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

Yes. Hello, everyone. Thank you for being with us today. As usual, we are going to present to you today the quarterly financial and income statement for the period until 31st of March 2026. Yesterday, they have been examined by our Board of Directors, and they have been confirmed. So we are presenting them to you today. They are prepared according to IFRS standards. Anyway, I would like to also note that they do not present full financial statements since they are not audited. And this is something which we discuss every time. So I start now with the introduction, the executive summary of our presentation and to start with the commercial activity of our bank. Bearing in mind that we had in 2025 quite a turbulent year related to fiscal consolidation and impacted, of course, the behavior of all economic actors in the market, our loan portfolio growth of 8% year-on-year as of end of March is confirming that we have managed to keep a very good retail market commercial activity despite this adverse effect, which I mentioned. To detail a bit this 8% year-on-year growth in terms of lending outstanding, we have 10% year-on-year growth related to the private individuals, our retail activity, our most important retail activity and 10% year-on-year growth on the large corporate portfolio outstanding. Maybe you remember from previous calls, I will insist that as related to the pipeline, we see it more robust in the large corporate segment. And you see here, we maintain there rather good growth year-on-year. Another very important commercial element, which is also related to our commitment to support the sustainability transition of our clients. As of end of March, we have reached already almost EUR 2.4 billion cumulative sustainable financing over the last 5 years since we have this commitment. As we go on, we have a healthy pipeline in this respect as well. Regarding the deposits, we recorded 14% year-on-year growth as of end of March. As usually, they are quite diversified across the bank, but here, I will let our CFO detail later. Our digital experience has improved features which we have provided to our clients have multiplied last year. Respectively, the people who are using our YouBRD mobile app grew by 12% year-on-year and reaching 1.92 million users as of now. Related to all these commercial results, obviously are the financial results we achieved. We are reporting this year -- this quarter and well we will detail on the reasons after, gross operating income of RON 506 million, which is flat compared to Q1 2025. And, related to our quality of portfolio, the NPL ratio which we recorded at the end of March is 2.5% again as every quarter this ratio performs better than the average of the banking system, the latest average which we have. The NPL coverage ratio is almost 66% as of end of March and it reflects our comfortable position in terms of provisioning. Our net profit is RON 369 million in the first quarter. And if we exclude, as you remember, we have now 4% tax on gross revenues, it represents 14% year-on-year growth and it resulted in a return on equity of 16% if we exclude the turnover tax. Please have in mind that due to the dividend policy we have kept in the past years, our capital actually grew, which reflects now in this return on equity of 16%, still quite high. Now I'm going to give the floor to Claudiu Cercel, who is going to talk about the macroeconomic context.

Thank you Maria and good afternoon everyone. Indeed, resilience is a good keyword in describing the performance of the bank in such a challenging quarter macroeconomically-wise but also geopolitically-wise. This last one also influencing in parts of the quarter the macroeconomics. The country was already facing slowdowns in the last two quarters of last year, negative growth in both quarters. Therefore, at least from a technical perspective, we checked the definition of technical recession. We do not yet have the figures for the first quarter, but we may assume that not much changed from economic growth perspective. Most probably, it remains subdued, all the more so that due to, let's say, the political challenges, the budget for 2026 was approved with delays and coupled with the fiscal consolidation negative impulse that may additionally have influenced the economic activity in the first quarter. We can also somehow assume that for the rest of the year, the context will remain relatively challenging. And if we look at the expectations of the analysts, those for economic growth are in general below 1%. This is taking over, unfortunately, in an environment where the inflation is resurfacing, even though we were having some signs of abating at the beginning of the year but the war that erupted in the Gulf in the meantime put additional pressure on the oil price and on everything what's ensuing from that. We saw an increase in inflation in March, almost 10% from less than 9.5% in February. Most probably, that may have an impact for the landing trajectory in inflation for year-end. Even though the central bank for the moment, keeps those estimates at slightly less than 4% year-end 2026 and slightly less than 3% end of 2027. In light of this, obviously the Central Bank did not yet move. They kept the same 6.5% monetary policy rate. They are in a waiting mode. Probably this will be prolonged, maybe not even in the second quarter as we initially thought, most probably towards the third quarter when they will decide if they will or not pursue a monetary policy change in the main rate. The signal was obviously taken by the money market rates. Even though in February, we saw some signs of rates going down, but subsequent to the war eruption and the impact of oil prices, inflation rate started again increasing. They are close to 6% again if we speak about the ROBOR, even though the liquidity continues to be relatively comfortable. If we speak, and I will wrap up about the prudential -- the banking indicators in general. Comfortable levels are still there concerning solvency and liquidity and in general above the EU average or better than EU average. While NPL-wise, the system continues to stay in the low-risk bucket category due to the NPL ratio still trending below 3% and the coverage ratio above 55%. But let's now dig a little bit -- let's dig a bit deeper in the commercial activity and I will hand to Madalina. Thank you.

Thank you, Claudiu. Hello, everybody. Indeed, as previously mentioned by both Maria and Claudiu, first quarter despite the difficulties proved resilience in the commercial activity. And this, I would say, is influenced by two main objectives that we assumed from the very beginning, actually continued the digital investment and digitalizing both customer processes and internal processes, as well as addressing with a very diligent discipline, the performance management and the sales performance. So this is actually confirmed by the fact that the daily banking activity has increased in double digits in both transaction and all the retail and corporate activities of daily banking. We grew as well the number of users of digital channels, supported by a very strong performance last year in [ smoothing ] the digital experience. That's continuing the first quarter as well by launching new capabilities, new processes and actually smoother experience in the digital processes. First quarter actually, we chose some, I would say, important new processes, new features in the app like Click to Pay, issuing new debit cards. Products available for professionals in their mobile app like escrow and trust accounts, travel insurance. These are a few of the new products. And of course leveraging on engagement into our digital processes through loyalty programs like Cashback, which already has more than half of our customer base being rewarded significantly since we launched it. During all this, we actually also through efficiency and discipline, we enhanced the customer support. We significantly improved the service level. In the first quarter, 87% of the calls have been answered within the 20 seconds. And we also improved efficiency by reducing significantly the conversation, the answer time, which is reduced to almost half from 15 seconds to 8 seconds average time per call. This actually allows us as well to use the customer support, the contact center also to intensify the sales. That is actually supporting our customers to activate and engage more through digital channels. In the same time, we continue our efforts in addressing the cost base, which is basically the branch network. While increasing the digital activation, we continue to optimizing the branch network. End of March, 334 branches with majority of them having 24/7 self-service capabilities. Moving on in the lending area. As we actually estimated in the previous call, we continue to grow in the net loan outstanding single digit, as I mentioned, in a very balanced way. 8% -- above 8% net loans outstanding increase year-on-year with a very balanced 9% increase in retail, almost 8% increase in corporate. Of course, the market is slightly below in terms of volume generation. However, this actually give us the possibility to consolidate and pay attention to the quality and to the processes and supported also by the efficiency gains through new processes and new capabilities. Our engagement as Maria mentioned of sustainable financing production that reach above EUR 2.3 billion. I would only mention for the first quarter, a landmark transaction that has been concluded between BRD Sogelease and Auchan, for active suppliers and transport partners offering sustainable, dedicated financial leasing solution to support decarbonization initiatives. Moving on to the liability base and the saving -- customer savings and investment products. We maintain our diversification leadership position in terms of assets under management for our customers. BRD Asset Management grew significantly as long as important growth on balance sheet into the deposit base on both segments above 14% year-on-year. This time, actually a better, I would say, growth than lending side. Another, I would say, landmark transaction that took place in the first quarter is the acquisition of Patria Asset Management in March '26, a transaction that is subject to regulatory approval. However, this is actually giving us a new possibility for offering investment solutions. ETF actually being the new product in our portfolio. I will hand over to Vladimir, talking about the liquidity and the solid liquidity position.

Thank you, Madalina. Good afternoon from myself as well. I will continue with the liquidity. As you can see, our liquidity position is remaining solid and as our deposit balance sheet went up faster than our loan balance sheet, like our loan-to-deposit dropped to less than 74% in the first quarter. Knowing the uncertainties and the global, let's say, stress which you can see on the market, we prefer to keep the liquidity at these levels in order to be ready for kind of potential turbulences, which might happen in the market similar to the first half of the year of 2025. We are keeping still quite robust high-quality liquid asset buffer, representing more than 30% of our assets. Now moving to revenues. Revenues compared to the first quarter of 2025 were lower by roughly 1.7%. If I should deep dive into the details, speaking about the NII, NII stayed flattish quarter-over-quarter. The development of the NII actually can be decomposed into the growth of our interest income following the growth of the loan balance sheet by roughly 7%. However, it was like fully offset by the increase of interest expense linked mainly to the increased demand of our clients for the term deposits in both retail and corporate segment and the higher interest paid actually linked to this product. We as well are facing quite competitive pressure in our margins. So the rate effect from this perspective was negative. Speaking about the fees and commissions, the fees and commissions were reduced by almost 16%. The main part of this reduction is actually linked to the base effect of 2025, where we actually booked a one-off transaction linked to the card business in the first quarter last year, which can be attributed actually to this development. We were offsetting partially actually this development by the improvement in the custody brokerage and asset under management activities, which help us to increase the fee income in these services. The plain-vanilla management fees and the other fees which we are having are rather on the declining trend like growing the competition and the market pressure, which you can see in this area. Maybe worth to mention as well that in the other income, we have this quarter, another one like a rather one-off transaction, which is helping us to grow the other income by almost 25% year-over-year. Going forward to the costs. The costs quarter-over-quarter or the year-over-year development were reduced by 3 percentage points and allowing us actually to keep the positive jaws between NBI and OpEx. Among the main drivers, which I should comment, you can see like that our staff expenditures, which are representing the majority of our cost categories are actually reducing by 6% following quite substantial reduction of the staff, which we reported at the end of the fourth quarter. So like this is allowing us to keep the price effect of the staff costs under control and compensated or more than compensated by the volume effect. We as well have in this month or this quarter, a difference compared to many like previous years. In 2026, we were not booking any costs linked to resolution funds and deposit insurance as we did not receive any prescription as those funds actually reached the needed amount. So this as well helped us to reduce and as well to compensate actually the significant increase, which we can see in the tax on turnover, which went up from RON 32 million booked in 2025 to RON 68 million booked in 2026. For the other costs, which are developing plus 5.5% year-over-year, we are mainly investing and continuing to invest in the digitization of our services. So it's mainly linked to the technology and the depreciation of investments, which we did in our IT assets in order to improve the offer, which was described by Madalina in the business part and to further like modernize the operations of the bank. All in all, this allowed us to improve the cost-to-income ratio by 72 basis points year-over-year. I will now hand over the floor to Philippe to comment the quality of [indiscernible].

Thank you, Vladimir. Good afternoon, everyone. BRD continues to show strong asset quality with NPL at 2.5%, which is stable compared to the 2.4% that we had in the last quarter, which is better than the average of the sector at 2.6%. Also the coverage ratio back to above 65%, 65.9% for the quarter. Compared to this [indiscernible] 63.4% that was due to a fine, which was [indiscernible] provision of actual guarantees, so low provision rate. And the average of the sector at 62.6%, there again we are better than the average, and we are comfortable in the low-risk zone, which is -- with an NPL at 3% and the coverage ratio above 65%. The cost of risk trajectory is very similar to the one we had in 2025. So we see that the mortgages are still very stable. Of course, consumer loans are more sensitive to the deteriorated macroeconomic environment. And corporate remains still very stable globally, although we see that there are some sectors which are more fragile than others. So globally Q1 which is very solid. Anticipating questions on guidance, we do expect Q2 to deteriorate but we will see. So far so good.

Thank you, Philippe. I will continue with the capital position. So the capital position in the first quarter is very safe in terms of our capital requirement and capital ratios. We are almost reaching 23% of capital adequacy at the end of Q1. If I should break down like the development compared to the last year, you can see that the positive is mainly the retained earnings and the development of OCI following the development of interest rate in the first quarter. And like the main consumption of the capital indicators is linked to the growth of the balance sheet and the risk-weighted assets, which consumes roughly 323 basis points. Like I confirm that our capital position remains strong and allows us to continue the growth of the loan balance sheet in line with our plans and expectations. This is all from my side, and I will hand over the floor to CEO for the final remarks.

Thank you, Vladimir, and overall, our colleagues for contribution today. I will sum up, it's very easy actually to sum up after reviewing the colleagues' pack. Again, we had in a very difficult environment in Romania and worldwide quite a robust performance in Q1. Commercially even better than what we could expect having in mind the macroeconomic situation in Romania with the loans going up 8% year-on-year. The private individuals and large corporate segment have been the main drivers on year-on-year basis with plus 10%. The housing loans continues being very robust. The commercial performance on large corporates has been not only good in terms of generating new volumes, but it has also been very healthy in terms of quality. The deposit base grew by 14%. And by this, it allows us to fund our commercial development and also to feel comfortable in these turbulent times in terms of liquidity overall. The digital engagement continues to grow, which is a result of our long lasting now for several years investments in digital and in IT in general. The results financially, though rather flattish on the GOI side has been further improved by the very good health of our portfolio year-on-year. So we have good financial performance as well. And effectively our liquidity and capital position has maintained good quality and makes us feel confident in case the commercial growth requires to grow more commercially and in case we need to find even more adverse scenario if such comes quite comfortable both from liquidity and from a capital perspective, quite comfortable. That's all on my side.