BFF Bank S.p.A. (BFF) Earnings Call Transcript & Summary

Good afternoon, and welcome to the BFF Banking Group First Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Mr. Massimiliano Belingheri, Group CEO; and Giuseppe Sica, Group CFO. Please go ahead, gentlemen.

Hi, everybody. Thanks for joining us today for the reporting of our first quarter results. There are clearly more important events happening in Rome. So appreciate that you are here with us, listening to our results. We are pleased to report a good start of the year in many respects with adjusted net profit of EUR 35 million, which are in line with our target, despite the higher rescheduling of the factoring portfolio, which is revenues are deferred and will be recovered in the following quarters. Factoring had a strong start to the year with profit before tax up 9% year-over-year on a loan book, which has grown at 5% year-over-year. Italy has been back in growth with double-digit growth of 10% plus, and we reported the highest level of volumes in the first quarter in the history of our group. At the same time, because we didn't collect as much in terms of LPI in EUR 40 in the first quarter, we continue to [ accumulate ] our off-balance sheet reserves. So we had an increase of over EUR 81 million compared to June when we changed the accrual accounting. The strength of the business continues also in terms of liquidity. We have EUR 8.5 billion of deposits and a loan-to-deposit ratio of 68%. On the important issue of past due, we continue our work to reduce the stock of past due, which is down 5% from December. Importantly, we have EUR 190 million, which is 15% of the stock of past due in cure period, which is expected then to come off the past due calculations over the next quarter. That's more than double the level that we had a quarter ago. We continue also to contract contaging invoices. They are now down an additional EUR 25 million compared to the previous quarter and over EUR 100 million reduction since the reclassification. Capital, therefore, continues to increase. We have a CET1 ratio of 13.7%, which is above our target but significantly is above the level we had before we reclassified the portfolio in June of last year. The important thing to notice is that our bond portfolio swam in positive territory with an improvement of EUR 70 million year-on-year [indiscernible] on the future profitability of that portfolio, and we expect to gather -- to launch our deposit gathering activities in Greece at the end of this quarter. If we move to Page 4 on the details of the balance sheet, worth highlighting, the loan book at EUR 5.8 billion, which is recognized for the first quarter as the bond portfolio continues to shrink following our strategy. And as I mentioned, we have a positive mark-to-market now of EUR 12.5 million compared to minus EUR 57 million of last year, given the dynamic on interest rates and the credit spread of Italy. Deposits continue to accrue in transaction services, and therefore, we have managed outflows in our online deposits that we managed to as a buffer. In terms of liquidity, we're fully compliant with the MREL requirements, and you see the difference in our bonds issued, which has had an impact also on the net interest income of the group. The capital generation has been strong, as I mentioned, with 143 bps of capital generated in the last quarter. In terms of P&L, core revenues is just below first quarter of 2024, driven by EUR 12 million of rescheduling, which is deferred revenues for the following quarters, we have a reduction in the cost of funding by over EUR 20 million despite EUR 7 million of costs for the MREL issuance, which we think is a positive indication also how flexible is our funding structure. And the group PBT is below last year, but we've seen a good growth of the Factoring & Lending portfolio and Factoring & Lending profitability despite the lower rates of this rescheduling impact as you see. I leave the floor to Giuseppe for the presentation and conclude the presentation.

Thank you, Max. I will now move to Slide 6, where we show the key economic trends for the Factoring & Lending division. A few messages. First, gross interest income is down year-on-year. However, this is mainly due to higher reschedulings, which are expected to be recovered throughout the year. And this is despite lower interest rates. Second, other income is stable year-on-year and importantly includes EUR 3.8 million of recovery rights. Third and importantly, gross yield on average loans has decreased less than the LPI reference rate, with MRO rates down 1.45% versus the gross yield down 90 bps. Obviously, cost of funding is down as well. Moving to the bottom part of the slide, total LPI and recovery funds are up EUR 124 million, or 11% year-on-year and off-balance sheet funds, which are part of our deferred profitability, are up EUR 81 million since June '24, i.e., post step-up of the accrual rate. Moving now to Slide 7 on Factoring & Lending loan book and volumes. The group loan book is up 5% year-on-year. And importantly, Italy loan book is up 10% year-on-year, reflecting higher volumes on which I will comment in a moment. Spain is down. This reflects the payments due to cash injection by the government at the end of 2024. And finally, on the loan book, let me highlight France, which is starting to be material for the group with significant potential for further growth. Moving to volumes. These are up 4% year-on-year and represent the highest first quarter ever for BFF. Italy is up 10% year-on-year, improving the trends already observed in the fourth quarter of last year. And Poland is also significantly up. I will now move to Slide 8 on Payments. The number of transactions continues to show a positive trend and is up 4% year-on-year with an increasing component of instant payments. Revenues are slightly down year-on-year. This is due to some flat fee mechanisms, while deposits are down mainly on lower check settlements. Important for us, moving to Securities Services on Slide 9, a few relevant points. First, assets under deposits have now reached EUR 75 billion and are up 21% year-on-year. And this has reached thanks to commercial initiatives. Second, Global Custody assets under custody are close to EUR 130 billion and are up 9% year-on-year. These positive trends are actually reflected in revenues, which are up 15% year-on-year. And importantly, for our business model and for our growth, we have also recorded strong deposit growth to EUR 3.8 billion or 28% year-on-year. Again, this reflects commercial initiatives and client asset allocation. Slide 10 on our cost base. Cost discipline is confirmed, with OpEx and D&A up only by 4%, mainly due to a slight increase in G&A and ongoing investments in the business. Looking at the various divisions, Factoring & Lending, OpEx and D&A are up 2% year-on-year; Payments, 3% year-on-year, mainly related to ICT costs and investments for growth; Security Services and Corporate Center where most of our IT investments are concentrated are up 6% year-on-year. Any variable remunerations to be assigned only after the removal of Bank of Italy bans. Slide 11 on our balance sheet. We confirm that funding remains ample, with the loan-to-deposit ratio at 68%. And importantly, for the future, there has been an increase of EUR 70 million of our mark-to-market on held-to-collect portfolio. Going a bit more in detail. Funding costs are below average reference rates, which are a blend of [ Euribor and LIBOR ]. Since first quarter '24, we have issued EUR 600 million of MREL-eligible securities, and this covers all our MREL needs. We have no ECB funding to be refinanced. As Max said, our [ HTC ] portfolio continues to go down in line with plans. NSFR and LCR are both up since December, with LCR up 25 percentage points despite the growth of the loan book. Slide 12 confirms the low risk profile of the company. The slide is full of numbers, so let me follow the key messages on the slide. A, NPEs are down to EUR 1.8 billion, and this is driven by an ongoing reduction of the total past due. B, 95% of our NPE exposure is represented by Public Administration, with NPLs are represented almost exclusively by municipalities in conservatorship. And following the communication already done in January '25 on one specific case, we have underway further appeals to the European Court for Human Rights to obtain central government obligation to pay. The cost of risk stands at 4.2 basis points. Slide 13 gives a bit more of detail on past due. Contaging invoices are down another EUR 25 million in the quarter. There has been a 25% reduction in the past due driven by collection, proving, by the way, the location of our portfolio. New debtors from bonis in past due is only EUR 11 million in the quarter, with EUR 74 million of exposure to debtors in past due going back to bonis. So the new past due is really driven by contagion only. Fourth, exposure in cure periods more than doubled since Q4. I will now move to Slide 14 on capital generation. Our CET1 is above pre-credit reclassification level at 13.7%. This is despite a 50% increase in RWA and 65% RWA density. Capital generation in the quarter is 143 basis points and total capital is also up similarly to 16.7%. As I mentioned before, all MREL requirements effective from January '25 are covered with ample buffer. Finally, you'll probably ask questions anyways, the dividend policy is confirmed, subject to the lifting of the dividend ban by Bank of Italy. Let me now hand back the floor to our group CEO for his final considerations.

Thank you, Giuseppe, for a very clear presentation. We leave a few takeaways for this presentation on Page 15. We're off to a good start this year, in line with our expectations. Good momentum in the Factoring & Lending business, with double-digit growth in Italy and with an increase in embedded profitability of the off-balance sheet funds. We continue a steady reduction in total past due and the contaging invoices. And the new past due are almost entirely driven by the contaging effect with a significant increase of the part of the portfolio, which is in cure period, which in terms of outlook is very positive for the continued reduction of the past due and increased efficiency of our RWA density, which translates in a good core capital generation with a CET1, which is now fully restored to the level that we had before the reclassification of last year, and therefore, positions us well for the future. So thank you again for joining us today, and we welcome your questions, which we will answer now.

[Operator Instructions] The first question comes from Tommaso Nieddu of Kepler Cheuvreux.

I have a couple of questions. The first one is on volumes. There were good numbers. Obviously, we were also comparing with easy comps, but I wanted to focus on France. Where do you think we could see the region in the next few years? And yes, if you can give us some color on that. And then the second question is on the cure period amount. Looking at the amount, this is much higher than in the last quarters. Theoretically, I understand that as more as you are going to collect your contaging portfolio, the more past due should be reduced. But is there something more behind that? And can you give us more color on that as well?

Thank you for the questions. Look, on volumes, I think, yes, we're off to a good start. France is providing support in that growth. It's a very small market for us at the moment, but the country which has a structurally very high expenditure in goods and services with a portion of those expenditures was paid late. And importantly, a lot of our customers already work there. Now we had these results without even a physical presence in the country, and we are delivering at the level we were expecting with a branch open there. So we think actually compared to our expectations, the market can actually deliver quite a bit, particularly once we will have now the ability to open the branch there. In terms of the past due, you correctly pointed out 2 key things, which also Giuseppe highlighted before. The first one is the past due in cure period at EUR 190 million. That is substantial increase compared to the ones we had in the previous quarter, which will then translate into a lower level of past due going forward. And the second aspect I would like to highlight is on Page 13, the second-to-last part, EUR 11 million of new past due generated in the quarter. That's not the contaging invoices. That's the total past due of new debtors generated in the quarter, which actually in this case confirms what we said always to the market, which actually structurally our business model is unchanged on the front book. We're actually dealing with a back book issue, which is getting solved steadily and should restore a level of RWA density, which is more in line with the real risk profile of this business.

The next question is from Manuela Meroni of Intesa Sanpaolo.

The first one is on the rescheduling in collection. I'm wondering if you can share with us what are the reasons behind this high rescheduling in collection that we have had in this quarter? And if the starting point for the second quarter will be the level of NII plus these EUR 12 million impact was -- the rescheduling impact in the quarter? The second question is again on the past due trend. I think that it was a very good sign that your past due declined and these are just EUR 11 million of new past due from debt from bonis to past due. I'm wondering if you can -- you expect such a trend to continue also in the next quarter? And the last question is on the dividend ban. I'm wondering if you have some information about the potential removal of the ban.

On the dividend ban, we have no news. We continue with a very good line of communication with Bank of Italy. We communicate to the market as soon as we have. I think the good thing is actually [ very strong ] capital position, which gives us a good buffer of capital, which I think is quite reassuring and also the RWA density, which has improved over the last quarter. In terms of past due trend, well, we continue to operate to reduce the past due. We indicated that a lot of the activities that were put in place in the last year take a bit of time to play out. And so we expect an [indiscernible] acceleration proportion of the release of the past due over time, also simply for a mathematical reason, which is highlighted actually on Page 13 because you need only 1% to have the assets in past due, actually the reduction of the contaging invoices is a disproportionate effect on those gets reduced towards the end of that 1%. So we've always said it's not going to be a linear trajectory, and that's why we expect things to improve and get better in the following quarters. We're doing a lot of work on that respect. The rescheduling collection, remember, we don't control when the debtors pay us. It's basically their decision. So depending on the choice they make in terms of paying certain invoices or not, if the invoice has reached our expected collection date, then we set a new collection date to keep the IRR of the portfolio constant. And so, you can't necessarily add that amount of rescheduling to the next quarter. It may take 6, 9 months to collect. But it's an amount that gets recovered. In a sense, keeps the profitability of the business at a pretty good level. Actually, we didn't highlight it. So we did highlight, but I think it is an important point, the fact that in terms of spread in the declining interest rate environment, actually, will improve the yield of the portfolio and it's not a given. And so that's something worth flagging because, again, it provides a support for the target given to the market.

The next question is from Andrea Lisi of Equita.

The first one is related to the 2026 guidance you provided in February. Just if you confirm it -- you can confirm it or provide an update on that? And if you can provide some more color on the trajectory for this year? And in particular, I want to ask you on volume growth and the loan growth that the [ debtors ] are showing signs of recovery, but in some ways are still below which was the original target in the plan that was a growth in terms of CAGR, if I remember well, of about 10%. So just to understand, when do you expect in the current market environment to come back to that level? And/or if this level is still a reasonable CAGR that we can imagine over the next few quarters or next few years?

In terms of guidance, frankly, we made a pretty clear statement. The performance is aligned with what we expected and therefore in aligned to the guidance we have given. So we have not more than that to say. We think we are off to a good start, and we continue to deliver against those targets. In terms of volumes and loan growth, remember, you are seeing in a portfolio that churns very quickly, you need to look at the long-term trend and a single point in time may not be necessarily the best representation. For us, what is important is that we're seeing strong growth in volumes across many geographies. We have a good pipeline. We have a rejuvenated and reenergized sales team. We think there are plenty of opportunities. Remember, it's also the team that has changed the leadership around that in the middle of the quarter. So we think actually, because we're looking at, in a sense, the past, something which is already 6 weeks old, if you want, in terms of numbers, we expect to see positive results also for the organizational changes and the upgrade to the team we have made. Once again, we confirm the targets we have given in terms of growth.

The next question is from Simonetta Chiriotti of Mediobanca.

A couple of questions from my side. The first is on the trend in volumes that was very strong in Italy, especially in the NHS segment. So the question is if there is, as I suppose, an impact of the large contracts that you have announced last year. Possible to give a color of how much comes from that large contract. And on the contrary, the PA segment is not so brilliant. So if you could comment what is happening there and also in Spain. And the second question on the rescheduling impact, which was negative above last year. You didn't provide this data previously. So if you could help us to understand this dynamic.

Yes. On Public Administration in Italy, I think it's driven mostly by the lower volumes that we've seen around utilities. In Spain, the volumes have been driven mostly by a contract that we had lost. It was a contract which had a fairly low marginality with a relatively limited amount of LPI interest, and therefore profitability for us was not very significant. So in terms of profitability, Spain is actually above budget for us. In terms of the rescheduling, yes, we have given the details [indiscernible] changing the cure rate, that number had a bigger impact on the net of recovery. So it's better to provide the split. It's simply, as I mentioned before, the question of, Andrea, the fact that we haven't collected some order invoices which were expected to collect in this quarter, and it didn't happen. For us, we take a very prudent approach to accounting. So we pay the same internal rate of return, assuming a new collection date and take a provision at the revenue level, which keeps the IRR constant. In the declining interest rate environment means actually we are deferring if you want more than proportional stability.

[Operator Instructions] The next question comes from Giovanni Razzoli of Deutsche Bank.

Two very quick questions. The first one, if you can share with us how much of the decrease in risk-weighted assets is related to lower operational risks, because it's mentioned in the press release? And the second question, again, on rescheduling, the EUR 12 million. So there has been a postponement in the payment schedule. I was wondering what was driving this? Is this normal in your opinion? And what makes you confident that you can recover this in 2025 in the next couple of quarters?

Yes. In terms of the recovery in the next couple of quarters, [indiscernible]. So we're keeping the recovery rate constant with flow through the P&L. We expect to collect those receivables in the following quarters.

Excuse me to interrupt you, but your voice is very noisy. Can you speak louder because I struggle to understand?

Sorry, we were reshuffling some paper in front of the mic, so thanks for letting me know. So what I said in terms of rescheduling, what we -- that amount is then spread out over the expected collection time of the invoice, which is usually a few months later, so that gets in the interest income in the following quarter. And therefore, the actual collection-- if, for instance, we collect earlier than our expected collection time, then that amount actually goes through the P&L immediately. So that's how the mechanism works. In terms of the impact on RWA, I leave it to Giuseppe to answer.

It's around 40 bps, the reduction of -- so the increase of Common Equity Tier 1 due to operational risk decrease, and it's expected to remain constant over the next few quarters.

That's also an important in terms of operational risk because remember, the way the mechanism works is very much linked to reported profitability. And after 2025, we'll lose in a sense 2022, where we had a one-off effect of the accrual of the EUR 40. And so, even going forward, as Giuseppe mentioned, besides this year, we should actually have this benefit persisting over time, even with an increase in profitability.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Belingheri and Mr. Sica for any closing remarks.

Thanks for joining us tonight and for the questions, and we welcome, and we'll continue to talk to you in the future. Thank you very much.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.