, based on supervisory approval by 23% and after that intending to increase it by 15% and 25% in the years to come. This is what is embedded in our forecasts.
Butkov Mikhail
Okay. Thank you quite. And as a little follow-up and information here. The discussion mentions capital circulations and you likewise mentioned the buybacks. When you think of buybacks, can it be likewise possibly broadened to the buybacks from the tactical investors or it– you speak here about the circulations to the minority investors? Thank you.
Christos Megalou
We are speaking about circulation to all investors, not particularly directed buyback.
Butkov Mikhail
Okay. Okay. Thank you quite. It’s extremely handy.
Operator
The next concern originates from the line of Memisoglu Osman with Ambrosia Capital. Please proceed.
Memisoglu Osman
Hi, Manny, thanks for your time and congrats on the outcomes. Couple on my side please, initially one and more on a tactical basis with the ’24 and ’25 determine there. How are you thinking of spread– loan spread development? Are you budgeting any spread healing in ’24 and ’25 considered that yields are anticipated to decrease, your budgeting decreases. That’s the very first one.
2nd one, charge generation continues to be rather strong, remarkable especially card charges increased Q-on-Q, in spite of the seasonal downturn loans boiling down a little. So I wonder to hear your ideas on that front?
And the 3rd one on expense of danger provided rather large unfavorable development and you’re seeing comparable pattern seems like in Q2. Could you provide us any color on quarterly development? How you anticipate it to trend? And for ’24, what does that turn consist of in regards to expense of danger? Thank you.
Theo Gnardellis
Hi, Osman. Well, your very first concern is around spread healing. Presuming naturally, there’s spread compression or continued spread compression, I would state in 2023. Page 21 where we’re revealing the assistance for the NII. You’re seeing their loan pass-through in ’24 and ’25 of 90% and 100%. When the rates drop, that generally indicates that there is no healing. That whole decrease is baked into completion yield. So there is no presumption on spread healing. Our company believe that whatever spread compression happens this year increasing rates of interest exists to remain likewise taking into consideration the delta that spreads out in Greece have versus other European jurisdictions. And provided the truth that the economy is headed to financial investment grade. So the market is sensible to presume that the ending spreads the exit of 2023 is sort of a terminal scenario when it pertains to the Greek spreads.
To your concern about charges. Yes, the charges are right now around 65 basis points over properties. And we are taking those to 80 basis points in the assistance for 2025. The truth is that there are specific relocations that will make this modification. In both the boosted credit growth that we are anticipating in the nation, along with all the older efforts that are occurring on property management, rental earnings development, and other sort of charge creating efforts that we are preparing.
So, let’s simply state, it’s an excellent 65 basis points near to the great practices of Europe. However still with space to break, I would state, the very best practices, which are mostly strong property management homes throughout the continent. To the quarterly development of expense of danger and to the expectation of 2024. Expense of danger today is around 80 basis points and it has actually been 80 basis points for numerous quarters now. Not validated by the unfavorable development, however let’s simply state we are utilizing these existing quarters to likewise take some more conservative technique on specific direct exposure, increasing our protection, protecting likewise our capital.
We– the assistance still holds for 1.2% for 2023. We will see– and in Q2 once again things still look calm. It is an election quarter, not that this will suggests anything in regards to property quality or we anticipate it to. However let’s simply state we will have the ability to see what will take place in 2023 after the Q2 outcome. In the Q2 outcome, we will see whether the run rate remains at 80 basis points. And if so, how we release this advantage, this capital advantage of 2023 into an additional clean-up or boosted CET1 or other efforts.
And 2024 has practically the run rate that we’re seeing today in between 80 basis points and 90 basis points and as we are revealing 25% or 70% on the back of the danger balance sheet.
Memisoglu Osman
Perfect. Thank you.
Operator
The next concern originates from the line of David Daniel with Autonomous Research Study. Please proceed.
David Daniel
Great afternoon and congratulations on the outcomes and thanks for taking my concerns. I have actually got 2. The very first one is simply on capital, if I take a look at overall capital and where you’re assisting to at the end of the year and likewise just how much capital you’re accreting? I’m simply interested to hear what the headwinds remain in that flight course? If you simply describe simply what you believe is to come to the year-end target, that would be fascinating.
And after that simply on MREL, can you talk us through your thinking for deals for this year? I understand likewise that you’ve got Tier 2 contact June 24, could we see anything in the Tier 2 market this year or is up next year’s issue? Interest to hear your ideas? Thanks.
Theo Gnardellis
Yes, so in regards to capital, what you’re generally asking, Dan, I believe is you people did a 60 basis point trek in one quarter and you’re informing us that you’re going to develop something above 30 basis points in the rest 3, so what’s going on, it’s rather simple.
The natural capital the P&O will continue practically of the rates that we’re seeing today. There is a bit of downturn, since of increased deposit expense in the last 2 quarters of the year, however basically one can presume that the numerator of the capital is going to be naturally boosted at the exact same speed. That being stated, we– there’s an RWA concern that will originate from the growth that will conserve off, let’s state, if the P&L contributes what we anticipated of around 200 basis points and 50 basis points of that is going to be development, right, so RWA usage. Which gets you to a 150 natural develop, then we have one-offs of about 70 basis points that involve both voluntary exit programs that are prepared for the ongoing FTE decrease of the bank, along with some allocated clean-up expenses that involve more actions we are handling the NPE front.
And after that the rest, I would state is for dividend and other capital reductions that we will be doing. So I would state, thus practically the reconciliation in between the 12.2% and what we are stating to be above 12.5%, certainly, the design has a larger number than 12.5%, we can presently likewise safely provide these assistance.
On MREL, yes, there’s a single deal prepared for the year, we’re presently at 99%. We were pursuing a target of 21.8% for completion of this year. The capital that we develop with the strategy that we have actually solved now. We’re taking a look at the deal as much as EUR500 million to take place at some time within the year. At– I would state, existing level expenses, that’s what the NII presumes. On Tier 2, all of us understand the advantages and disadvantages of action in the Tier 2 market, however yes, we can state that this is next year’s activity.
David Daniel
Thank you quite.
Operator
The next concern originates from the line of Gerstenkorn Maximilian with Jefferies. Please proceed.
Gerstenkorn Maximilian
2 fast ones from me. One on capital, I believe in your discussion you mentioned the possibility of a velocity in the DTC amortization possibly, you could simply provide us a couple of more information on that one? And after that my 2nd concern, you have actually stated you have actually been proactive there’s been the freeze on the home mortgage rates for that program. I was questioning if you could measure that effect a bit? So possibly simply taking a look at the couple of backup of the envelope computations, it appears like the NII foregoing at the Q1 2023 repricing might be looking something like an extremely high-single-digit million number, possibly extremely low-double-digit number, possibly you might provide us a couple of more information on. NII foregoing since of those actions. Thank you.
Theo Gnardellis
Right, so beginning with the effect of the home mortgage cap. We have cap home loans at the referral rate of the 31st of March minus-20 basis points. The whole book, well, most of the home mortgage book of Piraeus Bank is pricing at one month Euribor. Simply for you to comprehend that generally indicates a reliable 2.72% cap, while we were pricing at around 2.5% recently. So there is a bit of a lag time till we reach the cap. Clearly, the one month Euribor today is greater than 2.72%. So there is an effect from the cap currently there that we are measuring this versus our predicted Euribor, not the existing level, however the predicted, which has a bit of area to increase still, around EUR15 million, that EUR15 million is baked into our forecast in our assistance for NII. And we can state that it is much lower to the prospective advantage that we are seeing from the development of the deposit front.
On capital, yes, we have actually taken a technique where provided the truth that the capital was not the bank has actually enormously recuperated and continues to develop extremely healthy buffers to a minimum of possibly speed up the DTC amortization beyond what the tax law would enable us to do. So for that reason, we are now taking the technique where we’re doing a direct amortization on a prudential front of something more than EUR130 million for loans and another EUR55 million on [PSI] (ph) overall of around EUR190 million in overall.
So let’s simply state whatever tax law would enable us to do, we’re going to do it in the P&L. However if there’s a recurring charge to reach the EUR190 million we will be subtracting from CET1, that method we can provide a steady amortization profile on the DTC versus CET1 with a target to reach a ratio DTC over CET1 of 50% by the end of 2025.
Gerstenkorn Maximilian
Alright, exceptional. Thank you.
Theo Gnardellis
Great.
Operator
[Operator Instructions] Ladies and gentlemen, there are no more concerns at this time. I will now turn the conference over to Mr. Megalou for any closing remarks. Thank you.
Christos Megalou
Thank you all for taking part in our very first quarter 2023 results teleconference. We eagerly anticipate going over with you all physically or essentially throughout our financier outreach program. Have all a relaxing weekend and for all the associates in the U.K., a terrific crowning weekend. Thank you quite.
Operator
Ladies and gentlemen, the conference is now concluded and you might detach your telephone. Thank you for calling and have an excellent afternoon.