Eurobank Holdings (Eurobank) has announced a strong start to the year in its first-quarter 2024 earnings call, with adjusted net profit reaching €383 million and a return on tangible book value of 20%. The bank, active in Greece, Bulgaria, and Cyprus, also reported a record core operating profit of €407 million. Asset quality has shown improvement, with the non-performing exposure (NPE) ratio dropping to 3% and coverage reaching a new high of 93%. The company's capital ratios remain robust, with the fully loaded CET1 ratio at 17.2% and the total capital ratio at 20.2%. Eurobank expects to meet its 2024 plan, targeting at least a 15% return on tangible book value. The bank's strategic initiatives, including the acquisition of Hellenic Bank, are progressing well. A dividend distribution application has been submitted, proposing a 30% payout ratio, pending supervisory clearance in June and approval at the Annual General Meeting in late July.
Key Takeaways
- Eurobank's adjusted net profit for Q1 2024 hit €383 million with a 20% return on tangible book value.
- Core operating profit reached a new record of €407 million.
- NPE ratio fell to 3%, and coverage ratio reached a new high of 93%.
- Capital ratios are strong, with fully loaded CET1 at 17.2% and total capital ratio at 20.2%.
- The bank is on track with its strategic initiatives, including the acquisition of Hellenic Bank.
- A dividend distribution with a 30% payout ratio is proposed, subject to approvals.
Company Outlook
- Eurobank expects to deliver on its 2024 plan, aiming for a return on tangible book value of at least 15%.
- The bank's strategic initiatives are on track, including the acquisition of Hellenic Bank.
- Dividend distribution application submitted for a 30% payout ratio, with supervisory clearance expected in June and AGM approval in late July.
Bearish Highlights
- Despite exceeding expectations in Q1, Eurobank is not revising its forecast at this time.
- NPE formation is slightly higher compared to previous quarters but remains within expected levels.
- Staff costs in Greece saw mid-double-digit growth due to increased accruals for variable compensation.
Bullish Highlights
- Eurobank's Q1 performance was better than expected, with strong core operating profit and improved asset quality.
- The bank has submitted an application for dividend distribution, signaling confidence in its financial strength.
- The recent Hellenic Bank deal with CNP Cyprus is expected to enhance Eurobank's bancassurance business.
Misses
- No specific figures were provided for loan growth, though the bank expects to meet yearly targets.
- A one-off cost of €100 million was reported related to the voluntary exit scheme.
Q&A Highlights
- Eurobank has assets consisting of office buildings in Athens with a book value of €441 million.
- The bank plans to optimize core capital usage without assuming any equity issuance in the near future.
- Dividend payout ratios are expected to increase annually, reaching up to 50% by 2026, potentially including cash dividends and share buybacks.
- Eurobank's deal with CNP Cyprus is seen as a positive move for Hellenic Bank's market position and Eurobank's bancassurance strategy.
Eurobank's first-quarter performance has set a positive tone for the year 2024, with the bank demonstrating financial resilience and strategic foresight. Investors and market watchers will be closely monitoring the bank's progress towards its targets and the realization of its dividend distribution plans.
InvestingPro Insights
Eurobank's robust start to 2024 is mirrored in its financial metrics and market performance. InvestingPro data indicates a market capitalization of $8.39 billion, suggesting a significant presence in the banking sector. The bank's P/E ratio stands at an attractive 6.02, which becomes even more compelling when adjusted for the last twelve months as of Q1 2024, dropping to 5.25. This positions Eurobank as trading at a low earnings multiple, an InvestingPro Tip that highlights the potential undervaluation of the bank's shares. Additionally, the bank's price is nearing its 52-week high, trading at 99.11% of this peak value, reflecting a strong return over the last month of 17.83%.
Investors looking for growth indicators will note the bank's revenue growth of 26.3% in Q1 2024, a significant quarterly increase that aligns with Eurobank's positive earnings report. While the bank's gross profit margins have been identified as a point of weakness, the overall financial health of Eurobank appears strong, with a solid return on assets of 1.47% for the last twelve months as of Q1 2024.
For those interested in a deeper dive into Eurobank's financial health, InvestingPro offers additional insights. There are 12 more InvestingPro Tips available that can provide investors with a comprehensive analysis of Eurobank's performance and potential. These tips can be accessed at https://www.investing.com/pro/EGFEY, and readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of data-driven investment guidance.
Full transcript - EFG Eurobank Ergasias PK (EGFEY) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome and thank you for joining the Eurobank Holdings conference call to present and discuss the first quarter 2024 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fokion Karavias, CEO. Mr. Karavias, you may now proceed.
Fokion Karavias: Thank you. Ladies and gentleman good afternoon and welcome to the Eurobank first quarter 2024 results presentation. Together with me is our CFO, Harris Kokologiannis and the Investor Relations team. We are starting with series and developments, then we will present our results and answer your questions. The macroeconomic background remains supportive in Greece and in our 2 other core markets, Bulgaria and Cyprus. In Greece, this is evidenced by the recent S&P rating outlook changed to positive. The fiscal outperformance with primary Cyprus above expectations and the highest improvement in the debt to GDP ratio among EU countries in 2023. Investments following a slower than expected 2023 are catching up this year. As such, credit growth in 2024 would be higher, something already reflected in our first quarter results. Restoring a level of investments in line with the rest of the Eurozone remains essential to secure the resilience of the Greek economy. Globally, the expectations for a fast pace of interest rate cuts have recently softened, and our assumption for 3 rate cuts by the ECB 2024 is in line with current market views. Now let's see our financial results for the first quarter of the year as highlighted on Slides 5 to 9. Eurobank recorded strong figures across the board in the first quarter with our adjusted net profit reaching €383 million and return on tangible book value at 20%. The tangible book value per share increased by 20% and 3% year-on-year and quarter-on-quarter respectively to €2.14 after accounting for the full 2024 voluntary exit scheme cost in the first quarter financial results. In more detail, core operating profit reached a new record of €407 million. This figure does not include the Hellenic Bank quarterly contribution of €41 million, which in this and the next quarter is reflected in income from associates.Net interest income was up 14% year-on-year, and broadly flat compared to the previous quarter. Seasonal commissions were up by 5% year-on-year while operating expenses were stable on a like-for-like basis. As a result, corporate provision income was up by 17% year-on-year. On asset quality now, asset quality improved further. The NPE ratio dropped another 50 basis points to 3%. Cost of risk decreased to 68 basis points while coverage reached a new high of 93%. Our regional operations continued their strong performance with net profits of €145 million increased by 21% year-on-year. Cyprus net profit, including our 29% share in Hellenic Bank, reached €92 million and Bulgaria, €48 million. In the first quarter, the fully loaded CET1 increased to 17.2%, while the total capital ratio stood at 20.2%. Overall, our first quarter performance is a great start for the year and makes us confident that our 2024 plan will be delivered with return on tangible book value of at least 15%. In addition to the strong operating performance, it is important to highlight that all our strategic initiatives are on track. For Hellenic Bank, we expect the final regulatory approvals over the next few weeks and then we will proceed with closing the outstanding transactions and the mandatory tender offer. It is noted that Hellenic Bank agreement to acquire CNP Cyprus is an initiative that enhances further its franchise and should make it a leader in the local insurance market. Last but not least, on shareholder reward, we have submitted the application for dividend distribution out of 2023 profits to the SSM. The payout ratio proposed is 30%, which corresponds to a cash dividend amount higher than €0.09 per share. The supervisory clearance is expected in June. Dividend distributions will take place right after the AGM approval in late July. At this point, I would like to ask our CFO, Mr. Harris Kokologiannis, to present our first quarter results in detail before opening the Q&A session.
Harris Kokologiannis: Thank you Fokion. Let's now provide more insight into the first quarter results. Starting on Page 18 on lending growth. Performing loans increased organically in the quarter by €400 million in line with our expectations. Growth was mainly driven by the corporate portfolio in Greece and by the retailing Bulgaria. Group deposits on Page 19 decreased likely by a €100 million as a seasonal decline of corporate deposits in Greece was offset by increases in the other countries. Net loan to deposit and LCR ratios remained stable at 72% and to 179% respectively as shown at the left of Page 20. As regards to managed funds on Page 22, in the first quarter, the wealth sector continued its strong performance. Quarter-on-quarter managed funds increased by €600 million and year-on-year are higher by 34%. Private banking assets and liabilities reached €11.7 billion increased by 19% year-on-year. Moving to profitability on Page 26, net interest income was almost stable quarter-on-quarter at €571 million, which is [ right ] on budget. NII has been boosted by the last 2 quarters' loan and bond growth. On the other hand, it has been affected by the deposit and the MREL cost as well as by the days effect. On a year-on-year basis, NII is higher by 13.7% and net interest margin in the first quarter reached 287 basis points. On Page 27, commission income is higher year-on-year by 4.9% up to €136 million. This performance is driven by better transaction and asset management fees and is in line with our budget trajectory. On Page 28, operating costs are lower year-on-year in Greece by 2.1%, specifically, lower administration costs and the discontinuance of resolution contributions offset the increase of staff costs related to variable compensation accruals and the higher IT expenses. On a group basis, costs are stable quarter-on-quarter, but also year-on-year, taking into account the impact of BNP Bulgaria consolidation in the middle of 2023.Finally with [ spreads ], cost to core income ratio for the first quarter reached 32.4%. At this point, let me note that the VES in Greece was recently completed with circa 650 FTEs. The cost, which has been included in Q1 results as below the line item amounted to €96 million after tax. The annual savings corresponded to the participating FTEs amount to circa €30 million. On Page 30, we summarize operating performance for the first quarter. Core PPI is higher year-on-year by 17% at €478 million, mainly driven by the [ bond ] effect and higher loan and bond volumes. These offset higher deposit and MREL costs and lower lending spreads. Loan loss provisions for the period amounted to €71 million or 68 basis points. As a result, core operating profit is higher year-on-year by 21% reaching a new record level of €407 million. On top of that, there is a €41 million additional income, which corresponds to the 29% stake of Hellenic Bank's quarterly performance and is currently recorded as income from associates. Upon reception of regulatory approvals for the additional 26%, Hellenic Bank results will be consolidated line by line. This will happen as of the second half of the year. Moving on to asset quality on Page 32, NPE ratio decreased further this quarter by another 50 basis points to 3%. As a result of topping up the parameter of Leon portfolio by another €240 million reaching in total €640 million. Furthermore, NPE coverage increased to 93%.Moving on capital and on Page 37. Quarterly organic profitability boosted our fully loaded CET1 ratio by circa 90 basis points. This more than offset the impact of asset growth, the full VES cost and the synthetic securitization amortization in the context of its dynamic management. As a result, CET1 ratio reached 17.2% at the end of March. Finally, on capital and on Page 38, our total CAD ratio stands at 20.2%. The overall first quarter performance reaffirms our full year 2024 financial targets. In terms of profitability, asset quality, capital and ultimately, return on tangible book value, which is expected to be at least 15%. This completes my presentation that we may now open the floor for your questions.
Operator: [Operator Instructions] The first question comes from the line of Sevim Mehmet with JPMorgan.
Mehmet Sevim: I have just 2 questions please. Firstly, maybe starting with loans, it seems like you've managed to deliver some loan growth in the first quarter in Greece as well which was a seasonally slow quarter. So may I ask what has driven this relative to your peers and how do you see the pipeline evolving in the coming quarters? And the second question on NII, which I think we all agree was quite strong given it was more or less flat this quarter. If I look at the breakdown of it, I would like to understand better particularly the hedging component. Would you be able to provide more color here, whether you have any negative carry in the quarter? What the size of the book is, et cetera that would be very helpful?
Harris Kokologiannis: Starting from the loan goals, indeed, we had a good start in the quarter that was driven by both the corporate portfolio in Greece and the retail portfolio in Bulgaria. This also continues in the second quarter of the year. So overall, we are quite confident that will reach our target for the year that it is a net credit growth of €1.3 billion in Greece and €1 billion in Southeastern Europe, overall €2.3 billion for the group as you said considering that it's a traditionally weak quarter, we are confident that we are going to reach our full year target as stipulated in in the business plan, in the budget for the year. As regards NII, actually the major positive driver for the performance of first quarter was the loan and bond growth, not only of this quarter, but also the carryover of the fourth quarter of 2023 that actually offset any headwinds that we had from the deposit beta. Some [indiscernible] of lending spreads and the higher MREL cost. As regards the hedging, actually we had a low figure for the first quarter. We increased our hedging position in March, something that actually will appear in the second quarter whereby we expect a heading cost higher quarter-on-quarter by €8 million to €10 million. Overall, the big picture for NII is that Q1 was better than our expectation for the reasons that I mentioned before actually compared to the budget how we had a milder than expected growth in the post beta and the milder than expected decline of landing spreads plus a good growth on volumes. And Q1 actually points to a better than budget performance. However, it is quite early in the year and at the moment we are not revising our forecast. As every year, we'll provide an update with our first half results at the end of July.
Operator: The next question comes from the line of Ismailou Eleni with Axia Ventures.
Eleni Ismailou: I've got a couple of questions from my end. My first question is a follow-up on loan growth. Whether you can help us understand when should we expect the early repayments effect to start fading away as we still see printing in the numbers, and when should we expect like mortgage loans to pick up pace? And whether you have any pre-agreed pipeline that we should have in mind for the other quarters in terms of loan growth? And that's question number 1. And question number 2, it's with regards to the NPE formation. We see that the mortgage formation came in elevated compared to the previous quarters. Could you kindly explain the drivers there and whether there is any seasonality that we should be factoring in?
Harris Kokologiannis: On loan volume growth, actually the repayments was an intense evidence as of during the first half of 2023. As of then it has started to abate of course we have repayments, but these now have been offset by new disbursements. As regards the pipeline, actually I'm not going to enter into detail figures. All the numbers converts to reaching the yearly targets that we have presented to the budget of growth at the level of higher than €2 billion as we have stipulated that in the budget. As regards mortgage, loan book, it continues the low flights. The evidence that we have from the market are not yet so encouraging. So even the budget we have put conservative figures but not some big news on that market. On asset quality, I pass to Fokion for an overall view of asset quality.
Fokion Karavias: Overall in terms of the asset quality dynamics, we don't really see something materially different than 2023. Overall trade conditions remain supportive as unemployment continues, its declining path. Real estate prices remain quite strong. We see some major increases in wages and overall we operate in an economy that grows nicely. Your questions refers on Page 33 of the presentation where we see a slightly higher number in mortgage formation. I think this is more noise at low numbers. It is slightly higher than the third quarter and fourth quarter of 2023, but lower than the second quarter of 2023. So I would consider that --
Operator: Ladies and gentlemen, we apologize for the pause. Please hold your line.
Fokion Karavias: I'm afraid we had a technical problem and the line was disconnected. Eleni, I'm not quite sure at which point you lost me.
Eleni Ismailou: The line was cut off when we were saying that it's lower than the second quarter of '23 where it was 42, and that it's mostly noise.
Fokion Karavias: Yes. So I was saying, I was saying that what we have seen is mainly noise of low numbers. The trend has not really changed in any material way, and I was adding that the outside Greece in Bulgaria, as per Page 13, the NPE ratio at 2.6% is broadly stable. And the same applies also in Cyprus, Page 14 of the presentation. The NPE ratio at 2.3% is slightly below the previous quarter. Coverage remains high at the group level, but also in our subsidiaries. Overall, we expect that the NPE ratio for the full year 2024 to remain at the current levels. So circa 3%, we may see a few basis points higher or lower over the next few quarters. And as such, it appears that there is room for cost of risk lower than our initial guidance. As you can see on Page 32, the first quarter, cost of risk decrease to 68 basis points from 85 basis points in 2023. In the previous call, we said that we were expecting cost of risk below 80 basis points for the full year, 2024. We may move lower than this initial guidance, but as Harris mentioned, we will provide you a full update. We may provide you a revised guidance when we have the second quarter financial results.
Operator: The next question comes from a line of Kemeny Gabor with Autonomous Research.
Gabor Kemeny: A couple of questions from me, please. The first one would be on the voluntary exit scheme, where I think you mentioned a €30 million savings on an annual basis. So regarding the cost outlook for the rest of the year, shall we take the proportionate amount of this savings? Shall we take out from your cost, or are there any other factors we should consider when we model the cost for the rest of the year? The other question would be on Hellenic. How do you think about the likelihood of achieving a more than 55% stake in this asset, which is arguably pretty earnings accretive?
Harris Kokologiannis: I'll start with the VES. And then I pass to Fokion for Hellenic Bank. The VES was completed at the end of February. So as of March, some savings have started to be recorded. This 650 FTEs will gradually leave the bank, the majority of them by the end of the year and a few of them in 2025. So as of the second quarter, there will be more evidence, the impact of VES, but will be a gradual saving towards until the end of the year to the major part. So I pass to Fokion for that.
Fokion Karavias: Now, in terms of the Hellenic Bank process, as I mentioned during my introduction, over the next few weeks, we should receive the pending approvals and we should be able to close the outstanding transactions driving our percentage at 55%. Then the mandatory, the tender offer will follow and I'm sure that you appreciate that ahead of such process, we cannot really provide any sort of estimate about any potential participation in the tender offer. In terms of the accounting, as Harris mentioned, the first quarter and also on the second quarter, the Hellenic Bank contribution will be reflected in income from associates, which is going to switch into consolidation line-by-line in the third quarter onwards, and subject to the regulatory approvals in the second quarter, we should also record any negative goodwill that we may have from the pending transactions.
Gabor Kemeny: Just another small question, please. What are your thoughts on MREL issuance for the rest of the year?
Harris Kokologiannis: Sure. On MREL actually, we just completed a €650 million issuance. We are already ahead of 2025 inter-MREL target. There are some chances that we tap the market towards the end of the year, the fourth quarter of the year with a benchmark size issuance, of course, subject to market conditions.
Operator: The next question comes from the line of Memisoglu Osman with Ambrosia Capital.
Osman Memisoglu: Just 2 things on my side. One on the staff cost in particularly for Greece, we see mid double-digit around 15% growth. Is that the type of growth we should see for the rest of the quarters this year? That's my first question. And then in capital, the synthetic securitization amortization is that a quarterly accrual figure we should expect to see for the rest of the year or maybe the business plan? Any more color would be very helpful.
Harris Kokologiannis: Sure. Actually the staff cost incorporate as of 2024 an increased accruals for a variable conversation that is being almost fully offset by the elimination of resolution contributions. But I think you should see OpEx base overall in the first quarter on a growth basis, we are like-for-like flat, like-for-like excluding the effect of BNP. And in Greece, we are minus 2.1% and year-on-year. And these marks are full in line with our full year 2024 outlook as presented in the budget for the year. So to be more precise, excluding the effect of Hellenic Bank consolidation, as of the third quarter of the year, cost base will be more or less higher year-on-year by close to 3%. So as regards your second question and regards the synthetic securitization, you may see going forward some fluctuations up or down in the capital impact coming from either repayments or new synthetic amortization. This have to do with cost optimization actually of the various transactions that we have done and the opportunities that we have going forward for cost optimizing this very useful tool. So, for example, most probably in the second quarter, you are going to see the reverse impact, the positive impact coming from a new synthetic securitization that it is under preparation.
Operator: The next question comes from the line of Brzoza Robert with PKO BP (NYSE:BP) Securities.
Robert Brzoza: I have a quick question regarding the one-off close to €100 million, which you had registered in the first queue. Could you provide us more information what this was related to?
Harris Kokologiannis: Sure. As I said to my script that relates with the cost of voluntary exit scheme of 650 FTEs that was completed in the first quarter.
Operator: [Operator Instructions] The next question comes from line of Juliana with Goldman Sachs.
Unidentified Analyst: Just one quick question. Thank you for the very helpful breakdown on Slide 12 on around your real estate portfolio. Can you give us a bit more color around your office portfolio? Which locations and what LTV do you have there?
Fokion Karavias: I'm not sure that your question refers to the investment property portfolio, but what exactly is your question?
Unidentified Analyst: If you could give us a little bit more color around your office portfolio, please, in terms of locations and any other things you could not --
Fokion Karavias: Okay. You refer on Page 12 of the presentation. We have 60 assets in terms office and with a book value of €441 million. These are many offices in Athens the vast majority and a few in Salonica but the vast majority are in the metropolitan Athens area.
Operator: [Operator Instructions] There are no further questions at this time. I'll now turn the conference over to Mr. Karavias for any closing comment. Apologies. We do have another question. The next question comes from the line of Duhan Oliver with BNP Paribas (OTC:BNPQY).
Duhan Oliver: I just have a question about your capita structure. Could you consider optimizing it a bit notably with an [indiscernible]?
Harris Kokologiannis: In our business plan, we have not assumed any [indiscernible]. We have a capacity of 180 basis points to optimize the use of core capital, to optimize tangible book value and accelerate further dividend distribution over and above the level that we have already announced in the business plan. But so far, we have not envisage the issuance of 81 for the coming period.
Operator: The next question is a follow up question from the line of Mr. Memisoglu Osman with Ambrosia Capital.
Osman Memisoglu: Just on the distribution part you mentioned the 30% proposal for dividend payout ratio. Does that include any buybacks? In general, how should we -- I know we had discussed this maybe in previous calls, but in a very top level perspective going forward.
Harris Kokologiannis: Let me clarify. For the shareholder reward of this year out of 2023 financial results, as I mentioned in my introduction, we have proposed 30% payout ratio all in cash dividend. So you do not expect any share buyback. The full amount which is €0.09 plus per share is going to be in cash. As we have said also in our previous communications, for next year, we envisage a higher payout ratio towards 40%. And in 2026, this may reach towards 50%. Now for next year and the following, we may consider a mix of cash dividend and share buyback.
Osman Memisoglu: So the 40 would potentially include buybacks, buybacks would not be additional?
Harris Kokologiannis: Yes, it is an option that we're going to consider.
Operator: Ladies and gentlemen, there are no further questions at this time. I'll now turn the conference over to Mr. Karavias for any closing comments.
Fokion Karavias: No, I think there is one more question, please.
Operator: The next question comes from the line of [indiscernible] with Cyprus.
Unidentified Analyst: I would like to comment about the recent Hellenic Bank deal with CNP Cyrus and what means this deal to Eurobank?
Fokion Karavias: This is a transaction that has been initiated and agreed by the current management of Hellenic Bank. As I mentioned during my introduction, this transaction that enhances further the franchise of Hellenic Bank and makes Hellenic a leader in the local insurance market. So this is a transaction in the right direction and in line with our plan to boost the bancassurance business in Hellenic.
Operator: Ladies and gentlemen, there are no further questions at this time. I'll now turn the conference over to Mr. Karavias for any closing comments.
Fokion Karavias: I would like to thank you all for your time and for participating in this investor call. And obviously to thank you for the very interesting questions. We would be available for any follow up questions. Our investor relations team will be available any time. And we may meet some of you in any of our future roadshows. Thank you
Operator: Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone.
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