CrediaBank S.A. (CREDIA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Gaily, your Chorus Call operator. Welcome and thank you for joining the Attica Bank Conference Call to present and discuss the third 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. This is Nikolaos Koutsogiannis, CFO of Attica Bank. Ladies and gentlemen, I would like to welcome you to the Attica Bank 9 months 2021 results presentation. We start off where we have prepared a small deck. We start off with an update on the recapitalization. We have led a lot of information regarding the evolution of Attica Bank share capital increase. And I'm delighted to inform you that the share capital increase of Attica Bank of EUR 240 million has been fully subscribed. Therefore, we concluded this transaction in -- on 21st of December 2021. EUR 240 million have already flowed into the bank, and the bank share capital now stands at EUR 244 million. This share capital increase, except for the obvious effect of enhancing the bank's regulatory capital, had also as a result, the inclusion in the bank shareholder list of a strategic investor. More specifically, we have a new player, Rinoa, which is an entity affiliated with Ellington Solutions, holding 9.9% of the bank share capital. Apart from that, we have HFSF with 62.9% TMEDE with 14.7% and e-EFKA with 10.3%. On a pro forma basis and based on the September 30, 2021, capital adequacy ratio reported in the financial statements and in this presentation as well. CET1 now stands at well above the minimum thresholds at 12.2% and the total capital adequacy ratio at 15.6%. I would like to remind you that we are still under the COVID relief era, meaning that the minimum total capital adequacy ratio for the bank as communicated to us by the regulator is 10.71%. So we still have a lot of buffer compared to the minimum thresholds. What's also interesting in order to wrap up the share capital increase issue is that the main shareholders have reached an agreement. And based on the information that has been received by the bank and also depicted in the prospectuses that we have issued, there is an agreement which describes the process, a road map. Based on which and at this point of level, the TMEDE and Ellington are willing to hold up to 68% of the bank share capital. So this also contemplates another transaction, Third Capital Injection sometime in 2022, whereby except for another share capital increase if needed, there will also be issuance of alternative instruments, such as warrants or another financial instrument in order to make sure that the investors get the percentage of 68% ,TMEDE and Ellington. Now on the big picture. Turning to Slide #6. We have some key highlights regarding the macroeconomic outlook of the Greek economy. The Greek economy has rebounded. We have very good and strong indicators. What we monitor internally is the Greek economic sentiment indicator, which has further improved in November and now stands at 113.4 points. And this represents an increase of 22.2 points 1 year ago. This is very important for us as we see this is an important indicator, which creates expectations regarding the outlook of the Greek economy. With regards to the GDP growth, as recorded -- as communicated by the Hellenic Statistical Authority, GDP has recorded growth of 13.4% in the third quarter of 2021. And we also expect that by the end of -- that up to the 9-month period of 2021, GDP growth also stands at something like 9%. Overall, the expectation is that GDP growth will be on the north side of 7% in 2021, 5.2% in 2022 and 3.6% in 2023. I have to remind you, though, that this is highly conditional on the flow of funds from the so-called RRF program, which has -- whereby the commission has directed a significant build for the Greek economy in order to foster growth and transform the Greek economy, both in terms of sustainable growth as well as digital. Unemployment is forecasted to decrease at 15.3% in 2021, following a further decline in 2022 and 2023. Now with regards to the financial performance of the bank for the first 9 months of 2021. Turning to Slide #8. Core pre-provision income, this is the sum of net interest income and net commission income, stands at something just south of EUR 40 million. And the NCI, net commission income, is up by 62% (sic) [52%] on year-on-year. This is the result of increased lending activity by the bank, and of course, the somehow restoration of, let's say, clientele visiting the bank's branches and making transactions from the bank's physical network. The bank continues to place emphasis on cost reduction. Personnel expenses have decreased by 2.2% year-on-year. And general OpEx have marginally increased, mostly reflecting some one-offs as well as the effect -- the impact of certain COVID-related expenses to make sure that the bank continues to work and operate in a business-as-usual manner. Now with regards to asset quality, what we have recorded -- what we have communicated in the past is that on a pro forma basis, the NPE ratio stands at very, very low levels, at practically 0. Again, on a pro forma basis, NPE ratio is something like 1.1%. But without taking into account the securitizations already underway, Astir 1, 2 and Omega, the NPE ratio as reported in the bank's financial statements stands at 43.4%; and the cash coverage, that is the coverage by provisions, at 46%. New financing and refinancing for the 9-month period reached EUR 257 million, significantly increased compared to 2020. And this also highlights the important role that the bank has to play in the fostering of the growth in the Greek economy, mainly supporting SMEs and large corporates in the context of significant projects taking place into the Greek economy or expected to take place. With regards to cost efficiency and liquidity, customers deposits again have decreased -- have increased, I'm sorry, by 8.4% year-on-year. And gross loans to deposit ratio stands at 56.2%, highlighting the increased lending capacity that the bank now has. In terms of liquidity, I would just like to mention that the bank has never been better. And excess liquidity at this point of time is at significant levels, capable of financing the bank's new lending business for 2022. This is also a result of the diversification of the sources of funding for the bank, meaning that except for retail deposits, except for ECB funding, we also have the Raisin platform, whereby the bank is -- has very good cooperation and has managed to -- at this point of time and in just 10 months, has got deposits of something over EUR 200 million. Now with regards to the COVID-19 impact, just EUR 40 million of loan exposures have made use of forbearance measures in the 9-month period of 2021. And EUR 43 million -- EUR 73 million, excuse me, into financing programs sponsored by the state. This all in all represents just 12.4% of the total performing loan portfolio of the bank. With regards to impacted loan exposures by COVID-19, the loan exposures -- those loan exposures amount to something just south of EUR 600 million as of September 30, and out of which EUR 450 million (sic) [550 million] approximately are related to corporate loans and just EUR 47 million to retail loans. Now with regards to the business model, the bank has a business plan in place. As we have communicated in past communications, we -- due to COVID-19, we expect some time shift in achieving the main business objectives with primary strategic goal is to double the loan book in 3 years' time. On Slide #9, we have a condensed profit and loss statement, where you can see the change compared to the prior period. In terms of NII, there is a decrease of 7.5%. This is mainly due to the decrease in interest income as the bank faced some serious down payments from clients and borrowers in the third quarter of 2021. This decrease was only partially offset by the lower financing costs by 19% year-on-year. Net fee and commission income has increased by something like 52%, driven mainly by increased commissions from transactions with the use of credit and debit cards as well as increased commissions from loans and letters of guarantee as well. With regards to the -- also before moving on to the expenses side, as you may recall, on Q1 and Q2, we had some negative results from the investment and trading -- from the trading book or, let's say, in the nonbanking book. This has been significantly, I would say, offset based on a more aggressive approach, whereby a significant amount of bond activity has taken place, especially in the third quarter, so as to offset as much as possible of the loss crystallized in the previous 2 quarters of the year of 2021. Now moving on to the cost base. Personnel expenses have decreased by 2.2%. There has been another voluntary exit plan, which took place in the second quarter of 2021. The positive effect from this plan and the departure, let's say, of 61 FTEs is already starting to kick in, in the personnel expenses line. And we are experiencing these savings -- significant savings, which we estimate on an annualized basis will amount to EUR 2.5 million. With regard to the cost of risk, based on the -- we are in budget -- in line with our budget and our business plan, meaning that we estimate that cost of risk should not exceed 1% from now on and based on the information we know at least so far. So there we have it, the cost of risk at 0.9% on an annual basis for the 9-month period of 2021. The result before tax is approximately EUR 34 million of loss -- excuse me, it's EUR 20 million of loss; and after tax, EUR 27 million, mainly impacted by some write-offs in the deferred tax income line. With regards to profitability on Slide #11, we are taking deep dive into the components of the bank's banking income. We have a limited number of nonrecurring transactions, meaning just EUR 1.1 million has been recorded as nonrecurring. And we have a solid other income line, mainly driven by the -- by income -- by rental income from POS. As you know, POS is the machines used for credit and debit card transactions. So all in all, the core banking income is at EUR 39 million, significantly, however reduced, compared to the same period -- to the Q3 2020, which was EUR 55 million. However, the contribution, as you can see, of the trading book into the core banking income for 2020 was mainly driven by the trading book, and we do not have the same results for 2021. With regards to commission income, in Slide #12, we have the breakdown. As you can see, most of the commission income is driven by network operations. This is a physical channel of the bank, which have increased by some 26%. We are placing a lot of emphasis on the digital transformation undertaken by the bank. We expect that in 2022 -- by the end of 2022, there will be additional channels in place so that digital transactions are made possible. And we also expect some good news in terms of the commission expense line. Furthermore, the bank places a lot of emphasis on the bancassurance business. We have a collaboration with Interamerican, a well-known player, at least in the Greek market, which is part of the ACHMEA Group, the Dutch Fund. And based on this cooperation, we expect that the bancassurance will be a significant contributor in the commission income line in the years to come. Slide #13, with regards to operating expenses. As you can see that on run rate, the recurring operating expenses have marginally increased by EUR 2 million of -- year-on-year as a result of increased administration expenses and, of course, depreciation expense, which makes sense as we will move on to a more digital, let's say, platform. And also with regards to COVID-19-related expenses, this amount to approximately EUR 0.8 million. And the estimate is that by the end of the year, consistent with the prior year, COVID-19-related expenses will amount to something like EUR 1 million. With regards to the structure of the bank's balance sheet on Slide 15, you can see that there is a small decrease in total assets and total liabilities. These columns -- those statistics are not on a pro forma basis. Those are the actual numbers. So the share capital increase -- the recent share capital increase has not been factored into the analysis. So with regards to the assets side, the bank is purely, let's say, commercial bank, meaning that loans are the major contributor on the asset side. Securities, including also securitization senior notes, amount to just south of EUR 600 million. DTA significantly decreased from EUR 450 million (sic) [421 million] back in 2020 to just EUR 262 million, following the transposition of the DTC on the third quarter of 2021 into cash. Cash now stands at just south of EUR 300 million; and PPE, including intangibles, at EUR 100 million. With regards to funding, the bank is reliant on retail deposits. You can see that time deposits amount to EUR 1.7 million. And core deposits, meaning deposits mainly on savings accounts, are at EUR 1.1 million. Limited reliance at this point of time in inter-bank funding, just south of EUR 200 million; some exposure on ECB, EUR 65 million. On Slide #16, we have the breakdown of the loan portfolio by segment on the upper-left side, where you can see that the majority of loans are in large corporates, which makes sense, of course. Please bear in mind that the bank has performed sequential NPL securitizations. So starting off from a loan portfolio of EUR 4 billion approximately back in 2016, we just have -- just south of EUR 1 billion of performing loans. So there is concentration risk and especially in large corporates. Now what's interesting is that in the prior years, it used to be a handicap to have a significant exposure in the construction sector. But as we move on into time and we have the RRF funds where construction companies are expected to be the main absorbers of those funds, this tends to be a competitive advantage for the bank. So the bank is in a very pleasant position, having a good footprint on the construction sector, having established cooperation with some of the best companies in the country. Okay. Moving on to Slide #17. We have the analysis with the application of NPEs. As you can see, we have a slight reduction in NPEs compared to the end of 2020, which mainly has to do with the carve-out of certain NPLs, which have been included into the Omega transaction. At this point of time, I would like to say that in 2021, the bank has reached a decision to formulate the Omega transaction, which includes the remnants, let's say, of the legacy Artemis securitization that originated in 2017. And we -- what we also did and we have conveyed to you in the past is that we moved up noted that any remaining NPLs from the bank's balance sheet as of December 2020 in order to formulate -- in order to add those loans and the Omega securitizations. So as we are today, NPEs, the GBV is at EUR 702 million. The LLAs, the loan allowances, amount to just south of EUR 310 million. If we also factor in the collaterals, which are capped at the loan value, the total coverage is well above 100%. Now what's very interesting is that if we also consider Slide #18, where we present the securitizations which are underway, please bear in mind that Astir 1 and 2 are still reported on balance sheet and under the loans and advances lines. So the sum of Astir 1 GBV, EUR 320 million and Astir 2, EUR 371 million, amounts to approximately EUR 691 million. And if you compare this with the outstanding amount reported in the previous slide of EUR 702 million, this means that following the successful execution of Astir 1 and Astir 2 securitization transaction, the bank on a pro forma basis has approximately EUR 10 million of NPEs. Now a valid question would be, why are you guys not carving off the remaining EUR 10 million? This mainly relate -- this -- those loans, which are left back relate exclusively to staff loans, where we have reached the management decision to manage those ourselves and not the outflows or include them into any securitization. So moving on to Slide 18 on the securitization. We have Astir 1 and Astir 2, which are underway and as well as Omega, which is the legacy Artemis, including any remaining NPLs in the bank's balance sheet as of December 2020, as I mentioned before. We also have a preliminary structure for Astir 1 and Omega, which are in a more mature phase. Let me remind you that as we have already conveyed that to the market via the stock market, we have reached an agreement and we have sold as of October 4 of 2021 the Mezzanine and junior notes, 95% of those, into Ellington. So this is a transaction which is going to be depicted on the Q4 results. And this is the preliminary structure. For Astir 1, we also have a preliminary structure whereby we are in a very advanced stage in discussing with the U.S.-based front of the disposal of 95% of the Mezzanine and the junior note as well. Now what's very critical in this whole exercise is that the bank is willing to include the senior notes from -- of those securitizations into the HAPS 2 plan. In order for a senior note to be included in HAPS 2, there must be a rating from a well-known credit rating agency. The bank has made all the necessary preparations. The rating process is underway. And we expect that in the first quarter of 2022, we will have clarity regarding the outcome of the rating process and we are in a position to -- we'll be in a position to resize the senior notes if needed based on what the rating agencies can tell us. Moving on to Slide #19. We have some elements of the bank's liquidity. As you can see, the breakdown per customer on the upper left-hand diagram. We have the breakdown between individuals, corporates, public sector and other. You can see that the reliance on the public sector is below 15%. And corporates represent 13% -- 12.6% of the bank's total deposits, whereby most of the part is held by individuals. And I would like to say that this is a very diversified funding base in terms of retail deposits. With regards to the evolution of deposits, we started off in Q3 2020 at EUR 2.6 billion, and we are now just south of EUR 2.9 billion. Just a very interesting historical information. We have conveyed in the past that Attica Bank is a turnaround story. I would like to remind you that at the end of 2016, customer deposits were at EUR 1.7 million, and we are now at approximately EUR 2.9 million. And as we speak today, we are over EUR 3 billion of customer deposits. So we are almost getting near into doubling our deposit base in something like 5 years' time, which represents an average growth per annum of some 20%. By type of product, the bank is heavily reliant in time deposits as it usually goes with small banks with a relatively small branch network. But we are doing our best in order to bring down the cost of time deposits. As you can see, we started off at just south of 1% like a year ago, and now we are at 0.56. And the bank's ambition, now that there's ample liquidity, is to further bring down the funding cost. And we expect that there is still a lot of room for improvement in this area. Just a final statement at this point. If we compare the -- what the bank offers in terms of time deposits compared to what the systemic banks, for example, offer, you will see that we are offering much more. We believe that at the end of the day, we will not be offering as lower rates as systemic banks, but it's going to be something which is incrementally higher, but not in the area of 0.5%, much, much lower. So I'm just saying this in order to manage expectations and say that there's a lot of improvement in this area, and we believe that there's a lot of room to bring -- to further bring down the funding cost of the time deposit especially. On Slide #20, we have a bird's eye view on the funding mix of the bank. As you can see, the bank has -- we started off in 2016 with EUR 1.1 billion approximately of ELA exposure. We repaid fully ELA on, I think, 21st of March of 2019. That was a glorious day, and that's been forgotten and never -- has never been reactivated. So the bank without much ECB funding, without any ELA, has managed to cope during this 9-month period, where I would like to remind you that our capital adequacy ratios were well below the minimum thresholds. We have coped with that and not only that, but we have significantly increased our liquidity, and we believe that this is a very good sign of trust by our clients here in Greece. On Slide 21, we have the evolution, the bridging of the capital adequacy ratios. So we started off at the end of 2020 following the recording of significant losses. Just to remind you that we approximately have written off 1/10 of the bank's total assets back in 2020. We had the total capital adequacy ratio just above 8%. Now it stands at 6.3%. And on a pro forma basis, also factoring in the share -- the recent share capital increase, the pro forma total capital adequacy ratio stands at 15.6%, well above the minimum threshold of 10.71%, and CET1 at 12.2% on a pro forma basis again. RWAs have reduced, and this is mainly due to the transposition of DTC into cash, which took place in the third quarter. As you know, DTC was weighted at 100%, whereas cash is weighted at 0%. So this margin has made the difference in terms of RWAs and sequentially to the total -- to the capital adequacy ratios. So RWA stands at just north of EUR 2.8 billion compared to EUR 3 billion back in 2020. So what follows the presentation is the appendix. So at this point of time, I would like to give the floor to any questions. Thank you.

[Operator Instructions] Ladies and gentlemen, there are no questions at this time. I will now turn the conference over to Mr. Koutsogiannis for any closing comments. Thank you.

Thank you, operator. I would like to wish you -- every one of you a happy new year. I would like to ask you kindly to stay tuned with Attica Bank. We have a lot of -- to say in the quarters to come. And we truly believe that this is a turnaround story, and we will make it possible so that everything is depicted from the bank's financial statements and presentations in the best possible way. Thank you very much for your attention and have a happy new year. Thank you.

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.