Eurobank S.A. (EUROB) 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 Eurobank conference call to present and discuss the second quarter 2026 financial results. At this time, I would like to turn the conference over to Mr. Fokion Karavias, CEO. Mr. Karavias, you may now proceed.

Ladies and gentlemen, good afternoon, and welcome to the Eurobank First Half 2026 Results Presentation. Together with me is our CFO, Harris Kokologiannis, and the Investor Relations team. We will start with some key recent developments, then present our results and answer your questions. The global environment remains agile and challenging with geopolitical developments weighing on market sentiment and adding to inflation. Inflationary pressures will push euro rates higher even as the European economy remains subdued despite a better-than-expected second quarter performance. Nevertheless, the economies in the regions where we operate have so far demonstrated remarkable resilience, supported by a number of factors. First, investment activity remains robust. In Greece, in particular, the government recently unveiled a EUR 23 billion national development program for the period 2026 to 2030, focused on infrastructure, climate resilience and regional economic convergence. Second, the tourism sector continues to demonstrate resilience. In both Greece and Cyprus, tourist arrivals rebounded swiftly and current trends point to a season broadly in line with last year's strong performance. In Bulgaria, political stability has returned, providing support for economic growth. Nevertheless, the country still needs to address its budget deficit and persistent inflation. Finally, prudent fiscal management in both Greece and Cyprus has translated into strong primary services. This creates the fiscal space needed to implement targeted measures that help mitigate the impact of higher energy prices and inflation on households and businesses. In this context, credit expansion has remained strong across our region. Eurobank has successfully capitalized on this favorable environment, delivered double-digit annual loan growth driven by business lending in Greece and solid momentum in both Bulgaria and Cyprus. Now let's move on to our financial results as highlighted on Slides 5 to 11. Eurobank reported strong financial performance in the first half of 2026 with volumes, NII and fee growth trends accelerated on a quarterly basis. As a result, adjusted net profit reached EUR 776 million and return on tangible book value at 16.6%. In more detail, loan growth continued unabated with a quarterly organic growth of EUR 1.6 billion. This is 10% up year-on-year. Managed funds, another key pillar of our strategy, increased by EUR 1.2 billion year-to-date or 30% on an annual basis, while deposits also increased by circa EUR 3 billion over the same period. Net interest income rose 6.1% year-on-year as the quarter-on-quarter growth accelerated to 3.2%. Fees and commissions were up by 14% year-on-year, supported by a strong second quarter. As a result, core pre-provision income was up by 8% year-on-year to EUR 1.1 billion. Consequently, core operating profit reached EUR 952 million. This is 10% higher year-on-year. Now let's move on our activities outside Greece. Non-Greece revenues were strong and summed up to EUR 361 million net profit, underscoring the strength and diversification of the group's franchise. This performance was driven by Cyprus, which contributed EUR 230 million and Bulgaria, EUR 120 million in net profit. The CET1 ratio stood steady at 15.4% and the total capital ratio at 20.3%. So overall, the second quarter results demonstrate solid organic growth at a pace even faster than previously, both in Greece and across the region. Despite ongoing geopolitical risks, the strength of the underlying trends give us confidence that we will exceed our full year targets. Accordingly, on Slide 11, we present our updated targets revised upwards. We now expect full year 2026 EPS moving higher than our initial estimate with its growth clearly above the 10% mark, resulting in a return on tangible book value close to 17% compared with our previous guidance of 16%. At this point, I would like to ask our CFO, Harris Kokologiannis, to present our first half results before opening the Q&A session.

Thank you, Fokion. Let's now provide more insight into the second quarter results. On Page 20 and on lending volumes, growth accelerated in the second quarter versus an already strong Q1, reaching EUR 1.6 billion, with EUR 0.8 billion from Greece, EUR 500 million from Bulgaria and EUR 200 million from Cyprus. In the first half, loan increase reached EUR 2.7 billion with a year-on-year rate at 10.5%. Based on year-to-date performance and our pipeline, we will comfortably exceed the EUR 3.8 billion full year target to reach at least EUR 4.5 billion, which translates to a year-on-year increase of 9%. Group deposits shown on Page 21, rose significantly in the second quarter by EUR 3.1 billion, including EUR 1.4 billion from Greek corporate. Furthermore, Bulgaria and Cyprus had also a solid performance with EUR 600 million and EUR 400 million, respectively. As regards managed funds on Page 24, during the quarter, managed funds rose by EUR 800 million to EUR 11 billion year-on-year. They are higher by EUR 2.5 billion or by circa 30%. Private banking customers' assets and liabilities reached EUR 14.9 billion, higher by 10% year-on-year. Moving to profitability on Page 28. Quarter-on-quarter, net interest income increased by a solid 3.2%, reflecting higher loan and bond volumes and the Euribor effect. On a year-on-year basis, NII is higher by 6.1%. The net interest margin for the period increased to 248 basis points. Based on first half trajectory, we revised upwards our full year NII guidance from EUR 2.6 billion to more than EUR 2.7 billion. This implies a year-on-year increase of circa 7% from 2.5% before. The new estimate assumes that ECB rates will remain flat at the current level of 2.25%. Turning to fees on Page 29. Momentum strengthened with fees up 3.7% quarter-on-quarter to EUR 210 million. Our focus on wealth and insurance pays off as reflected by the 40% annual growth. Lending commissions remain solid and are higher year-on-year by 30%. Overall, group fees are higher year-on-year by 13.5%. As a result, we are revising our full year organic growth outlook to nearly 10% from 7% previously. Moving to costs on Page 30. Quarter-on-quarter, OpEx remained broadly flat with limited fluctuation expected for the rest of the year, which is in line with the outlook provided in our previous call. As a result, we reaffirm our full year target of EUR 1.33 billion, implying a year-on-year increase of around 5.5%. On Page 32, we summarize operating performance for the first half of the year. Core PPI reached EUR 1.1 billion, higher by 7.7% year-on-year. Loan loss provisions for the period amounted to EUR 148 million or 53 basis points, in line with our plan. Consequently, core operating profit reached EUR 952 million, higher by 10% year-on-year. Moving on to asset quality on Page 34. NPE ratio decreased to 2.5%. Coverage decreased to 82.4% as per our guidance, driven by the utilization of overlays related with CHF loans conversion and the transfer of circa EUR 370 million household loans held for sale. On capital end on Page 38, CET1 ratio remained stable quarter-on-quarter at 15.4% as organic profitability contribution was offset by strong loan and bond growth, payout accruals and DTC acceleration. The total CAD ratio on Page 39 stands at 20.3%. Overall, our first half performance is beating our initial expectations and makes us confident to revise upwards our full year guidance as shown on Page 11. The accelerated loan and AUM growth, the upgraded NII estimate and the strong performance in fees is driving EPS higher with growth at levels clearly above the 10% mark. As such, return on tangible book value is expected to be close to 17% versus 16% previously. This completes my presentation, and we may open the floor for your questions.

The first question comes from the line of Gabor Kemeny with Autonomous Research.

Firstly, on the NII guide, a big upgrade. I believe your NII was annualizing around plus 7% already in the second quarter. So perhaps you could help us quantify how do you think about the benefit from higher euro rates in the second half, higher volumes? And if there is anything additional we should consider around spreads given the competitive environment? My other question would be on tourism, actually. And how do you see the trends going to the peak tourist season? And if you see any possible impact implication for your businesses in either Greece and Cyprus? And I'll leave it there.

Let's start from the second part, and then I'll take the one as regards...

Thank you for the questions. As I mentioned in my introduction, the touring season, both in Greece and in Cyprus is doing very well. In terms of arrivals, we see a very material rebound after a couple of months of moderate pace when the war started. So based on what we see at the moment, we expect that the overall performance for the year 2026 is going to be close to the record performance that we have seen in 2025. Close means slightly below, but no more than 2% to 4%, let's say. So overall, the business is very good and the business remains very good also in terms of financing these projects as we have done in the previous years.

So actually, as regards the full year guidance on NII, it has taken into account the volume effect of EUR 2.7 billion in the first half of the year, plus EUR 1.8 billion for the second half. So as a total, the full year at EUR 4.5 billion. On the other hand, we have done as regards the increase of our bond position, although we may have some room for some further acquisitions up to EUR 1 billion for the rest of the year. No material change as regards the deposit spreads. The annualized MREL cost considering that we have front-loaded the major part of our issuances in the first half of the year and some further contraction of lending spreads, especially in corporate Greece as well as in the household in Bulgaria. So actually, these are the variables that are driving NII full year outlook at higher than EUR 2.7 billion and a year-on-year increase of plus 7%.

The next question comes from the line of Ben Caven-Roberts with Goldman Sachs.

Two from me, please. First on fees or commissions rather, you're guiding to 10% organic growth now, up from around 7%. So could you just comment on where you're seeing the biggest outperformance coming from versus your original expectations? And then where you see the main moving parts and key upside and downside risks embedded within your guidance? And then secondly, on cost of risk, could you please just provide a bit more color on current trends and anything moving beneath the surface?

Let's start from the cost of risk and then I'll take about commission income.

Yes. In terms of asset quality, we see overall a very resilient performance. As you can see on Slide 34, there is a mild formation every quarter between EUR 40 million to EUR 50 million per quarter. The NPE ratio dropped from 2.6% to 2.5% at the group level and remains at very low levels, both in Cyprus at 1.7% and in Bulgaria at 2.4%. This is on Slide 13 and 15, respectively. Now cost of risk was 53 basis points in the first half of the year, and we would like to stick to our guidance of circa 55 basis points for the full year 2026. Let me also comment since you asked about cost of risk. You may have noticed that our coverage has dropped to 82.4%. This is down from 94% in the first quarter. If you recall, when we presented the guidance for the full year 2026 in February of this year, that was the indication that we have given for coverage in the area of 80%. So this drop was expected and is driven by the utilization of provision overlays related with the Swiss franc loan portfolio conversion and a transfer of some loans to held-for-sale status. So this explains the drop in terms of coverage. But in terms of cost of risk, let me reiterate that what we have said remains valid for the full year 2026.

Now based on the revised full year estimate that we have done, the outperformance is coming primarily from the lending fees that were very strong in the first half of the year and the assets under management. For prudent reason, we have kept the non-Greek commission income generation as per our budget -- as per our initial budget. So this outperformance of lending and asset management in Greece actually is driving up the full year organic growth at 10% versus 7% previously and is enabling us to keep the full year 2026 total fees at budget levels. That means that implies for the headline number of fees, a mid-teens increase despite the fact that we have Eurolife in the fee line for one quarter less. However, as regards Eurolife, let me mention again that the economic value of EuroLife in the second quarter is not lost anyway due to the agreement that we have made with the seller, but will not be booked to the fees and commissions and will be a benefit for group's NAV. And on this occasion, let me update [indiscernible] on Eurolife. As we have announced in our first quarter results, we have signed the contract with Fairfax in early May. Regulatory and supervisory approvals are progressing well and are moving forward. So we expect the closing of the transaction to take place by the end of third quarter.