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

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

Thank you, operator. Ladies and gentlemen, it is a great pleasure to welcome you to the financial year 2021 results presentation of Attica Bank. I have the pleasure to have here with me the bank’s CEO, Mr. Michail Andreadis; the CRO, Mr. Francis Psyllas; and our Group Treasurer, Mr. Marinos Danalatos; and myself, Nikos Koutsogiannis, CFO of the bank. At this point, I would like to turn to our CEO, Mr. Andreadis, for an opening statement. Mr. Andreadis, if you may please.

Nikos, thank you. Thank you all for participating in this conference call for financial year 2021 statements. In 2021, we show the bank restoring its regulatory capital position through the successful completion of EUR 240 million shared capital increased back in December 2021. While at the same time, Attica Bank widened in shareholder base, adding 2 further long-term investors, mainly the HSF and renewal limited, which together with strategic investors are committed to support the bank in its transformation journey. In 2022, Attica Bank is reshaping its future focusing on cleaning up its legacy issues and executing a transformation plan that would allow the bank to return into sustainable profitability and growth. Key priorities of the bank relate to decisive MP clean up, credit expansion, redesign of its operating model, digitalization to drive cost containment, generating value from non-core assets, optimizing its liquidity deposition and adjusting governance arrangement to support the implementation of its business plan. I would like to thank you once again. I will pass the floor to Nikos for further elaboration on the financial statements for 2021. Thank you.

Thank you, Mr. Andreadis, for this opening statement. So ladies and gentlemen, we proceed with the presentation that has been uploaded on the bank's website. We start off with the macroeconomic environment. We'll appreciate that the green economy is rebounding. However, the geopolitical circumstances posed in uncertainty regarding - with regards to what lies ahead. So GDP in Greece based on [indiscernible] esteemed institutions grew by 7.7% on a yearly basis in Q4. This approves this way, reflecting the strong expert performance and the distribution from private consumption, which has rebounded following raising, let's say, of the COVID-19 situation, the pandemic effects over the economy. However, we all know that the first quarter has been hard, has been hit hard by the geopolitical crisis in the wider Ukrainian area. What we see in terms of economic indicators, we see a slight decrease in the ESI, that is the economic sentiment indicator. And we also experienced a significant increase of energy prices. And we are waiting to see what the result is going to be on private as well as public spending. According to [indiscernible], which is responsible for making analysis in the Greek economy, Greece is forced in terms of dependence on LNG imports. This is a major, let's say, challenge for the Greek economy. However, tackled in terms of national and supernational initiatives. It's evident that the electricity and fuel prices are set to peak during the first month of 2022. High energy costs are expected to affect the other components of the conception basket, and we are also experiencing increasing trends in inflation. And we understand that the inflation is that this is going to be something which is not going to be short term, but we will have to live for some time now with increased inflation. With regards to the financial sector and most specific banks, what we've seen during 10/21 is a slight decrease in net flows of private deposits in Greek banks. More specifically, deposits from private sector were reduced EUR 260 million in February, out of which 215 stem from corporate entities and EUR 45 million from households. The cost price yield of mid disbursements in the corporate sector stood up 2.9%, marginally reduced, and still in Greece yields are somehow higher compared to the yearly average by 146 basis points. Since the beginning of 2020, financing to non-financial corporates have released the levels of EUR 29.5 billion with a declining trend. Now coming to the financials of Attica Bank first Y 2021; core banking income, that is income produced by net interest income and net commissioned income that is accepting trading book activities stood at EUR 60.1 million, slightly increased for EUR 4.5 million on a year-to-year basis. Fee and commission incomes stood up by an impressive 69%, excluding one of items in the fee income line increase is at 30%. What's very important is to stay, as we'll discuss further on the presentation, but most of this from all almost all of this net income net free increase comes from our transactional banking and operations within the branch networks. The bank, especially in 2021, and especially with a much more hands focus in the beginning of 2022, continue the emphasis and cost reduction. So expenses have decreased 3.4% year on year in 2021 following a successful VRS program in the second quarter of 2021 whereby 64 people left the bank. And I will also have to state that there's another program ongoing where we expect that the further decrease, further savings are going to be produced in the staff and in the staff and personnel expenses, FSLI by approximately EUR 4.5 million from 2022 and onwards. With regards to asset quality, without taking into accounts are still 1 and 2, the NPI for S&P ratio standard 33.6%. And the cost coverage of those stands up 45.5%, which is a comfortable coverage ratio considering the composition of the bank’s NP portfolio that we will discuss later on. New financing and refinancing stood at EUR 361 million for 2021, out of which 334 are referred to corporate entities and EUR 27 million in retail loans. Now the increase in retail and banking business is almost 4 times higher compared to the one in 2020. Cost efficiency liquidity increased customer deposits by 4.3% on year on year. Gross loans deposits stand still at very low levels. That is slightly less than 57%. And the bank has further diversified its source of funding in collaboration with a platform that is arising whereby the bank is able to attract deposits from EU depositors. And we also expect that with the enrolling of the banks digital program, we will be in the position to be some digital deposit gather in order to further diversify funding sources. COVID-19 impact, as an indicator of NPs to come, only EUR 37 million of loan exposures have made use for various measures in 2021 due to the COVID-19 impact. And just EUR 70 million into financing programs sponsored by the state. This is just 11.2% of the total performing loan portfolio of the bank. With regards to the business model, business model remains firm, however, enhancements are to be expected. And we also have capital actions unfolding in 2022 in order to strengthen the bank regulatory capital in order to be in a position to use this as a fuel going forward in terms of credit expansion. What we see very interestingly is the fact that we are experiencing a steady increase of digital channel users, new projects, and services available made to the bank to the common public. Going into the prof statement on page 8, we see the NII has come down by stand 16.2%. This is mainly due to the decrease of income generated from loans portfolio attributable 12.4%. And this comes as a result of significant retainment experience throughout the Greek banking system in 2021. Now this decrease has been only part set by the astonishing, I would say, in decrease in funding by 16% on the year on year. As we mentioned before, fees and commissions have gone up by 69%, 30% on a like for like basis, driven mainly by commissions from transactional banking and increased commissions from loans and letters of guarantees. With regards to the cost base, some expenses have decreased by 3.4%, mainly due to the successful completion of the VRS program back in Q2 2021. This will produce an annual savings not fully captured in 2021, but a manual basis estimated at EUR 2.6 million. And on top of that, as I mentioned before, we have a new VRS program taking place in 2022, where we also expect EUR 4.6 million in terms of EUR 4.5 million in terms of further savings. So this all adds up to something like EUR 7 million on an annual basis. With regards to cost of risk, excluding new provisions for the secure type portfolios are still 1 and 2, cost of the one remaining non securitized loan book of the bank stands up 0.7% in line with the bank’s budget and expectations. Diving a bit deeper on the SLS of PNL. On page 10, we see the increase in tracking income. That income has decreased by 16.2% fees and commission. The net basis has increased by almost 6x. EUR 5.5 million in the FSLI net fee income refers to one-off nonrecurring commission fees. Gain or losses from securities, unfortunately, and as we are all aware of, 2021 has not been a very good year in terms of fixed income securities, but the bank has been able to manage the risk here and decreasing the losses suffered in 2021 starting from EUR 14 million, approximately down to just EUR 7 million at the end, throughout the full period, the year of 2021. Another income at EUR 4 million, significantly higher compared to 2020, mainly as a result of the reevaluation of investing properties, which has produced gains of [indiscernible] EUR 1 million. On Slide 11, with regards to cost commission income, you can see the breakdown of commission income. You will see that mainly it comes from a network operation, which is a good thing. And we also expect that this channel will be further, will be producing further credit risk free revenues in the years to come. The bank is placing a lot of emphasis in this area, and we also expect that the bank insurance business not fully mature during the times of COVID-19, is expected to kick in in the years to come through a very good corporation that the bank has established back in December 2019 with a niche flag in the Greek insurance marketing, which is in InterAmerican. On Slide 12, we see the value of monetary transactions through the bank’s alternative channels. We see that the total value of bank’s electronic transactions in 2021 are each over EUR 1 billion at EUR 1.3 billion. The increase in users is 17% and the number intensive transactions, the increase is 22%. And we also see that the increase in volume of mobile transactions year on year has also almost doubled during 10/21. Under cost base on Slide 13, you can see the composition of operating expenses. We've discussed before the reduction of personnel expenses, a bit higher compared to admin expenses compared to prior year for specific reasons. And an increase in depreciation, mainly driven or attributable to a non-return write off of intangible assets of approximately EUR 3 million during 2021. So total recurring operating expenses stand at EUR 77 million compared to 71 in the previous year, out of which EUR 1.3 million refer to COVID-19 related expenses. This represents in this analysis an increase of 8%, but as we mentioned before, and also emphasized by the CEO, the bank is placing effort on this area with cost reduction initiatives to bear fruit during the second semester especially of 2022. Coupled with the new VRS program already alive and partially completed. On the balance sheet on Slide 15, you can see the composition of the bank's partnership. What has changed compared to prior year? There is a decrease in the contribution of net loans over total assets. And this is mainly due to the completion of the omega secure whereby the bank carved out approximately EUR 300 million of NPs in various stages and included them the omega securitization. So in this case, we see that net loans currently stand up EUR 1.3 billion, securities, which includes fixed income and senior note securitizations namely Omega and [indiscernible] stands up by just south of EUR 1.2 billion. DTA significantly decreased from EUR 421 million to just 267 objectable to the activation of the DTC. The first time ever activation of D transposition into cash completed in August 2021. And before the shake increase of EUR 240 million, and you can also see that the bank has surplus liquidity whereby cash is spent up just out of EUR 0.5 billion compared to just south of EUR 200 million back in 2020. So total assets in at the end of 2021, spend that just out of EUR 3.7 billion compared to 3.6 in 2020. With regards to the funding mix, time deposit still is the major contributor in terms of funding standing at EUR 1.8 billion compared to EUR 1.6 billion in 2020. This is important because, as we mentioned before, a significant, reduction in funding cost has also been achieved. So this means effectively that the elasticity of a 20 process with the cost industry is quite low. And this also validates view the trust that the posters see in Attica Bank. Core deposits stand at EUR 1.1 billion, practically unchanged compared to the previous year. ECB funding at more or less the same levels and increased equity position at EUR 331 million compared to 209 in 2020, following the successful capital raise of EUR 214 million. Loan portfolio breakdown on Slide 16, you can see that the bank's portfolio is mainly skewed in terms of corporate banking. The bank for a number of years has been considered to be boutique core per bank. And the retail side started just starting to picking up in 2021. Excluded portfolios are still wanting to already secure. There is another way for being charged out of the bank's balance sheet. Then we can see that that corporate contributes to 65% of the total loan portfolio and SMEs with 15% of the bank’s loan portfolio. On the asset quality side on Slide 17, we see the composition of IFRS NPs. Practically all of these NPs are included in the still one and 2 securitizations. So in effect, post securitization, post successful sale of the measurement of junior notes and S&P, the bank effectively will have less than 5% in duration. The gross book value of MP sent us are just less than EUR 700 million, accumulated provisions of EUR 324 million and the cost coverage, which as we said is 46%, and also factoring the coverage by collaterals cut up the value of the loans. Then total coverage exceeds 100% meaning that the bank can suffer stresses going forward successfully without impairing its cost of risk estimate as they stand right now. On Slide 18, we see the breakdown of IFRS NPs. With regards to category, classification of NPs, 42% referred to denounced loans compared to 36% in prior year, and NPL that is 90 days past due, 50% compared to 44% last year. NPL per segment asset cloud mortgages is an important contributor for 6% and large corporates and estimate with 35%. Now it's important to state that the composition of the NP portfolio of Attica Bank is very, very different compared to the rest of the sector, meaning that the high contribution of mortgage allows the bank to live with the lower relatively coverage ratio compared to the rest of the banking system. In terms of liquidity on Slide 19, with regards to the evolution of deposits, there's an increase of 4.3%. And what's very important to note on the graph on the lower right-hand side, that the cost of deposits has decreased from 90 approximately basis points back in December 2020 to 45 basis points on time deposits and 33 on total deposits. As we speak, new production of type deposits runs below 30 BPs. On Slide 20, the important takeaways that the bank is fully compliant with the minimum liquidity KPIs regulatory ratios. LCR ratio stands at 255%, 5 exceeding the minimum threshold to 100%, and NSFR for number of years now, over 100% meaning that the bank enjoys long term liquidity as well along with short term liquidity, which is the LCR ratio. With regards to the composition of the fixed income portfolio, you can see that almost 60% refers to GGBs, and approximately 9% to other sovereign bonds. On Slide 21, we have a draft of depiction of the capital bridging. We start off with the total capital ratio of 2.8% back in 2020, mind you that in 2020, the bank booked record loss of over EUR 300 million. So what we saw in 2021 is on the consumption of regulatory capital to increase due to new prolong production. The IFRS phase in, which has decreased 1.4 percentage points total capital [ luxury ] ratio. And this has all been cured with the share capital increase of EUR 240 million, which has contributed approximately 8 percentage points to the bank's capital. So where we stand right now, we stand with the total capital ratio of 11.8%, far higher than the minimum for those 10.71% and our CET-1 and tier one capital advocacy ratio stand at 8.3% compared to the minimum threshold for tier one, especially of 8.03%. Another before 3 hops stand at EUR 2.8 billion, lower by EUR 300 million compared to 2020 without, however, reducing the overall loan balance. Now in section 5, we include a couple of slides regarding the bank strategy upgrade for over the next 2 years. The landmark transaction was a shakeup in increase back in December 2021 as also stated by the bank CEO. The bank successfully completed that, had enjoyed the inflow of EUR 240 million in the bank share capital, which allowed it to restore the capital ratios. And of course, as mentioned by the CEO, as emphasized by the CEO, we have the inclusion of 2 new shareholders long term, HFS with approximately 63%, matter strategic already existing investor in the bank with just less than 16%, [ ESCA ] with 10.3%. And the newcomer we know as [ LTD Solutions ], just south of 10%. An important takeaway is the fact that the bank appreciates based on the announcements they made back in December 2021, 13th of December, but there is a shareholder agreement that the bank will be fully cleaned up. In this context there is support in order for the bank to proceed swiftly in becoming a clean bank effectively. So for this purpose, the shareholders are willing to invest another EUR 365 million to a share capital increase provided that the bank proceeds swiftly with cleaning up of the legacy MP issues. However, it's very important to state that due to the wider geopolitical situation, the spread, the increasing spread of quick sovereigns compared to the EU average, the cost of the [indiscernible] program has increased significantly. The bank is running at full speed in getting the preliminary ratings for the senior notes of [indiscernible] one to end omega. And upon completion of this process, the bank would assess all available options in order to meet the clean bank target, be it perhaps all alternative tools. The last slide, 24, refers to some qualitative aspects of the bank's strategy going forward, which is that the bank will focus on niche business segments expected to be benefited from the RF and other programs currently running at the national speeds level. Also, the bank will focus on key activities and product offerings, meaning that the bank will likely focus on products will be high yielding and more suitable to the bank infrastructure and resources. The bank is also trying to achieve partnerships. And in terms of funding, as we said before, we are trying to further diversify the funding sources in order to have the funds available to finance this full project. This completes the core presentation and the rest of the part is the offenses. So operator, I would like to pass on the floor to you for any questions and we could begin the Q&A section. Thank you.

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

I would like to thank everyone for your patience and your attention. Mr. Andreadis, if you have a final statement or we can wrap up this call.

Thank you, Nikos. I would like to thank everyone for participating in the call and looking forward to meeting you the next conference call for our first half financial statements of 2022. Thank you.

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