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

Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Eurobank Holdings conference call to present and discuss the first quarter 2025 financial results. At this time, I would like to turn the conference over to Mr. Fokion Karavias, CEO. Mr. Karavias, you may now proceed.

Thank you. Ladies and gentlemen, good afternoon, and welcome to the Eurobank First Quarter 2025 Results Presentation. Together with me is our CFO, Harris Kokologiannis; and the Investor Relations team. We are starting with some key recent developments, then presenting our results and answering your questions. In early 2025, tariff developments had an impact on international relations and trade, causing market volatility and slowing global economic growth. At the same time, in Europe and particularly in Germany, there has been a shift from a conservative fiscal approach to implementing targeted stimulus measures. This action may align with calls across the EU for increased public spending to support monetary policy and strengthen economic resilience. While the full impact of recent events is still early to quantify, Greece and the region we operate in are less exposed than the core of Eurozone. Direct connections with the U.S. in terms of bilateral trade or tourism are manageable. Although some secondary effects are expected, economic growth in Greece, Bulgaria and Cyprus is unlikely to differ significantly from previous forecast and should remain stronger than the EU average. Fiscal discipline is crucial during these challenging times and budget performance in 2024 was notable for Greece and Cyprus as reflected in recent rating upgrades. In this volatile environment, our credit expansion was robust in the first quarter of 2025 and is expected to continue throughout the year, driven by investments in Greece and a good momentum in Bulgaria. However, the immediate effect of global turbulence seems likely to result in faster and deeper interest rate reductions in Europe as shown by current market pricing. Now let's move on to our financial results for the first quarter of 2025, as highlighted on Slides 5 to 10. Eurobank exhibited solid underlying business and financial results in line with our business plan during the first quarter of 2025, with adjusted net profit reaching EUR 348 million and return on tangible book value exceeding 16%. The tangible book value per share reached EUR 2.39. In more detail, starting from net interest income, which rose 12% year-on-year, benefiting from the Hellenic Bank consolidation. Fees and commissions were up by 25% year-on-year, while operating expenses in Greece increased by 6%. As a result, core pre-provision income was up by 5% year-on-year. The cost of risk ratio was contained to 59 basis points and core operating profit reached EUR 426 million or up 5% year-on-year. Regional operations performed strongly, netting EUR 184 million or 53% of total profits, highlighting the group's franchise trend. Cyprus' net profit, including Hellenic Bank, reached EUR 120 million and Bulgaria's EUR 55 million. Now on loan growth, which continued unabated with a quarterly net increase of EUR 1.2 billion or 10% year-on-year. Deposits, on the other hand, moved lower by EUR 1.5 billion in the first quarter on the back of an exceptionally strong performance in the fourth quarter. Our asset quality remains resilient with the NPE ratio below 3% and with coverage reaching 89%. We maintained a robust capital position with a CET1 ratio of 15.5% at the end of the quarter and a total capital ratio of 18.9%. Now moving on to recent corporate developments. The mandatory tender offer for Hellenic Bank was completed as per plan, and we are now proceeding with a squeeze out of the remaining minorities. The legal merger process has been initiated, and it should be completed in the third quarter. Synergies realization is proceeding according to plan, including initiatives to align the MREL funding costs; rationalizing staff numbers through a voluntary exit scheme; and completing the CNP Cyprus acquisition in April. So without underestimating the global risks and the volatile environment, our first quarter performance makes us confident that we are on track to achieve our 2025 plan. Interest rates could be on average lower than our business plan assumptions, but loan growth should meet or even exceed the full year guidance. Overall, we reiterate our target for a return on tangible book value of around 15% for the full year. At this point, I would like to ask our CFO, Harris Kokologiannis, to present our first quarter results before opening the Q&A session.

Thank you, Fokion. Before starting, let me note that Q1 results include as one-off item, EUR 26 million [ VES ] cost of Hellenic Bank corresponding to 154 FTEs. The VES was completed in March. Let's now provide more insight into the first quarter results. Starting on Page 21 on group loans. Organic growth continues to be strong, amounting to EUR 1.2 billion, which is more than 1/3 of the full year target. Although the first quarter is seasonally the weakest of the year, this strong performance was achieved thanks to corporate in Greece and Cyprus as well as to mortgage lending in Bulgaria. On Page 22, group deposits decreased in the first quarter by EUR 1.5 billion or by EUR 1.2 billion, excluding the USD depreciation effect. The decrease, which is related to corporate deposits in Greece and Cyprus is mostly seasonal and follows an exceptional fourth quarter with EUR 4 billion inflows. The net loan-to-deposit ratio increased to 67%, while the LCR ratio amounted to 183% as shown at the bottom left of Page 23. On MREL and on Page 24, we front-loaded our issuing plan by tapping the market for a EUR 600 million Tier 2 and a EUR 350 million senior preferred bond. Our MREL ratio reached 28.8%, 100 basis points above the final target of June 2025. As regards managed funds on Page 25, in the first quarter, wealth sector continued its growth pace. Year-on-year, managed funds increased by EUR 1.8 billion or 29%. Private banking customers' assets and liabilities reached EUR 13.2 billion, increased by 13% year-on-year. Moving to profitability on Page 29. NII is higher year-on-year by 11.7%, benefiting by the Hellenic Bank consolidation. Quarter-on-quarter, net interest income is lower by 5.8% due to Euribor decrease close to 50 basis points, a EUR 15 million base effect, lower spreads and the front-loaded issuing activity, which offset the higher lending and bond volumes. Moving on fees on Page 30. Commissions are higher year-on-year by 24.8%, driven by Hellenic Bank consolidation and an 8% organic growth. As regards the Q-on-Q movement, the comparison is with an exceptionally strong fourth quarter, which beyond seasonality, it benefited from an extraordinary fees of EUR 30 million related to a couple of large loan transactions. Based on the first quarter performance, we are well on track to meet the full year target for commissions considering seasonality, the new lending pipeline, the consolidation of SEP Insurance as of April and the gradual phasing of Hellenic Bank's fee synergies. On Page 31, operating costs are higher year-on-year in Greece by 6%, mainly due to IT costs. On a group and like-for-like basis, costs are up by 5.6%. As regards Hellenic Bank, in the first quarter, we already completed a VES of 154 FTEs. Furthermore, the legal merger between Hellenic Bank and Eurobank Cyprus expected to be completed in the third quarter should accelerate cost synergies, which, coupled with this period's performance, provide confidence for the full year outlook. On Page 33, we summarize operating performance for the first quarter of the year. Core PPI reached EUR 503 million, higher year-on-year by 5.2%. Loan loss provisions for the period amounted to EUR 76 million or 59 basis points, down by 10 basis points versus the previous year. As a result, core operating profit amounted to EUR 426 million, higher year-on-year by 4.8%. Moving on to asset quality on Page 35. NPE formation amounted to EUR 48 million, in line with previous quarters with asset quality dynamics broadly unchanged. The NPE ratio remained stable at 2.9%, while NPE coverage was slightly up to 89%. Moving on to capital on Page 39. Organic profitability contribution amounted to 65 basis points. However, CET1 ratio, including dividend accruals decreased quarter-on-quarter by 20 basis points to 15.5%, affected by higher RWAs as a result of significant loan growth, the increased market volatility and the Basel IV implementation. As regards total CAD on Page 40, the ratio increased quarter-on-quarter by 40 basis points to 18.9%, taking also into account the new Tier 2 issuance. Before closing my presentation, let me note that the acquisition of CNP Insurance in Cyprus was successfully completed in April with immaterial impact on capital. Furthermore, in the second quarter of the year, a negative goodwill of higher than EUR 30 million is expected to be recognized, while fee income will be boosted by at least EUR 20 million for the rest of the year. This completes my presentation, and we may now open the floor for your questions.

[Operator Instructions] the first question comes from the line of Kemeny Gabor with Autonomous Research.

Just on your point of a lower euro rate trajectory for this year, can you give us an update on your rate sensitivity, please, and perhaps your thoughts on how you expect the deposit spreads to develop from here? I interested to hear on how much room you see to absorb any further rate reductions. And my other question would be on the VES costs you booked in Hellenic in relation to Hellenic. Shall we expect any further charges here for the rest of the year as you presumably restructure this business?

Thank you for this couple of questions. Let me answer the second leg first that it is very quick. The answer is no. For 2025, we don't expect any other negative one-off coming from Hellenic Bank. On the contrary, we should wait a positive one relating to the negative goodwill coming from the completion of acquisition of CNP in the second quarter. Now coming to the -- and of course, this one-off that was included in the first quarter was well included as well in our business plan presented in March. Come now on the NII issue and the interest rates. It is true that following the tariff imposition by the United States and the economic developments around the globe, it appears that the reduction of interest rates should be faster than the one anticipated in our business plan. Let me remind you that in the business plan presented in March, we have assumed an ECB -- DFR rate of 2% at the end -- terminal DFR rate of 2% at the end of 2025 or an average DFR for the year of 253%. As we are going to explain in more detail, even if we assume a terminal rate of 1.5%, which translates to an average DFR of circa 225%, which are respectively 50 and 28 basis points lower than our business plan. Our NII projection reaffirms our EUR 2.5 billion guidance. The main reason for this are the anticipated faster growth of loan volumes and bonds as well as the slowdown in the contraction of corporate spreads. To be more precise, concerning loans, growth was quite robust in the first quarter. We had loan growth -- net loan growth up by EUR 1.2 billion, which corresponded to 1/3 of the total annual increase assumed in the business plan versus circa 20% assumed in the business plan as the first quarter is traditionally a weaker quarter. And I have to say that this trajectory is well confirmed from April figures that we recently got. Volume of bonds on the other side was also higher by EUR 1 billion in the first quarter versus our business plan assumption. And last but not least, corporate spreads contraction in Greece was 3 basis points quarter-on-quarter versus a business plan for the full year of 25 basis points. Thus the negative impact from low rates is expected to at least significantly mitigated by higher loan and bond volumes and lower spread contraction. And conclusively, it makes us confident that the EUR 2.5 billion target for NII will be met. Now as regards to the NII sensitivity, that was also part of your question. For every 25 basis points, the sensitivity is EUR 35 million.

The next question comes from the line of Ismailou Eleni with Axia Ventures.

My first question is rather a follow-up. So I was wondering, in your investment securities book, we've seen that you have almost fulfilled your circa EUR 23 billion target for 2025. Could you let us know if you plan to continue increasing the book? And if yes, at what pace? That's first question. And my second question is, given the synergies you are expecting with Hellenic Bank, I understand earlier than potentially anticipated. What is the likelihood of upgrading your full year guidance for 2025 in the coming quarters?

Let me get the second leg of your question, and then Fokion will elaborate on the first one. So what we said in the business plan. In the business plan, we said that for the 3 years, 2025, 2027, we expect synergies from Hellenic Bank of EUR 120 million, out of which 40% should be expected in 2025, i.e., EUR 48 million. So what we have right now, we have in the pocket realized funding synergies related with the [ AT1 ] that was already called and the LME of Tier 2 that was already completed of EUR 20 million. We have the synergies coming from the acquisition completion of CNP, whereby for the next 9 months, we are going to record EUR 20 million fees, so EUR 20 million plus EUR 20 million is EUR 40 million. And we have VES savings that for the rest 9 months of the year should be expected close to EUR 8 million. So we are already there. We have already realized the actions for the full year 2025 synergies. And we have further to come cost synergies as regards the admin of Hellenic Bank and potential fee synergies. So we are there on the target that we have promised for 2025. We may have something more for which we will be more specific in the coming quarters to elaborate.

Now on the investment securities, any way forward is a function of the market rates. If market rates remain at the current levels, we should not really expect any material change of our balances. If we see, however, opportunities, this may be a reason to reconsider.

The next question comes from the line Osman Memisoglu Osman with Ambrosia Capital.

Just following up on the NII comfort you mentioned. You mentioned loan growth. I wonder if there's also upside or how are you seeing the deposit side of things, particularly with share of time seems to be coming down on the international front as well, which I think you have a rather conservative assumption there. But in general, with deposits and particularly time side, how do you see things evolving? Could they be better than expected?

If I understood correct your question, and if it was not clear, we reaffirm our target for EUR 2.5 billion NII. As regards loan growth, what we are saying is that we'll be there or higher. And as regards deposits, as we said, fourth quarter deposit inflows were exceptionally strong, mostly driven by corporates. And in the first quarter, part of this excess liquidity was utilized, leading to deposit outflows. So as we speak, deposits are quite mostly flattish.

Yes, the question of Osman is was about the possibility of seeing a reallocation of deposits out of time into side deposits, which, as you said, Osman, very correctly, this is something that we observe across Europe. I would say that all these are included on the outlook of NII for EUR 2.5 billion, unchanged versus our previous guidance.

The next question comes from the line of Novosselsky Ilija with Bank of America.

Just 2 quick questions for me. So first, I'm looking at Page 24, which shows your MREL stack. And I see that you have quite a lot of senior preferred liabilities. So your MREL is now above the target as of June 2025. So assuming that your CET1 ratio should be going up in the future, can you do something about the senior preferred liabilities? So do you need to have this much bonds? And what is the issuance plans for the next 1 or 2 years? And my second question is, so on Page 29, I see your deposit costs are down by about EUR 13 million in NII. So can you tell us how deposit pricing is going through your regions? And in the future, so do you expect that you have more reduction in deposit costs in Greece or in Bulgaria or in Cyprus? So how will that work?

Thank you for this question. Let me start with MREL. The MREL ratio stood at 28.8% of RWAs in the first Q. That translates to 100 basis points above the final binding MREL target of 27.8%. This implies that our net funding needs for the rest of 2025 are close to 0. So we should not expect any issuance activity for the rest of the year. However, we may issue up to EUR 1 billion either senior preferred or Tier 2 or a combination of the in order to call the outstanding legacy Tier 2 of EUR 950 million that it is a quite expensive instrument bearing a coupon of 6.4%. So actually, to conclude the issuing activity for the rest of the year depends on when -- whether and when we are going to call this legacy Tier 2.

Now regarding your question about deposit cost, obviously, in the next quarters, you should expect to see deposit cost going even lower in line with the reduction of the ECB rates. But again, let me reiterate what I said. Taking into account deposit pricing, growth of deposits and growth of loans, including the lending spreads, all of them conclude into guidance for NII for the full year 2025 of EUR 2.5 billion, unchanged from our previous level that we have indicated.

I can have one follow-up on the first question because -- so the legacy bond, you've been saying that you may replace it for some time. So my question is because you have this 100 basis point buffer, is it possible that you replace less than the whole bond or you need to replace the whole bond eventually?

No, no. The replacement will be for the whole bond and will be 1:1. So if we proceed, we are not going to replace part of this bond.

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

Yes. One quick one on Basel IV impact, if this is the full impact we should expect for this year and what could come during the plan? I remember 30 basis point impact when you presented the business plan? And the second one is on Cyprus, in particular, when we should see higher loan growth in the country, it is something for this year or it is a story for next year when you have integrated -- fully integrated Hellenic Bank?

Let me start with Basel IV, and then I'll pass to Fokion for Cyprus loan. The Basel IV impact was minus 10 basis points that was fully accounted in the first quarter. So this is the full impact for 2025. We should not expect in 2025 any more impact as regards Basel IV. Now on a fully loaded basis, and I'm talking for the period between 2025 and 2033 The total impact is 56 basis points. So we have taken 10 basis points now, and we have another 46 basis points for the next 8 years. Now in terms of loan growth in Cyprus, our business plan includes a moderate growth of loans in Cyprus within 2025. Most likely, you should see this increase in the second half of the year.

The next question comes from the line of Skhirtladze Salome with Bloomberg Intelligence.

I have 2 quick questions. First one, does your NII guidance hold beyond 2025 in case terminal rates remain 1.5%? And how should we look at household retail and mortgage loan growth in Greece? Do you have any signs of rebound? Or what is your outlook on that?

Yes. What we have discussed is the NII projection for 2025. At the moment, we are not revising projections for '26 onwards. We may be able to do that when we present our second quarter results. In terms of mortgage lending, in Greece, most of the growth keeps coming out of the corporate side. There is a slight improvement in terms of mortgage disbursements, but not something really impressive. However, where we see significant growth of mortgages is in Bulgaria. Mortgage lending there is running with a double-digit rate for the whole market, and we get our fair market share out of this growth.

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.

Let me thank you all for participating in this first quarter results call. Let me also thank you for your very interesting questions that help us to elaborate on our results. Our Investor Relations team will be available for any follow-up questions, and we may have the opportunity to meet some of you over the next few [Audio Gap]