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 Piraeus Financial Holdings conference call and live webcast to present and discuss Piraeus' 9 months 2025 financial results. 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 those joining us from the U.S. This is Christos Megalou, Chief Executive Officer. And I'm joined today by our CFO, Theo Gnardellis; Chryssanthi Berbati; and Xenofon Damalas to present and discuss Piraeus third quarter and 9-month 2025 results. Today, I'll take you through the 2 first sections of the presentation, covering the main financial and business achievements for the 9-month period and demonstrating Piraeus' standing in the European banking landscape. This will be followed by a Q&A session. As always, detailed analysis of all the key performance drivers of Piraeus is incorporated in the latter sections of the presentation. The slides are also accompanied by a comprehensive Excel worksheet with historical financial and business figures. In addition, along with our IR materials, we published today our new sustainability blueprint, covering the full spectrum of questions from stakeholders. All the materials can be found on our corporate website. And let's begin our presentation with Slide 4. Piraeus is the leading bank in Greece, ranking first across all major business lines. We serve 4.5 million clients with a workforce of 7,400 employees. Our total assets stand at EUR 83 billion, with EUR 37 billion in client loans and EUR 64 billion in client deposits, representing 28% market share and deposits. We operate an omnichannel distribution platform with 3,000 -- 370 branches, 1,300 ATMs and 3 million digital clients. Our mobile lab is top-ranked, reflecting our commitment to digital excellence and customer satisfaction. Financially, we demonstrated robust strength with return on tangible equity at 15%, cost-to-income ratio at 34%, loan growth of over EUR 3 billion year-to-date, up 9% since December '24, total capital ratio at 20.6%, and liquidity coverage ratio at 217%. We are a leader in sustainable banking with EUR 4.3 billion in sustainable financing, EUR 1.65 billion in Green bonds outstanding and a strong focus on supporting small businesses and farmers. Our leading market position, sustainable long-term business model, and strong recurring earnings are reflected in our recent upgrade to investment grade rating by Fitch. Piraeus is now rated investment grade by 3 of the 4 main major credit rating agencies. All these outstanding results have been delivered, thanks to our people and our clients. The macro environment is favorable. As you can see on Slide 5, the gap to precrisis GDP, investment and financing suggest multiyear expansion ahead. Real GDP growth remains above the EU average, strongly supported by investments and employment has declined markedly and continues to trend downwards, further strengthening our operating environment. Let's move now to Slide 6 for the key highlights of our 9-month 2025 performance. We generated normalized net profit of EUR 854 million, corresponding to return on average tangible book value of 15%. This leads us to upgrade our 2025 target to approximately 15% from 14% previously. Our earnings for the 9 months are EUR 0.62 per share. We expect to exceed our guidance of EUR 0.80 per share for 2025. On the back of our strong year-to-date performance, we have commenced an interim distribution to our shareholders out of 2025 profit in the form of a EUR 100 million share buyback that will be completed in November. In total, we are on track to exceed a EUR 500 million distribution out of the 2025 profit or approximately EUR 0.40 per share, which corresponds to a 6% yield based on our closing price on 30th of September. We have expanded our loan book by EUR 3.1 billion during the 9-month period to EUR 36.8 billion in total. Today, we are raising our full year target for net credit expansion to over EUR 3.5 billion from EUR 3 billion previously. We delivered EUR 648 million net revenues in the third quarter with net interest income stabilizing at the same level as the second quarter and fees increasing by 5% year-on-year. Our revenue diversifying efforts are reflected in our net fees over net revenues of 25% and fees over assets of 0.8%, 80 basis points. Both metrics are best-in-class in Greece and close to the -- or above average in Europe. Net fee income reached EUR 489 million in the 9 months, consistent with our upgraded target of EUR 650 million for 2025. Our cost to core income ratio stood at 34% among the best in the European banking market, reflecting our strong cost discipline. Our asset quality dynamics remain solid with the NPE ratio of 2.5%, while cost of risk shaped at 49 basis points in line of our target of approximately 50 basis points for 2025. Our assets under management increased to EUR 14.3 billion during the 9-month period, up 30% year-on-year, exceeding the upgraded 2025 target of above EUR 13.5 billion. Furthermore, client deposits rose by 5% annually and are now at EUR 64 billion. Our total capital reached 20.6%, absorbing the 50% distribution accrual, strong loan growth and DTC amortization. We maintain a buffer of 460 basis points above Pillar II guidance or 310 basis points, including the Ethniki Insurance acquisition, which is expected to close in the fourth quarter. Slide 7 presents the details of our third quarter and 9-month operating results. We sustainably grow our tangible book value per share now at EUR 6.09 per share, which is net of the EUR 0.30 per share cash dividend paid in June 2025. On Slide 8, we present our strong loan origination dynamics. Performing loans increased by EUR 3.1 billion in the 9 months, driven not only by all business lending segments, but also by an increase in household lending. Importantly, Q3 marked a new cycle record of EUR 190 million for mortgage disbursements. The strong performance leads us to revise upward our 2025 net credit expansion target to EUR 3.5 billion from EUR 3 billion previously. On Slide 9, we present a detailed sector breakdown of our CIB net credit expansion of EUR 3.2 billion in the 9-month period. As you can see, our corporate platform outreach is very granular, reaching all sectors of the Greek economy. Among other initiatives while increasing our presence in syndicated deals, and we are offering greenhouse technology financing solutions. We are also very happy to be the bank of choice for SME clients in Greece as shown by the top performance in disbursements. Slide 10 demonstrates that we have achieved our loan growth outperformance while maintaining pricing discipline, which is testament to the commercially rigorous approach of all our teams. We have been able to compete and win business while pricing at par with the market average and keeping a risk-adjusted return at the core of our business credit underwriting. Turning to Slide 11. The key milestone to note is that mortgage loan growth, net of repayments has turned positive by EUR 45 million in the third quarter and overall, marginally positive in the 9 months. This follows net consumer loan growth, which already turned positive in 2024. Mortgages and consumer disbursements have been growing since 2021, mortgages by 20% annually and consumer by 10%, but this growth was previously outweighted by heavy repayments. We now have reached an inflection point that bodes well for future expansion of our loan book and revenue streams. Slide 12 outlines the impressive evolution of our net fee income, which is being supported by asset management, bancassurance and loan originations. Our diversified model brings outstanding results, and these do not yet include the anticipated incorporation of Ethniki Insurance in our group, which will elevate net fee income with expansion across all segments of the market, namely life and health protection and P&C protection. The group will take advantage of the synergies between our nationwide network of strong relationship management from mass retail to corporate on the one hand, and the insurance factories expertise and franchise on the other. Slide 13 demonstrates the growing trends of assets under management that reached EUR 43 billion in September, backed by strong net inflows of EUR 1.3 billion. We have upscaled our investment solutions offering to private banking and retail clients, incorporating robo advisers, while our open architecture strategy, combining Piraeus asset management expertise with a wide shoot of best-of-breed third-party products is paying off. Slide 14 presents detailed information regarding net indirect income intrinsics. In a nutshell, our growing loan book, partly offset the material drop in base rates of circa 35 basis points in Q3. Time deposit downward pricing is driving funding costs lower. As a result, NII decline, decelerated considerably, standing at just minus 0.5% in the third quarter. Growth in NII is expected from Q4 onwards. Turning to Slide 15. Our cost control efforts kept operating expenses in the third quarter stable versus the previous quarter despite the Snappi launch and the insurance transaction-related costs. Overall, we remain very cost conscious and on track to meet our annual targets. Slide 16 provides a summary of our asset quality indicators. Our NPE ratio stands at an all-time low of 2.5%, while the organic cost of risk shaped at 49 basis points in the third quarter in line with our annual target. We note the ongoing reduction of NPE servicing fees down 5 basis points year-on-year. On Stage 1, Stage 2 and Stage 3 coverage ratio, we are increasing them, and we are now higher than the EU average. Piraeus enjoys a superior liquidity profile presented on Slide 17. Our liquidity ratios remain solid as evidenced by the high balance of deposits at EUR 64 billion and the 217% liquidity coverage ratio. Moreover, we are the Greek bank with the highest Green bond issuance, totaling EUR 1.65 billion. Turning now to our capital base on Slide 18. Our CET1 ratio stood at 14.6% at the end of September, absorbing best-in-class loan growth, 50% distribution accrual and accelerated DTC amortization. Piraeus has a 460 basis points CET1 buffer at the end of Q3. Slide 19 outlines the significance of digital banking and technology for Piraeus. Digital transformation continues to drive efficiency with 99% of transactions now digital and 3 million digital active users. Gen AI, virtual assistance and automation initiatives have delivered significant productivity gains. On Slide 20, we present an update on Snappi, our neobank with its own portable pan-European banking license. Snappi launched commercially in September and is already gaining significant traction with its fully digital, app-based, branchless, low CapEx model. Snappi has 30,000 app users after less than a month of operations. We will update you on Snappi's progress and plans for expansion with our Q4 results. On Slide 21, we present our 2025 revised targets. Based on our 9-month performance, we are upgrading our guidance on net credit expansion to more than EUR 3.5 billion for the year and a return to tangible book value guidance to 15% from 14% previously. We remain confident in our future trajectory because of our proven ability to deliver sustainable, profitable growth and create value for our shareholders. Let's turn now to the second section of our presentation for our positioning within the competitive landscape. Piraeus is in a leading position in Greece in terms of performing loans, deposits, equities brokerage and network as highlighted on Slide 23. In addition, Piraeus ranks at par or above average on all major KPIs in the European banking space. Slides 24 to 30, we present the key metrics for Piraeus versus European bank averages. On Slide 24, Piraeus delivers best-in-class loan growth in Europe, outpacing EU peers by a wide margin. On Slide 25, our net interest margin is far above the European average, reflecting our pricing power and effective balance sheet management. On Slide 26, net fee and commission income of our assets is well above the European average and the best in Greece. On Slide 27, our cost-to-core income ratio is best-in-class in Europe, demonstrating our ongoing focus on operational efficiency and cost discipline. On Slide 28, Piraeus return on tangible book value is well above the EU average, highlighting our ability to generate superior returns for our shareholders. On Slide 29, Piraeus implied cost of equity remains high given the relatively tight sovereign risk premium, suggesting further relating potential. And finally, concluding with Slide 30. Despite our strong fundamentals in absolute and relative terms in relation to our European peers, Piraeus trades below EU banks with similar earnings, implying significant upside for our shareholder. And with that, let's now open the floor to your questions.

The first question is from the line of Boulougouris Alex with Euroxx.

Three questions on my end, if I may. The first is regarding the improvement we have seen in the mortgage disbursements. Could you clarify this is related to the My Home 2 program or should we see it as more change of trends going forward given the -- that is my first question. The second is regarding time deposit costs. We have seen a good decline, about 20 bps Q-on-Q. How should we see that going forward, assuming rates stabilize at about 2%? What should be the normalized run rate in terms of time deposit cost? And my third question regarding asset management fees. We've seen a very strong growth of 38% in the 9-month period. Would it be possible to give us a guidance or a split of how much is -- of that derives from net new business and how much is from the market effect approximately?

Alex, thank you. Thank you for the question. Just to focus on your first question on mortgage growth. It is actually -- we believe change in the way things are developing in the market in Greece. It is a reflection of more interest that we see across the board on mortgages, which is resulting in new disbursements. Our very successful program in terms of applications and balances has not materialized in disbursements yet. So we expect that this will take effect mostly towards the end of this quarter, but most importantly, in the new year. So we are projecting net credit growth in mortgages. And of course, we'll come up with the guidance for '26 where we do expect further net credit growth in that particular segment of our business. I pass on to Theo for your second question.

Yes, Alex. I think so regarding the time depot cost. I mean, obviously, we're on a downward trend with the reduction of the Euribor. I think the 1.60% has further room. We're currently at around 1.55%. I mean, I wouldn't say that the beta is substantial to -- for us to expect further substantial growth going forward. I think we've kind of landed where we expected to be, but we still have some room, maybe 5, 10 basis points down on the overall TD cost.

And Alex, on your third question on the asset management. We have on Page 13, the way we lay out -- the way the book is growing, there is a part of it that is the market effect. But -- and also, EUR 1.3 billion is the net inflows. So given the way we account for the market effect, the large part of the fees that you see is relating to the net inflows. And then we see how this will develop towards the end of the year. But given what we see in terms of market intrinsic, we do believe that we will be ending up the year with EUR 100 million plus fees for 2025.

Okay. Many thanks. But I assume that this 38% is as a proxy, we could see from the split between net inflows and the market effect that you mentioned on Page 33 to see the differentiation of how much comes from net inflows and how much on the market effect?

Actually, Alex, not exactly pro rata. The market effect is on year about EUR 9 million. Currently, what you're seeing EUR 5 million is a market rate effect on this particular quarter. Actually, it's not 50-50 as we see on the AUM, yes.

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

Yes, my first question would be on your spreads and loan growth relations. I believe your corporate lending spread declined a little bit in Q3. Do you see this as being in line with the market? And is this kind of 5, 6 basis point contraction, what you would expect going forward in the next few quarters? And a related question to that would be, shall we expect your NIM to stabilize? Or when you guide for sequential NII growth, does this assume any more NIM contraction from the Q3 level? And then finally on Ethniki. Where do you believe you would be in a position to elaborate in more detail on your strategic initiatives and financial targets from this business?

So first question, spreads. Slight erosion, about 7 basis points seems to be in line with the market. We've got also the spread evolution, how it has happened on the business loans and portfolio on Page 10. We're following also market status, things seem to be in line. This slight spread erosion is countered right now, over countered by volumes. So overall, on Page 14, we're showing the NII breakdown. The performing exposure gross interest income dropped by EUR 11 million. Within that, there is a volume stroke spread net effect of almost positive EUR 10 million. So really, the reduction was going on in the performing exposure is primarily driven by the base rate drop of more than 30 basis points that we have had on the accruing base. So overall, this slight spread erosion is over countered by volume growth, creating a positive NII situation on the performing exposures, given the trajectory of the risk-free. So if one believes that the risk-free has reached the floor, and it seems that it has, we are currently accruing at 2.06%. There's maybe 5, 6 basis points to go to the current spot Euribor. Then we're looking at a turnaround on the NII and potentially even a slight increase in Q4 going forward, which answered, I think, your second question that we're looking at a NIM stabilization right now. I think the erosion has stopped always with a footnote on the risk-free as to what's going to happen in the future. On Ethniki, exciting work going on and has been happening over the last 2 months in quite a lot of detail. A lot of levers to be pulled. The business plan is being detailed. So we can elaborate as your very rightfully asking in the Q4 results. This is when we will come out and talk about the upside and the story going forward. We can tell you 2 things right now that the guidance that we have spoken about on '26, '27 holds '28, which is what we call the transition years. '28, we're looking at upside versus the guidance that we've spoken until now. And this is simply by pulling the levers of bancassurance integration, eventual integration of Ethniki franchise onto the Piraeus network. And with many -- and it's kind of like a first cut with many more levers to pull going forward, focusing primarily on stepping up protection insurance, which even in the current bancassurance franchises, including our own, still has a long way to go.

That's very helpful color. Thank you, Theo. Just 1 small follow-up. When you say '26, '27 intact, do you mean the EUR 90 million PBT contribution by '27? Is this the main assumption?

Yes, yes. So the guidance that we have spoken about, which is currently on Page 40, assumes kind of EUR 60 million to EUR 70 million in '26 and EUR 90 million in '27. [ PBIT ] that still holds as a base assumption. There's no change to that. That's why we keep reposting that page for you guys. But I can just preview you in view of the business plan that, as I said, will be discussed in Q4 that '28, we're going to be looking -- and '29, we're going to be looking at different numbers.

Encouraging. Thanks very much.

The next question is from the land of [ Minares Filippo ] with JPMorgan.

So I have 2. The first one, if I look at the capital bridge on Slide 18, there was no negative effect from other items this quarter, while I think it was negative by 30 basis points in the second quarter. So if you can please comment on what were the positive items, which offset the negative impact of DTC and AT1s? And then maybe a small followup on this. If you can please remind us what capital benefit you expect to see in the fourth quarter from SRTs? And then the second question on fee income. I mean, in light of the trends that you've seen so far this year, I was wondering if you could please give us an update on what level of organic growth you would see in fees beyond 2025, if you exclude the impact of Ethniki. Thank you.

On the Page 18 bridge on the other part, this really includes mostly the DTC effect. It's really prudential stuff that are going on. The DTC effect, the extra amortization that we're doing, mostly mitigated by other DTA that gets recognized by the nominal increase of the CET1 and that kind of is a zero-sum game. Then sometimes on this particular block, we might have the AT1 coupon on a particular quarter or we might have other prudential deductions that they have to do with calendar effects and so on. We just didn't have such this quarter. And as a result, this coming to be a zero-sum game at this particular quarter. On the SRTs, yes, we've got a deal in play. The RWA economy of that, I would say, is targeted between EUR 500 million and probably about EUR 1 billion of RWA mitigation is quite a large deal that's going on right now. We've talked about SRTs in the past. We're the first bank to introduce them. The cost over CET1 has dropped below 9%, either the eventual CET1 economization if you calculate it on -- given the capital status of the bank. Right now, the cost ratio is below 9%, substantially below the cost of equity. So it's a good thing to do. So that will continue being a capital management tool for us going forward. And your third question on fees going forward. Well, I guess you're talking about what's going to be happening in the coming years. Let's hold off for the business plan in Q4 to talk about the organic expectations. Obviously, Ethniki is a step change. The accounting also will change. So a lot of things will change as of '26. I would say, let's pause for that for now.

Our next question is from the line of Butkov Mikhail with Goldman Sachs.

I have a few questions on NPE service and fees, which have been reducing sequentially. So what further trajectory do you see there? And how maybe the pricing works on this line for us to understand? Where do you see it on the normalized to medium-term basis? And then also on Ethniki Insurance, when do you expect to obtain the FICO status? And also, can you comment what criteria -- is there some specific criteria on the asset side or other metrics to qualify for this status or for the Danish compromise and where you will be post the completion of transaction there? Thank you very much.

Yes. I think well spotted at the -- within that line in Page 16, where we talk about servicing and protection fees. There is an obvious drop. This is all due to servicing fees, the servicing element of that. Service fees have almost been halved. That has been a result of a successful negotiation that we've done on the contract. So I would say that we're looking at right now is kind of a -- the end game was 15 basis points between servicing and protection. On Ethniki, I mean, it's a journey, right? Article 49, which is what we all used to be calling Danish Compromise has a lot of requirements. The most important thing and the reason why that article exists is because one needs to understand properly measure, monitor and stress insurance and actuarial risks that one is taking when they are a substantial part of the balance sheet. So -- and that is definitely, I would say, a 2-year journey until we can establish ourselves in supervisory submissions and dialogues and also internal governance evolution that need to happen. The FICO status has some nominal thresholds as the directive of 2002 prescribes. But I would say that this is a secondary for us right now. We care about delivering the return without Danish Compromise application on the capital, making sure that this is a return accretive story, and we can guide for a successful story in the coming plan. And I would say that the FICO status and Danish Compromise treatment will come, as I would say, on the cherry as a cherry on the nominal capital when it happens, but it's definitely nothing in the short-term period. And it's not -- we don't want to let it be a distraction in us meeting the profitability targets of Ethniki.

Okay. Very clear. Thank you very much.

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

Just 2 somewhat technical ones for me. I see the difference between the pro forma and CET1 and the reported is around 20 basis points, so not that big. But just curious when you think the pro forma and reported numbers will harmonize. And then the second one is on other impairments. So it was EUR 35 million in the quarter. I think EUR 25 million is because of the school building charitable donation. Just wondering what the other EUR 10 million is related to.

Simon, the pro forma element of the 20 basis points has to do with upcoming derecognitions on deals that have been held for sale. That's primarily baking in, I would say, RWA recognition that's going to be happening upon completion of these deals. On your other impairment question, well spotted. I mean, the EUR 25 million is indeed because of that. The other EUR 10 million has multiple things in it, rationalization of some equity positions that we've done. So really, we're talking about stories of EUR 1 million, EUR 2 million, EUR 3 million each, summed up to the EUR 10 million. There's nothing major for us to be projecting going forward or using that number as an extrapolation mechanism.

Okay. And then just in terms of the RWA reduction, I mean how long do you think it'll take before these projects are completed?

So it's really a matter of quarters right now. We're managing most of these deals have been signed. So within 2026, we should be able to see [ reported match ] -- with nothing else in play, we should be able to reported match the pro forma number.

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

Two from my side, one [indiscernible] topical with the [indiscernible] increase that you're guiding now. I know it's early working on the plans and all that. But any color on if this -- we should take this increase as opposed to your guidance, what would be the factors supporting this? Or what am I missing if we should still wait for the official figures from you? And then the second one is just a technical one. On the income from associates, I see a big jump quarter-on-quarter. Just wondering what [indiscernible] that. Thank you.

In the RoaTBV upgrade was a result of some P&L items that happen better. We've been monitoring them over the past quarters. Trading was a substantial part of it, also fees to some extent. So given the reality, given what we know right now, so close to the end of the year, this was something that should be upgraded. No comment on the 2026. Again, guys, I mean, it's not time right now. A lot of things are changing. We want to be able to give you a detailed view on that. I know you're all eager but we just have to be patient until the Q4 results. On the income from associates. Again, it's one of those lines similar to the question of Simon before. [indiscernible] one of those lines has multiple things, this particular situation. We can, again, multiple things moved, but we did have 1 associate investment in an asset management like firm that we had done that substantially upsized in value, and we recorded it in the Q3 P&L.

The next question is from the line of Potgieter Stephan with UBS.

Hopefully, you can hear me now. Just a quick question on the cost of risk. So I think you calculate 49 basis points. Just to understand, I think that's the underlying organic cost of risk is at EUR 68 million. I get closer to 60 basis points or what am I missing there?

Stephan, it has to do with the annualization mechanism that you're using. The calculation is for 49 right now. The guidance takes for 50. So I think that's -- it's very important not to lose track that to estimate the full year number is what matters so that people don't get confused, but we will have and you can take it off-line with us to explain through the analyst spreadsheet as to how the calculation works.

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

Thank you all for participating in our 9-month 2025 results conference call. We will be in the states of next week and in London in November and December. We look forward to discussing with you all. In the meantime, we are focusing on delivering a strong finish to year 2025 and preparing our brand-new business plan to be presented to the market along with our full year 2025 results in early March 2026. Thank you very much.