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

Yes, hello, thank you so much. Hello, everyone. As usually, we will present today our full year unaudited financial results, which have been validated yesterday -- examined yesterday by our Board of Directors. And I will start with Page 4 of the presentation with the snapshot and with the summary of our results. We are very satisfied with our commercial activity in 2024. As you can see on our slide, we have exactly in line with our strategy and our plans for 2024, a remarkable improvement of our lending activity. As we discussed on previous occasions, we have focused on reactivating again our SME lending activity, which actually has been also a strategic priority for the past several years. Therefore, 19% growth of our outstanding loan portfolio, 29% growth of the corporate loans and a very, very, very good production of the retail business, where we have new records related to the individual loans, 49% on the consumer loans year-on-year production. And regarding new housing for 63% year-on-year, very satisfactory. In both segments, we have gained market share. I will let after that my colleague in charge share with you the details. But in both Corporate and Retail, we managed to increase our market share at the end of the year. Regarding our commitment to the green financing and to support the sustainability transition. We have, as of end of 2024, RON 1.88 billion, a new sustainable financing. And in total, we are far above our 2025 commitment during our previous strategy. So as you know, we have upgraded in the beginning -- in the middle of 2024 given this element of our strategy. Deposits grew by 9% year-on-year. The reason being that compared to the very vivid lending activity, the reason being that we felt comfortable in terms of liquidity, we did not want to participate in price-related battles with our competition. Therefore, 9%, we feel comfortable with. 1.7 million users of the YouBRD, the mobile app for private individuals. This number is representing 20% growth on a yearly basis. All this excellent commercial activity brought GOI growth by 3.6 -- I would say, only 3.6% year-on-year. Why? Because we had this tax on turnover, which I mentioned on previous occasions as well, the 2% on gross turnover, which impacted our OpEx as we book it there. If we wouldn't have had this tax, we would be growing our gross operating income by more than 10%. The NPL ratio, very healthy 2.1% at the end of the year. The NPL coverage ratio, 78% at the end of the year. Both ratios, the NPL ratio and the coverage ratio be either above or better. Actually in the case of the NPL ratio better in the case of the coverage ratio, better than the average on the banking market in Romania. In terms of cost of risk, as opposed to 2023, where we had actually release of provisions, we have RON 145 million provisions, which figure we are also comfortable because it is reflecting the return to a normal terms in -- for a bank, which is having intensive commercial activity even below our budget and expectations for 2024. Regarding the final result, the net result is at RON 1.5 billion and the return on equity, a very good 1 of 16.6% in 2024. So I now give the floor to Claudiu to talk about the macroeconomics. But before that, I would like to mention that it's a very good confirmation of external 1 about very good financial and commercial performance at the end of 2024. We got the Bank of the Year award of The Banker, a very reputable one and it is the second year in a row. You can see on our Slide 5, the other recognitions, but mentioning just the 1, The Banker, which is coming for a second consecutive year. Claudiu?

Thank you very much, Maria, and good morning, everyone. The remarkable increase in lending and in general, our good results mentioned by Maria in the introduction were possible in spite of the slowing down in the economy that we witnessed in 2024. Most probably the economy even though we do not yet have the final formal figures, increased by slightly above 1% in 2024, being supported mainly by the investment activity. We see all these public infrastructure projects that have been accelerated. And also with a good contribution from household consumption being supported by wage increases and also pension increases. Still, this is slowing down from the previous year in 2023, where the economy grew by more than 2%. As for 2025, we saw the first figures coming from the budget construction. The parliament now under discussion, the government expects 2.5% economic growth. The inflation was stickier. Actually, the final figure in 2024 ended at 5.1%. This is higher than the initial expectations of the Central Bank has, 4.9%, and this is due to good prices, but also due to some services showing inertia and now the NBR expects the inflation to decline and to come down within their targeted corridor, 2.5-plus minus 1% at end 2025 and to continue being consolidated within -- the corridor within 2026. Having in mind, this stickiness is in inflation. It was no surprise that the Central Bank took a pause in continuing it's easing in monetary policy after the first 2 cuts last year in July and August. And the stance is now for them to rather expect to see the budget construction and the budget management and we also see the evolution in inflation and working again on subsequent cuts. Therefore, it would be probably realistic to expect additional cuts not earlier than the second quarter 2025 or even in the second half of 2025. Money market rates somehow showed this impact of higher inflation. So after initially having seen some easing in the first half of 2024, they went a bit higher at year-end, but this is also due to a decrease in liquidity that we saw, another important one. In 2024, the highest -- the peak liquidity was at RON 60 billion and till year-end, that was down towards RON 20 billion, and part of it may be linked to the interventions of the Central Bank did in 2024 to defend the currency knowing these vulnerabilities in fiscal deficit and current account deficit that -- at a certain point in time, we created some reapplication for investors. Proceeding further with the Romanian banking sector, the indicators remain robust. Capital adequacy almost 25%, but the EU average also comfortable levels for loan-to-deposit ratios and the liquidity. Whereas as far as asset quality indicators are concerned, they continue to be strong, even though we saw a marginal increase in the NPL ratio, 2.54 in 2024 compared to 2.37 in '23. A bit higher than the EU average, which is 1.9, but somehow this is mitigated by the coverage levels, which remain strong at slightly below 70%, and which are more conservative than those we've seen EU at 42%. And I would end with the macroeconomics and have the floor to Madalina to continue.

Thank you, Claudiu. Hello. Actually, I will start saying that the very good commercial performance rely on 2 levers. One was a very well and disciplined sales management activity within -- across the segments. The other 1 by expanding the digital footprint and enhancing the service capabilities into the digital environment. So this is why actually even '24 was showing double-digit increases in number of users in our digital platforms, almost 30% increase in transactions that confirm the engagement in the activation of the customers into the digital environment. We continue to actually have above 96% of the payments of corporate and around 98% of retail customers via digital channels as well as saving deposits. So daily banking has increased significantly into the digital ecosystem. This was supported by initiatives that actually engage and increase the engagement of the customers into the digital platforms like loyalty program, the cash back that really launched only for half a year reach recorded -- records in terms of enrolled customers almost above 0.5 million. New initiatives like RoPay, we were the third bank across the ecosystem of the new payments launched by transform, as well as lending activity like APIA or any other, let's say, new initiatives that activate the customers into the digital environment. I will mention the investment fund that has been launched in the second half of the year, visualization, buying and selling investment funds India. This actually gives us the possibility to reduce the traditional network footprint. So we continue to decrease with 35 branches year-on-year while enhancing and expanding 16%. The cashless approach with reaching 225 24/7 linked in points in which the customers can actually perform daily banking transaction. We as well enhance and improve, raise the bar for the contact center, improving the service quality in the interaction with the customers. We improved basically the service level, reaching 80% of the calls in the first 20 seconds and handling -- successfully handling 97% of the cost. This performance has been also recognized externally by receiving by being awarded the Best Internal Contact Center of medium size. Moving forward, as Maria mentioned, in the lending activity, we have had a very, very good performance, also overperforming within the market. Within 2024, December '24 versus December '23, we increased our market share in lending by 70 basis points, an amazing performance of 110 basis points into the commercial lending and 30 basis points into the private individual lending. The amazing performance of commercial lending has been supported by both governmental programs and our own products in lending. We -- according to the [indiscernible] statistics, we've been the #1 bank in using the capabilities of the governmental programs. So this actually supports our growth in lending, 19% year-on-year, in mainly in corporate commercial lending almost 30%. Leasing portfolio also showed a robust growth last year, surpassing the RON 2 billion outstanding, reconfirming our capabilities to diversify our product portfolio in front of the customers. In Retailers, as Maria mentioned, and we -- as it is reflected here. So a significant growth in both loan production and the stock. The market share in mortgage has a significant gain. So we rely a lot on long-term commitment and relationship with the customer, consolidating our position in the market. Of course, this growth in lending has relied significantly on the sustainable economy. As it was mentioned by Maria, we overpassed our target of green financing. We mentioned here 3 of the landmark transaction that has been supported and performed by BRD team. And we also mentioned the new partnership with IFC and EIF, that is aimed to support even further the green transition of our customers. Our contribution to the ESG environment has been also supported by the third edition of the Climate Change Summit in Romania that reached 1.3 million people worldwide watching live to this event and has been rewarded and confirmed also by Fitch, that has upgraded BRD ESG Entity ratings to 2 from 3, increasing, of course, the score of our Entity. As Maria mentioned, we also grow the solid the deposit base, almost 9%. Balance between the retail deposits and corporate deposits. We continue to have a strong granularity and reliable deposit base. However, during 2024, we also focused on diversifying our asset-based asset product by increasing significantly the sales into the asset management. Our entity BRD Asset Management reached midyear the first position and consolidated and kept the #1 position in the market at the end of the year. This actually again proved -- and Fidelis program in which we participate during 2024. In this Fidelis program through our bank, we sold 28% of the bond. We have 28% market share in this activity. And this is another confirmation that our customers received product very much diversified based on their needs. I will hand over to Vladimir to talk about the liquidity position and -- please, Vladimir.

Thank you, Madalina–, and good afternoon all. I will start with the liquidity. So as Madalina– described, the development of the deposits, our liquidity remains strong. We are keeping our liquidity coverage ratio above 220%, we had the long-term deposit exceeding 73%, which is the result of more dynamic lending activity, which we have witnessed in 2024, followed by the deposit growth. The liquidity remains strong as we utilize as well on our high liquid -- liquidity buffer of 32%, mainly composed by high-quality liquid bonds, and we have, therefore, sufficient liquidity to support our growth as well in 2025. Moving into the NBI. As a result of this, like, very strong solid commercial results, we can say that our NBI was growing 5.2% year-over-year, driven by both NII and deposits. The NII fueled, as described, mainly by the growth of the loans, a bit tempered by our cost of funds, mainly due to the term deposits and regulatory funding, which we have in our books and reflecting as well the profitability of our business. Other fees and commissions, fees and commissions adding year-over-year 7.8% driven by the higher revenues linked to the packages and to the growth of activity of our clients and as well by the growth of outline base, which we achieved in 2024, and slightly like contracted by our strategy in the self-service in the cash operations where we invest heavily into the self-service of the clients and on the efficiency on the cash and in from the branches. In the other income, we have one-off provision, which was booked already in Q1 and the provision linked to the BRD finance loan portfolio, which was already booked in the first quarter. Moving to the OpEx. I can say the OpEx was well controlled during the whole 2024. As Maria already mentioned, in 2024, we were impacted by the newly introduced tax on turnover on which we paid newly RON 129 million. If we would deduct this additional cost, which we did not have in the past, our OpEx to develop year-over-year stable. The main area where we invest our resources at our staff expenses, which are growing for year-over-year, 4.9%, still visibly below the inflation of 2024. And we as well invested in the non-staff expenditures in our IT development in our IT and digital capabilities. Despite investments in the other costs, we were able to offset by the savings in real estate and in our sales branches as we are like imaging as well our physical footprint. Same both NBI and OpEx development. If I look at the GOI and the positive jaws, which we can see without the additional tax of turnover, we would be growing 10.2% of GOI, which is very, very dynamic and solid results for 2024. I would hand over now and leave the floor for Philippe to comment the cost of risks.

Thank you, Vladimir and good morning or good day to everyone. So 28 bps, that's the cost of risk for 2024. Actually, I'm quite happy that we respected the guidance. The nature of the CRO is always to be cautious and sometimes over pessimistic. So I hope that we don't suffer the curse of Cassandra. Any case, when you look at last quarter, we were probably -- or the mood was more negative. The outlook more uncertain. And so when you look at the first 3 quarters, we were on the consistent level of cost of risk. And actually, on -- during the last quarter, we did better. So the portfolio is very resilient, and you see it also in terms of NPL, we were comfortable on not having an explosion of the NPL and being able to manage them by the end of the year was 2.1% with also still very comfortable coverage ratio. We're quite happy with these results. I hand the floor back to you, Vladimir.

Thank you, Philippe. So I will continue with the capital position. We have a solid capital base and digital position to support our growth of the loans portfolio. Year-over-year, our solvency ratio is almost flattish, moving from 23% in 2023 to 22.7% in 2024, composed by several drivers. First, we improved by in operating 30% of the profit of 2024. We have a small revaluation of our fair value bonds, which we have within our portfolio, leading to slightly negative 28 basis points. Risk-weighted assets driven by the loans are only mildly worsening because it was -- of the solvency ratio. As you know, and we communicated already in the past, we have concluded this SRT transaction with the World Bank with IFC as part of the World Bank, which is allowing us to despite the dynamic growth in our balance sheet to have omit marginal impact into our risk-weighted assets. All in all, our position, as I said, is very strong. Our capital requirement is slightly higher for 2025. But still, we have been sufficient capital EBITDA level for supporting our business. Regarding the dividend distribution, we are not announcing the dividend today. There is a still discussion between us and the National Bank of Romania and the final distribution of the dividend will be subject to approval of National Bank of Romania. I'm handing over back this over to Maria for the conclusion.

Yes. We were quite fast today because the results were quite easy and enjoyable to explain. Just to repeat and hope it will not be too boring to repeat 3 times today that we are very happy with our commercial performance across segments across products and including the digital channel. Regarding the profitability and the performance -- financial performance, this, of course, has been reflected in this excellent -- commercial activity has been reflected there. And if we exclude the OpEx impact of this new tax, which we commented several times, we have very solidly drawn our results and our gross operating result notably with very positive jaws. Cost of risk, very comfortable, absolutely comfortably within the guidance Philippe gave some time ago, even below. And our ROE above 16%, 16.6%, also satisfactory with good capital levels despite this very dynamic commercial activity.