Eurobank S.A. (EUROB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Eurobank Holdings conference call to present and discuss the full year 2024 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 our call. Together with me is our CFO, Harris Kokologiannis and the Investor Relations team. I'm starting the call with a quick review of the 2024 performance and then focusing on our business plan and the financial targets for the years '25 to '27. Harris will give you more details on the business drivers for the 3-year period. And finally, we will answer your questions. For Eurobank, 2024 was a year of exceptional organic growth and transformational M&A activity. We outperformed all targets initially set for the year as highlighted on Pages 5 to 10. Value creation was outstanding with return on tangible book value reaching 18.5% and earnings per share at EUR 0.39. Our net profit reached a new record, close to EUR 1.5 billion, of which almost half was generated outside Greece. With respect to Hellenic Bank, we are practically controlling 100% of its share capital quite earlier than initially anticipated. And our regional presence is further enhanced by the acquisition of CNP Insurance in Cyprus. Volume growth outperformed across the board with the fourth quarter, in particular, being extraordinary. More specifically, for the full year, loans expanded by almost EUR 4 billion and deposits by more than EUR 6 billion, while managed funds and private banking grew at high double-digit rates, 38% and 18%, respectively. Capital levels remained strong with ratios ending the year as expected. This was achieved despite the full participation in Hellenic Bank's share capital and stronger loan growth than initially assumed. Asset quality improved further with the NPA ratio declining to 2.9%, while coverage increased above 88%. This exceptional performance results to a substantial increase of the shareholder rewards with payout 50% of our 2024 profits, up from 30% in the previous year. The EUR 674 million total payout includes EUR 0.105 per share cash dividend and EUR 288 million share buyback program to be approved by the AGM in April. Now let's move into our business plan for the 3-year period 2025 to '27. On Page 11, we summarize key assumptions. Economic growth is expected to remain strong for our 3 core markets in the area of 2% to 3%, well above the European average. This affects positively all key economic metrics, such as unemployment, real estate prices, investments, all feeding into a solid credit expansion. As for interest rates, we assume a gradual decrease of the ECB deposit facility towards 2% by the end of 2025. The key goals for the '25-'27 business plan are summarized on Page 13. Our key objective is to achieve a sustainable return on tangible book value of 15% throughout the business plan period. We focus on 3 pillars of growth. First, credit expansion is expected to continue both domestically and outside Greece, with loans overall growing by 7.5% annually. This rate of growth is a multiple of the average for European banks. Second, wealth management and insurance, which are the biggest drivers for fee growth in the next years, become strategic priorities. Private banking and managed funds will grow by 15% per annum. Fees from wealth management and insurance should grow by 30% per annum. Third, we are capitalizing on the recently completed acquisitions in Cyprus. The merged Hellenic with Eurobank Cyprus becomes the largest bank in terms of assets and provide significant synergies. Furthermore, the CNP insurance acquisition creates the largest insurance provider in the country and the ability to explore the untapped bancassurance potential. The organic growth, combined with the benefits from the recent acquisitions ensure that the return on tangible book value ratio will be sustained at 15% in the next years, even in a lower interest rate environment. As shown on Slide 14, this is translated into value creation through a tangible book value per share steadily improving year after year and also increased shareholder rewards. In the 3-year period, the payout ratio will be at least 50%. For the purpose of this business plan, 50% is the figure assumed. Under this assumption, the cumulative payouts in the next 3 years will exceed EUR 2 billion, and this compares with EUR 1.1 billion in the period 2022 to '24. The business plan was built on the 3 pillars of growth already described. Furthermore, as shown on Slide 15, in case any M&A opportunity arise, not only in banking, but also in insurance and asset management, we have an envelope of 300 basis points or over of EUR 1.5 billion of capital capacity as well as managerial expertise to pursue them. It is clarified that such future M&A opportunity are not included in the business plan. So concluding, we have established a track record of consistently delivering our plan and exceeding our targets. We possess a well-diversified regional business model and operate in a high-growth area within the Eurozone. Following a record year in 2024, which established a robust base to build upon, the bank's prospects remain highly promising for 2025 and the 3-year period from '25 to '27. At this point, I would like to ask our CFO to present our business plan in more detail.

Thank you, Fokion. Before starting, let me update you about the latest developments and next steps regarding Hellenic Bank as shown on Page 17. We recently completed the acquisition of an additional 37.5% stake, Hence, we currently hold 93.5%. Following that, we are submitting a mandatory tender offer to the remaining shareholders of Hellenic Bank upon the completion of which we intend to exercise our squeeze-out right, reaching 100% of Hellenic Bank share capital. In parallel, we are initiating the legal merger process between Eurobank Cyprus and Hellenic Bank, aiming at its completion in the third quarter of this year. This will pave the way for setting for the operational merger and for accelerating the synergy realization, which according to our current estimates, may reach EUR 120 million per annum. A significant part of them, circa 40% of total should be anticipated within 2025, reflecting also initiatives which have been already launched or completed. Furthermore, our regional presence is also enhanced by the acquisition of CNP Insurance, a transaction which is expected to close over the next few weeks. Let's now provide more details about our budget and 3-year business plan. Starting from the evolution of loan volumes on Page 21. Following a record year and in particular, an exceptional Q4, loans are expected to maintain a strong growth momentum, increasing by circa EUR 3.5 billion during 2025 and by more than EUR 11 billion in the 3-year period. This translates to an annual average growth rate of 7.5%. In Greece, corporate is anticipated to increase by a solid 8% annually, mainly powered by investments in infrastructure and concessions, energy production and storage, manufacturing and tourism. Furthermore, in Greece, retail is gradually recovering. In mortgages, the combination of the recent state initiative and the increased housing construction activity addressing partly the supply problem may spare a segment that we have a leading position. In addition, consumer lending is anticipated to accelerate its growth pace, driven by further penetration of digital channels, embedded finance initiatives and higher car loan activity. As regards to Bulgaria, it is expected to grow annually by a double-digit ratio or by EUR 2.9 billion over the business plan period, out of which 40% driven by mortgage loans and the rest by business and consumer loans at similar rates. Finally, loans in Cyprus are forecasted to increase on average by circa 7% per annum or for the 3 years by EUR 1.7 billion. Growth is 80% driven by corporate lending, including the participation in European syndicated transactions. Group deposits on Page 22, following an exceptional 2024 with a double-digit growth rate and an outstanding Q4, they are anticipated to increase annually by 3% on average. On the left part of the page and on MREL, we present the issuance schedule. But let me also note our plan to call a legacy EUR 950 million Tier 2 later this year. Moving on spreads on Page 23. Lending spreads erosion in Greece is expected to continue but decelerate, ranging on average at 10 basis points per annum as the market competition in business lending should be partly offset by the lower base rates abating the pressure on spreads and the new disbursements in consumer lending. Furthermore, in Greece and in deposit cost, we have assumed the pass-through rate to remain stable in 2025 at 24%, decreasing slightly to 22% in 2026 and '27, mainly reflecting mix improvement and time deposit repricing. In Bulgaria and Cyprus, lending spreads are expected to remain flattish in 2025 and then moderately increase, mainly driven by new production in corporate and the impact of base rate instead of Euribor indexed loans of Hellenic Bank. Furthermore, deposit beta in Southeastern Europe should slightly decrease in 2025 as the time to total deterioration is technically offset by the full year effect of Hellenic Bank's low beta to the relevant index. Finally, as regards group net interest margin, it is anticipated to decrease by circa 20 basis points in 2025, mainly reflecting base rate trajectory and move around 250 basis points in 2026 and 2027. The evolution of interest income drivers, as explained above, are reflecting on our NII evolution shown on Page 24. Specifically, net interest income is expected to remain unchanged in 2025 at EUR 2.5 billion as the impact of the Euribor decrease, lending spreads decline and higher MREL costs are offset by strong loan growth and the full year consolidation of Hellenic Bank. In the following years, NII should increase as the volume growth and deposit beta improvement offset the negative impact of Euribor spreads and MREL. Moving on fees and commissions on Page 25. For 2025, we anticipate group commissions to increase further to EUR 740 million compared with EUR 666 million in 2024, which included an exceptional Q4 performance. For the 3-year period, we expect an average annual growth rate of circa 8%, driven primarily by Wealth Management, followed by retail fees in Cyprus and Bulgaria. As regards to insurance, CNP in combination with the current insurance business of Hellenic Bank are forming a leading insurance provider in Cyprus. Furthermore, in Greece, our constructive and long-term cooperation with Eurolife sets the stage for significant upside of bancassurance fees in the local market. In Wealth Management, the fee growth is substantiated by coherent strategy, which is analyzed on Page 18. More specifically, our strategic initiatives include significant investments in putting in place a new IT system in Luxembourg and Cyprus, attraction of senior RMs with international experience, strategic partnerships with global asset managers such as Horizon and JPMorgan, set Luxembourg as the group's private banking center overseeing servicing points in Greece, Cyprus and London. And finally, exploration of growth to new markets in Southeastern Europe and East Mediterranean. Deploying our strategic plan, we envisage to reach EUR 13 billion managed funds and EUR 18 billion customers' assets and liabilities in 2027 translated to revenues of circa EUR 220 million. Back on Page 25, the second largest fee growth area is retail commission Cyprus, taking advantage of the underpenetration of fee business in Hellenic Bank customers as well as in Bulgaria, driven by the further exploitation of the ex-BNP clientele. For wholesale lending fees, following a very strong 2024, driven by record new lending, we anticipate remaining flattish in 2025 and slightly increase in the following years of the business plan. Overall, group fees are expected to reach EUR 850 million in 2027, representing 80 basis points of assets and 24% of total income. For Greece, these KPIs should be 85 basis points and 28%, respectively. Moving on to operating expenses on Page 26. It appears that cost management will continue to be a challenging exercise for 2 reasons. First, we accelerate IT investments, which now exceed EUR 0.5 billion for the period 2025, '27, mainly related with further digitization of customer journeys, new core systems in Cyprus and Luxembourg, preparation for euro adoption in Bulgaria, embedded banking, transition to cloud and the gradual introduction of GenAI. Second, the inflationary context and the increasing demand for talent exercise pressure for higher remuneration as well as for new hires, especially on areas where the group intends to maintain a competitive advantage. Against this backdrop, we have planned and already realizing savings in rounded bank costs, aiming at keeping G&A flat throughout the business plan period. Overall, our total cost base is anticipated to increase by an annual rate of lower than 5%, enabling cost-to-core income ratio to stay below 40% for the period of the plan. On asset quality and on Page 27, despite the favorable macro environment in our core countries, we continue to be prudent on cost of risk and coverage. Specifically, in line with our countercyclical approach, cost of risk decreases modestly in 2025 to 60 basis points and further to circa 50 basis points in 2027. Such approach is also reflected to our NPE coverage, which is expected to fluctuate around 75% throughout the business plan period. As regards to NPE ratio, we anticipate to be below 3% at the end of this year and circa 2.5% in 2027. Finally, on capital and on Page 28, in 2025, organic capital generation fully offset the impact of high single-digit asset growth, 50% payout, the capital effect of CNP acquisition and the regulatory headwinds related with Basel IV. For 2026 and '27, CET1 ratio accruing for payouts should be around 16%. This translates to a buffer of OCR at the area of 330 basis points throughout the business plan period. Concluding this presentation, our diversified business model ensures sustainable profitability through the interest rate cycle, as shown on Page 19. Specifically, despite envisaging a significant drop of Euribor, our core profit remains resilient, reaching EUR 1.7 billion in 2025 and circa EUR 1.9 billion in 2027. In parallel, revenues will be further diversified with the share of profits outside Greece increasing to 55% of total by the end of the plan period. This completes my presentation, and to Mina, now open the floor for your questions.

The first question is from the line of Ismailou Eleni with Axia Ventures.

Congratulations for the strong set of results. I have a couple of questions from my end. Could you give us an indication of when should we expect the synergies from CNP to start printing into net fee and commission income? And the EUR 25 million we see on Slide 17, is it the 40% of the total we should expect? That's my first question. And my second question is on the assumptions you're making for an equal or more than 50% payout throughout the period of your business plan. Can you talk about the upside and downside risks to that?

Thank you, Eleni, for your questions. I'll take the first one, and then Fokion will follow. On Page 17, we present the total synergies on the upper right-hand side of the page that amount to EUR 120 million, including all the core lines of the P&L. We should expect a gradual phasing of the synergies. However, for 2025 already, we should expect something close to 40%, mainly coming from CNP acquisition that is expected to be completed in the next week. So we are going to have the income for most part of the year. While for funding, actually, we have completed both actions including the 81 buyback and the Tier 1 LME, enabling us to reap close to EUR 20 million funding synergies. The rest of them, including OpEx, out of which almost half comprises of staff savings and the rest G&A savings. Interest income coming from loan book expansion, including syndicated tickets as well as the rest of the fees outside CNP are expected to come gradually to our P&L within the 3-year period. As regards to the second part...

Yes. Regarding your second question, Eleni, as we already discussed, our business plan projects payout in the 3-year period of more than EUR 2 billion versus EUR 1.1 billion in the period 2022 to '24. And this is based on an assumption of 50% payout ratio throughout the 3-year period. Now this payout level is based on the assumption first of a strong loan growth, 7.5% per annum, which is substantially higher than the average of European banks. If I'm not wrong, on average, the growth in most of the countries in the Euro zone is around 1% and this justifies to some extent, why some of these banks distribute levels of 70% or 80% of their profits. Another factor that we have kept in our plan is to keep an amount of excess capital of about 100 basis points so that to maintain strategic optionality for potential inorganic growth opportunities if such opportunities arise in banking, wealth management or in insurance. Therefore, we cannot exclude the possibility of a slightly higher payout but not something in the area of 70%. So something slightly higher than 50% if growth proves to be milder than our expectations. So if loan growth is below 7.5% on average or if we realize that there is no opportunity in terms of M&A that would make sense for our shareholders.

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

Thank you for your detailed thoughts on capital deployment. Just another clarification on this at least 50% payout, please. Is this an option from the 2025 results already? And would this depend on growth hitting 7.5%? I mean, clearly, you are in pretty comfortable capital position already. The other question will be on rate sensitivity. Can you please confirm what is your current NII sensitivity to euro rate moves? And I think you mentioned the EUR 40 million, EUR 42 million sensitivity on the last call. An update to that would be helpful. And is this what you are embedding in your 2025 NII guidance? Or should we be aware of any dynamic balance sheet management? The final question will be on fee income, which was really very strong. Were there anything that you would consider nonrecurring possibly related to a couple of the big ticket corporate originations?

So Harris will take the second and the third question. I will take the first with respect to dividends. We said that the payout ratio is going to be at least 50% throughout the period. So this applies to each one of the years, '25, '26 or '27. So answering your question directly, it applies also to '25 financial results.

Now as regards NII sensitivity, this is reflected -- this is shown on Page 24 of the presentation on the mid-right part. This is the latest input that we had from our market risk that NII sensitivity for every 25 basis points Euribor is at EUR 40 million. This should be considered in the context over and above what we have budgeted as regards base rates and more specifically, we have assumed ECBDFR rate to conclude at 2% by the end of the year or in terms of average to be more meaningful, my input from an average rate of 3.73% in 2024, we go to a yearly average base rates of 2.53% for 2025. So this is a decline by 120 basis points on average. Beyond that, you should -- if we go beyond that level from one side or the other, you should use the sensitivity that I just described. Now as regards fee and commission income, in the fourth quarter, let me take you on Page 55 of the presentation. So indeed, fourth quarter was a really strong quarter, a very strong quarter in terms of fee and commission income generation. We recorded a plus 28% Q-on-Q with all segments having a positive contribution. However, I have to note here that out of the total quarterly increase of EUR 48 million, so the fees coming up to EUR 215 million out of EUR 168 million in the previous quarter. So it's an increase of EUR 47 million, EUR 48 million, EUR 26 million relates to a big corporate loan financing, actually the recurring growth concession. And the rest is organic growth throughout the lines of our fees.

The next question comes from the line of Sevim, Mehmet with JPMorgan.

If I may ask just on the loan growth, given obviously, it is now tracking well above initial expectations. What has really changed over the last few quarters? If you could give us maybe some qualitative color on that? What is driving it? Why do you see growth now faster in the coming years? And maybe also if you expect most of that to come from Greece or international and how you see the breakdown there, that would be helpful. And secondly, may I also ask on the timing of the buyback and when you expect to start it? Do you have to wait for the AGM, which I believe is still in summer? Or just if you could give any timing information and when you would expect also to finish it given the size of it, that would be very helpful.

Thank you, Mehmet, for the question. Starting from your last question. Obviously, we should get, first of all, the approval of the SSM, both for the cash dividend as well as the share buyback as well as the AGM that will take place not in the summer, but this year in the end of April. So we have brought the AGM quite earlier. So after that, after the approval of the AGM in May, we should be able to distribute the cash dividend and also to start the share buyback program. This is going to last at least 9 months, let's say, between 9 to 12 months. Obviously, when we have details about this plan, we're going to update you accordingly. Now on the first question, why we have seen growth accelerating in the second half of 2024. It is a combination of factors. First of all, it is related to the RRF projects. We have a pipeline of such projects that have been contractually agreed in the previous quarters in the end of 2023 and in the first half of 2024. And these projects gradually start disbursing more and more of the contractual amounts. So this adds to the disbursements that we have seen accelerating in the second half. Second, we had one or two large transactions that were the case in the fourth quarter of 2024. These were syndicated transactions across the banking system. And this have also added to this acceleration. But overall, we see a better climate in terms of disbursements. Even in the households, we have seen an improvement in the second half in terms of mortgage disbursements versus the first half of the year. Now this is about Greece. In outside Greece, in Bulgaria, we see a constant flow of disbursements coming both from the household sector as well as the corporate. And this is the case also in Cyprus. In Cyprus so far, we have been active only on the corporate sector through Eurobank side. Now that the Hellenic Bank is on board, we're going to see also volumes coming from households.

The next question is from the line of Kantarovich, Alexander with Roemer Capital.

I would like to clarify on fees and commissions, clearly, a big increase. If I heard you correctly, there was a large one-off. But what can you say about organic trends, excluding that large loan?

As I said previously, out of the EUR 48 million Q-on-Q increase, close to EUR 26 million related to a single transaction. So the rest may be considered, let's say, as an organic growth. This is not far away from the 2025 budget that we have put. This is EUR 740 million, which per quarter is approximately EUR 185 million. Of course, on that, you should include -- we have included the insurance income coming from CNP as well as the synergies of the phasing -- the gradual phasing of fee synergies from Hellenic bank.

The next question is from the line of Nellis, Simon with Citibank.

Two quick ones, actually three. Firstly, on badwill from the Hellenic acquisition. Did the recent transactions that you made to increase your stake impact the badwill at all? It doesn't seem like it did, but I thought some of them were above book value. So I thought there might be some adjustments there. Second question is just on the Basel IV impact. I think I see it now at 30 basis points. I think in the past, you said it was up to 60. So just wondering why it's lower. And last, just to clarify, your CET1 targets post payout accrual of 15.8% this year and 16% in 2027. Just to clarify, that's assuming a 50% payout. Is that correct?

Sure. As regards to badwill, the answer is yes. We have included a badwill following the scale-up of our acquisition to 100%. This amounts to EUR 136 million recording in the fourth quarter of the year. This goes directly to equity, does not pass through P&L. Let me clarify that we are talking about positive goodwill. It's not negative. It's positive goodwill.

So it reduces equity by EUR 136 million.

Absolutely. Yes. Correct. Correct. Correct. Now as regards to Basel IV, the impact for 2025 is 30 basis points, while up to full phase-in, we should expect an impact of 60 basis points. And as regards to your third question, the accruals included in our CET1 ratio provides for a payout ratio of 50%.

And sorry, just on Basel IV, the explanation, the difference between 30% and 60% or 60% the fully loaded?

Yes, exactly. 60% is fully loaded.

The next question is from the line of Demetriou, Alex with Jefferies.

So just on the distribution front, going forward, how should we think about the mix between dividends and buybacks going forward over the business plan?

Yes. It's going to be similar to what we have this year in terms of percentages of cash dividend versus share buyback. In terms of percentages, the cash dividend is going to be slightly more. But obviously, this also depends on the market valuation of our stock, whether it is close to book value or higher than the book value. But on average, you can assume a distribution similar to what we had this year.

Perfect. And then maybe just a quick follow-up. I think in the press, we've seen a little bit of international expansion in the wealth management business, partnerships in India, partnerships potentially in the Middle East. Could you maybe just expand on that and how that helps your wealth management fees going forward?

Okay. What you mentioned about our potential business in India or Middle East is not related so much with wealth management. Therefore, we have not included it in our business plan in terms of wealth management, anything from this region. If we see any sort of business picking up from that region, obviously, we're going to update you accordingly. At the moment, we have submitted an application with the Reserve Bank of India to open a rep office in Mumbai. We expect an approval over the next few months. And we may also consider opening a rep office in Abu Dhabi in UAE.

The next question is from the line of Memisoglu, Osman with Ambrosia Capital.

On these buybacks, with regards to your largest shareholder and their threshold of 33% and all that, how should we think about number of shares? Are they getting canceled only at the AGM? Or from a regulatory perspective, are you able to give any color on that front?

Let me clarify what exactly you mean with your question. Any shares that we buy through the share buyback are going to be canceled. But obviously, this decision is going to -- has to pass through the AGM. But these shares, the treasury shares are not going to have any participation in the dividend, for instance. Officially, they are canceled at the time that we get the approval of the AGM. So for the shares that we are going to buy through the program that we announced today, the AGM of 2026 will decide about their cancellation.

So does that mean the largest shareholder would have time to adjust until that AGM?

The major shareholder knows these rules. So he's going to adjust his strategy accordingly.

But he has time until the AGM. That's what I'm not sure about. And apologies, it's a bit detailed, but I thought it was important.

Obviously, I cannot comment on behalf of our major shareholders.

The next question is from the line of Nigro, Alberto with Mediobanca.

Yes. I have just one strategic question. You mentioned that you would like to use your excess capital in M&A opportunities. What do you think about becoming a financial conglomerate and leverage on the Danish compromise as many other banks are doing across Europe?

Okay. Thank you for the question. Let me give you overall, our view about M&A opportunities. As I mentioned during my introduction, we have already a good track record of M&A, successful M&A in Bulgaria and more recently in Cyprus. And we will keep looking for M&A opportunities, mainly in our 3 core markets plus Luxembourg for the areas of the activities of the bank over there. And as we have stated, this M&A may include not only interest in banking, but also in insurance and asset management. Now with respect to insurance, the potential use of the Danish compromise is not very clear whether it could apply to a bank in Greece. There are mixed views on that. This is something that we would like to clarify. And obviously, if Danish compromise can also be applied for a bank of our size, this is going to be something positive, and we're going to consider that quite seriously. Obviously, if there is the opportunity for any sort of acquisition in the insurance sector.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karavias for any closing comments. Thank you.

Thank you for your participation. Thank you for your very good questions. Our Investor Relations will be available for any follow-up clarifications. And we may have also the opportunity to meet in person over the next 6 weeks, either in Europe or across the Atlantic in the U.S. Thank you very much.