BRD - Groupe Société Générale S.A. (BRD) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us. We are glad to be today the entire management team with you and give you some details on our financial performance in 2023. As it was mentioned, the figures and the results you'll be seeing are the local IFRS consolidated results, they are still not audited. So let's move to the first slide, which is the executive summary of our presentation today. We would like to share the very positive overall picture of our performance in 2023, in which we managed to combine a very strong commercial and very solid financial results. On this slide, you can see some details before letting Etienne Loulergue detail the concrete figures. But in general, I would like to mention that our loan portfolio has been the main driver of our excellent financial performance. And as you can see, we have grown 13% year-on-year in '23 in all segments, in corporate 23%, in retail 8%. So that's why the average plus 13%. And we have some remarkable records like the overall individuals loan production in total of RON 7.7 billion, which is the highest we have ever achieved in 1 year. We have managed also to increase our production of consumer loans with 20% in 2023. As you know, in our strategy, we have a very strong focus on financing the green transition and generate the ESG topics related to our own footprint, but also the clients' transition. You can see here, we have produced in 2023, a total new sustainable financing in the amount of RON 2.3 billion, which is above EUR 400 million by which, in total, our green and sustainable financing since our strategy started in 2021 reached RON 800 million, and by this, we are confident that -- sorry, EUR 800 million, and by this, we are confident that in 2024, we will in advance, reach our target of RON 1 billion -- sorry, EUR 1 billion sustainable and green loans. So that's very important because, in fact, in our both nonretail and retail activity, we plan to include more of these types of products. Regarding the deposit development, as you can see, it is also having a very solid growth of 10% year-on-year, again throughout the entire client segment scope. Our improvement in digital channels led to a total of 1.4 million users as of end of the year of YouBRD, which is our mobile app for private individuals. And we observed also quite improving satisfaction by our clients. All these excellent commercial results led to GOI growing by 13% year-on-year. And because we managed as usually and traditionally very well our risk management, we have 1.9% NPL ratio, which is a record low for us, and it is well below the average on the market, which anyway is a good one on the market. The NPL coverage ratio is 76%, also well above the average and very comfortable for us. That's why also we are very comfortable for the development of our business going forward. You can see here that we had actually in cost of risk, positive result and not a cost in 2023. This all resulted in a net profit of RON 1.7 billion, which is 24% year-on-year growth. I can now, in front of all my colleagues and together with all my colleagues, state that we are very satisfied with this performance, and we are very proud together with our teams for having achieved it. And now I will go to the next slide, which is confirming actually our good performance also in view of different stakeholders. You can see here the awards which we managed to receive, notably and most importantly, the Bank of the Year in 2023 from The Banker, but you can see also Best Trade Finance Provider in Romania, #1 in cash management in Romania. We have also some sustainability linked -- sustainable finance linked towards not to underestimate a very important one scoring from VEKTOR, which is assessing our corporate governance as a listed company. So I would say we have a very positive overall 2023 commercially, financially and in terms of recognition from our clients and external stakeholders. And now I would pass the floor to Claudiu who is going to lead you through the macroeconomic slides.

Thank you, Maria, and good morning, everyone. This indeed excellent achievements of our team occurred and benefited into a generally supportive macroeconomic environment. And even though we saw in the second half of last year, a certain deceleration in the economic growth for the whole year, by the way, we do not yet have the final figure. But for the whole year, we expect GDP growth [ to increase ] in the region of 2%, maybe slightly below 2%, placing the country among the outperformer in the region. For 2024 which is an election year, we expect higher performance in GDP growth somewhere between 2.75% or even according to some analysts around 3%. Another favorable evolution comes on inflation, it has finally went down -- it has finally gone down significantly, even better than expected as in last December, it printed at below 7% -- 6.6% whereas prior to that, the consensus and the expectations of even the Central Bank were placing the year-end figure at rather 7.5%, and it's expected to continue gradually declining despite maybe some impact -- short-lived impact coming from the fiscal measures decided last year and entered into force at the beginning of 2024. Still, the Central Bank decided in its first monetary policy meeting to keep the rates unchanged. And I think they decided so because they prefer to see maybe consolidation in anchoring the inflation expectations. The consensus for the monetary policy is for them to start cutting rates in the second half of the year but we may see them maybe acting a little bit earlier even in the second quarter, having in mind the very significant liquidity surplus that we see in the banking sector and which continues increasing and which explains actually why the rates went down, and they are now very close if we look at the whole curve in ROBOR which are very close to the deposit facility rate of the Central Bank, which is at 6%. If you look at the ROBOR curve, it's roughly flat. It's between 6% and 6.13%. Also, the government securities yields, in spite of some recent volatility that we observed on other markets, would seem to confirm the expectations of rates decrease. I will not be commenting much on the programs. You know them very well that our pillars of the economic growth in the country, National Recovery and Resilience Plan and the local governmental programs supporting loans to small-and medium-sized companies. To note, however, that for the first one, the inflows, the drawings are now slightly above 30% of the whole envelope. So -- which is now considered to be in line with, let's say, the time line, the calendar of the whole program that is ending in 2026. Based on that, we can have a realistic expectation that this program will be consumed till [June]. And wrapping up, as usual, with the banking sector, very comfortable solvency and liquidity, very strong balance sheet. So it continues strengthening alongside the same lines that we saw in the previous quarters. Same may be said about the asset quality indicators with the NPL ratio below 3% and a coverage ratio of above 55%, which places the local banking sector within the low-risk bucket as defined by the EBA. No significant evolutions on the share of FX loans. They are still in the region of 30%. And from our point of view, this is comfortable from the point of view of macroeconomic balances. And I will now be handing the floor to my colleague, Madalina, to deep dive in commercial results. Thank you.

Thank you, Claudiu. Ladies and gentlemen, it's a great pleasure for me to present the exceptional commercial performance of our bank this year that despite the challenges into the macroeconomic landscape as presented by Claudiu, we're actually giving -- gives us the possibility to prove, maintain resilience as well as a substantial growth achievement. So before getting into details, I would like to mention that our performance in the commercial side shows the historical growth in terms of market share. We gained 50 basis points in market share for loans and 40 basis points in market share for consumer deposits. At year-end, our bank market share being 10% in loans and 10.4% in deposits. This is the most important confirmation that our performance exceeds not only our expectations, internal business plan, but as well as the market performance. I will start with our main enabler, technology, our digital footprint has experienced significant increase, reflecting an unwavering commitment to progressing technology and customer-centric innovation. As shown in the slide, YouBRD platform, a cornerstone of our digital strategy, has witnessed a notable increase in user adoption, 33% year-on-year, reaching 1.42 million users by the end of 2023. Moreover, the number of transactions via YouBRD has reached an impressive 24 million, demonstrating a robust 29% year-on-year growth. A significant portion of our deposits and savings accounts were opened directly through YouBRD underlying the importance of this channel as being the preferred for our retail customers. In the corporate services, I would mention 96% of payments, 60% of trade finance transactions as well as 66% of foreign exchange transactions were performed through digital channels, highlighting the effectiveness and efficiency of our digital offerings. In line with the increased cost of adoption, our commitment to continuously expand new capabilities in digital has been confirmed by new features. We have introduced investment products, extended YouBRD to new segments like professionals, implemented preferential exchange rate for private individuals and introduced new features to enhance communication with our clients. These initiatives aim not only to streamline our operations, but also provide enhanced convenience and value to our customers. In parallel with our digital expansion, we have also focused on optimizing our network efficiency. We have streamlined our branch network by reducing last year with 37 branches, closing the year with a network of 423 sales and service outlets that include cashless ones as well as almost 200, 24/7 areas. This 28% increase in 27 -- in 24/7 banking points further underscore our commitment to provide accessible banking services to our customers around the clock. Just as an important remark, in the last 7 years we significantly decreased to almost half our brick-and-mortar service model, leveraging on omnichannel approach that remain our ambition for the years to come. Moving on the next slide to our lending activity. As it was mentioned at the beginning by Maria, we delivered exceptional performance across all segments. Our corporate lending portfolio has seen remarkable growth [indiscernible] year-on-year with strong advance in both SME financing and large corporate loans. The success of programs such as SME (sic) [ IMM ] Invest Plus that marked a notable 27% year-on-year growth, accounting RON 2.63 billion in new loans confirmed our commitment to support small and medium-size enterprises, which form the backbone of our local economy. Leasing portfolio increased as well above 20% year-on-year. Now on the retail portfolio, despite the challenging environment of high interest rates, we experienced a robust growth with core retail net loans outstanding increasing almost 8% year-on-year, further consolidating our position within the private individual customer segment. This growth has been overcoming as well the market performance, increasing our market share in consumer lending, both secured and unsecured, from 13.6% to 14.1%. All these achievements on the lending reflect our resilient business model to meet the diverse financial needs of all our customers even in an environment with high refinance rates while maintaining prudent lending well confirmed by our strong portfolio quality. Year 2023 achievements and public recognition related to our ESG pillar are briefly described in the next slide. Through strategic initiatives such as green loans and sustainable financing arrangement, we have achieved -- we have actively contributed to environmental preservation and energy efficiency projects. Notable transaction includes the financing of a photovoltaic project for Vrancart and the green loan extended to Pitesti Municipality for efficiency -- for energy efficiency under the National Resilience and Recovery Plan (sic) National Recovery and Resilience Plan. As mentioned in the beginning, the cumulative financing arranged by BRD stood at EUR 327 million for corporates and EUR 130 million for retail clients, a proof of our commitment to drive positive environmental and social impact. Important to mention, 80% of our EUR 1 billion target for '25 has been already achieved. That for sure will actually give us the possibility to reach the target well in advance. Our involvement in organizing events like Climate Change Summit, communicating as well with the young generation underscore our commitment to sustainability beyond financial consideration. Moving to the Slide 15. In terms of liability base, we have witnessed robust expansion with retail deposits serving as the most stable and ample funding source. Retail deposits experienced steadily growth with almost 10% year-on-year increase, while SME deposits witnessed an impressive [ 15% ] year-on-year growth. On top of our solid growth for the on-balance sheet liabilities, we reconfirmed our tradition in being innovative and well-diversified in asset management solution, offering a very wide range -- a wide range of investment funds built by our subsidiary, BRD Asset Management, which reached 130,000 clients. It is worth mentioning that BRD Asset Management in line with our ESG strategy authorized last year the first ESG strategy fund. Before passing to my colleague the floor, again I would like actually to conclude that the business performance of our bank in year 2023 reflects an unwavering commitment to innovation, efficiency and sustainability and the exceptional results reconfirm our capabilities and commitment to deliver value to our customers, shareholders and society at the large. So again I'm having the pleasure to pass the floor talking about the financial preferences.

Thank you, Madalina. Good morning, everyone. Starting quickly on the Slide 15, just to comment on the very satisfactory level of liquidity position, it's always important to mention it. We are very confident with the quality of our liquidity position. We have a loan-to-deposit ratio at 68% and a solid liquidity -- high-quality asset buffer representing more than 1/3 of the total balance sheet, representing RON 28 billion and composed of different instruments like, of course, government bonds, but also deposits at the Central Bank, at [ retail] bank and cash in hand. Globally, our indicators in terms of liquidity are very solid. We have a liquidity coverage ratio around [ 160% ] and a net stable funding ratio at approximately [ 118% ] which makes us very comfortable in the term of liquidity management. Now if we move to Page 16 to comment on the profit and loss statement, so I'm delighted to present these excellent figures. We will start with revenues. First comment -- for the first time we had a quarterly net banking income above RON 1 billion in Q4 2023. And the overall net banking income in 2023 is above RON 3.8 billion, representing a growth of approximately 11% compared to last year. If we comment quickly on the 3 main components of the net banking income, we have, of course, first the net interest income at a level of RON 2.7 billion, increasing by more than RON 350 million, representing 15% growth. And this growth is driven by 2 well-balanced components on the full year basis, the volume effect and the interest rate effect. And I want really to emphasize the fact that the volume effect is very strong and predominant starting H2. During H1, we were still benefiting from the difference on average interest rate between H1 '22 and H1 '23. But starting H2, its more or less comparable, and we are able to continue to grow, thanks to a solid volume effect driven by the commercial performance that we highlight here again. The second compartment of growth in the net banking income is other income, encompassing all the activities related to trading, sales and market activities. And we want here to highlight the fact that it was a very solid year, plus 7.3% overall, with a very consistent performance across quarter. Sometimes this kind of activity, we can face some volatility. It was not the case in 2023. We had continuous growth and consistency in the performance of this business. Last comment, which is important if you follow on a quarterly basis our web conference is regarding the net fees and commission compartment. We are stable on a full year basis compared to 2022. And this is in itself an achievement because if you remember the previous quarters, we were a bit delayed compared to the performance of the previous year. But we were able to catch up, especially in Q3 and Q4. And you can see that in Q4, we overperformed Q4 2022 by more than 4.5%. And this performance in net fees and commission is explained by acceleration of our performance in the lending activity, especially with corporates, also in distributing of insurance products and also in capital market activities where our activity in brokerage and custody are very solid. Now if we move to the Page 17 to comment quickly on expenses. We are also very proud of our achievement because we were able to contain the growth of OpEx at a single-digit level, 8.6% growth on a full year basis, which is below the average inflation we observed in 2023. The 2 main components are the staff cost increase and the other expenses. If we start with the staff cost, the overall growth on a full year basis is slightly above 7%, which is in itself a pretty satisfactory level because you can also remember that we have introduced at June 2022, a new labor agreement with new benefits to our employees, and we have the full effect of this new cost in 2023, while in 2022 we had only half of the impact. The second compartment is related to the other expenses. We are growing by 11.3% on a full year basis. It is explained by 2 main drivers. The first one is, of course, the impact of inflation itself on several expenses, especially the external services, which are mainly driven by the minimum wages, the cost of energy, et cetera, which transmit very quickly the inflation effect. And the second part is driven by us, and it's our conscious and mindful efforts to continue to deliver our IT road map, and we have a continuous increasing effort in investing in IT. The gross operating income grew by more than 13%, with a positive jaws effect, enabling to decrease the cost-to-income ratio by 100 basis points, and our cost-to-income ratio on a full year basis is at 49.4%, which is very satisfactory in our eyes for a year like 2023. And now I pass the floor to Philippe Thibaud for the cost of risk and the asset quality.

Thank you Etienne. Ladies and gentlemen, good morning. So as you see, we have a very strong business performance, which is also reflected in the sound quality of our portfolio. We see -- and this is thanks to the strong resilience of our clients. So all in all, we had negative cost of risk. It's again historical results. But what we like to show is a stable cost of risk showing that it is under control. We had NPL of 1.9% -- sorry, which is below the market at 2.4%, which is even joining -- getting closer to the European average at 1.8%, yet the coverage ratio of the bank is very comfortable at 76%, much higher than the market at 65%, and much higher also than the EU, which is at, let's say, 43%. So it qualifies our portfolio as -- according to EBA, and that has been low risk. And this is also why we could -- thanks to strong recoveries, release provisions of RON 57 million. So a very strong portfolio, very good outlook, so far so good. Back to you, Etienne.

Thank you, Philippe. Last slide, before the conclusions to comment on the capital position. The capital adequacy position at the end of December 2023 stands at 21.5% before incorporating the 40% of H2 profit, which we represent additionally approximately 90 basis points additional. With 21.5%, we think it's a comfortable level, well above our overall capital requirement enabling us to be confident in our capacity to fund the growth for 2024 to prepare for Basel IV implementation at the beginning of 2025. And of course, to be -- to keep a certain buffer to address potential shocks in the economy, if any. If we comment very quickly on the waterfall between the capital adequacy ratio last year and at the end of 2023, it's overall more or less stable, but with different impact. You have in mind probably that we paid a dividend at the beginning of 2024, but we already incorporated it in the closing of December 2023, representing minus 200 basis points in the ratio. But we partially compensated it by the early incorporation of 40% of H1 profit after receiving the validation by the National Bank of Romania. We also benefited from an improvement in terms of negative OCI in our own funds. It is quite a significant impact, creating additional 270 basis points approximately additional in the ratio. But we had also to fund our growth of RWA in 2023, a growth of approximately [ EUR 3 billion ] of RWA generating minus 200 basis points in the ratio. So now with 21.5% capital adequacy ratio and a record high net result of more than RON 1.6 billion, we make a proposal of dividend which is, of course, subject to approval by the General Shareholder Meeting and subject to approval by the National Bank of Romania, our authority of supervision. We make a proposal of a payout of 60% of this record net result, which represents almost RON 1 billion of dividend to be precise RON 993 million of dividend. And if we compute it at a level per share, it represents RON 1.4 per share of dividend, which is an increase of 50% compared to the very recent dividend coming from 2022 profits. And now I hand the floor to Maria Rousseva for the conclusion.

Yes. And because all of us have confirmed multiple times how satisfied has been our management and Board from the performance, I will not repeat again. Just to shortly sum up, excellent commercial performance across segments in all types of products, in lending and in deposits. Excellent digital development, very good engagement of clients on other products, generating fees and commissions, and this resulted in excellent results, as we mentioned several times record. Once we have a very good liquidity, we have a very strong capital ratio, and we feel very well equipped for the future. So I stop here in order to enable questions. Thank you.