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

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Eurobank conference call to present and discuss the full year 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 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 2025 performance and then focusing on our business plan and the financial targets for the years 2026 to 2028. Harris will give you more details on the business drivers for the 3-year period. And finally, we will answer your questions. So let me start with 2025. A year we outperformed all targets initially set as highlighted on Pages 7 to 14. It was a year of exceptional organic growth in loans, deposits and assets under management. More specifically, loans expanded by EUR 5.4 billion, well above the initial target of EUR 3.5 billion and deposits by more than EUR 4 billion, while managed funds and private banking grew by 30% and 12%, respectively. The positive impact of our M&A activities was also significant. Our position in Cyprus was consolidated through the legal merger of the 2 banks and insurance companies, leading to realized synergies, while in Greece, our franchise was enhanced with the acquisition of Eurolife. Value creation was outstanding as net profit reached EUR 1.4 billion and return on tangible book value at 16%, 100 basis points higher than originally expected. It is noteworthy that the fourth quarter was especially strong, particularly on volumes and core operating income. Loan expansion, primarily fueled by substantial corporate transactions in Greece surpassed EUR 2 billion. Deposits also rose by EUR 3.7 billion with notable contribution from Postbank in Bulgaria. Net interest income was up 2.5% from the previous quarter, proving that we are past the quarterly trough, while fees were also strong, up 11% quarter-on-quarter. Consequently, core operating income increased by 8% compared to the previous quarter. The strong performance allows us to increase shareholders' reward as we are distributing 55% of our 2025 profits. The total payout of EUR 717 million consists of EUR 0.118 cash dividend per share. This is up 12.7% versus last year, including the interim dividend and a new share buyback program of EUR 288 million to be approved by the AGM in April. Now let me move into the 2026,'28 business plan. In recent years, the bank has undertaken several transactions aimed at strengthening its position within the 3 core markets, while also expanding operations beyond banking into insurance and wealth management. By integrating these acquisitions, the group is positioned to generate shareholder value through organic growth and synergy realization, leveraging a favorable macroeconomic environment and a diversified business model. This potential is reflected in our 3-year plan for 2026, '28, where return on tangible book value is forecasted to increase to 17% by 2028. This is 200 basis points higher than the previously committed 15% in the 2025, '27 plan. Consequently, cumulative shareholder distributions are projected to increase by 50% in the years 2026, '28 in comparison with the preceding 3-year period. As shown on Page 16, such growth is facilitated by a positive economic background. The above average economic growth in our 3 core markets and the strong investment demand are expected to support banking business and strong credit expansion. At the same time, wealth management and insurance have the potential to grow even faster above the nominal GDP rate, given the relatively lower product penetration compared to EU. More specifically, starting from banking business, we anticipate that the group's organic loan growth will average 7.5% per year with Cyprus and Bulgaria seeing increases close to 10% annually. The adoption of the Euro in Bulgaria will also contribute to this growth. Turning now to Wealth Management and Insurance, where our leading presence is reflected in the expected annual growth rates. Assets under management will increase by 21% and combined insurance and wealth management fees will rise by 30%, positioning them as the main fee growth contributors. By 2028, fees will account for 26% of total income. The key goals for the 2026,'28 business plan are summarized on Page 19. In summary, organic growth across business lines and synergies coming from our recent acquisitions deliver enhanced returns and rising earnings per share, while cost-to-income ratio declines and capital buffers remain intact. Earnings per share is expected to grow by circa 10% compounded annual growth rate, which drives the return on tangible book value to circa 17% by 2028. So concluding, we have established a track record of consistently delivering our plan and exceeding our targets. In 2025, our well-diversified regional business model was further enhanced, reaching a balance sheet of close to EUR 110 billion. This is a strong base to consolidate and build upon as economic growth remains above average and demand for loans and financial services appears strong in our region. As such, the prospects for Eurobank remains strong for 2026 and the 3-year period. At this point, I would like to ask Harris to present our business plan drivers in more detail.

Thank you, Fokion. Let's now provide more details about our 3-year business plan. Starting with Page 20, we outlined the main assumptions. Economic growth in our 3 core markets is projected to stay strong, ranging from 2% to 3.5%, which is noticeably above the European average. We expect interest rates to remain steady with the ECB deposit facility at 2% for 2026 and 2027, followed by 25 basis points increase in 2028. Moving to the loan volumes on Page 21. After a record year with a double-digit growth, loans are projected to maintain a solid momentum, rising by approximately EUR 3.8 billion in 2026 and surpassing EUR 12 billion over 3 years. This corresponds to an average annual growth rate of 7.5%. In Greece, corporate lending is expected to expand by around 8% per annum, spurred by infrastructure investments, concessions, energy production and storage, manufacturing and tourism. Retail banking in Greece is gradually rebounding. In mortgages, last year was the first after 2007, where the bank recorded net growth, retaining its lead in new disbursements. This upward trend is likely to gather pace from 2026 onwards, fueled by rising demand for new houses, sustained interest from international buyers, a gradual shift toward bank financing over cars and ongoing support from the Greek government. Consumer lending should also accelerate driven by higher digital penetration, embedded finance proposals and increasing activity in car loans. Bulgaria's loan portfolio is forecasted to grow by about 10% annually. taking advantage of favorable macroeconomic conditions, relatively low credit penetration and prospects following the euro adoption as of January 2026. Mortgage loans will account for roughly 45% of this growth with another 35% attributed to corporate segment. In Cyprus, following the completion of the legal merger, loan expansion is expected to pick up speed, mostly led by local corporate lending as well as participation to European syndicated deals. Moving on to spreads on Page 22. Corporate lending spreads in Greece will keep declining, albeit at a slower pace due to surplus liquidity and competition. Bulgaria and Cyprus will see modestly falling lending spreads driven by local competition and mix, still standing above Greek levels. Deposit mix should improve in Greece, affecting positively the relevant beta and mitigating deposit spread decline due to rates. Group net interest margin is expected to slightly drop in 2026, driven by the trends in base rates and spreads, then recovered by a similar bit in 2028. The factors driving interest income are summarized on Page 23. NII is expected to rise to EUR 2.6 billion in 2026, with strong loan expansion, higher bond holdings and deposit mix improvement, comfortably offsetting impact from lower base rates and narrow spreads. In the following years, NII should keep increasing, reaching circa EUR 3 billion in 2028, largely due to ongoing growth in volumes. Moving to fees and commissions on Page 24. Following an outstanding performance in 2025, group commissions are projected to achieve double-digit growth, primarily supported by increased income from wealth management and insurance as well as higher retail fees in Bulgaria and Cyprus. As regards the insurance business on Page 25, the acquisition of Eurolife in Greece is forecasted to be completed in the second quarter of this year. Along with the CMP acquisition in Cyprus last year, our insurance franchise is enhanced substantially in these 2 countries. Furthermore, the low penetration of insurance business in our core markets, combined with promising cross-selling opportunities via bancassurance confirms solid business prospects. This translate to almost tripling insurance and bancassurance income, reaching circa EUR 200 million in 2028. In Wealth Management on Page 26, fee growth is supported by our focused strategy, our well-established franchise and the market opportunities which are evident by comparing the asset management penetration in our core countries versus average. In this context, our business plan aims for an annual increase in managed funds by more than 20%, reaching circa EUR 18 billion in 2028 and by 11% in private banking customers' assets and liabilities to EUR 20 billion that year. As a result, wealth management fees are anticipated to nearly double from circa EUR 90 million in 2025 to EUR 170 million in 2028. Returning to Page 24 and summarizing our projections for fee income. This is expected to exceed EUR 1 billion in 2028, representing 90 basis points of assets and accounting for 26% of total income. In Greece, these KPIs are anticipated to reach 100 basis points and 30%, respectively. Moving on to operating expenses on Page 27. The acceleration of IT CapEx is a key factor affecting the future trend. Over the 3 years, IT investments are projected to reach circa EUR 730 million. In Greece, CapEx increases to support the expansion of digital client offerings, enhance digital experience, further automate operations and cascade AI to middle and back office, commercial campaigns, software development and credit assessment process. In Cyprus, IT CapEx is mainly driven by the operational merger, the systems integration in banking and insurance and further digitization initiatives. In Bulgaria by the new adoption and in Luxembourg by the implementation of a new core system. As regards staff costs, they rise by contained 3% per annum. This outcome reflects remuneration adjustments and upskilling programs as well as the implementation of 2 VESs in Cyprus and Greece collectively targeting circa 700 FTEs. In summary, in a challenging context, especially considering the accelerated developments on IT and digital, our operating and business models preserve a top-tier cost-to-income ratio, which decreases from 37% in 2025 to 35% in 2028. On asset quality and on Page 29, in a favorable macro environment where asset quality remains resilient, we will continue to be prudent and adhere to our countercyclical strategy. In this context, cost of risk is projected to decline modestly to 55 basis points in 2026 and to 50 basis points by 2028. NPE coverage is anticipated to be around 80% during the business plan, while the NPE ratio should remain close to 2.5%. Finally, on capital on Page 30, throughout the business plan, the group expects to generate circa 820 basis points or EUR 4.5 billion in organic capital, supporting a high loan growth, major IT investments, DTC acceleration and a EUR 2.6 billion payout. Maintaining a CET1 ratio of 14% or above, the group preserves a capital buffer over its OCR of higher than 300 basis points, translating to an internal capital target surplus of at least 100 basis points. In summary, our diversified business model drives sustainable growth as shown on Page 19. Core profit is projected to reach EUR 1.9 billion in 2026 and EUR 2.3 billion in 2028, with return on tangible book value rising to 17%. Finally, EPS is anticipated to grow at circa 10% per annum over the business plan period. This completes my presentation, and we may now open the floor for your questions.

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

A couple of questions from me, please. The ROTCE guide, which is 17% by 2028. Can you walk us through the drivers of the expected improvement? I believe you are assuming one rate hike, which might be around 1/3 of the improvement, but it would be interesting to hear the drivers from you, please. And yes, the other thing was on loan growth, which you expect in the 7.8% 7.5% or so, again, I believe, for the business period having delivered once again double-digit loan growth. So can you perhaps walk us through the thinking here and the upsides and downsides to your guidance?

Okay. Thanks for the question. As you said, we expect the return on tangible book value to increase to 17% by 2028. For 2026, in particularly, we expect this to be at 16%. Now what are the drivers? It is what we mentioned, Harris and myself already. So loan growth which is going to drive higher the NII. Securities portfolio growth, which also is going to contribute to the NII growth. And then we have the growth in fee and commission income, where the largest driver is fees coming out of asset management and insurance business. And these are the biggest positive drivers. And then we have also the OpEx, which is expected to increase close to 5% on average per year, which is a negative driver of the increase in terms of the return on tangible book value. the drivers that I just mentioned are going to increase -- to show a growth in terms of EPS of circa 10% per annum, which obviously drives the growth in terms of return on tangible book value.

As regards to the loan growth, I think Page 21 of the presentation is quite illustrative of the drivers. Following an exceptional year, I think, 2025, we'll continue the solid growth momentum. Now the main drivers here is corporate in Greece that will continue with a close to high single-digit growth ratio. Retail is gradually rebounding with mortgages moving to positive territory and consumer accelerated. And on non-Greek operations, Cyprus and Bulgaria are expected to grow at a similar pace. Bulgaria, it's going to be, I would say, a balanced growth among the sectors, retail, corporate and in the retail, the major part is going to be mortgages and then consumer and small business. While in Cyprus is mostly related with corporate lending.

Just one small follow-up here. So the reason why you expect slower corporate growth in Greece is that you don't expect some of these bigger tickets you had recently to recur or any other reasons?

Actually, in the fourth quarter of the year, we had a few large transactions that were actually borderline whether to take place in 2026 or 2025. So you may appreciate that this, of course, numerically affects the growth in percentage terms.

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

I just wanted to ask if you could please elaborate on your capital allocation framework. You mentioned the 2028 target is greater than 14% and then also indicate the internal management target is around 13%. So is that explicitly leaving a buffer for some more M&A? Or what other opportunities set are you thinking around there? And then secondly, I just wanted to drill into AI and how you think it could help your business, but potentially also increase competition more broadly. There has been some discussion at the industry level around its potential impact on increasing deposit competition and potentially also for bancassurance. So I wanted to hear your perspective on that.

Okay. So let me start from the capital question. On Page 13, we show how capital -- organic capital generation has been allocated during the period 2021 to '25, effectively in asset growth, M&A and shareholder reward. And I think we have set a track record demonstrating that we are pursuing a capital optimization, keeping a balance between M&A that offer long-term value to our shareholders. organic growth, which is a multiple of the average across the EU and gradually increasing shareholder reward. So this is what we have done in the past. Now let's go on Page 30 of the presentation where we show the capital evolution in the 3-year period 2026 to '28. So during this period, our estimate is that we're going to generate about 820 basis points of organic capital. And this is distributed -- actually 55% of that is distributed to shareholders. And if you calculate the euro amount of this distribution is going to be about 50% higher than the respective euro amount of the previous 3-year period. About 25% is going to be consumed in terms of asset growth and 20% is the rest. So out of the full envelope of organic capital generation, 55% goes to distribution, 25% asset growth and 20% the rest. Now we believe that this is a sort of optimal allocation of the organic capital generated and also is a fair payout ratio. Given that we would like to keep during this period of 3 years, this excess capital of 100 basis points as a sort of optionality if there is any sort of M&A opportunity in any of the 3 countries in which we are present and either in banking or in insurance or in asset management. So this explains our thought process about how we allocate the organic capital generated. If this is clear, let me move on your second question about AI. And let me try to give a more general answer to your question about IT investments in general because for the 3-year period, there is an envelope of about EUR 700 million in terms of IT CapEx. Now what are these IT projects? Let me mention a few of them, is enhancement of our digital platform for households and businesses in Greece and in Bulgaria. It is the modernization of our core IT platform in Greece is the operational integration in Cyprus, which is in progress, and we expect this to be completed in the first quarter of 2027. and a number of AI projects in an effort to integrate AI in our business model. Now this includes some projects related with operations automation, end-to-end credit underwriting automation, KYC, AML-related automation processes as well as introduction of AI in our call centers and in our digital assistance. Obviously, these projects are expected to increase productivity. We have said that the cost-to-income ratio is going to decline at 35% by 2028. these productivity gains have been partially included on this 35% cost-to-income ratio. As we move forward, we would like to see how these projects evolve to make fresh estimates of the productivity gains that we may have. And according to that to update our cost-to-income ratio projection for 2028.

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

I would like to square the front-loaded and bulky IT spend with your rather gradual increase in operating costs. Can you please explain how do you see depreciation charges reacting to this IT spend?

Actually, it's going to be -- let's say, most of the CapEx will create depreciation from -- in a quite smooth way from 2027 and 2028. That has been included in our projections. But on the other side, we accelerate IT impairment so as to delete and eliminate depreciation on software that is now more on use. So we should not expect any spike in depreciation in the future years. Anyway, we show our OpEx projection for the 3-year period that it is expected to be at the area of 5%. This 5% is very close to the annual increase rate year-by-year. So there is no any spike in the former or in the latter years. This increase is quite smooth, I would say, year-by-year in the 3-year period.

That's great. That's great. And just to confirm, your distribution policy, if I read it correctly, it's above 50%, correct? But is it possible to be more specific, maybe 60%?

No, we said in terms of payout ratio for the 2025 financial results to be 55% this is EUR 717 million, split between a cash dividend and a share buyback program of EUR 288 million size. Going forward for 2026, we expect, again, the payout ratio to be 55%. And by 2028, we say at least 55%.

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

Just on the NIM outlook, could we unpack the decline for 2026 a little bit more? So if you look at the 4Q trends, the group NIM was quite stable, and we only saw a slight decline in the deposit spreads, where the main impact was really on the Greek lending spreads. So any color there would be very helpful.

Sure. Don't forget that in our plan, we compare year with year, not quarter by quarter. So on that front, as regards NII, not NIM, we have positive and negative drivers. On the positive side, we have the increased volumes on loans and bonds. the deposit mix improvement and a benefit from the release of liquidity in Bulgaria. On the negative side, we have the 25 basis points lower DFR versus 2025, lower loan spreads and increased MREL costs. And we show on Page 23, each driver with each quantum. Now as regards net interest margin, here, it is affected by -- on the positive side by the deposit mix. On the negative side by the lending spreads and of course, by the base rates. But it's not expect something material. I would say this should be at the area of close to 10 basis points. Stabilized there for 2027 and then increase back to 2025 levels in 2028.

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

Just one question. So if I look at Slide 23, and I see your NII bridge, if I use all the moving parts, it brings me to a 2026 NII of EUR 2,619 million. Now if I just take your final NII, the Q4 EUR 647 million, and I assume it's flat, then your 2026 implied NII is only 1.2% higher. And I just wanted to ask, well, so your loan CAGR, you say 7.5%. time deposit mix should be better, securities should increase as well. So my question is, is there any reason why the quarterly NII should not be rising significantly from here or something on rate spreads or perhaps the 2026 NII is just conservative?

Sure. First of all, adding the numbers of the drivers that we have included on Page 23, we arrive at 2026 NII that is circa 3% higher than the one of that of 2025. So we cannot, let's say, multiplying the fourth quarter by 4 ignores any trends that we may have on spreads on lending spreads basically and deposit spreads, the MREL cost and all this. So putting in order the drivers that I have mentioned, we come up with a year-on-year increase at the area of 3%.

And maybe just one more question on this. Is there any reason why we should think that between the quarters, we can have a Q-on-Q drop or we should expect only sequential uptrend on the NII in 2026?

I would rather the second. [indiscernible] in the effect of days, of course.

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

I have just a couple of questions. One on fees, please. If I look at the fee income guidance for 2028, it looks a bit at the low end for me with 7% organic CAGR. I know you're starting from a high point compared to peers, but I thought there were some more synergies to be extracted and maybe some more room to improve fee penetration in the international markets. So is there a reason for this softness, if I may put it so? And can I please clarify if you're using EUR 100 million flat contribution from EuroLife throughout the plan? Or is this actually increasing towards the end of the guidance period? My second question is on the EPS growth guidance of 10% CAGR. And does this include just this year's buyback, which you've just renewed at EUR 288 million? Or do you continue to assume buybacks in the outer years? And my last question on Bulgaria and the Eurozone entry, you're obviously talking about a supportive backdrop there and better loan growth. But are there any headwinds you expect to see from this change, for example, when it comes to fee income or anything else that we should be aware about?

So let's say -- let's address your first questions and then Fokion may address the one of Bulgaria. As regards fee and commission income, first of all, don't ignore the fact that we recorded a very strong 2025 with a 15% year-on-year increase and a very strong photo, I would say, in the fourth quarter. So based on that, we build and conclude to a mark of higher than EUR 1 billion that it is double-digit growth or ignoring the EuroLife effect, it is about a 7% organic CAGR. On that front, I would say that there are drivers that have been prudently addressed in our plan as it is the lending fees, for example, where we have already recording high figures or retail fees in Greece, where we are quite prudent on our forecast. And on the contrary, we base our growth on wealth management and insurance, where there is for the reasons that we explained, very high potential for growth as well as cross-selling and opportunities in retail fees in Bulgaria and Cyprus. So as regards Eurolife, Eurolife as of this year is included in our budget with EUR 100 million fees, but in this year, multiplied for 8 months out of the 12. So it's not going something that we are going to see in our P&L in 2028 alone. So for this year, it's about a number of close to EUR 65 million, EUR 67 million. But this is nothing less than the EUR 100 million mark divided by 12 and multiplied by 8. Now as regards your EPS question, for the projection of EPS, we have assumed a similar breakdown between cash and share buyback as used to be the case in 2025.

Now on Bulgaria, if I have understood well, your question was whether there are any sort of headwinds in terms of fee income. And this is a very valid question because in situations like that, FX fees or FX trading income declines. However, in the case of Bulgaria, because the country was in a currency board for a prolonged period of time, I don't remember how many years, it was close to 20 years. The FX-related income was anyway relatively low. So we may have a decline, but from a sort of low number.

The next question comes from the line of Michael Dan with [indiscernible]

Congratulations on the results, Fokion and Harris. I just had a question on the cost of risk guidance. Is the guidance inclusive on the NPE servicing fee renegotiation? And if -- when do you expect to announce the renegotiation to be completed?

Sure. As we have said, we expect to initiate such a negotiation in 2026 and any benefits should be from 2027 onwards. Currently, servicing fees account for about 12 basis points out of 60 that it is our total cost of risk, and we expect there a saving of close to 25% out of this number, but this has not been included in our calculations.

The next question comes from the line of Brzoza, Robert with PKO BP Securities.

Just one quick question related to the recent verdict from the Greek Supreme Court on the cap loans.

Yes, sure. As you know, we are still waiting for the final ruling of the Supreme Court, so that we have a clear view about the exact decision. But even if we assume a worst-case scenario, the impact for Eurobank is going to be 0 or very close to 0. First of all, the amount of [indiscernible] loans that we have in our portfolio as we speak is 0, effectively 0. And we have tried to make the calculation about potential retroactive claims when we had holdings of these loans. And again, this number is very close to 0. So as I said, we expect no impact for Eurobank out of that.

The next question comes from the line of Garrido Luis with Bank of America Merrill Lynch.

Two questions from me. The first on Bulgaria. Can you help us understand so the loan growth being faster than the general market loan growth and itself that being faster than GDP growth. So what you're effectively saying is that this is a market with low loan penetration. And on top of that, you plan to grow faster than the market. So effectively, you plan to capture some market share from other players or some types of loans. Maybe if you could give us some detail on the type of business that you want to grow faster than the market in Bulgaria. And the second question, just on your capital and MREL planning. You gave some numbers on your expected senior preferred issuance through to 2028. Is that assuming you reach that 14% CET1 target?

Yes. Starting from your second question, the answer is yes. So as regards to Bulgaria, let's...

Yes, in Bulgaria, first of all, the credit penetration in the country is still below the EU average. And definitely, the entry into the euro would help into converge that to the EU average. But the estimates that we have about credit growth for our own portfolio in Bulgaria does not assume any material change in market share. So we have assumed that the market overall is going to grow at a level similar to what we have already said. So any sort of gains in terms of market share are going to be rather marginal.

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.

Let me thank you all for participating in this call. Let me also thank you for the numerous questions that we received and hopefully have helped us to clarify the 2025 results and our 3-year plan. Next month, we're going to be in London, and we will be glad to meet in person any of you. In the meantime, our IR is at your disposal for any follow-up questions. Thank you very much.