National Bank of Greece S.A. (ETE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the National Bank of Greece 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. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.

Good afternoon, everyone, and good morning for those joining from the U.S. Welcome to our second quarter 2026 financial results call. I'm joined by Christos Christodoulou, the Group CFO; and Greg Papagloorres, Group Head of IR. After my introductory remarks, Christa will go into more detail on our financial performance, and then we will turn to Q&A. So let's begin. On the macro front, we continue to navigate an environment of elevated volatility, yet both the Greek economy and the banking sector have demonstrated remarkable resilience, consistently revealing a capacity to adopt and create value during a highly challenging external backdrop. Recall that at the beginning of the year, the base case scenario envisaged a gradual normalization of the geopolitical environment from midyear, a date already passed. In fact, the second quarter once again exceeded expectations, particularly the corporate sector, while the fundamental drivers underpinning Greece's growth trajectory remained intact to just -- to mention just a few important ones. Business activity continued on a solid upward trend as evidenced by record gross operating surplus levels, high capacity utilization rates, a strong business investment appetite, and this positive outlook is set to continue as per our PMI of 54. Tourism continues to outperform and remains on course for another record year. Labor market conditions strengthened in May, June with unemployment declining to an 18-year low and real wages are set to record positive growth for a third consecutive year. The Greek private sector also continues to benefit from supportive financing conditions. Credit expansion remained robust and capital raising in the domestic capital market reached a new record level through July, underscoring both the strong demand for fixed investment as well as sustained investor appetite for Greek assets. Greece's fiscal position continues to serve as a key pillar of resilience. Following the record primary surplus achieved in 2025, fiscal outperformance continued in early 2026. Consequently, Greece remains one of the few European economies with meaningful fiscal space, providing an important buffer against a prolonged period of heightened external uncertainty and reinforcing confidence in the country's medium-term outlook. This fiscal capacity has already begun to be deployed to mitigate external headwinds. Targeted support measures introduced so far this year reached EUR 1 billion, among the highest in the euro area relative to GDP. Moreover, more measures are expected to be announced at the time of the Siki fair in September. Looking ahead, investment remains the central pillar of Greece's growth outlook. As the country enters the final stage of RRF implementation, more than EUR 20 billion of available resources remain to be deployed during the second half of 2026 and a couple of years beyond. Combined with a mature pipeline of additional private sector investments already underway, these resources are expected to continue supporting fixed capital formation, productivity growth and the ongoing transformation of the Greek economy. For the banking sector, the macroeconomic backdrop remains particularly supportive. Strong investment momentum, healthy corporate balance sheets, improving labor market fundamentals and ample liquidity continue to underpin credit expansion, support asset quality and drive increasing demand for more sophisticated banking transaction and advisory services. Consequently, we remain confident that the Greek economy is well positioned to navigate heightened uncertainty, creating favorable conditions for sustainable lending growth and long-term value creation. Now let me turn to our financial results. The strength of the Greek economy, combined with our comparative advantage and disciplined execution has enabled the delivery of another solid set of results in the first half of the year. Our results are comfortably fulfilling the full year 2026 guidance issued in February, leading us to upgrade multiple 2026 full year targets. Specifically, in the first half, we delivered a profit after tax of EUR 661 million, which implied an earnings per share of EUR 1.45, 3% higher relative to 2025's first half comparable levels. Our return on tangible equity reached 15.5% or over 20% adjusted for excess capital, leading us to revise our full year 2026 target to over 15%. The key driver in the second quarter has been the strong momentum in our core income generation, underpinned by the strong performance of both our NII and fee lines. Regarding NII, it increased by nearly 3% quarter-on-quarter in the second quarter of 2026, notably stronger than the previous quarter on the back of solid performing loan expansion and a positive trajectory in benchmark rates. Importantly, NIM has pivoted from the first quarter '26 lows standing at 273 basis points. The current rate trajectory allows us to revise upwards our NII expectation from a low single digit to a mid-single-digit growth rate for the full year 2026 on a year-on-year basis as well as our NIM to circa 280 basis points. With regards to credit expansion, both corporate and retail disbursements accelerated in the second quarter despite geopolitical uncertainty, leading our performing loans to expand by over $2 billion year-to-date, a growth of 13% year-on-year. Corporate credit, up by 17%, continues to be the key driver with credit demand focusing on large corporates, SMEs and project finance across key sectors, namely energy, infrastructure and shipping, supported also by the approval acceleration linked to RRF that Lance brought forward. Retail performing loans, up 4% year-on-year, continued contributing positively to credit growth with disbursements coming in higher by 20% year-on-year across all segments, resulting in notable market share gains. Turning to commissions. Our fee income growth picked up in the second quarter, yielding a double-digit growth for the first half of the year, 10% on the back of retail fees fueled by continued strong sales of investment products. Indeed, these led to a 0.5% gain in market share year-to-date despite the market turbulence. The other driver was corporate fees from new originations. Our strong first half performance provides confidence for comfortably achieving our high single-digit full year 2026 guidance. As regards to costs, we have remained disciplined in our commitment to invest in our people through the onboarding of new talent, higher wages as well as variable pay linked to productivity improvements. In the same direction, our multiyear investments in technology and digital infrastructure provide us with many competitive advantages as regards to commercial effectiveness, digital offerings and cybersecurity. Notably, we recently completed the largest banking technology project ever undertaken in Greece, the replacement of our core banking system. This 5-year landmark project has been a strategic move that facilitates the bank's transition into the new technological era we are facing by providing modularity for ease of integration and extra functionality, for example, virtual accounts, operative accounts, liquidity management; two, agile product parameterization for faster time to market; three, open architecture to facilitate the delivery of our digital strategy for Banking-as-a-Service; four, cloud-native architecture permitting easy shifts to cloud, which will be the best practice in the future; and five, headroom for a 30% increase in the already market-leading transaction levels, absorbing future growth without the need for replatforming. Plus the core banking system acts as a cornerstone for our AI strategy. More on that later. It's an appropriate moment to remind you that our early investment in technology has allowed us to: one, renew 80% of our systems, reducing their average age to below 6 years; two, to create a market-leading embedded banking business due to our APIs capabilities as well as bespoke APIs for large corporate customers' payment needs; three, -- last and not least, to totally revamp our digital offering with 3 new mobile apps, 2 new websites and a new youth platform, leading to a market-leading overall number of digitally active customers. Furthermore, the bank has fully embraced AI usage, where our use cases already span across front, middle and back offices. We have leveraged AI capabilities in many areas, such as the support of corporate business lending underwriting, AML fraud prevention and the creation of an internal knowledge management platform, Athena, to name just a few. We were also the first bank that rolled out a customer-facing agent, our digital assistant Sofia, with our rapidly growing services she offers expanding across all our digital channels, servicing already 200,000 requests per month, i.e., approximately 25 of total requests, a number that's growing. Moreover, we recently added in July a real-time voice capability via in our contact center, already servicing approximately an additional 130,000 calls per month. These innovative steps open the door to a wealth of new functionalities and opportunities for the bank, putting us at the forefront of European financial services in terms of technology stack and the application of its capabilities. These efforts also provide structural protection and operational resilience in a more challenging world with IA-led cyber risks. Our capital position remains strong with our CET1 ratio at 17.3%, absorbing the sharp increase in performing loans during the first half of the year, especially in the second quarter as well as superior payout accruals. As regard to capital strategy, our robust capital position, one of NBG's key competitive advantages, provides security during uncertain times while supporting organic growth and superior shareholder returns, which remain our priorities. Importantly, our capital resources offer strategic optionality for growth and value creation for our shareholders. As you may recall, in the previous quarter, we announced a major step toward enhancing our fee-generating capabilities, forming a partnership with a leading global insurer Allianz. This partnership aims to enhance our offerings of customer-centric insurance solutions while maintaining a capital-light model, thus contributing to sustainable earnings growth and long-term value creation to our shareholders. In the same direction, we are currently proceeding with another strategic transaction, partnering with Rromaz Capital to capitalize on selected real estate investment opportunities. Our initial investment will be in the area of $400 million, opting to achieve recurring income generation while diversing further our fee structure. The partnership is anticipated to provide a substantial uplift to group fees by circa 3 percentage points during '27, '28 and is our return on tangible equity accretive by over 20 basis points. To close, it is important to reiterate that our strategic priority for growth remains firm to enhance shareholder value by increasing our revenue base on a sustainable basis and in the event of inorganic growth to create tangible value. With that, I would like to pass the floor to our group CFO, Christos, who will provide additional insights to our financial performance before we return to Q&A. Christos?

Thank you, Pavlos. The first half of 2026 was another period of strong execution for ABG. We delivered robust profitability, accelerated core income growth and also strengthened the foundations for future earnings growth. As illustrated on Slide 21, in H1, we generated a profit after tax of EUR 661 million before one-offs, supported by increased NII momentum and accelerated fee growth. This translates into a return on tangible equity of 15.7% or 15.5% normalized for the first half trading gains, comfortably above our initial full year '26 guidance of circa 15%, which now we revised upwards to over 15% Importantly, adjusting for excess capital, return on tangible equity exceeds 20%, showcasing the significant upside potential embedded in our balance sheet, which is being released as we progressively deploy our capital resources. As regards to our earnings per share, we generated an EPS of EUR 1.45 in H1 that led us to upgrade our full year guidance to over EUR 1.4 per share. Going into more detail, our NII momentum strengthened further during the second quarter, increasing by 3% quarter-on-quarter, as shown on Slide 25, primarily driven by volume effects as market rate impact is mostly expected in the second half of the year, given the repricing lag in our loan portfolio. Performing exposures grew by an impressive EUR 2.1 billion year-to-date, which combined with the improving rate dynamics in the latter part of the second quarter will support NII going forward. Importantly, Q2 marked a turning point for our net interest margin, pivoting from the Q1 trough. Looking ahead, the combination of higher rates and sustained credit dynamics underpins our expectation for a strong second half of the year, leading us to upgrade our full year NII guidance from a low to a mid-single-digit growth. While NII and net interest margin remain key strengths, fee income is increasingly becoming a powerful growth engine. Our fees gained significant traction in Q2, up by 14% quarter-on-quarter, resulting in a 10% year-on-year growth for the 6-month result with momentum across core businesses, as shown on Slide 32. Retail banking is up by 14% year-on-year, led by investment products, which grew by almost 50% year-on-year on the back of strong cross-selling, leveraging our deposit franchise as we continue to benefit as clients move balances from term deposits into fee-generating investment products, supporting our market share gains in mutual funds. This trend allowed us for a 50 basis points year-to-date increase in market share in mutual funds, while retail funds under management grew to EUR 10.6 billion in Q2, up by 14% or EUR 1.3 billion year-to-date as illustrated on Slide 33. At the same time, corporate fees also delivered double-digit growth, supported by a 20% year-on-year increase in loan origination fees, also capitalizing a very strong finish in RRF-related contracts. Beyond the strong underlying momentum, we continue to make tangible progress in building a more diversified core revenue base, focusing on scaling up our fee-based income generation, which will materially support our income growth from 2027 onwards as disclosed in Slides 15 and 16. The Allianz transaction represents a strategically important step in this direction, strengthening our insurance proposition through innovative product capabilities and elevated customer experience. Along the same lines, the recent agreement with Rome Capital broadens our recurring income opportunities through a disciplined and highly selective real estate investment platform, further enhancing the resilience and diversification of our earnings profile. Both transactions create substantial value, delivering a significant uplift to both our EPS and return on tangible equity and exemplify the type of strategic transactions we seek to pursue. -- value-accretive investments that leverage our core franchise capabilities, strengthening our product offering and customer penetration, enhancing the quality and sustainability of our earnings. Below our top line, our operating expenses increased by 8% year-on-year, as shown on Slide 34, in line with guidance, balancing cost discipline with strategic investments in technology and people as we strive to offer innovative products and best-in-class service to our clients. Personnel expenses increased year-on-year, primarily due to sector and bank-specific union agreements as well as through performance-based variable remuneration and selective recruitment of new talent and specialist skills, leveraging voluntary exit scheme offerings. Admin expenses growth reflects initiatives aimed at enhancing customer experience. Similarly, depreciation charges reflect our sector-leading investments in technology and digital infrastructure, enhancing productivity, commercial effectiveness, digital offering and cyber security. As our CEO just mentioned, in May, we successfully completed the migration to our new cloud-based core banking system, the largest banking technology transformation ever undertaken in Greece and one of the most significant in Europe. This milestone places MBG at the forefront of modern banking infrastructure and creates a platform for faster innovation, efficiency and superior customer service. As illustrated in Slide 17 to 19, we are also accelerating the adoption of AI across the organization from the SOPHiA Digital Assistant to the introduction of an AI-powered voice agent in our contact center, the first in the domestic banking sector. Crucially, these investments are being realized without compromising efficiency with our cost-to-income ratio kept at industry low levels below 35%, supporting another positive full year '26 target revision. As regards credit risk charges, near 0 NPE flows, combined with our leading coverage levels by European standards support the cost of risk below 40 basis points, in line with our full year expectations, displaying consistent normalization despite geopolitical uncertainty. Turning to Slide 23. Our capital position remains a key competitive advantage. In Q2, we absorbed a pickup in risk-weighted asset growth driven by strong credit expansion as well as superior payout accruals with our core equity Tier 1 ratio standing at 17.3% and our total capital ratio at 21% -- at the same time, our MREL ratio of 28.4% remains well above the regulatory requirement of 26.7%. While these levels provide significant resilience in an uncertain environment, they also create substantial strategic flexibility. Our capital allocation strategy and priorities as disclosed on Slide 14, remain disciplined and firm, supported organic growth and superior ordinary shareholder distributions while maintaining optionality on extraordinary distributions and value-accretive strategic transactions depending on opportunities. The examples of Allianz and Rome transactions are testament to this. Capital deployment of less than 20 basis points for both transactions, delivering profitability of circa EUR 80 million in 2027 and over EUR 100 million in 2028. Now let me walk you through the highlights of our standard balance sheet summarized on Slide 22. As referred to earlier, trade expansion accelerated in Q2, driving our performing loan book EUR 2.1 billion higher year-to-date, comparing well to our full year credit expansion target of over EUR 3 billion, as shown on Slide 26. This reflects loan disbursements of EUR 5.5 billion, up by 30% year-on-year, driven by healthy credit demand across customer segments as shown on Slides 27 and 28. Corporate lending remains a key driver with disbursements up by 33% year-on-year allocated across sectors with emphasis on energy, shipping, tourism and infrastructure. Loan origination dynamics were positive in the retail segment as well as momentum continues to pick up across retail products with disbursements rising by 20% year-on-year to EUR 1.3 billion, driving retail performing exposures EUR 0.3 billion higher year-on-year. On the liability side, deposits increased by EUR 3.5 billion year-on-year, as shown on Slide 29, driven by pricing elastic core deposit inflows, which comprise more than 80% of our total deposits. Our deposit and total funding cost stood at 27 basis points and 64 basis points, respectively, as depicted on Slide 31, the lowest in the domestic market, evidencing our superior liquidity profile. Our liquidity coverage ratio stands at 230%, amongst the strongest in the euro area with our loan-to-deposit ratio settling at 67%. A few words on asset quality illustrated on Slides 35 and 36. Our NPE ratio of 2.4% is supported by benign asset quality trends as flows remain unaffected by uncertainty, supporting a cost of risk below 30 basis points as per our guidance. Our leading coverage levels comprise another strength of MBG's balance sheet, providing cushion against potential risks, reinforcing our resilience. In the first half of the year, we delivered robust profitability, which has led us to upgrade our return on tangible equity and EPS targets for the year, supported by an improved outlook for core income dynamics. Beyond financial performance, our investments in technology have positioned us well ahead of domestic as well as many European peers, establishing a clear competitive advantage as we leverage the capabilities of a modern IT infrastructure, facilitating the deployment of AI across the bank. At the same time, our strategy sets the foundations for sustainable value creation beyond 2026. Our capital position provides us with a mass strategic flexibility, enabling us to combine organic growth with superior shareholder distributions while maintaining strategic optionality for capturing value-adding opportunities. Long-term value creation for our shareholders is a key priority. And with that, I would like to open the floor to questions.

[Operator Instructions] The first question is from the line of Benjamin Caven-Roberts with Goldman Sachs.

Two for me, please. First, on NII. Could we please just dig into the NII trends as we move into the second half? And how much of a benefit you'd still expect to see from repricing your book to higher Euribor levels, particularly given the current run rate of 3 months Euribor is close to 2.5%. And then how much of this you'd expect to be eroded by competition on loans and deposit mix? And then secondly, just to drill into the core banking system in more detail, how soon should we see the benefits of those new capabilities from a revenue perspective? And how should we think about the reduction in costs of the completion of that technology project facilitates?

Thanks for the question, Ben. So I'll take the first one. So clearly, I think the basis of our upgrading of the targets is on NII. So we started the year expecting market rates to be a bit lower. Given the developments that we had in the first half of the year, this is materializing at higher levels. And as a result, the key driver for our NII growth in the second half will be market rates. And as a result, we've also upgraded our net interest margin guidance to circa 280 basis points. Now having said that, we are also experiencing a strong growth in lending in the first half of the year with a pipeline that is very promising for us to deliver the overall growth for the year, which is just over EUR 3 billion. So volumes will also contribute to the NII growth for the year. You mentioned headwinds as well. And indeed, we are still facing a period where spread compressions are materializing at a decelerating rate. But yet again, we do have to face them. In our expectations, the spread compression for the year is in the area of 15 to 20 basis points. So there is still some coming towards the end of the year. But all in all, as you've seen, we expect a mid-single-digit growth in our NII. And overall, we are very positive about the second half of the year. And Pavlos could...

A difficult question on the benefits of new technology, whether it's the core banking or the digital or the AI. Clearly, the shift to digital, I think you've seen the most tangible reduction in costs by having us reduce the size of the branch network significantly over EUR 150 million of savings over the past few years on that. The revenue benefit from core banking will depend as we put on more applications we generate revenue. That's going to be gradual. It won't be something you'll see big jumps in. AI will certainly lead to reductions in call center costs. I already mentioned 25%. That should increase. That should be tangible in the OpEx line, not the CapEx line. We will be reducing licensing costs as we decommission more and more of our legacy systems. So it will be continuous and gradual, and I presume it will be accelerating in the outer years. I think these estimates will take more meat on the bones as we progress. So we'll take a stab at it certainly in the business plan for the next business plan, which we will present at the beginning of '27. But I'm sure you understand that it's work in progress. And though they'll be there, the exact time you realize it and create the productivity gains will be more difficult.

The next question is from the line of Mehmet Sevim from JPMorgan.

I was just wondering if you could give a little more detail on the Romeos Capital partnership and the fee impact that you see from there. Is that just plugging the CRE portfolio into your balance sheet and essentially the rental yield? Or how does this number come together? And is the CRE portfolio in Greece? Or is it international? And you mentioned an initial investment of EUR 400 million. Where would you see that growing over the years, if I may ask? And then could you also please comment on the very strong deposit trends in the quarter, I think 6% quarter-on-quarter. We're seeing this across the sector and how that would help you maybe if you deploy it in higher-yielding assets and essentially how it would help your NII in the remainder of the year beyond the rate impact?

Okay. I'll take the first one, Sir. So the agreement with Rome is for an asset management deal coming in with a portfolio of EUR 0.4 billion, as we said, just a bit over EUR 400 million. That's how the fees will come. That's how the value will come. When we talk about CRE portfolio, we want to be very disciplined. And as we repeated, both Pavlos and I, very selective with strict criteria. We are talking about buildings in Athens, not anywhere in Greece because you mentioned also if it's outside Greece. So it's -- so far, this is buildings in Athens. And we envisage to grow the portfolio at least to start with around EUR 700 million, EUR 800 million, somewhere there. But that's the aspiration so far and the numbers that we shared up to this point are based on these kind of assumptions. And Pablo?

On deposits, the jump you've seen I think in most of the banks that have announced so far, including ourselves, it's been partially inflated by corporate actions, i.e., equity raisings, PPC raising EUR 4 billion and depositing most of that in the 4 systemic banks or the Greek banks, I should say. That has -- for us, it's been led to inflation of around EUR 700 million in deposits. It will be around for a while until PPC decides to use it for investments. So there is a bit of inflation. But other than that, clearly, the growth of the economy -- the loans are creating deposits. So there's a lot of the organic loan growth is creating deposits as well. So it is sort of a natural phenomenon of loans creating deposits and deposits creating loans that you're seeing with an add-on of the various corporate actions by 3 or 4 or 5 large Greek corporates.

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

Just one on capital, please. It was nice to see another strategic transaction announced this quarter. But going forward, if we think about the other uses of excess capital, specifically on the extraordinary payouts, would this be an annual decision made towards the end of each year? Or should we think about it being deployed closer to the end of the current business plan if no inorganic options are found? And just kind of a quick follow-up to that. Are there any other areas you'd like to kind of further strengthen the bank or you focus on here in the inorganic side?

Well, I think you have to be patient, and we'll make announcements as they come on the inorganic. Now on the one-off payment -- dividend payment, the decision will come later in the year as it did and right before the AGM as it did last time. we've described the strategy, our preferences for M&A as the use of the excess capital. And if increasing the annual payment as well and the one-offs are a compromised solution between the 2.