CrediaBank S.A. (BCA0.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Costantinos, your Chorus Call operator. Welcome, and thank you for joining the Attica Bank conference call to present and discuss the second quarter 2021 financial results. [Operator Instructions] and the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nikolaos Koutsogiannis, CFO of Attica Bank. Mr. Koutsogiannis, you may now proceed.

Thank you very much, Mr. Agelidis. Ladies and gentlemen, it is my pleasure to welcome you to the first semester 2021 earnings call of Attica Bank. We can start the presentation because we have a lot of things to tell you, more specifically about the latest evolution regarding the bank and the recapitalization process that has now begun. So I will move quickly through the presentation, so as to leave time -- sufficient time for the Q&A part of this call. So starting from the macroeconomic outlook. GDP and economic activity is expected to rebound in 2021, although there is some still -- uncertainty that still remains. We have lower depression than expected with regards to the GDP. However, we -- and today, there has been a release that the Q2 GDP growth is very favorable, something like 13% based on National Bank of Greece data announced just today. This -- the growth in GDP is mainly driven by exports, private consumption and exports of goods. With regards to the economic sentiment indicator, it's almost stable in June at just out of 110 points compared to south of 90 points 1 year ago. However, we have to note that we are -- we have a plan in place. It's the country's business plan, Greece 2.0, which is focused on specific sectors of the group economy and where our business plan is going to leverage in terms of future growth. In the meantime, while waiting for the money to start flowing to the economy, although there is some flow of funds expected within 2021, however, the program is going to be more heavily activated in 2022 and 2023. Regarding the financial highlights. In terms of financial performance, core PPI, meaning the aggregate of NII and NCI stood up just south of EUR 31 million, which represents an increase of 23% year-on-year. At this point, I have to convey to you that this is the fifth consecutive quarter that the bank has a very -- has a growth in terms of NII. And this is mainly due to the decrease of the funding cost base of the bank. Additionally, with regards to the cost base, continuous emphasis is placed on cost reduction. We have another voluntary exit plan in place announced just in April 2021. We already have approximately 50 applications. And this is expected to generate savings, which on an annual basis stand at over EUR 2 million. With regards to asset quality, our pro forma NPE ratio still stands well below 1% on a pro forma basis. Without taking into account the securitization, Astir 1 and 2 and Omega, then the NPE ratio stands at 45.3%, and the cash coverage is at just south of 40%. At this point, I would like to tell you that the bank's strategic goal is to -- after the successful completion of the securitizations, that is the sale, the disposal of the mezzanine notes, the plan is to keep -- to maintain an NPE ratio well below 4%. New financing and refinancing stands at EUR 184 million for the 6-month period. This is -- in Q2, we had a tremendous increase in new financings. And this is mainly due to the improvement in the reduction of the uncertainty in the Greek economy. The focus is mainly on SMEs and large corporates as well, mainly in the sectors which are going to be -- those who are going to be mostly favored by the flow of funds through the EU recovery fund. I'll also repeat here that the strategic objective in the bank -- of the bank, as highlighted in the business plan for the next 3 years, is to double the... [Technical Difficulty]

Ladies and gentlemen, we apologize for the pause. Please hold your lines. You will be hearing music until the session resumes.

Hello, everyone. This is Nikolaos again. I will start off with Slide #6 regarding the highlights of the bank. In terms of financial performance, I was saying that core PPI has increased by 23%. We have another voluntary plan in place, which will produce as we are today with 50 applications already submitted to the bank's HR department, annual savings of over EUR 2 million. The NPE ratio on a pro forma basis stands less than 1%. And this includes the effect of the securitizations, namely Astir 1, 2 and Omega. Without considering the securitizations, the NPE ratio stands at 45.3% and the cash coverage at almost 40%. New financing and refinancing amounted for the 6-month period at EUR 184 million. I have to tell you that the second quarter of 2021 was the production -- new loan production was almost double compared to the first quarter. And this liquidity has been channeled mainly to large corporates and SMEs. Large corporates -- as I tell you, the large corporates are mostly on focus on the Greece 2.0, the country's business plan. That is mainly companies where we expect that there's going to be a significant flow through the funds of the EU recovery fund. In terms of liquidity, we are doing great. Customer deposits have increased by 9.3% year-on-year. We also use -- make use of the Raisin platform, which, as you know, is a digital platform, whereby EU depositors, mainly Germans can deposit their money into Greek bank. And for the -- we have started this cooperation since November 2020, and it's bearing fruit in the sense that we already have liquidity from this also of approximately EUR 200 million. Gross loans to deposits ratio stands at 71%, and sources of funding still remain diversified. With regards to COVID-19 and forbearance measures, only just EUR 18 million of loan exposures have made use of forbearance measures in the first semester of 2021 and EUR 4 million -- and exposures of EUR 4 million into financing programs sponsored by the state. This represents just 5% of the total performing portfolio of the bank. Total COVID-19 impacted loan exposures at approximately EUR 0.5 billion, out of which EUR 465 million related to corporate loans and just EUR 46 million to retail loans. Our treasury remains firm, meaning that what we intend to do there is that the doubling of the loan book has shifted from 2022 to the end of 2023.. Moving on to the next slide. As you know and following the significant losses recorded in the end of 2020, the bank has experienced a significant drop as expected, in the minimum -- in the capital adequacy ratios. So we are under a capital plan, let's say, period. We have formulated a number of actions that have been also addressed in the Q1 earnings call. And I just wanted to give you an update on where we are. Let me remind you that the capital actions include the sale of the mezz notes of Omega and Astir 1, which are in a very mature stage. Meaning that I can convey to you that for Omega, we have a binding offer for the mezz note. And for Astir 1, we are running into an exclusivity period and we have already received a nonbinding offer. The whole process for the sale of the mezz of Astir 1, that is until we get to the BO stage, is expected to be finalized by mid or before mid-September 2021. The second action, which is the inclusion of the Omega, Astir 1 and 2 senior notes into HAPS II. This is ongoing. We have the asset models in place, and we have sent all the data out to DBRS, which is the rating agency. And we are waiting until this process has been concluded. We expect that, eventually, the whole process regarding the rating will be finalized before the end of 2021. Also in our capital plan, we have the issuance of the Tier 2 or AT-1, depending on market conditions. And let's say, the main capital enhancement actions is share capital increase. As you may have seen, the bank has already announced since the 8th of July 2021 a share capital increase. Today, there's going to be further announcements, which are going to elaborate on this previous announcement in the sense that we are already in the process of meeting with investors. The marketing process has started. And we will be announcing today some of the basic structural features, let's say, of this transaction. I will come back to that later on. Just to let you know that we are looking for fresh equity at this point of time from -- anything from EUR 120 million to EUR 240 million. Let me remind you that in order to double the loan book, we have conveyed in our presentations that we need EUR 300 million of fresh equity over a 3-year time period. That is by the end of 2023. So at this point of time, we are looking to raising something near EUR 200 million. So on Slide #8, we have the profit and loss account of the bank. As I said, NII is almost up by 22%, mainly due to the decrease in financing costs. Net fee and commission income is up by 51%. This is mainly due to the new production, which has -- which creates fee income related to those new loans. We still have a punitive effect from the losses on the trading book, which have been recorded in Q1 2021. This has been partly offset in Q2. But still, this is a EUR 6 million loss in the profit and loss account. Personnel expenses -- on the cost side, personnel expenses are down by 1%. And we expect, as I mentioned before, additional savings from the conclusion of the first phase of the voluntary exit plan, which are estimated on an annual basis to produce savings of over EUR 2 million. Cost of risks are stable at 0.6%. Business as usual in the sense that, number one, we do not experience any new NPEs -- significant new NPEs coming from our legacy loan book. And our new production is moving well below the risk appetite defined in our business plan in the sense that we do not expect any additional -- we are not experiencing an increase in NPEs based on this increased new production. Number three, COVID-19 effect is not estimated as having -- expected to have a significant impact on the bank's future NPE flow because of the very low contribution of COVID-19 forbearance in our performing loan book. Now on some operational aspects. Transactions through digital channels are still picking up. We have 18% year-on-year increase on e-banking users. The bank has a wide range of product. And it has an e-banking and mobile banking platform, whereby our customers can pretty much do everything comparable to the -- what the rest of the Greek banks can do. And this has been validated by a 35% increase year-on-year in the number of transactions from e-banking and banking channels. The volume of electronic transactions on an annual basis stands at just south of EUR 1.5 billion. And we have doubled volume in terms of mobile banking transactions. The bank's digital transformation is ongoing. We expect that by the end of 2021, early 2022, the bank will be in a very different spot, meaning that it can -- it will be in a position to fully interact in a digital manner through its clientele and with all of its -- almost all of its products. With regards to profitability. Our core banking income, as I said, has increased. That is the aggregate of NII and NCI. Nothing material coming from other income line or anything else except from the losses reported from the trading book. NIM still remains high. It's up 2.8% compared to 2.7% in the end of -- the closing of 2020. Commission income. Commission income still stands from pure core banking operations and has significantly increased mainly due to commissions earned from the new loan production. We also expect that at some point of time and given that the COVID-19 effect, the pandemic effect will start to ease, we expect that the bancassurance revenue-generating activity will start to kick in. At this point of time, I would like to repeat that the bank has an exclusivity arrangement with Interamerican, which is probably the largest player in the Greek insurance market. And based on the business plan, upon maturity of this corporation and over a 5-year time period, we expect that fees from bancassurance can reach up to an amount of EUR 8 million per annum. So we are monitoring the increase in fees in NCI, and we expect that the best has yet to come. Another factor that I would like to convey to you is that since March 2021, the bank has ceased the -- has terminated the use of a Pillar 2 bond used for liquidity purposes. We paid the Hellenic Republic EUR 3.5 million on an annual basis, and this was recorded under the commission expense line. Since March 2021, this is no longer the case. So we expect that there will be, by the end of 2021, a positive net effect on NCI of approximately EUR 2 million. Recurring operating expenses remain rather stable, except for the effect of -- which is nonrecurring, of COVID-19 expenses related to the usual stuff that usually comes around COVID, which has to do with cleaning and all the other routines undertaken by the bank in order to make sure that everyone here feels and stay safe. With regards to the balance sheet on Slide #15. The mix on the asset side is much better, meaning that the contribution of net loans to total assets is higher. Net loans stand at something like EUR 1.5 billion, securities at just 1 -- at EUR 1 billion. The line securities also includes the NPL securitization senior notes, which currently that is up -- amount to something like EUR 800 million. EBITDA at EUR 414 million, and this is before the conversion of the DTC. I remind you that we are -- on June 30, we have converted the DTC. And we have been -- we have received the money as of August 9. That is EUR 152 million. So on the September 2021 accounts, you will notice that there's going to be a significant decrease in the EBITDA balance coming through the decrease of the DTC, whereby DTC of EUR 152 million has been converted into cash. On the funding side, the deposits have increased. Time deposits amount to EUR 1.7 billion. Other deposits amount to EUR 1.2 billion, and there is funding from ECB of EUR 210 million. Total equity just south of -- net equity, just south of EUR 190 million, mainly due to the losses recorded until June 30, 2021. Slide #16, we have the loan portfolio breakdown by industry, but what's most important is the breakdown on the lower right-hand side of this slide. This is the loan portfolio breakdown, excluding the loans that are included in the Astir 1 and 2 and Omega securitization. There, you can see that the contribution mainly comes from large corporates. We are talking about a performing loan book of just over EUR 1 billion. So it makes sense that there's still some concentration among large corporates. Mortgage loans contributed to -- by 9%, consumer loans by 3% and SMEs by 13%. Furthermore, the bank's business plan aims to seriously revamp the retail banking business, meaning that retail banking has already picked up in terms of numbers. We are breaking the historical records for the past, let's say, 5 years, at least, meaning that the bank has reintroduced itself into this market. And we expect that by the end of 2021, we will have some serious numbers to show you on how the bank's business plan is unfolding in terms of the retail banking segment. Now on Slide 17, with regards to asset quality and the analysis of the NPEs. The NPEs stand at EUR 900 million without taking into consideration the effect of the securitization. In total stands at EUR 936 million, out of which EUR 547 million refer to wholesale loans, EUR 297 million to mortgage loans and EUR 92 million of consumer loans. Loss loans allowances amount to approximately EUR 370 million, and the total coverage also included collateral values cap at the loan value amount to -- stand at -- total coverage stands at 121%. [Technical Difficulty]

Ladies and gentlemen, we apologize for the pause. Please hold your line. You will be hearing music until the session resumes.

So back here with you and concluded on the -- concluding on the NPE analysis. I would just like to inform you that out of this EUR 936 million loans, only EUR 50 million are managed in-house. The rest is -- has been outsourced to services and has -- is already in the process of the securitization and in the process of recognizing these loans, subject to the sale of the mezzanine notes. In terms of liquidity, as I said, we're doing great. We have a significant improvement in deposit inflows year-on-year. The -- as we are today, deposits stands over EUR 3.1 billion with the cost significantly -- consistently reducing. At this point in time, I would like to let you know that our aim is to bring the total cost of deposits to something that will look like 0.2% by the end of this year, meaning that there is still significant room for improvement in terms of funding costs and further improvement in terms of NII. On Slide 19, a bit more information with regards to the liquidity. The ECB exposure is at EUR 210 million. As we speak, it's at EUR 150 million. We have no ELA since March 2019, of course. And through the firs semester of 2021, deposits through Raisin stand at EUR 155 million. As we speak, it's over EUR 180 million. Now on Slide 20, we have the capital adequacy. As you can see, the total capital adequacy ratio has further dropped because of the losses recorded in the first semester of 2021. But we already have the capital turn in place. We have already in place the securitizations. We have started the whole process, which is up on maturity. As I mentioned before, in terms of the sale, the disposal of the mezzanine notes, we have a binding and a nonbinding offer for Omega and the Astir 1 securitization transaction. But the main capital action is the share capital increase. So today, there will be an announcement regarding decisions by the BOD order to convene and for those to be approved by an extraordinary general assembly, which will take place on December -- on September 15, 2021 in order to facilitate the execution of a swift and investor-friendly, let's say, share capital increase. We will be proposing to the general assembly to approve a reverse split of 60:1, so as to have a very effective process, which will be over by the end of September 2021. We have engaged all the financials and legal advisers. The marketing process, as I have already discussed, has already started. And this is work in progress. And effectively, we're going to have a very good outcome out of this recapitalization process of Attica Bank. Operator, at this point of time, I would like to give the floor for the Q&A section because the presentation is pretty much over.

[Operator Instructions] The first question is from the line of Fonseca Pedro with Edison.

Nikolaos, I'll start off with just some general question in terms of the balance sheet growth. What do you envisage to achieve by the end of the year in terms of your loan book? You now stand at, I think EUR 1.68 billion. Where do you think is the first stop in terms of your growth by the end of the year? And also on the same topic, in terms of where you expect large corporates to make up as a percentage of the loan book that same 3 years from now when you sort of double the growth? So that will be my first 2 questions.

Okay. Pedro, thank you for your questions. We expect that by the end of the year, we will be in a position to convey to the market that we will have increased -- we will have expanded our growth by something less than 10% compared to the end of 2020. This means effectively that we expect that loan balances will be increased by something like EUR 200 million, also taking into consideration repayments. Where we are today, we also said the numbers, we believe that we will exceed the budgeted figures that we have for new production of 2021, which will stand in total just south of EUR 300 million. But we are conveying about an increase just south of 10% in order to also capture the fact that there will be some repayments going forward. With regards to the corporate loans, we -- you know what, the bank has been mostly working as a boutique corporate bank for SMEs and large corporates. As I said before, we are targeting to revamp the retail business. But this, number one, takes a lot of -- things must happen. And there are a lot of moving parts also considering the fact that the retail banking and the new retail banking will have to leverage upon the digital channels, which are already underway. This is work in progress. So therefore, we expect that in the first few years -- the first 2 years of the business plan the corporate business unit will have to carry the burden of increasing the numbers -- of delivering significant increased numbers. And we -- for the retail banking, we are more doing the delta in order to show that we are here and this business is upticking. And we expect that we're going to have a serious contribution of retail banking into the loan portfolio by the end of 2023. The goal is, after 2023, to have -- to move towards a mix that will represent -- that will look like something 65:35 that is corporate and retail. Because as you understand, the retail banking business is much more lucrative for -- as a business -- as a banking unit.

Okay. The other question I have is just on your fee business. So obviously, the insurance, we still yet to see the big impact on the insurance. But roughly -- so if we're going to look at next year in terms of sort of a range of revenue, what would you like to see your fee income to be at? And also within the fees, is there a scope for you to increase some of the fees? Or is this mostly going to be volume related and new products related?