Piraeus Bank S.A. (TPEIR) 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 Piraeus Financial Holdings Conference Call and Live Webcast to present and discuss the Piraeus 9 months 2024 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Piraeus Financial Holdings CEO, Mr. Christos Megalou. Mr. Megalou, you may now proceed.

Good afternoon, ladies and gentlemen, and good morning to all of you joining us from the U.S. This is Christos Megalou, Chief Executive Officer, and I'm joined today by our CFO, Theodoros Gnardellis; Chryssanthi Berbati; and Xenofon Damalas. Piraeus has delivered a quarter of superior results with the best 9-month performance ever. We generated EUR 320 million normalized net profit in the third quarter, adding to EUR 932 million for the 9-month period. Our strong operating performance in the 9-month 2024 paves the way for the upgrade of our full year targets. I'm proud of our results and thankful to our people for their hard work. Let's start our presentation with Slide 4 for the key achievements of our performance. We achieved NII growth in the quarter driven by increase in volumes that outpaced the June '24 rate cut. We generated normalized earnings of EUR 0.25 per share in the quarter, up 16% year-on-year and EUR 0.72 per share in the 9 months, which leads us to update the target for '24 to over EUR 0.90. We achieved a return on an average tangible book of 18% in the third quarter, which brings the 9-month figure at 18%, driving us to update the target for 2024 to higher than 17%. We delivered 9% net revenue growth year-on-year in the 9-month period, benefiting from strong growth of client balances with fees growing at 3x the annual rate over NII. In the 9-month period, we increased our assets under management to EUR 11 billion driven by the #1 position in net mutual fund sales. Operating expenses remained stable year-on-year with cost-to-core income ratio at 29%, a best-in-class figure in Greece and among the best in Europe. Importantly, cost of risk was maintained at low levels, standing at 23 basis points in the 9-month period, excluding NPE servicer fees, and synthetic securitization costs and outcome of the successful management of NPE inflows. Overall, our asset quality dynamics remain solid with NPE ratio further down to 3.2%. Our updated target is for an NPE ratio of below 3% by year-end. We expanded our performing loan book by EUR 2 billion in the 9-month period with solid growth in the business book. The target for December '24 is now upgraded to EUR 33 billion, an impressive 10% year-on-year growth. Our CET1 ratio increased by 150 basis points year-to-date and reached 14.7%. The total capital ratio stands at 20%, and our MREL ratio is the highest in Greece at 29%. On the back of our solid financial performance, we upgraded our distribution accrual to 35% for 2024, while our recently updated distribution policy provides for a 50% payout ratio in 2025. Slide 5 depicts the financial KPIs that summarize our results. We have sustained high performance on all KPIs over multiple quarters, which leads to a strong finish for 2024 as well as for 2025. Slide 6 covers our earnings results in further detail. As you can see, the record earnings performance in the 9-month period resulted in tangible book value per share reaching EUR 5.69, up 15% annually enhancing further the value proposition to our shareholders. Slide 7 presents the trajectory of the core P&L lines showcasing solid net interest income and net fee income dynamics supported by growth, cost discipline and resilient asset quality. Cost of risk remains stable to cycle low levels. Slide 8 to 11 present the detailed information regarding net interest income intrinsic with net interest margin at 2.7%, loan pass-through stable at the level of 80% and deposit beta settling at 16%. On Slide 9, we discuss net interest income dynamics for 2025. We now expect EUR 50 million to EUR 100 million upside to the current guidance of EUR 1.8 billion, driven by higher loan volumes, lower time deposit mix and earlier bond IRS monetization that should more than offset the effects of lower interest rates. Slide 12 outlines the impressive evolution of our net fee income, which has been supported by loan expansion, the cards business, funds transfer and asset management. Net fee income of our assets stood at the best-in-class level of 83 basis points in the 9 months. On Slide 13, you can see how our new Wealth & Asset Management strategy continues to produce strong results with assets under management reaching EUR 11 billion at the end of September 2024, recording a 29% increase year-on-year. Our pursuit of operating efficiency bears fruit despite the inflationary headwinds. We have managed to maintain discipline in cost efficiency in the third quarter as shown on Slide 14. Cost-to-core income ratio saved at a best-in-class 30% in Q3. Slide 15 provides a summary of our asset quality indicators. Our NPE ratio dropped to 3.2% with 0 net NPE formation. Meanwhile, third quarter organic cost of risk was maintained at historic low levels, shaping at 54 basis points or 33 basis points excluding NPE servicer fees and synthetic securitization costs. NPE coverage remained at a prudent level of 61%. On Slide 16 to 18, we present the dynamics of our performing loan book. Credit expansion was strong in Q3 with performing loans rising by EUR 700 million, supported by all business lending segments adding to EUR 1.9 billion credit expansion in the 9 months, exceeding our full year target. On Slide 19, we present our growth expectations for retail credit next year. We anticipate the youth supporting state schemes and the retrofitting programs, our diversified sectorial model and nationwide branch network as well as our e-loans and auto-loans to drive growth in mortgages, small business and consumer loans. Piraeus has a superior liquidity profile presented on Slide 20. Our liquidity ratios remain solid post TLTRO repayments as evidenced by 244% liquidity coverage ratio and 63% loan-to-deposit ratio, both in the top range of the European spectrum. Turning to our capital base on Slide 21. Our CET1 ratio rose to 14.7% in September 2024, while accounting for increased distribution payout of 35%, already meeting the end '24 target. Also important to note that we are working to bring our 2025 AGM sooner in early Q2, to pave the way for earlier dividend payment and share back program initiation. On Slide 22, we present details of our plan to accelerate DTC amortization, aiming at 0 DTC by 2034 versus the 2041 scheduled before. Our DTC over CET1 ratio is now planned to fall to 30% by 2027. On Slide 23, we illustrate the strong capital accretion capacity of Piraeus under the context of our profitability, growth and distribution assumptions including the new treatment for DTC. On Slide 24, we present our strong MREL position. On Slide 25, we present the latest developments for Snappi, including the European banking license that was received in June '24, being the first Greek neobank with a relevant license. Snappi's commercial launch is expected in the second quarter of 2025. It's ambition calls for more than EUR 200 million revenues and presence in 3 to 4 countries in the next 5 years, reaching a client base of 2.5 million. Based on our 2024 performance to date. We upgrade our full year guidance as depicted on Slide 26. The key elements comprise normalized return of more than 17%. EPS of more than EUR 0.90, further growth of CET1 ratio to 15%, expansion of performing loans to EUR 33 billion and non-performing exposures ratio of less than 3%. Also, we now aim at a payout ratio of 35% out of our 2024 profits. On Slide 27 to 31, you can see analytically the digital journeys and transformational projects that we delivered in the third quarter of '24. Namely, we are proud of our successful rebranding that signals a new era for Piraeus are planned on the transition to a modern retail bank model as well as the strategic actions towards building, energy efficiency and sustainability in the agri-food sector. Finally, on Slide 32, we summarized the elements that make us the leading bank in Greece. Our strong results position Piraeus well among the broader group of regional peers. To give you some context on Slide 34 to 42, we present the key metrics for Piraeus versus domestic and regional peers. We benchmark ourselves in terms of return on an average tangible book value, credit expansion, net interest margin, deposit beta, net fee margin, cost-to-core income ratio, NPE ratio, cost of risk and capital ratio. In all KPIs, we are either at par or best-in-class while we are growing at an accelerated pace, we expect to generate significant value for our shareholders. And with that, let's now open the floor to your questions.

[Operator Instructions] The first question comes from the line of Iqbal Nida with Morgan Stanley.

Congratulations on the great set of results. I have a few questions. I'll start off on the NII. So NII resilience is quite impressive despite the lower rate. You've upgraded your NII guidance for 2025 as well with the lower rate assumption versus before. Are you able to detail the assumptions in terms of term deposit share and the loan growth that you have for 2025 that drives this revised NII upside for '25. I also see that NIM sensitivity to rates is now lower versus before. So if you could please provide the drivers behind that as well. Just linked to this, I know my questions are a bit long on this. But just linked to, obviously, guided to flat 2026 NII versus '25, are you able to comment on whether that flat year-on-year guidance still holds for 2026? And finally, just to wrap up on the upside to 2025 NII, does that flow through to the bottom line in terms of net income guidance for 2025 as well?

Nida, okay, I think I've noted everything down. It is four questions. Okay. So the term deposit share and the loan growth, the assumption is basically a static, I would say, term deposit volume going forward. So we don't expect any major migrations. We believe we've reached kind of a static situation. As far as the mix goes, there is a slight expectation for growth on the site and current deposit level, but nothing to write home about in terms of the drivers on the term deposit mix. On loan growth, the major change, I would say, is the higher loan volumes, I mean, we've got that on Page 9 that are primarily coming from the '24 outperformance, right? So it's -- the '25 is for the time being, pretty much where we thought it would land as per the previous plan, but '24 gives you a big tailwind, and that's what we've got kind of there in the plan. The NIM sensitivity reduction. Two things really. One is the monetization of the swaps and the conversion of the bond book reducing the hedge ratio that we've got there. So the sensitivity of the bond book has been reduced with substantial swap monetization that happened throughout '24, so that reduce the sensitivity and also build the assumption of the term deposit cost pass-through that it's actually going to stay at 60% on the way down. So that also kind of reduces the sensitivity on the NIM. We're not going to comment anything on '26, Nida, right now. I mean, even '25, we put it out there. We put out Page 9 simply to help you guys understand how all of the pieces are working together rather than just the risk-free. So give us, I would say, a few weeks or months to complete the new plan and come out and help you out there. On net income, again, on '25, budget '25 is currently underway. There's no real major reason for assumption on the other lines to change. But right now, let's just stick to the NII communication that we're putting out.

Can I ask another follow-up question, please?

Sure.

Just on the DTC amortization acceleration, I just want to get a better understanding of, are there any sort of further regulatory approvals required around this? And secondly, I mean, how much confidence does this give you in terms of getting SSM approvals for higher dividend payout, including the 50% for 2025. I guess, I'm trying to understand if there are any other potential risks around the dividend payout?

Nida, it's Christos Megalou. There is no further regulatory approval. And essentially, this whole acceleration paves the way for higher dividend payout as we are showcasing in our results.

The next question comes from the line of [ Sbihi Mohamed ] with JPMorgan.

Thanks very much for the presentation. I'd also like to thank you for all the clarity provided on the DTC amortization. I think your disclosures are really best-in-class. So just one more maybe a follow-up on this. Do you -- can we read this as a signal that you've received green light from the regulator now for higher payouts in the coming years, say, in 2026, potentially to go above 50% if you wanted. Because as far as I remember, you really didn't have plans to go above 50%. You wanted to utilize all your excess capital building it and then dividends at 50%. So how should we maybe think about it for 2026 also? And from also the intro comments, I understood there may be a buyback component to the payouts next year? Did I hear that correctly? That would be great to understand. And then just one question maybe on the loan growth. The 10% is very formidable indeed. And I was just trying to understand where the outperformance is coming from relative to the initial guidance? And -- do you think this would have implications on 2025 for the better? Or how should we maybe think about it at this stage?

Well, when we discuss supervisory green light, it's a bit of a different world to the actual reality. Supervisors give green lights as per process and particular rules. Obviously, there have been consultations. We believe that what we're putting out there in terms of a new distribution policy and DTC acceleration. I would say, it takes away the remainder balance sheet health question that Piraeus Bank kind of had. So obviously, it lists a question that was there. That is not something subject to approval. But it does help with the discussion and consultations have happened. So obviously, we are reconfirming -- we are upgrading this year from 25% originally at the start of the year to 35% and reconfirming 50% for '25 with more -- with a lot of confidence. Now for '26 going above 50%, we've explained that even with this DTC acceleration as well as a 50% assumption, the bank will still be remaining capital accretive. How one deploys that extra capital is to be discussed. We would like to think that there is room for extra growth. And when they use that extra capital to deploy it in accelerating the growth, you saw the 10% year-on-year this year. So that is, I would say, the primary objective for this extra capital that will be coming in. So the base scenario is that we want to stay at 50% and deploy in a productive way the extra capital that will be coming our way. In terms of buyback, yes, there will be a substantial buyback element even in the '24 distribution plan. The cash element -- there will be a mix between cash and buyback right now and it depends, of course, on share prices right now. Certain buybacks for shareholder value seem very attractive. So I would say that there will be a substantial buyback element in the '24 distribution. And coming to your question on loan growth, we put our guidance out for performing balances of EUR 33 billion by the end of the year. This is an impressive rate of growth. It is reflecting on the power of the Piraeus franchise in corporate and SME markets. It makes us confident about the years to come. And of course, looking at '25, it's also -- it's good to start from performing balance, which is much higher than what we were planning at the beginning of the year. So we are confident that this is a trend reflecting also the growth of the Greek economy, on GDP and underlying credit. We will come early in the year probably by February with our updated business plan '25 to '27. And there, of course, we will be giving the numbers in more detail.

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

Congratulations for this great set of results. I've got two questions from my side. My first question is on the 2025 assumptions for NII. So on Slide 8, on the selected sensitivities, we see that the improved impact from a 25 bps Euribor change is between EUR 20 million to EUR 25 million. But on Slide 9, the change in rate assumptions for 2025 is approximately 80 bps from 3.10% to 2.30%, yet the impact from the rate ranges between EUR 100 million to EUR 125 million that is larger than EUR 30 million per 25 bps rate cut. Could you speak to this difference, please? And my second question is staying on Slide 9, on the earlier bond IRS monetization, could you explain what this means and whether it is a one-off for 2025? Or were you expecting to see more of that coming?

Eleni. Yes, the impact that we're quoting on Page 9 is really a nominal, I would say, delta that is affected also by the timing of the actual -- of the actual cuts. So on a like-for-like basis, sensitivities, indeed, 2025, actually, I think the actual number that we've got in the model is around EUR 23 million right now. But what's going on is that the timing of the cuts and the repricing is such that creates kind of a headwind effect, which is higher in the '25 result. In terms of the swap monetization, yes, that was a strategy that was executed throughout the year. We've monetized about EUR 2.5 billion of such swaps. We're currently holding EUR 3 billion. The hedge ratio has dropped from the 60s, around 65% or something around 35% on a DV01 basis. And that reduces sensitivity a lot. I got to say this also is creating the tailwind as we've got on Page 9, as the previous guidance was running at a higher sensitivity than what we've got right now. And the monetization happened at an effective interest rate effect, which is again higher than we thought. So all of those elements, including the positive carry that we got from the NMDs are creating this kind of solid result for NII. And of course, the loan volumes that we discussed before.

And just a follow-up if I may on the impairment. If you could clarify what the impairment of other assets is, and it seems that it has cost like the group approximately EUR 50 million year-to-date.

It's -- impairments that we do across all the, I would say, the non-loan parts of the balance sheet, there are other assets there, including state guarantees, state guaranteed exposures, some of the -- some inventories that are there, that are taking that you need to book a loss upon kind of sales approval than the completion of the sale. So it's a little bit of everything over there. Anything that is non-lending that we're putting it in that line.

And again, congratulations for the great set of results.

The next question comes from the line of Butkov Mikhail with Goldman Sachs.

Congratulations on very strong results. I have a couple of questions. Firstly, on -- also on NII outlook. When we -- when you discussed the guidance previously, sometimes you also refer that to have potential upside areas related to lower time deposit mix, which is now incorporated in the guidance. So my question is, are there any still surprise areas which can help -- which you think can help NII to get even to higher levels, maybe some unknown either related to lower realized sensitivity or anything else? So that's the first question on NII. Then on asset quality. If we look at your revised cost of risk guidance of 60 bps, it is basically in line with your medium-term outlook. And so do you think with the current progress on NPE deleveraging, low formations, you can actually get to the levels of average -- average European levels on the cost of risk, which are like, I think, in the 40, 45 basis points. And lastly, on the capital allocation and the remaining of EUR 400 million. So you mentioned EUR 3.5 billion of additional volumes, where potentially these volumes can come from? Do you see potential from the core market? Or it is also takes into account some reperforming loans or retail loans?

Mikhail. Yes, so indeed, the lower TD mix is giving a lot of tailwind on the previous assumption, the previous guidance on the NII by EUR 100 million to EUR 125 million. Imagine that this is a lower TD balance by about EUR 6 billion to EUR 7 billion of what we had before. The previous guidance was assuming EUR 20 billion. And right now, we're at EUR 13 million, and we believe we're going to stay there. So -- and there is no commercial pressure to increase it, as you can understand, on dropping interest rates. So there you have it, right, EUR 6 billion to EUR 7 billion, whatever the cost is 2%. That's kind of your benefit. On further upside. The -- what we can say is that the expansion right now of '25 has not baked in what the '24 outperformance means, right? So, so far, we were saying kind of EUR 1.6 billion for '24, somewhere in that vicinity, maybe a little bit higher in '25. Now when you're EUR 1.6 billion, in 1 year becomes EUR 3 billion. What does that mean for '25? That extra expansion and where it could come from has not been baked in. So I would say if there is an upside risk to this guidance has to do not only for '25, but also longer term, has to do with a potential accelerated credit expansion in the balance sheet and overall in the market. Cost of risk, yes, absolutely. I mean, those 60 basis points, and remember that they are baking in substantial synthetic and servicer fees that we are working on as well to bring them down. Yes, definitely, we can be looking at European levels of cost of risk sooner than we thought. As we've said many times, the most important operational metric that we look at to manage cost of risk for the future are inflows. And the fact that we've got kind of a 0 net formation on NPEs for us is everything that gives us room to continue bringing down the book. As we've said, we're guiding for less than 3% NPE ratio approximating, I would say beating, if I'm right, the Spanish banks, which are on average at 3%, approximating the Italians were at 2.5%. So that in itself can give you some extra confidence. It gives us confidence we can get to this cost of risk level sooner. Now in terms of capital allocation, that Page 23 is an illustrative page, simply to show that as we're running right now, with a kind of base case assumption of a year of EUR 1 billion profit and EUR 2 billion loan expansion with everything baked in, the bank is still capital accretive -- substantially capital accretive on an organic basis. And this is basically to take away some of the noise that we have spotted that the question as to whether the DTC acceleration will hurt the CET1 position and what would that mean for dividends, et cetera, et cetera. So this is simply an illustration. And what could we do with that extra capital? Yes, we could grow by how much, by up to EUR 3.5 billion. Is that a commercial reality? No. It is not a commercial reality right now. We would like it to be. And if it came, we can afford it. And as we've said before, this is our #1 priority as to deploying this extra capital by discovering new pockets of growth in the market, in the retail and SME space, also look at the reperforming space and see whether we can onboard extra loans without increasing the risk profile of the balance sheet, as we said before. And then we'll see kind of what we do with the rest, but it is not an indication that we believe that there's an extra EUR 3.5 billion right now. This is not what we've got in the plan.

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

I had a few follow-up questions on the previous topics, please. Firstly, on the DTC. Firstly, can you help us understand the nature of this proposal? I mean, is this like a new regulation, which requires the Greek banks to accelerate the DTC amortization that you proposed -- or is this a fully discretionary decision to Piraeus? That's the first question. The second question, I would like to come back to this topic of how could the accelerated DTC amortization drive higher payouts. I guess, in other words, what are you expecting in return for accelerating the DTC amortization? I mean, the 50% payout was part of the previous business plan before the accelerated amortization plan. I guess, the consequence of the implication of this would have to be more than 50% at some stage, interested to hear your thoughts on that. And just a final question would be if you could please walk us through again what you did with the hedges. The latest information I recall was that you had EUR 10 billion of notional hedges and how you changed that amount recently?

Gabor, let me answer your question, and then I will pass on to Theodoros Gnardellis. This is a fully discretionary idea that we have been working on, and that's how you should take it. It's paving the way for taking out the last few items of legacy that Greek banks had for -- from the years of the crisis. And of course, the acceleration of DTC by a number of years from [indiscernible] to 2034 and the reduction even by 2027, it's a very positive -- it's a very positive effect for the Greek banks and for Piraeus in particular, and naturally paves the way for higher dividend payout. Theo?

I think, your second question is what do we get in return. This is not a negotiation. The SSMs and generally supervisory authorities are not a counterparty with which one negotiates. There are four particular pillars that any banking institution is assessed against when it comes to distribution, and it starts with self-assessment and has to do with sustainable profitability, capital buffers, governance and overall balance sheet health. Now amongst the investor community and also the analyst community, the DTC has been treated and recently more so, I have to say, as an issue of balance sheet health, as an emerging issue of balance sheet health. Now what we're doing here is simply to exemplify that this is not a long-term balance sheet issue that the bank needs to suffer and explain and discuss over the coming many years. What we're doing is voluntarily putting to bed once and for all, the question as to whether Piraeus bank, and we can discuss about the Greek sector overall, because I'm sure other banks will also be coming with -- will also been announcing their own plans that this is not an issue. We're done with this issue. And therefore, going forward, any discussion that has to do with distribution will have to do with all of the elements overall. We don't want to go necessarily above 50%. If we can actually deploy the extra capital in an accretive way. So we're not -- we don't want to be a cash cow where we distribute all of our profit because we can't deploy it. We would like to see more years of '24 and even accelerated where we can deliver superior growth to other European economies and still be able to deliver our 50% distribution. This is what we've got right now, so any insinuation that this was an exchange that we're doing for somebody to give us a permission for something. This is not what's real. This is not a reality. Now to your question about hedges, what we discussed before, with the hedges on the asset side that has to do with the floating -- with a floating conversion of the bond book and the hedge ratio of the bond book. The NMDs are sitting on the other side, and their reverse swaps are pretty much where we're at EUR 10 billion. There was EUR 1 billion of expirations. I think, we're currently around EUR 9 billion. But they're pretty much there to stay, and they are giving us a tailwind on the NII, mitigating the risk-free rate drop. So within that EUR 100 million to EUR 125 million rate impact that we've got on the page, I think there's a positive carry of EUR 40 million for those NMDs.

The next question comes from the line of Boulougouris Alexandros with Euroxx Securities.

Congratulations on the numbers. Most of my questions have been answered. Just a quick follow-up on the cost of risk. You mentioned the reduction and the new guidance. But again, in Q4, the 2024 guidance at 60 bps, given the trends in the 9-month period, look a bit conservative, I would assume it would imply, I think, 80 bps in Q4. Isn't that a bit too aggressive? That's my first question. And regarding the other impairments that there was a question earlier. Should we consider this as largely a one-off for when we model '25, '26 in going forward? Thank you.

Alex, yes, indeed, Q4 is a particular quarter. I mean, we do have an extra synthetic that we do right now that will increase, I would say, the cost by a little bit. But indeed, the -- I would say 60 bps is kind of a round up as to what we're actually expecting. Overall, 2024 has done so well in terms of its profitability on the 9 months, that Q4 gives us leeway to, I would say, to further clean up. We've also announced an inorganic trade that we're planning on doing. There will also be some organic charges that we're expecting to do a little bit more. The capital is still going to hold great, as I said, 15% high, the return very, very high. So Q4 is a quarter where want to have some room to pave the way for a stronger 2025. And hence, the guidance, I would say, generally rounded up versus what it could be. We're not pushing the envelope to it's extreme. We're giving it some room to help also in the coming years.

[Operator Instructions] The next question is from the line of Patel Sharada with Citi.

Congratulations on the results. And just one for me, please. Obviously, looking at the performing loan book, showing great growth, 9% on the year. But when I just break that down between the type of loans, that's largely driven by large corporates and actually mortgages are down 1% over the year. Can you just give some color on the dynamics in the mortgage market in Greece and your expectations there forward, please?

Look, the mortgage market is a puzzle for us and for many. We are working on many fronts to solve that puzzle. The reality is that we have seen retail -- real estate prices growing and not many mortgages being produced. It's more with own equity and cash, the transactions that are taking place. This, at least for this year 2024 has been a little bit helped by the program that we state has been producing the -- My Home program, which by and large will help mitigate the negative numbers of the past. And therefore, for -- paves the way for what is the outlook for 2025. For 2025, we will have another EUR 2 billion headline number, SB [indiscernible] program, which we believe that is going to be deployed in the market. We're having the biggest market share in that particular segment. Last year -- this year, the running year was around 30% to 35%. We expect that to continue next year. And with the natural, we believe, acceleration of the mortgage market with interest rates going down, we expect that most likely next year, mortgages will be flat, but we do see some growth on the SB business and on consumer. So all in all, we have paid -- calculated some EUR 300 million, let's call it, positive growth from retail for next year, which we think is going to be the beginning of at least some acceleration in the retail segment. The bulk of our growth up to now is a corporate and SME and will continue to be so also in the years to come.

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

Quite a bit of my questions have been asked, but just qualitatively, how are the conditions on spreads evolving over Euribor? And what are you assuming, again, just very roughly for '25, so when we see the lower rates, is there a bit coming from spread compression there? Or do you think it has stabilized now. And then apologies if I missed it, but in '25, are you including any benefit from reperforming loans being purchased back or that's a story for a later date?

Osman, well, the new production is coming in right now lower than the stock, and we are budgeting for that effect. So a slight erosion on the stock spread of a few tens of basis points, I would say, is kind of baked in, into the guidance that we're giving. So it's not a static spread situation. There was a slight drop quarter-on-quarter. We think with the current profile of production that will continue. But I would say, in a contained manner, we're not looking at the collapse of spread, but we're looking at a, I would say, rationalization. There is a question as to what will happen with the accelerated, risk-free rate cuts and whether that erosion will still -- will really materialize. But for the time being, we have not touched it as an assumption. We believe that, that will be there. We've not baked in anything spectacular on RPLs in terms of expansion, as I said before. The '25 expansion has not even baked in the '24 outperformance, right? So it -- right now, it is a lower expansion than what '24 is delivering. So we're still kind of educating ourselves and making up our mind as to what that means for '25 going forward, and we will be explaining that when we come out and announce the plan over the coming few weeks or months.

Understood. And if I can follow up on the -- I guess, linking the SME aspirations with the network, the big footprint, you should be quite capable with that. Should we expect a pickup in OpEx? Or are you already set up for with what you have?

We are already set up, Osman. The network is at, let's call it, by and large, optimal shape. We don't expect further rationalization. We have been working on reducing the number of employees per branch. And by and large, this is done. We are, of course, continuing our investment in systems and investing about EUR 150 million a year in digitizing our offering both on the front end and the back end. But we are geared to take more business as we expect that there will be some more business, especially next year in the SB segment, where a lot of the government and EU driven programs are going to come underway and also including the RRF program. But we don't anticipate significant OpEx let's say, increases. Of course, we are doing our rationalization in raising the salaries of our full-time employees. And this is -- this is a policy that will continue, but we were coming from a very low base comparing to the competition. But we'll give full guidance on the numbers in our presentation of our '25, '26, '27 business plan early next year.

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

Yes. The first one is on capital allocation. If you want to grow more and deploy your extra capital generation, would you consider some bolt-on acquisition in the future to strengthen the loan growth or the fee income? And if yes, what kind of targets? And just a few follow-ups on this quarter. Can you remind me how many restructuring costs we should expect in the cost line in Q4 for the new DIS that you announced? And finally, what should we expect in terms of trading income in the coming quarters?

Alberto. On capital allocation, look, we are looking at the next few years and at the back of a very strong 2024. And we -- we are ticking some boxes here that are very important. Number one, we believe that we are in a position to deliver sustainable profitability over the cycle, and we will prove that. We are already proving this in this quarter, and we will prove that in the next quarter to come. So we have been talking in the past for about EUR 1 billion plus net income after tax over the next 3 years. And we stand by that number. And of course, we'll give further guidance in our -- in our planning. If we assume that we will be distributing something like 50% of our net income after tax, we generate enough excess capital to cater for the growth of the book as well as for acquisitions. We are right now. I can tell you, looking at various ideas or possible transactions in the areas, mostly that will be add ons in our fees and commissions pool. So we are looking at asset management. We are looking at transaction banking. We are looking in the area of factoring for fighting leasing. And we are looking for platforms that could possibly be used for adding on in our platform and delivering on synergies. We are mainly focusing in the Eurozone. This is what we believe makes more sense for us. Of course, when we have something to announce, we will. But it's driven by RAROC, it's driven by return to our shareholders, and we will be very disciplined in whenever -- whatever we do in deploying this excess capital that we see building up over the years. We think that in the medium term, even having any CET1 above 15% and total capital above 20% is let's call it, too much. And we want to be productive in our use of capital, in our balance sheet and liability structure and deliver on the results for our shareholders.

And Alberto, in terms of restructuring costs, we recently run a program that's kind of public, it's out there. That's going to cost a probably EUR 40 million charge in Q4. It's been finalized kind of these days, around EUR 40 million, you should think restructuring costs. Trading, it's been a good year. Q3 has also been a very good quarter. Generally, we're working on the assumption of about EUR 50 million to EUR 60 million per annum. So Q4, we'll -- and we'll see where it lands, of course. The markets are still kind of open and volatile. But overall, this is what you should be expecting from this franchise.

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

Two quick last ones for me. How are you going to get to below 3% NPE? Is there any inorganic actions that you'll take in the fourth quarter as well? Or is there something else going on? And then, just on Snappi, could you confirm what the costs associated with that venture are? And are you still on track to -- I think you said that it's going to cost around EUR 15 million in investment in OpEx this year?

Simon. Yes, the below 3% NPE is indeed linked with an organic trade that we're doing, somewhere in the vicinity of EUR 250 million of NPEs. We're working on the trade right now. We had very good experience with the previous one. So we went ahead with another one. We're using some of the extra capital to clean up further. But it's all working the reduction of the ratio. It is founded on the net 0 formation, right? So only if you have net 0 formation organically, does the trade help you in bringing down this ratio. So yes, there is a play, but -- but it's based on the net 0 formation we've been experiencing. Yes. On Snappi, the burn this year has been kind of mediocre as a setup situation. It's pretty much what we're expecting around the EUR 10 million mark is what Snappi will be contributing to the overall cost base of the group. '25 will be a higher burn year as we're expecting because it's a launch here for Snappi. So obviously, there will be a substantial one-off costs that Snappi will be taking. But all of that has been and will be part of the '25 budget and overall '25, '27 plan that we'll be coming out with. So Snappi will be a burn case of capital, and that's the way it needs to be, but it will be contained, I would say, well monitored by the group and making sure that the burn is consistent with meeting its customer growing and on overall commercial aspirations.

Okay. And any steer on the kind of additional provisions that you'd have to make to get that NPE transaction done?

Well, we're still working even on the perimeter, it's in play. Similar, I would say, to the loss rates that we've experienced in the previous two transactions we've done the [ non-HAPs ] ones. So generally, I would say, good loss rates, nothing extravagant, and the capital of 15% expected for year-end and incorporates that.

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

Thank you. Thank you all for participating in our 9-month 2024 results conference call. Just we want to let you know that we will be in London in November and December, and we are looking forward to discussing with you all of our developments. In the meantime, our IR team will be available for any follow-up from today's announcement. Have all a very relaxing weekend, and thank you very much for participating.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.