Bank of Cyprus Holdings Public Limited Company (BOCH) Earnings Call Transcript & Summary

[Foreign Language] Dear shareholders and distinguished guests. I'm pleased to welcome you to the eighth Annual General Meeting of Bank of Cyprus Holding Public Limited Company, marking the 125th Anniversary of the Bank of Cyprus Group. On behalf of the Board of Directors, I would like to thank you for joining us today and we ask you for your cooperation in transacting the business of this general meeting. The group's CEO, CFO, other Board members and our internal and external legal counsel are at your disposal to address any questions. [Foreign Language] As required by the bank's Articles of Association asked the Company Secretary, Ms. Katia Santis, to confirm quorum and to announce the participation figures.

Just waiting for the figures to come through. I can now announce that 22 shareholders attend today's meeting, either in-person or via proxies. This corresponds to 47.51% -- 42% registered attendees attend today's meeting, representing 47.51% of the shareholding capital of the company. This corresponds to 211,825,248 shares. Before we proceed with today's business, we would like you to watch a short video, celebrating the 125th Anniversary of the Group. [Presentation]

I'd like to invite both the Chairman, the CEO to address in turns the shareholders. I also note that both the speeches can be found on the company's website.

And dear shareholders, 2023 was a milestone year for Bank of Cyprus as it reestablished itself as a well-capitalized, diversified and sustainably profitable financial services group. The year was characterized by the bank's strong operational and financial performance, on which I'll come back later. As if COVID-19 and the war in the Ukraine were not enough to dramatically destabilize piece and the world order, 2023 saw the outbreak of the Israel-Gaza war, which added to the world's continued military conflicts and to the severe humanitarian and economic challenges. In Cyprus, as we all reflect on 50 years since the Turkish invasion, and the start of the illegal occupation of the north of the island, we know only too well, the devastating and long-lasting consequences of war. At the same time, global inflationary pressures following years of very accommodative recovery policies by central banks, the world over, and stock by war driven higher energy prices in 2021 and 2022. As well as the breaking up of global supply chains continue to persist in 2023, forcing central banks to maintain interest rates at higher levels, although they are now considered to have peaked. With growth and inflation starting to show signs of a slowdown in key economies, markets expect interest rates to begin a gradual decline, although not necessarily in tandem globally. Europe is more likely to lead the way, starting from later in 2024 with the United States following later due to continued resilient inflationary pressures in the wages and consumer prices fronts. The global economy looks like it needs more time than we thought to absorb the years of [ QE ] and to deal with the current geopolitical shocks. In this turbulent global environment with broad negative socioeconomic impact, the Cyprus economy once again demonstrated resilience, and posted a higher-than-average economic growth rate of 2.5% in 2023, although yesterday, we heard that the first quarter of the year -- this year is running at 3.4%, with inflation reducing to 2% and a debt-to-equity ratio well below 100%, enabling the country to continue to maintain comfortably its investment-grade rating. For Bank of Cyprus, 2023 was a year, during which, we fully reap the benefits of the bank's transformation into a well-capitalized group with a strong, very diversified business model after many years of severe restructuring. We have improved our operating models and processes, focused on compliance and governance and reinforced our ESG initiatives, while continuing to deliver our digital transformation program, benefiting our customers and the bank's operational efficiencies. Our record financial results in 2023 were clearly boosted by the prevailing higher interest rates. However, this should not detract from the tremendous progress made in lowering costs, increasing net interest income -- noninterest income, disciplined risk management and effective controls. It is for these reasons that we believe that Bank of Cyprus can continue to maintain sustainable profitability even after interest rates reach a lower, more normalized levels. Continuous constructive communication with our regulators has had the great benefit of enhancing compliance and governance standards to a much higher level. At the same time, our focus in communicating regularly with our shareholders has broadened the market's awareness of and appreciation for our outstanding operational performance, which resulted in a steadily increasing interest for our shares by a broader range of investors. I'm proud that in 2024, as we celebrate 125 years for the bank, the Group is well positioned to continue delivering shareholder value, while supporting its customers, the Cypriot society and the growth of the Cypriot economy. As the leading financial institution in the country, Bank of Cyprus is the bank of all Cypriots. As per the ancient bronze coin with the inscription [ Koinokynpiwn ], which is the bank's Emblem. On behalf of all the members of our Board of Directors, I wish to congratulate once again our CEO, Panicos Nicolaou, his executive team, and all the employees of the group for the unprecedented commitment and successful execution of our strategy. The Board has now put in place in line with relevant regulatory guidance of full long-term incentive plan for eligible employees and the short-term incentive plan open to all employees, allocated to those who qualify on the basis of the rules of the scheme to express tangibly our recognition and acknowledgment of the superior efforts over many years and to ensure that these will continue. These rewards recognize our solid financial results, but more importantly, I think they recognize the success in developing a strong corporate culture combining ethical behavior, teamwork, best-in-class customer service and pride in working for Bank of Cyprus, the largest employer and truly the employer of choice on the island. Lastly, I wish to thank all my fellow board members for their insightfulness, positive attitude and valuable contribution to the elaborate Board and committee work that every year, I'm afraid, becomes more complex, more demanding and more time consuming. The contribution during 2023 once again proved to be invaluable. We will continue to enrich our Board with very high-quality resourceful and diverse individuals to broaden and strengthen the Board's collective suitability and control capacity. Dear shareholders, we are committed to delivering sustainable returns. Our strong performance and capital ratios allow us to propose this year an increased payout ratio of 30% of our profits more than twice last year's payout ratio. This will be in form of EUR 0.25 per share in cash, in on which we will seek your approval at the AGM, and approximately EUR 0.05 per share via share buyback program, which has started already. As per our distribution policy, we are built prudently and progressively to comfortably maintain a target payout ratio of 30% to 50% of our profits, which remains our target range for the coming years. So thank you all for your continued support, and thank you again for being with us today. Thank you.

Panicos Nicolaou to take the floor.

[Foreign Language] So good morning, everyone. Dear shareholders. Thank you for joining us today -- in today's AGM. It is an important moment in the life of the group. It is particularly today as we present the group's performance for 2023, which I consider to be a milestone year. It is also an opportunity to review the group's medium-term outlook and to reflect on the bank's 125th anniversary. And I will explain briefly with what I mean a milestone year. Before discussing the geopolitical and macroeconomic environment and the group performance in this context. 2023 was a milestone year for the bank as we have been the first bank in Cyprus and Greece to secure approval from the ECB to restart the payment of dividends after 12 years. The dividend was EUR 22.3 million and was equivalent to a 14% payout ratio. It confirms the bank's transformation integral capitalized diversified and sustainably profitable banking and financial services group. In a further demonstration of the [indiscernible] progress that we have made in recent years, and the credibility we have built with international investors. Bank of Cyprus reopened the AT1 debt market in 2023. This market has been closed following the matter [indiscernible] of Credit Suisse and the write-down of its AT1 debt in March 2023 was successful, issue of EUR 220 million AT1 capital securities was 12x oversubscribed with interest for around 240 institutional investors, and this enable us to price much more keenly than our previous AT1 that was issued in 2018. And this transaction was also well recognized as the best financial institution bonds in Southeastern Europe by EMEA Finance in 2023. In its awards in 2023. I will now provide an overview of the group performance of the economic Cyprus for 2023. So operating environment, Cyprus continued to outperform the euro area. In addition to the ongoing volume crane, in 2023, we saw the outbreak of war between Israel and Hamas, increasing geopolitical uncertainty and stability. Furthermore, attacks from Houthi's in Yemen or major city in Red Sea added to existing inflationary pressures as shipping routes become longer and more expensive. Despite this challenging backdrop, Cyprus government continued to show its resilience to geopolitical and macroeconomic shocks in 2023. Cyprus record a GDP growth of 2.5% in 2023 with trade, transport, accommodation country cutting more than half of this growth. Cyprus GDP grow significantly outperformed the euro area, so GDP grew by only 0.5%. Tourist activity continue to improve in 2023 after an already strong performance in 2022, arrivals increased by 20% from a year earlier, reaching almost 4 million tourists, which correspond almost 100% versus 2019, it was pre-COVID. Likewise, tourist revenue in 2023 increased by an estimated 23%, reaching almost 3 billion. This was 11% higher than total [indiscernible] with before 2019. Cyprus economy also benefited from lower inflation than the euro area with average inflation as measured by the harmonized index of consumer prices of 3.9% compared to 5.4% in the euro area. Harmonized inflation is expected to continue going down in 2024 with the European Commission forecasting 2.4% for Cyprus at 2.5% for the euro area. I will move now to a short presentation. The first slide, before discussing details our operational and financial performance in 2023, I would like to take you a step back. As I have said, 2023 was a milestone year for the bank. It was a start of a new chapter in [indiscernible] bank is well capitalized, has a diversified business model and is sustainably profitable. This followed the radical transformation of the bank during the past decade. We derisked the bank with [indiscernible] NPEs by EUR 14.6 billion or by 98% since December 2014. At the end of 2023, the NPE ratio stood at 3.6% and with a very good coverage. Derisking was also combined with significant improvement in our capital ratios and a total transformation of our liquidity profile, allowing us to deliver strong returns in 2023 with a reported return on tangible equity of 24.8%. Moving now to the next slide on the financial performance highlights for 2023. We deliver a strong operational and financial performance in 2023, generating a profit after tax of EUR 487 million, benefiting from sharply rising interest rate and surpassing the full 2023 targets that we said in our Investor Update event in June 2023. We are particularly pleased with return on tangible equity of 24.8%, and our cost-to-income ratio of 31%. We strengthened our capital position during 2023, thanks to strong organic capital generation of 482 basis points. As a result, ROTE, CET1 and total capital ratios reached 17.4% and 22.4%, respectively. These capital ratios are after the shareholder distribution from full year 2023 profit after tax. The cash dividend of which -- you have been asked to approve today. Our liquidity position remained robust with surplus liquidity of EUR 9.1 billion and a total deposit base, mainly retail funded of EUR 19.3 billion up to 73%, up 4 percentage points versus prior year. Moving now to the next slide. As I mentioned earlier, in April 2023, Bank of Cyprus was the first bank in Cyprus and in Greece to secure approval from the ECB to resume dividend payments after 12 years. Our particularly strong performance in 2023 enable us to gain approval again from the ECB in March 2024, to significantly increase the shareholder distribution from full year 2023 earnings to EUR 137 million. This comprised of a cash dividend of EUR 112 million, EUR 0.25 per share and our inaugural share buyback program up to EUR 25 million. This distribution is over 6x higher than the distribution in 2023 with a proposed cash dividend 5x higher than what we paid in 2023 on 2022 profitability. We have more than doubled the payout ratio to 30%, compared to last year, meeting our target payout ratio of 30% to 50%. Moving now to our performance for the first quarter of the year. You have probably seen our first quarter results for 2024, which we published yesterday, and which are also available on our website. So I will just outline the main points. We had a strong start in 2024, particularly in terms of profitability, we delivered a profit after tax of EUR 133 million with a ROTE of 23.6%, which is the fifth consecutive quarter of ROTE more than 20%. We continue to support our clients in the economy with a very strong quarter of new lending of EUR 676 million. Our capital position remains robust, we generated around 130 basis points of organic capital generation, including the promise of the first quarter, net of distribution accrual, CET1 total capital ratio stood at 17.6% and 22.5%, respectively. Our liquidity position also remains robust with at surplus liquidity of EUR 7.3 billion, deposits [indiscernible] of which are retail remained flat quarter-on-quarter at EUR 19.3 billion, but we are up 2% year-on-year. We have also met our 2024 l MREL target ahead of schedule following the successful issuance of 300 green bond in April 2024. Asset quality is very healthy and in line with our full year target reflected an NPE ratio of 3.4%, and an improved level of coverage to 77% as of this quarter. Our strong performance this quarter indicates that we are tracking ahead of our 2024 targets. Moving now to our immediate priorities, starting with digital transformation. Digital transformation is a [indiscernible] delivering operational excellence and the Bank of Cyprus pioneer and digital banking innovation in Cyprus. We are reshaping the banking experience so that it is more intuitive, more responsive and more aligned with the needs of our customers. The group aims to continue to innovate and simplify the banking journey, providing a unique and personalized experience to each of our customers. QuickHub is our -- in 2023, we launched QuickHub is our digital branch, which facilitates the everyday transactions and financial needs of our customers in a user-friendly and efficient way. Quickloans is the most recent innovation of the bank and that is accessible through both the BoC mobile app and our Internet Banking. QuickLoans have transformed the traditional loan process, enable customers to obtain credit decisions instantly without the need to visit a branch season beginning of 2023 over 33,000 applications were processed granting more than EUR 100 million of new loans. Moving now to Jinius, Jinius [indiscernible] in April 2023, Bank of Cyprus established Jinius Limited, a wholly owned subsidiary, which is a B2B and B2C digital economy platform that connects the entire CNP market. It offered business in normal services that are simplified and speed up their daily transactions and activities. We also expect Jinius to create new revenue sources for the bank over the medium term. The B2B service of the platform include tenders' management, ecosystem management, invoicing, remittance payments, et cetera. As at the end of March 2024, over 2,000 companies had registered another EUR 500 million was exchanged by the platform through invoicing remittance services. We launched also in February 2024 B2C, which enables retailers to sell their products online to customers. As at the end of March, around 100 retailers were onboard and over 150,000 products were available across all categories. Moving now to an important topic our ESG agenda. Climate change and the transition to a sustainable economy are two of the world's greatest challenges. As part of our vision to be the leading financial hub in Cyprus, we are determined to lead the transition to a sustainable future. The group continues to progress towards its goal to embrace ESG in all aspects of its business as usual. We remain our leading role in social and governance pillars. The Bank of Cypress Oncology Center has held almost 50,000 patients since 1998. We are also proud of the bank's SupportCY network consisting of companies and organizations responding to various needing society to crisis and emergencies. Finally, we should not forget the contribution of our Culture Center in promoting the cultural change and heritage on the island. Under the governance pillar in 2023, we exceeded our [indiscernible] target of having more than 30% women in the group's management bodies by 2030 with female representation at this level, reaching 33%. Furthermore, the bank had similar representation of 41% in key positions such as managers, heads, leads, chief heads, all this defined as wider group leadership. We continue to work to increase the positive impacts on the environment by transforming not only the banks on operation, but also the operation of our customers. In 2023, we set our first decapitalization target on our mortgage portfolio aligning with our net zero 2050 commitment. We are proud that the Bank of Cyprus was the first bank in Cyprus to become an official secondary of the United Nations principles for responsible banking. This happened in November 2023. Our commitment to lead Cyprus transit to sustainable future was demonstrated by the issuance of our inaugural green bond in April 2024. This is -- this is highly [indiscernible] to transaction, which was 4x oversubscribed enable us to raise EUR 300 million to support eligible green projects such as green buildings, energy efficiency, clean transport and of course, the renewable energy. The progress we are making on embracing ESG aspects of business as usual, was demonstrated by our AA rating on MSCI ESG rating assessment in 2023. We maintain our strong commitment to sustainably and to longer term value creation for all of our shareholders. We will turn to our strategic priorities in the middle term. This is just an update for you. 2023 was the first year of Bank of Cyprus new chapter as well capitalized, diversified a sustainably profitable banking and financial services group. As I mentioned, the strong operational and financial performance with another 24.8% enable us -- enable the group to significantly surpass the full year targets that we said in our June 2023 Investor Day. Our vision for the group is to create lifelong partnerships with our customers, guiding and supporting them in a changing world. The strategic pillars remains as follows: First, to grow revenues in a more capital efficient way by enhancing revenue generation via growth in high-quality lending, diversification to less capital-intensive banking and other financial services as well as prudent management of our supply liquidity, achieved a lean operating model through our ongoing focus on efficiency from further automation facilitated by digitization and artificial intelligence. Maintain robust asset quality with high-quality lending via strict underwriting criteria and normalizing cost of risk and reducing other impairments. Enhance organizational resilience and now ESG agenda by leading the transition of Cyprus to a sustainable future and building a forward-looking organization embracing ESG in all aspects. This is our guidance for this year and the next year, but this was -- is a little bit outdated because we published this in February 2024. Nevertheless, we are remaining committed to deliver the shareholder value and sustainable returns. We believe that we will continue to provide good return to shareholders on that basis of our order target on a 15% CET1 ratio, of over 17% for the full year 2024, and over 16% for the full year 2025, but most importantly, despite the expected decline in interest rates. So moving now to my closing remarks. Ladies and gentlemen, I am incredibly proud that after 10 years with of decisive management actions and extraordinary efforts and dedication of our staff, the bank was not only able to support its clients, the Cypriot economy, the society, delivering sustainable value for our shareholders, but also let the way among banks in the region. 2024 marks the 125th year of Bank of Cyprus and I'm delighted that the bank is the leading banking financial services group in Cyprus and deliver value for all of our stakeholders. Our proven strategy and well-diversified business model positioned the group for success over the years ahead. Bank of Cyprus continues to be the cornerstone of the Cypriot economy. Now Pioneer is digital evolution as well as an important contributor to the social and customer life of our country. Our commitment to this role is as strong today as it has ever been, alongside our commitment to serving our customers and delivering sustainable value to our shareholders. Ladies and gentlemen, as the Head of Banking is trust. On behalf of the group, I thank our customers for continuing to placing their trust in us. I express my thanks to the executive and senior management team and to all of our staff, whose commitment underpins the group's performance. Thank you to you all of our shareholders for your investment and constructive engagement during the year. And last but not least, thank you to the Chairman and the Board of Directors for their continuous guidance and support. It is a privilege and an honor to lead this great bank. Thank you all very much.

We are now moving on to the business of the Annual General Meeting and the proposed resolution. As indicated in the notice, we will take all resolutions on a poll vote by means of electronic voting, and I therefore ask the company Secretary to elaborate.

Mr. Chairman, under Article 62A of BoC Holdings Articles of Association, the Chairman is indeed entitled to demand a poll on any resolution.

I presume that all of you have read the AGM notice with the proposed resolutions on the agenda related documents, the notice includes the agenda for the ordinary and special business of the AGM as well as explanations for each agenda item. The notice is both in English and Greek and has been posted on the bank's website on a timely manner. All agenda related reports are available on our website. Any comments or questions you may have about all these reports and proposed resolutions can be raised later in the meeting, unless there are any objections to all this, we can consider these documents as already read.

Okay.

If there are no objections, we move on.

At this point and before we proceed to open the poll for the AGM resolutions, we would like to inform our shareholders that as already announced on the 30th of April, on the 29th of April, the ECB has approved the appointment of both nominated directors, Mr. Christian Hansmeyer, and Mr. Stuart Birrell. This refers to resolution 4H and 4I in the AGM notice.

And indeed, we welcome them officially today. Well, the poll is now open for all resolutions on today's agenda. I invite the Secretary to explain how the shareholders may exercise their vote through the Lumi application.

Dear shareholders, I would say this, both in English and in Greek, in order to be able to vote, you must have locked into the platform. Instructions had to log in are on the screen there. So the Chairman has already opened the voting on all resolutions. You should now be able to see the poly icon on the navigation bar at the bottom of your screen, where all resolutions and voting choices will be displayed. To vote, simply select your voting direction from the options shown on screen. A confirmation message will appear to show your vote has been received, vote received. To change your vote, simply select another direction. If you wish to cancel your vote, please press cancel. You may vote or change your vote at any time during the meeting until the Chairman announces the closing of the voting on the resolutions. At that point, your last choice will be submitted. [Foreign Language]

Let us now proceed with the Q&A session. You may submit your questions in writing at the designated Lumi space, or orally verbally if the question is posed by shareholders physically present at the meeting. I would kindly ask you to be brief and to the point when submitting questions. We will only take questions, which are relevant to the business of the AGM. If questions are made in Greek, they'll be immediately translated. So we allocate about 15 minutes for this procedure. And let's have questions, please.

Stefano [indiscernible] from Senvest. Firstly, Senvest would like to congratulate the executive management and the Board for the excellent 2023 results. We commend the outstanding operating and financial performance, market leadership and significant reduction in NPLs to a more normalized level. We would like to further recognize BoC's best-in-class return on tangible equity across the Eurozone and even more notable achievement considering that the bank also has among the highest equity and total capital ratios in the Eurozone. We would also like to express our satisfaction for the initiation of a share buyback program as well as the significant increase in dividends. However, we believe that the current dividend policy of building prudently and progressively to a 30% to 50% payout is no longer appropriate for Bank of Cyprus because it significantly underestimates the bank's distribution potential. As noted earlier, based on our analysis, BoC has one of the highest ROEs and one of the highest capital ratios amongst comparable European banks, but has the lowest valuation in terms of PE multiple and one of the lowest in terms of price-to-book. We believe this stems from the fact that it also has one of the lowest payout ratios. To create shareholder value and enable the bank's share price to reflect the banks through potential, we propose that the Board augments the bank's dividend policy in a way that is consistent with many other Eurozone banks as follows: first Bank of Cypress intends to remain to remain amongst the better capitalized banks in Europe and the bank's dividend policy is aligned with this goal. Total payout ratio will be between 40% and 60% of each year's recurring profitability. Over and above of the aforementioned payout ratio of 40% to 60% of recurring profitability. The Board of Directors will decide each year at its discretion and subject to any required regulatory approvals, on the distribution of the capital above 15% fully loaded CET1, which represents surplus capital. The distribution of this surplus capital has been in the form of cash dividend, share buyback or a combination of both. This is our suggestion, we will submit it also to the secretary.

Short and sweet answer. We know the comments. We'll always try to increase our dividend in a stable, predictable and prudent way, but we'll take a serious note of your comments. Thank you.

[Foreign Language]