The National Bank of Greece (NBG) has announced its full-year financial results for 2023, showcasing a strong performance amidst a positive economic climate in Greece. CEO Pavlos Mylonas reported a core profit after tax of €1.2 billion and a core return on tangible equity of over 18%.
The bank's lending fees, card and trade finance-related services saw a year-on-year increase, with fee and commission income expected to grow in the high single-digit area annually. The bank's digital transformation efforts yielded a 17% increase in e-banking transactions. The bank plans to continue enhancing profitability and its digital transformation, with a focus on shareholder remuneration through dividends and share buybacks.
Key Takeaways
- National Bank of Greece exceeded expectations with a full-year core profit after tax of €1.2 billion.
- The bank's core return on tangible equity was over 18%, reflecting strong financial performance.
- There was a year-on-year increase in lending fees and fees from card and trade finance-related services.
- Digital transformation led to a 17% increase in e-banking transactions and a 9% increase in total transactions.
- The bank aims to protect net interest income and expects fee and commission income to grow annually.
- Excess capital provides strategic flexibility, with plans for dividends and share buybacks.
Company Outlook
- The bank plans to enhance profitability and continue its digital transformation.
- Ambitious 2030 targets for climate emissions and strengthened ESG governance are set.
- A mid-teens steady-state core return on tangible equity is aimed for the future.
- The bank plans to remunerate shareholders through dividends and share buybacks.
Bearish Highlights
- Net Interest Income (NII) is expected to be marginally lower in 2023 compared to previous levels.
- A decrease in NII is anticipated in 2024, with a plateau following in 2025 and 2026.
Bullish Highlights
- A larger than expected primary budget surplus was recorded in Greece.
- The bank's balance sheet showed an increase in performing loans and a decrease in non-performing exposure.
- The CET1 ratio increased to 17.8%, and the MREL ratio exceeded the 2025 requirement.
Misses
- The bank has not yet implemented a buyback program into their guidance.
- No reversions to shareholders have been made to date.
Q&A Highlights
- The company's wealth management strategy involves shifting customers to more beneficial products.
- The bank expects to double assets under management over the business horizon.
- IT and digital transformation are key focuses for enhancing customer experience and back-office efficiency.
- The bank is considering partnerships with fintechs and potential M&A if it creates synergies.
- Structural hedges have been placed, with assumptions on ECB rates and deposit beta detailed.
- The MREL position exceeded the target for January 2025, with further issuances planned to reach the 2025 target.
InvestingPro Insights
The latest financial results from the National Bank of Greece highlight a robust fiscal year, with significant profitability and digital banking advances. InvestingPro data and tips provide a deeper insight into the bank's financial health and market performance.
InvestingPro Data metrics reveal a market capitalization of $7.01 billion, suggesting a sizable presence in the market. The bank's P/E ratio stands at a low 5.79, indicating that the bank's shares might be undervalued compared to its earnings. Furthermore, the bank has experienced a revenue growth of 15.53% in the last twelve months as of Q4 2023, showcasing a solid increase in its financial inflow.
InvestingPro Tips offer a mixed view. On one hand, analysts predict the company will be profitable this year, which aligns with the bank's reported core profit after tax. On the other hand, the bank is flagged for quickly burning through cash, which might raise concerns about its long-term liquidity and capital management. Additionally, the bank does not pay dividends, which could influence investor decisions, especially for those seeking regular income.
For readers looking to dive deeper into the National Bank of Greece's investment potential, there are additional InvestingPro Tips available at https://www.investing.com/pro/NBGIF. These tips provide valuable insights, such as the bank's weak gross profit margins and its valuation implying a poor free cash flow yield. Currently, there are six more InvestingPro Tips listed, which could further inform investment decisions.
For those interested in a comprehensive analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This offer will grant access to exclusive metrics and insights that could be pivotal in understanding the full financial picture of the National Bank of Greece.
Full transcript - National Bank of Greece SA (NBGIF) Q4 2023:
Operator: Ladies and gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome and thank you for joining the National Bank of Greece Conference Call to present and discuss the Full Year 2023 Financial Results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.
Pavlos Mylonas: Good morning, everyone. Welcome to our fourth quarter ‘23 financial results call. I am joined by Christos Christodoulou, Group CFO; Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance and then we will turn to Q&A. I will begin with a brief overview of Greece’s positive economic environment, which has set the backdrop to our robust financial performance, then I will turn to our financial results. So let’s begin. Economic growth in Greece remained on a healthy trend in 2023 despite an unfavorable external environment, with a broadly stagnant euro area, Greece’s main trading partner, highly restrictive monetary conditions and a tighter fiscal policy. In fact, GDP growth in Greece was at 2% in 2023 despite the negative impact from natural disasters especially in Q4 and continued to outperform the euro area by a significant margin. I would like to point out a few notable economic developments. First, labor market trends remained strong with employment up 1.5% for the full year 2023, reducing the unemployment rate to a 14-year low, while real wages were up around 2% year-on-year as well. The resulting increase in real disposable income supported private consumption and this, in turn, supported consumer lending. Higher disposable income and increased consumer confidence also led to demand for housing, which due to the current demand supply gap has pushed up residential real estate prices significantly as well as nascent mortgage demand. Second, on the corporate side, business profitability is at a 13-year high. The impressive improvements in Greek corporate competitiveness have driven exports to a level near 50% of GDP, with tourism experienced a record year and goods exports continuing to gain market share in their key markets. Greek corporates see this economic conjuncture as an opportunity and are planning significant expansion projects leading to the observed strong corporate loan demand. Indeed, so the foreign investors resulting in record inflows of FDI. Third, Greece recorded a larger than expected primary budget surplus due to buoyant tax revenue, including successful efforts to curb tax evasion. While the current account deficit was reduced by more than one-third, with little need for external funding after accounting for FDI flows and EU funds. In sum, the Greek economy is reaping the rewards for hard gains and competitors gained over a multiyear restructuring effort and ambitious reform agenda as well as policy credibility. These developments, combined with a significant reduction in the debt to GDP ratio, unsurprisingly led to the upgrade of the Greek economy to investment grade in the second half of last year, which has made the economy even more attractive to foreign investors and this can be observed in much higher liquidity in the stock market. Going forward, leading indicators confirm that 2022 trends are continuing in 2024. Thus, full year 2024 GDP is projected to accelerate about 2.5%, despite a still weak outlook for the euro area and monetary policy remaining tight for most of the year. An additional boost to the economy will come from the delayed positive impact from the absorption of substantial ROI funds, which are just now beginning to hit the real economy. Now let me turn to the full year results of the bank. In this positive economic environment, combined with the impressive accomplishments from our ambitious and still ongoing 4-year transformation as well as our inherent competitive advantages, the bank’s performance has excelled. In fact, our full year 2023 financial results have outperformed by a wide margin, our guidance, which we had already revised up back in August 2023. In terms of profitability, we have delivered a full year 2023 core PAT of €1.2 billion, translating into a core return on tangible equity of over 18%, even before adjusting for significant capital buffers. This outcome is far above our guidance for our core return on tangible equity of over 15% for the full year ‘23. From an earnings per share perspective, we have produced an earnings per share of over €1.2 per share for full year ‘23, again significantly higher than the guidance. The drivers behind these strong results reside in all of the key lines of our P&L. The strong performance of NII resulted from the stable positioning of our balance sheet to a rising rate environment, but also the excellent job in the disbursements by our first line, especially for corporate. Net credit growth was €1.3 billion for the year and occurred mainly in the second half of the year. The increase in activity, combined with an exceptional cross-selling effort to our customer base, led to an impressive fee income growth of 17% year-on-year on a like-for-like basis, with encouraging progress on wealth management. Operating expense discipline continued despite higher depreciation charges reflecting our ambitious IT and digital transformation, including the replacement of our core banking systems. Indeed, our IT strategy has already started to deliver dividends in the form of improvements in efficiency, competitiveness and customer service. It comprises a distinct competitive advantage for NBG. Q4 operating expenses reflect the usual seasonality, which was accentuated by a bonus accrual that was approved late in the year. Cost of risk came in well inside our guidance of 80 basis points as a result of low NPE formation trends, circa past the budget level for the year and already high coverage levels on all three loan stages. Our strong profitability enhanced our capital buffers further in 2023 by a sizable 220 basis points to 17.8%, following a provision for a dividend payout ratio of 30%, taken mostly in Q4. Our CET1 ratio is currently approximately 400 basis points above our internal target of 14%, providing significant strategic flexibility, including with regards to shareholder remuneration. Going forward, we intend to keep leveraging the supportive macro trends and the buoyant banking environment as well as our inherent competitive advantages, including our transformation program, which is bringing rapid and efficient change to bank. And here, I would like to note that on the domestic front, the numbers speak for our customer satisfaction and loyalty. We are the domestic champion by a wide margin. Based on our 2023 results and our new 2024-26 business plan, we will now provide new guidance to the markets. You will find it on Page 17 of the presentation. The main takeaway is that we expect to be able to enhance the high levels of profitability achieved in 2023 despite the normalization of interest rates during the business plan horizon. We will thus continue to accumulate capital despite steadily improving dividend payout ratios towards European levels and thus have room to complement shareholders’ returns with buybacks on the market. Turning to the specific targets. As regards to profitability, we are targeting a core return on tangible equity adjusting for excess capital of over 18% for 2026. This solid return derives from 2026 core PAT, profit after tax, of over €1.2 billion, which implies an earnings per share of more than €1.3 per share. Net interest income sustainability reflects a relatively resilient NIM arising from our increased exposure to fixed rate assets and substantial deposit hedges already in place as well as strong net credit expansion of 7% per year on average. The successful strategy on fees is expected to deliver high single-digit growth in every year over the next 3 years. Cost containment will continue to be a major pillar of our strategy with OpEx growing annually in the low single-digits, despite the investments in technology and the rapid increase in activity. Finally, cost of risk will normalize to levels below 50 basis points in 2026 as we expect NPE formation in 2024 to remain at similarly low levels experienced in 2023 and normalized at even lower levels in 2025 and 2026. Thus, we expect our NPE ratio to be below 3% in 2026. As a result, we anticipate organic capital generation for the 3-year period to 2026 pre-dividend payments to well exceed 500 basis points, providing us further optionality on strategic flexibilities and shareholder remuneration. To close, I would like to emphasize once again that our strategy derives from; one, our investment in technology so as to rapidly distinguish ourselves for our agile and expeditious operations and superior customer experience; and two, our people who continue to earn the trust of our clients by providing service excellence, thus being acknowledged as the bank of first choice. In this manner, NBG will remain a key driver for the economy’s continued strong growth. And with that, I would like to pass the floor to our Group CFO, Christos, who will provide additional insights to our financial performance before we turn to Q&A. Chris?
Christos Christodoulou: Thank you, Pavlos. Let’s move to the highlights of our profitability on Slide 23. In Q4 of 2023, we generated a core profit after tax of €345 million at group level, leveraging on accelerated core income growth contributing towards delivering a full year core PAT of €1.2 billion, 2.5x higher year-on-year. This translates into a core return on tangible equity of 18.3%, well above our full year target of over 15%. Main contributor to this compelling performance was our strong NII momentum, up by 65% year-on-year, driven by higher base rates, healthy loan expansion of €1.3 billion year-on-year as well as an increased contribution from securities income, all pushing net interest margin higher to 303 basis points for the full year in line with our guidance. In Q4, the positive NII momentum was sustained, as shown on Slide 28, up by 6% quarter-on-quarter. Higher average base rates complemented by solid credit expansion of €0.9 billion in Q4, comfortably absorbed the pickup in deposit and wholesale funding costs. Loan cash flow rate reached 73%, underpinning a healthy lending spread normalization, while blended deposit debt remained low at 11%, reflecting our strong and relatively stable core deposit base, comprising nearly 80% of our deposits growth. Time deposit costs in euro terms stood at approximately 180 basis points in Q4 declined a bit of circa 48%. Complementary to NII, fees also picked up sharply in 2023, increasing by 10% year-on-year on a reported basis, post the merchant acquiring consolidation impact or 17% on a like-for-like basis as shown on Slide 33. Key drivers to this performance were lending fees from both corporate and retail businesses as well as card and trade finance-related fees. Our fee growth was complemented by increasing cross-selling of investment in insurance products with the relevant fees increasing by more than 25% year-on-year. At the quarterly level, domestic fees increased by 15% quarter-on-quarter. Our digital transformation continued unabated, producing impressive results with e-banking transactions up by 17% year-on-year, driving total transactions 9% higher year-on-year. As regards to OpEx, cost discipline continues, as you may see on Slide 34, with transformation, especially digital, driving FTE optimization. Personnel and G&A growth was kept well below inflation, allowing our full year ‘23 cost-to-core income ratio to settle at 51.6%. Personnel expenses increased by 3% year-on-year, reflecting the sectoral wage increases in variable pay, while the growth in G&A settled at just 1% year-on-year. The increase in depreciation charges referred to the rollout of our strategic IT plan, spearheaded by the replacement of our core banking system, which is now only 2 years away from completion. Our ongoing IT and digital transformation enhances our operational efficiency, automate our processes and significantly improves our commercial offerings. Now, turning to the highlights of our balance sheet on Slide 24. Disbursement accelerated to €2.6 billion in Q4 ‘23, driving performing loans up by €1.3 billion year-on-year to €30.5 billion, in line with our guidance. Corporate loan growth was driven mostly by SMEs, project finance and shipping, while retail loans exhibited a stabilizing trend as slight deleveraging in mortgages was partly offset by growth in SBL and consumer loans. It is worth mentioning that in mortgages, we dispersed circa €0.4 billion in 2023, of which approximately 85% was in fixed rate products. Along the same lines, our exposure in fixed rate sovereign bonds have increased by about €1.5 billion in Q4 ‘23, adding to the structural cash position of the bank, insulating us against the anticipated rate reductions. On Slide 26, the distinct strength of our balance sheet underpinned our superior liquidity profile, a robust capital profess, along with our right investments in IT infrastructure, comprised unique comparative advances. With regards to liquidity, we’re mostly funded by retail deposits with deposits combined with 96% of our net funding. Domestic deposit growth continues strong, as shown in Slide 31 and 32, up by €1.7 billion in 2023, reflecting retail customer dynamics as corporate deposit slowdowns affected core liquidity and net loan expansion during the area. Importantly, our deposit mix allows for the lowest banking cost in the sector with time deposits still comprised in just 20% of our domestic stock. Our strong liquidity profile is also manifested by our net cash position of €8 billion, a loan-to-deposit ratio of 58% and the liquidity coverage ratio of 262%. On asset quality on Slide 35 and 36, our NPE stock declined by €0.5 billion year-on-year to €1.3 billion or just €0.2 billion net of provisions, driven by organic actions and supported by net of current fee flows of circa €0.2 billion, around half the levels we were expecting for the year. This allowed our NPE ratio to 12% to 3.7% with cash coverage at 88%. Our full year cost of risk settled at 64 basis points well inside our 80 basis points guidance, reflecting the favorable formation trends and at the same time, maintaining coverages across all stages. Moving to capital on Slide 25. Our CET1 ratio increased by an intense 220 basis points year-on-year to 17.8% in 2023, with a total capital ratio settling at 20.2%. It should be highlighted that our capital ratios also include a dividend provision of 90 basis points, reflecting a 30% payout out of 2023 earnings. Moreover, including MREL resources and pro forma for our January senior preferred issuance of €600 million. Our MREL ratio stands at 25.4%, already ahead of the January 2025 requirement of 25.3%, as shown on Slide 32. On Slide 39 to 43, we provided an update on ESG. In line with our strategy, we have committed to a set of ambitious 2030 targets for climate emissions, substantiating our net zero vision. These targets together with the bank’s own emission reduction goals are underpinned by business value creation initiatives for the climate and the environment as well as by the enhancement of responsible internal practices. At the same time, we have strengthened our ESG governance across hierarchy levels and line of defense. Our performance is recognized as reflected in our improving ESG rate. 2020 has been an exceptional year for NBG, spearheaded by a record core profitability and our performance of our guidance by a wide margin. This performance comprises a strong foundation on which to build on, towards delivering our ambitious financial targets for the next few years, attaining an impressive mid-teens steady-state core feature on tangible equity. Leveraging Greece’s growth momentum, our distinct competitive advantages and leading strategic investments in IT infrastructure, we aspire to improve our full year ‘23 record high profitability, with core profit asset tax above €1.2 billion in 2026, implying an EPS of over €1.3 per share, fully absorbing the anticipated benchmark rate normalization of approximately 175 basis points over the next 2 years. At that profitability rate, organic capital generation will continue strong. Adjusting for our internal CET1 target of 14%, we anticipate our core return on tangible equity to continue to exceed 18% in 2026. The key profitability contribution will remain according with cost control and core normalization, keep evolving in assessing market. As regard our core income dynamics, NII, the most important driver of our record high 2023 profitability is expected to be maintained at nearly the 2023 levels despite the gradual yet considerable benchmark rate reduction over the next 2 years. With NIM, dropping to around 270 basis points by 2026, as we show on Slide 17. The resilience in our NII is underpinned by healthy credit expansion of a 7% CAGR over 2024 to 2026, structural hedges as well as investments in fixed-rate assets, mitigating the rate normalization impact as well as additional funding costs deriving from the remaining MREL issuances. Trade expansion will be mostly driven by corporates as shown on Slide 19, anticipated to grow at a high single CAGR over 2024 to ‘26, with retail supporting growth from 2025 onwards on the part of continued high economic growth and corporate profitability affecting positively household economics over time. For fee and commissions income, growth is expected in the high single-digit area every year until 2026 as we continue to capitalize new originations, trade finance dynamics, investment products in bancassurance. Our large deposit client base and continuously improving product and service offerings, yielding tangible results already in 2023, indicate that there is ample growth potential in the space. Higher core income, coupled with continued cost discipline, aided by abating inflation, accommodate the increased depreciation charges arising from the rollout of our IT plan. Combining these elements, our cost to core income ratio is anticipated to remain at a steady state level of around 55%. As regards our cost of risk, it will continue normalizing, reflecting control and measure in ‘24 similar to 2023 levels and material formation in ‘25 and ‘26 as the CEO already mentioned. In that light and given the gradual workout of our residual NPE exposure over the next 3 years, we anticipate the NPE ratio to drop below the 3% by 2026. This will allow our cost of risk to drop below 50 basis points, providing further support to our profitability. Our solid organic capital generation will be driven by a strong core profitability, comfortably accommodating the NBCH credit expansion. As shown more elaborate on Slide 20, we anticipate our organic capital generation to exceed 500 basis points in the next 3 years, driving our CET1 ratio pre-dividends to over 23% in 2026, while dividend payouts, which could start off at 30% this year are expected to gradually grow converting European averages. This level of capital when compared to our internal target CET1 level of 14% suggests more than 900 basis points of excess capital, providing strategy flexibility as well as optionality in remunerating our shareholders to dividends as well as complementary share buybacks. Summing up, following our robust financial performance throughout the year, underpinned by record high core profitability, high double-digit returns and [indiscernible] in capital buffers, we are confident we can stay the course sustaining the impressive track record, generating value and tangible returns for our shareholders within and beyond the horizon of the current business. And with that, let’s now open the floor to questions.
Operator: [Operator Instructions] The first question comes from the line of Ismailou Eleni with Axia Ventures. Please go ahead.
Eleni Ismailou: Good morning, and congratulations for this very strong set of results. I’ve got a few questions from my side. So, the first one would be as we look at sustainable profitability, how you’re planning to protect NII in the medium term? You’ve mentioned about the structural hedges. So could you comment on your strategy there in more detail about how should we think of it in the other quarters and years? And what are the biggest upside and the outside the risk outlook? And any notable cost associated with derivative there? That would be the first question. And the second one would be, given your excess capital, would then accelerated this depreciation be an option to be close on capital or would potential M&A be a factor? Thank yo.
Christos Christodoulou: Thanks for the questions. So I’ll start with the NII dynamics in our business comparison. So there are many items. Some of them closing directions that will affect our NII going forward. So to start with 2024, first of all, we do still see some credit expansion and some fixed rate assets adding to our balance sheet in 2024, which will help the NII generation. And also, we have some repricing phasing in on the higher average base rates that we have in 2023 as well. On the other hand, we do see some pressure on the deposit fee as going through to 2024. We have some additional MREL costs as well. And of course, as you mentioned, we have the restructuring in place, which at least for 2024, it will be better for profitability. So all in all, in terms of NII, we expect that it will be marginally lower to the levels that we achieved in 2023. Now going forward to the out years of the business plan, ‘25 and ‘26, the dynamics change. So we still expect to generate healthy NII from credit expansion. The deposit betas, although not to the extent that we saw them affecting our cost while there is what going up will also benefit a bit our NII. The structural figures will actually impact NII and the [indiscernible] will start working our advantage. But we still also have the effect of the MREL reissuances. And of course, as we said, the pressure from the lowering rates going forward. But all in all, we expect our NII in the outer years of the balance sheet to plateau following the decrease that we expect to see in 2024 and thus support the overall profitability, as we have described it in our remarks. Of course, other lines of our profitability, with supportive as well. We’ve said that on the dynamics that we see on our PPAs, we expect every year for fees to grow on a high single digit across the 3 years. We expect to continue discipline in regards to OpEx and only expect a low single-digit increase. And of course, our cost of risk given the asset quality profile of the bank will also contribute to our profitability thus delivering the over €1.2 billion profitability for 2026. Now on the second question that you asked about how did you see. Indeed, our organic capital, as we said, gives us lots of strategic optionalities primarily one being the remuneration of the shareholders. With regards to DTC, as you very well know, we follow a linear amortization approach for the DTC. The level of profitability in the past years has made us very comfortable with regards to this approach. And just to give you some color on the share of DTC with regard to CET1, it’s currently just below 55%. And in the business bank horizon, this is anticipated to go below 55%. So at this point in time, we believe that this is the best way to go about it and we continue down this on.
Eleni Ismailou: Thank you very much. And one more question, if I may, going back to the P&L. As a pension shift to net fee and commission income, can you give us some more color on your, what is management strategy and how you’re planning to, let’s say, keep increasing the unit AUM and your reach and could you help us quantify the benefits of the IT and digital transformation to this line of the P&L in later years? Thank you.
Pavlos Mylonas: On the wealth matter strategy, it’s easy to explain, harder to execute. We have in our premium, especially customer base. There are low percentage of mutual funds and other assets are mostly time deposits. So the objective is to shift these customers to more beneficial products for themselves in asset management. We had a very good start in 2023, obviously, helped by the higher interest rate environment and the increasing demand for bond and mutual funds. And we will continue to push in that direction in the outer years. We expect over the business horizon to more than double the assets under management to these clients. Clearly, this will be supported by training of RMs in terms of how to sell these products, convincing customers on their benefits. We need better interfaces on both the mobile phones as well and seeing the interaction and seeing people seeing their portfolios, etcetera. So, it’s a multifaceted strategy and will also include an IT component. Now, on IT in general, there are two main objectives. One is clearly making the back office more efficient, getting rid of the old legacy systems. And the second is the customer experience, making sure that people have the look and feel and the comfort that they have in when they do the types of business. I think we have made very large gains on this front over the past few years. We have apps, mobile apps per segment. We have Internet banking per segment. And this has led to a huge shift of transactions, the simpler transactions to alternative channels and outside the branch, which has been a significant shift in cost savings for us. So, it is multifaceted in terms of the benefits, both back office and front, but it is essential. I think back in the next few years, the banks that invest in IT will be the ones that do better than others.
Eleni Ismailou: Thank you very much, again, congratulations for the results.
Operator: The next question comes from the line of Sevim Mehmet with JPMorgan. Please go ahead.
Mehmet Sevim: Good morning. Thanks very much for your time. I have three questions, please. First of all, can I ask if you have any buyback baked into this guidance? Just looking at the dynamic between core PAT and EPS, particularly from ‘24 into ‘26, it looks like EPS is growing a bit faster. Can I therefore confirm if you have any specific number baked into this guidance? And if yes, what would be the timing? And secondly, maybe just quickly on loan growth. Your guidance of 7% is a bit higher than what we heard from the peers so far. So, if you could tell us what would drive that faster growth at NBG? And any additional color to that would be very helpful also. And finally, can I just ask what the one-offs were in the fourth quarter? Just if you could give us a list of those, that would be very helpful. Thanks very much.
Pavlos Mylonas: Yes. Let me take the first two. The first one is very simple. No is the answer. There is no buyback expected to do the spend. In terms of loan growth, our view is that the loans to GDP in Greece is quite low. It is around 55%. It needs to grow. And our belief is normal GDP will be at least 4%, 2% real plus and around 2% inflation. Putting those together, I think we are going to see solid loan growth for the market. And given what we have been doing over the past few years, which is increasing our market share a bit, that’s how you get the 7%. Christos, do you want to take the last one?
Christos Christodoulou: Yes. There are adjusted common logos [ph] in the last quarter of the year of ‘22. The first one is the VES that we have executed in the last quarter of this year. So, there is a provision in there of about €40 million for the process we run in November. And the other one is the fees that we have paid for the placement in Greece as consulting fees, so that’s another €30 million, including the €18 million. That’s the two major components of the ones.
Pavlos Mylonas: That’s great. Thank you. Just on the buyback then. Can I follow-up and ask if what your latest views would be on that, given obviously, looking at the capital ratio, it’s extraordinarily strong, at least the trajectory from here? So, have you had any conversations? What would be your latest views on the potential timing of it? And obviously, with the recent changes at the SSM, do you think there is a different approach there, etcetera? Maybe any color that you may share would be very helpful. Thank you.
Pavlos Mylonas: I think the first point to make is that we look at buybacks quite positively. We think it would be extremely efficient use of the excess capital. That being said, we have not been giving any reversion to shareholders to-date. We hope this year will be the first. We are starting with a request for a dividend of between 25% and 30%. And we will take it from there. We need to see what happens with the remaining shareholders of the HFSF as well, which also plays into the decision on the buybacks. So, these are things which need to be settled. And once those hurdles are crossed and I think we will be far more free to discuss the size of the buyback. But this answer also gives you a bit of color on the timing.
Mehmet Sevim: Okay. That’s very clear. Thanks very much.
Operator: The next question comes from the line of Boulougouris Alexandros with Euroxx Securities. Please go ahead.
Alexandros Boulougouris: Yes. Good morning. Congratulation on the numbers and thanks for the presentation. Quick question on your assumptions in the targets, could you clarify a bit more on what you assume in terms of spreads, especially in the corporate space, given that we see a bit more competition there? And a second question, again, regarding the assumptions, I am not sure if you mentioned it in your presentation regarding your assumptions on time deposits shift and deposit beta in general for ‘24 and ‘26. Thank you.
Christos Christodoulou: Hi Alex. So, with regards to your first question, let me just firstly say our expectations on the movement of the ECB rate. So, in our plan, we assume that rates will go down to around 3% towards the end of 2024, and they are up to 2.25% by end of 2025, so that’s the base assumption. Having that in mind, we expect that – and given where we see the loan passes now, we expect something in the area of 20 basis points in terms of spread compression going forward, as you rightly said, mostly in the larger tickets. And then we expect to normalize for the outer years of the business plan. With regards to time deposit dynamics, as we said, our deposit beta for the fourth quarter of the year is around 48%. We expect the pressure to continue at least in 2024, and we expect the beta to go just over 50%, that’s still going up. When the rate start going down, we expect our deposit beta on the time deposits to be somewhere between 40% and 45%. Now the deposit mix, we are currently, as you have seen, to 79% to 25% in [ph] time deposits. We expect that to continue, although we haven’t seen much pressure as you very well know, in the last, I would say, six months to nine months to maybe around 75% to 25%, and that’s about it. We don’t expect anything else on that front.
Alexandros Boulougouris: Thank you and thanks.
Operator: The next question comes from the line of David Daniel with Autonomous. Please go ahead.
Daniel David: Good morning all. Congratulations on your results. I have two questions. The first one is on MREL. Could you confirm your end-state MREL requirement, but also what buffer we should be thinking about that you will build towards? So, is it 100 bps above the requirement? And therefore, how much issuance you plan over the next couple of years would be helpful? And then the second one, I guess is kind of related just on capital. I am sure you have seen developments in Italy, potentially 100 bps systemic risk buffer. Do you think that’s possible in Greece? Is that something, again, we should be watching out for to increase capital and MREL requirements? Thanks.
Christos Christodoulou: Well, I will start with the second one. I mean we don’t see that, to be honest, at least at this point in time happened in Greece, so nothing to comment on that one. With regards to our MREL position, as you have seen in our presentation, the year-end mark was at 24.2%. So, part of the above target of 22.7%, we had for January ‘24, pro forma for our senior issuance in January, this level goes up to 25.4%. So, that’s already matching and exceeding actually our target for January 2025. Now, without turning our target at around 17.5%, we have, let’s say, the refinancings to do about one or two additional issuances. In general, our planning horizon with regards to MREL sees us operating with about, let’s say, 50 basis points to 100 basis points buffer above the final capital.
Daniel David: Thanks. And can you just confirm that final target?
Christos Christodoulou: The target that we have for end of 2025 is 27.5%.
Daniel David: Thank you.
Operator: [Operator Instructions] Ladies and gentlemen, we have another question from the line of Memisoglu Osman with Ambrosia Capital. Please go ahead.
Osman Memisoglu: Hi. Many thanks for your time and the presentation. Most of my questions have been asked. So, maybe if you could give us a bit of color on the strategic optionalities that you mentioned. The last few calls, I think the focus was more on portfolio – potential portfolio acquisitions and so on. Just wondering what the latest thinking is on that front? Thank you.
Pavlos Mylonas: The latest thinking hasn’t changed. It is the same as before. We are looking at dividends and buybacks as one large source of the excess capital. We are looking at loan growth in Greece in the performing market. We are looking at conservatively at the syndicated loan market in Europe. And then if there is an M&A, if there is something that looks interesting and attractive and create synergies and is accretive, then there could be something, but it is not – it’s not obvious on that front. The – we are looking at partnerships with fintechs for the most part, who can help us in areas that we do not have – cannot have the expertise, but that’s usually not a capital consuming issue. So, again, I think the view on the excess is unchanged.
Osman Memisoglu: Great. Thank you.
Operator: The next question comes from the line of Nigro Alberto with Mediobanca (OTC:MDIBY). Please go ahead.
Alberto Nigro: Yes. Thanks for taking my question. Just one clarification on the NII and in particular, on the structural hedges, if you can give us more detail on the size of the structural hedge and also the duration? And then one clarification on your assumption on rates, on ECB rates by the end of this year and next year and on the deposit beta, overall deposit beta evolution. Thank you.
Christos Christodoulou: Okay. Let me start with the last one. I think I have answered it a bit with before, but let me repeat it again. Our view on the ECB rates, at least in the business plan horizon, we expect rates to go down to 3% at the end of 2024 and down to 2.25% at the end of 2025. That’s the logic we will follow for the business plan purposes. Deposit betas, starting from time deposit beta, starting from 48% now at the fourth quarter of the year, we expected in 2024 to go up to around 50%, just over 50%. And then when the rates go down, we expect the deposit betas to be in the area between 40% and 45%. Deposit mix, which is now around 20-80, we expect that also conservatively maybe to go down to 75-25, but we don’t see too much pressure on that front. The first question that you had with regards to the hedges, the structural access [ph] on deposits, we have managed to place about €5 billion of cash deposits by the year-end. And we have increased that towards the beginning of this year by another €5 million. Actually, this is around 5 years. And as you very well heard numerous times, we follow dynamic approach about the way we treat this deposit hedges depending on the opportunities from the hedges that are coming to us. Now, the cost of those hedges are around, I would say, €4 million per month. That’s the current at least run rate. But as we go along, we will keep updating you about our position with regard to structure of this.
Alberto Nigro: Thank you so much.
Operator: Ladies and gentlemen, there are no further questions at this time. I would now turn the conference over to Mr. Mylonas for any closing comments. Thank you.
Pavlos Mylonas: Thank you all for joining us for this conference call. We will be in London tomorrow for the bank meeting. And I am sure that we will see you on the road in the next few months. And if not, you can always reach us for any questions, all three of us are available for any further questions that you may have. So, thank you very much for joining us, and have a good morning.
Operator: Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.
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