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Piraeus Financial Holdings S.A. (TICKER: PIRAEUS) has reported a record financial performance for the first nine months of 2024, with CEO Christos Megalou announcing a normalized net profit of €932 million.
The bank has seen a substantial year-on-year increase, with €320 million in profits for the third quarter alone. Earnings per share have climbed to €0.72 for the nine-month period, with a revised target to surpass €0.90 by year-end.
Key Takeaways
- Piraeus Financial Holdings achieved a normalized net profit of €932 million for the first nine months of 2024.
- Normalized earnings per share rose to €0.72, with an updated target to exceed €0.90 for the full year.
- The bank reported an 18% return on tangible equity and a 9% increase in net revenue.
- Non-performing exposure (NPE) ratio was reduced to 3.2%, with a goal to lower it below 3% by year-end.
- Total assets under management reached €11 billion, supported by strong mutual fund sales.
- The bank's CET1 ratio increased to 14.7%, and it plans a 50% payout ratio for 2025.
- The neobank snappi is expected to launch in Q2 2025, targeting revenues over €200 million within five years.
Company Outlook
- The bank's performing loan book is expected to expand to €33 billion by December 2024.
- A detailed business plan for 2025-2027 will be released early next year.
- The bank remains focused on capital deployment to foster growth while maintaining a robust balance sheet.
Bearish Highlights
- The mortgage market has faced challenges, with a 1% decline in mortgage loans despite increasing retail real estate prices.
- The bank anticipates restructuring costs of €40 million for Q4.
Bullish Highlights
- Piraeus Bank has improved guidance for Net Interest Income (NII), with a projected increase of €100 million to €125 million.
- Potential for €3.5 billion in loan expansions, focusing on retail and SME sectors.
- Plans to accelerate Deferred Tax Credit (DTC) amortization, which could lead to higher dividend payouts.
Misses
- No specific guidance provided for 2026.
- The bank has not yet realized the potential €3.5 billion in loan expansions as a commercial reality.
Q&A Highlights
- The Net Interest Margin (NIM) is less sensitive to interest rates due to the monetization of swaps and bond portfolio changes.
- Dividend payouts are expected to increase, with a significant buyback component in the 2024 distribution strategy.
- The anticipated cost of risk is projected at 60 basis points, with aims to align closer to European averages in the future.
Piraeus Financial Holdings has demonstrated robust financial growth and strategic planning in its latest earnings call. With a significant increase in profits and a strong outlook for the future, the bank is well-positioned for continued growth and shareholder value creation.
The launch of the neobank snappi is among the strategic initiatives expected to contribute to the bank's revenue streams in the coming years. Executives remain disciplined in their approach to capital deployment, with an eye on sustainable profitability and potential acquisitions to enhance their presence in the Eurozone.
InvestingPro Insights
Piraeus Financial Holdings S.A.'s impressive financial performance is reflected in its market data and analyst perspectives. According to InvestingPro data, the company's market capitalization stands at $4.77 billion, underscoring its significant presence in the financial sector. The company's P/E ratio of 4.02 suggests that it is trading at a relatively low earnings multiple, which aligns with one of the InvestingPro Tips indicating that the stock is "Trading at a low earnings multiple."
The company's strong profitability, as highlighted in the earnings report, is further supported by InvestingPro data showing a robust revenue of $3.03 billion over the last twelve months as of Q3 2024, with a notable revenue growth of 23.02% during the same period. This growth trajectory is particularly impressive given the challenging economic environment.
An InvestingPro Tip points out that analysts predict the company will be profitable this year, which is consistent with the record financial performance reported in the article. The tip also notes that the company has been profitable over the last twelve months, reinforcing the positive financial narrative presented in the earnings call.
The dividend yield of 1.54% and a remarkable dividend growth of 552.27% over the last twelve months as of Q3 2024 reflect the company's commitment to returning value to shareholders, which aligns with the discussion in the earnings call about increasing dividend payouts and potential share buybacks.
It's worth noting that InvestingPro offers additional tips beyond those mentioned here, providing investors with a more comprehensive analysis of Piraeus Financial Holdings. For those interested in a deeper dive into the company's financials and market position, InvestingPro has 10 more tips available.
Full transcript - Piraeus Bank SA ADR (OTC:BPIRY) Q3 2024:
Operator: Ladies and gentlemen, thank you for standing by. I am Meena, your chorus call operator. Welcome and thank you for joining the Piraeus Financial Holdings Conference Call and Live Webcast to present and discuss the Piraeus’ 9-Month 2024 Financial Results. All participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Piraeus Financial Holdings’ CEO, Mr. Christos Megalou. Mr. Megalou, you may now proceed.
Christos Megalou: Good afternoon, ladies and gentlemen, and good morning to all of you joining us from the U.S. This is Christos Megalou, Chief Executive Officer, and I’m joined today by our CFO, Theo Gnardellis; Chryssanthi Berbati and Xenofon Damalas. Piraeus has delivered a quarter of superior results with the best 9-month performance ever. We generated €320 million normalized net profit in the third quarter, adding to €932 million for the 9-month period. Our strong operating performance in the 9-month 2024 paved the way for the upgrade of our full-year targets. I’m proud of our results and thankful to our people for their hard work. Let’s start our presentation with Slide 4 for the key achievements of our performance. We achieved NII growth in the quarter, driven by increasing volumes that outpaced the June 24 rate cut. We generated normalized earnings of €0.25 per share in the quarter, up 16% year-on-year and €0.72 per share in the 9-month, which leads us to update the target for 2024 to over €0.90. We achieved return on number of tangible book of 18% in the third quarter, which brings the 9-month figure at 18%, driving us to update the target for 2024 to higher than 17%. We delivered 9% net revenue growth year-on-year in the 9-month period, benefiting from strong growth of client balances with fees growing at 3 times the annual rate over NII. In the 9-month period, we increased our assets under management to €11 billion driven by the number one position in net mutual fund sales. Operating expenses remain stable year-on-year with cost to core income ratio at 29%, a best-in-class figure in Greece and among the best in Europe. Importantly, cost of risk was maintained at low-levels standing at 23 basis points in the 9-month period, excluding NPE servicer fees and synthetic securitization costs, an outcome of the successful management of NPE inflows. Overall, our asset quality dynamics remain solid with NPE ratio further down to 3.2%. Our updated target is for an NP ratio of below 3% by year end. We expanded our performing loan book by €2 billion in the 9-month period with solid growth in the business book. The target for December 2024 is now upgraded to €33 billion, an impressive 10% year-on-year growth. Our CET1 ratio increased by 150 basis points year-to-date and reached 14.7%. The total capital ratio stands at 20% and now our MREL ratio is the highest in Greece at 29%. On the back of our solid financial performance, we upgraded our distribution accrual to 35% for 2024, while our recently updated distribution policy provides for a 50% payout ratio in 2025. Slide 5 depicts the financial KPIs that summarize our results. We have sustained high performance on all KPIs over multiple quarters, which leads to a strong finish for 2024, as well as for 2025. Slide 6 covers our earnings results in further detail. As you can see, the record earnings performance in the 9-month period resulted in tangible book value per share, reaching €5.69, up 15% annually, enhancing further the value proposition to our shareholders. Slide 7 presents the trajectory of the core P&L lines, showcasing solid net interest income and net fee income dynamics supported by growth cost discipline and resilient asset quality. Cost of risk remains stable to cycle low levels. Slides 8 to 11 present the detailed information regarding net interest income intrinsics, with net interest margin at 2.7%, loan pass-through stable at the level of 80%, and deposit beta settling at 16%. On Slide 9, we discuss net interest income dynamics for 2025. We now expect €50 million to €100 million, upside to the current guidance of €1.8 billion driven by higher loan volumes, lower time deposit mix, and earlier bond IRS monetization that should more than offset the effects of lower interest rates. Slide 12 outlines the impressive evolution of our net fee income, which has been supported by loan expansion, the cards business, funds transfer, and asset management. Net fee income over assets stood at the best-in-class level of 83 basis points in the 9-month. On Slide 13, you can see how our new wealth and asset management strategy continues to produce strong results, with assets under management reaching €11 billion at the end of September 2024, recording a 29% increase year-on-year. Our pursuit of operating efficiency bears fruit, despite the inflationary headwinds. We have managed to maintain discipline in cost efficiency in the third quarter, as shown on Slide 14. Cost-to-core income ratio saved at a best-in-class 30% in Q3. Slide 15 provides a summary of our asset quality indicators. Our NPE ratio dropped to 3.2% with zero net NPE formation. Meanwhile, third quarter organic cost of risk was maintained at historic low levels, saving at 54 basis points or 33 basis points, excluding NPE servicer fees and synthetic securitization costs. NPE coverage remained at a prudent level of 61%. On Slides 16 to 18, we present the dynamics of our performing loan book. Credit expansion was strong in Q3 with performing loans rising by €700 million supported by all business lending segments, and to €1.9 billion credit expansion in the 9 months, exceeding our full year target. On Slide 19, we present our growth expectations for retail credit next year. We anticipate the youth supporting state schemes and the retrofitting programs, our diversified sectorial model and nationwide branch network as well as our e-loans and auto-loans to drive growth in mortgages, small business and consumer loans. Piraeus has a superior liquidity profile presented on Slide 20. Our liquidity ratios remain solid post-TLTRO repayments as evidenced by 244% liquidity coverage ratio, and 63% loan-to-deposit ratio both in the top range of the European spectrum. Turning to our capital base on Slide 21. Our CET1 ratio rose to 14.7% in September 2024, while accounting for increased distribution payout of 35% already meeting the end 2024 target. Also, important to note that we are working to bring our 2025 AGM sooner in early Q2 to pave the way for earlier dividend payment and share buyback program initiation. On Slide 22, we present details of our plan to accelerate DTC amortization, aiming at zero DTC by 2034 versus the 2041 scheduled before. Our DTC over CET1 ratio is now planned to fall to 30% by 2027. On Slide 23, we illustrate the strong capital accretion capacity of Piraeus under the context of our profitability, growth, and distribution assumptions, including the new treatment for DTC. On Slide 24, we present our strong MREL position. On Slide 25, we present the latest developments for snappi, including the European banking license that was received in June 2024, being the first Greek neobank with a relevant license. snappi’s commercial launch is expected in the second quarter of 2025. Its ambition calls for more than €200 million revenue and presents in 3 to 4 countries in the next 5 years, reaching a client base of €2.5 million. Based on our 2024 performance to date, we upgrade our full year guidance, as depicted on Slide 26. The key elements comprise normalized return of more than 17%, EPS of more than €0.90, further growth of CET1 ratio to 15%, expansion of performing loans to €33 billion, and non-performing exposures ratio of less than 3%. Also, we now aim at a payout ratio of 35% out of our 2024 profits. On Slides 27 to 31, you can see analytically the digital journeys and transformational projects that we delivered in the third quarter of 2024. Namely, we are proud of our successful rebranding that signals a new era for Piraeus are planned on the transition to a modern retail bank model, as well as the strategic actions towards building energy efficiency and sustainability in the agri-food sector. Finally, on Slide 32, we summarize the elements that make us the leading bank in Greece. Our strong results positioned Piraeus well among the broader group of regional peers. To give you some context, on Slides 34 to 42, we present the key metrics for Piraeus versus domestic and regional peers. We benchmark ourselves in terms of return on average tangible book value, credit expansion, net interest margin, deposit beta, net fee margin, cost to core income ratio, NPE ratio, cost of risk, and capital ratio. In all KPIs, we are either at par or best-in-class while we are growing at an accelerated pace. We expect to generate significant value for our shareholders. And, with that, let’s now open the floor to your questions.
Operator: Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Iqbal Nida with Morgan Stanley. Please go ahead.
Nida Iqbal: Hi, thank you for the presentation and congratulations on the great set of results. I have a few questions. I’ll start off on the NII. So NII resilience is quite impressive, despite the lower rates. You’ve upgraded your NII guidance for 2025 as well with the lower rate assumption versus before. Are you able to detail the assumptions in terms of term deposit share and the loan growth that you have for 2025 that drives this revised NII upside for 2025? I also see that NIM sensitivity to rates is now lower versus before. So if you could please provide the drivers behind that as well. Just linked to this – I know my questions are a bit long on this, but just linked to, obviously, guided to flat 2026 NII versus 2025. Are you able to comment on whether that flat year-on-your guidance still holds for 2026? And, finally, just to wrap up on that side to 2025 NII, does that flow through to the bottom line in terms of net income guidance for 2025 as well? Thank you very much.
Theo Gnardellis: Hi, Nida. Okay, I think I’ve noted everything down here. It’s four questions. Okay. So the term deposit share and the loan growth, the assumption is basically a static, I would say term deposit volume going forward, so we don’t expect any major migrations. We believe we’ve reached kind of a static situation. As far as the mix goes, there is a slight expectation for growth on the site and current deposit level, but nothing to write home about in terms of the drivers on the term deposit mix. On loan growth, the major change, I would say, is the higher loan volumes, and we’ve got that on Page 9, that are primarily coming from the 2024 outperformance, right? So the 2025 is, for the time being, pretty much where we thought it would land as per the previous plan, but 2024 gives it a big tailwind, and that’s what we’ve got kind of there in the plan. The NIM sensitivity reduction, two things really. One is the monetization of the swaps and the conversion of the bond book, reducing the hedge ratio that we’ve got there, so the sensitivity of the bond book has been reduced with substantial swap monetization that happened throughout 2024, so that reduces sensitivity, and also the assumption of the term deposit cost pass-through that it’s actually going to stay at 60% on the way down. So that also kind of reduces the sensitivity on the NIM. We’re not going to comment anything on 2026, Nida, right now. I mean, even 2025, we put it out there. We put out Page 9 simply to help you guys understand how all of the pieces are working together rather than just the risk-free. So give us, I would say, a few weeks or months to complete the new plan and come out and help you out there. On net income, again, on 2025, budget 2025 is currently underway. There’s no real major reason for assumption on the other lines to change, but right now, let’s just stick to the NII communication that we’re putting out.
Nida Iqbal: Thank you very much. Can I ask another follow-up question, please?
Theo Gnardellis: Sure.
Nida Iqbal: Just on the DTC amortization acceleration, just wanted to get a better understanding of, are there any sort of further regulatory approvals required around this? And secondly, I mean, how much confidence does this give you in terms of getting SSM approvals for higher dividend payouts, including the 50% for 2025? I guess I’m trying to understand if there are any other potential risks around the dividend payouts. Thank you.
Christos Megalou: Hi, Nida. It’s Christos Megalou. There is no further regulatory approval. And essentially, this whole acceleration paves the way for higher dividend payout as we are showcasing in our results.
Nida Iqbal: Thank you very much.
Operator: The next question comes from the line of Sevim Mehmet with JPMorgan. Please go ahead.
Mehmet Sevim: Good afternoon. Thanks very much for the presentation. I’d also like to thank you for all the clarity provided on the DTC amortization, I think your disclosures are really best-in-class. So just one more maybe follow-up on this, can we read this as a signal that you’ve received green light from the regulator now for higher payouts in the coming year, say, in 2026 potentially to go about 50% if you wanted. Because as far as I remember, you really didn’t have plans to go above 50%, if you wanted to utilize all your excess capital building it and then dividends at 50%. So how should we maybe think about it for 2026 also? And from also the intro comments I understood, there may be a buyback component to the payouts next year. Did I hear that correctly? That would be great to understand. And then just one question maybe on the loan growth, the 10% is very formidable indeed. And I was just trying to understand where the outperformance is coming from relative to the initial guidance. And do you think this would have implications on 2025 for the better? Or how should we maybe think about it at this stage? Thank you.
Theo Gnardellis: Hi, Mehmet. Well, when we discuss supervisory green lights, it’s a bit of a different world to the actual reality supervisors, give green lights as per process and particular rules. Obviously, there have been consultations. We believe that what we’re putting out there in terms of a new distribution policy and DTC acceleration. I would say takes away the remainder balance sheet health question that Piraeus’ bank kind of had. So, obviously, it lists a question that was there. That is not something subject to approval, but it does help with the discussion and consultations have happened. And so, obviously, we are reconfirming – we’re grading this year from 2025 originally at the start of the year to 2035 and reconfirming 50% for 2025 with a lot of confidence. Now, for 2026 going above 50%, we’ve explained that even with this DTC acceleration as well as a 50% assumption, the bank will still be remaining capital accretive. How one deploys that extra capital is to be discussed. We would like to think that there is room for extra growth and when they use that extra capital to deploy it in accelerating the growth, you saw the 10% year-on-year this year. So that is, I would say, the primary objective for this extra capital that will be coming in. So, the base scenario is that we want to stay at 50% and deploy in a productive way the extra capital that will be coming our way. In terms of buyback, yes, there will be a substantial buyback element even in the 2024 distribution plan, the cash element, there will be a mix between cash and buyback right now, and depends of course on certain prices right now, certain buybacks for shareholder value seem very attractive. So, I would say that there will be a substantial buyback element in the 2024 distribution. And coming to your question on loan growth, we put our guidance out for performing balances of €33 billion by the end of the year. This is an impressive rate of growth. It is reflecting on the power of the Piraeus franchise incorporate in SME markets. It makes us confident about the years to come. And of course, looking at 2025, it’s good to start from a performing balance which is much higher than what you were planning at the beginning of the year. So we are confident that this is a trend reflecting also the growth of the Greek economy on GDP and underlying credit. We will come early in the year, probably by February, with our updated business plan 2025 to 2027. And there, of course, we will be giving the numbers in more detail.
Mehmet Sevim: Okay. That’s very clear. Thanks very much.
Operator: The next question is from the line of Ismailou Eleni with AXIA Ventures. Please go ahead.
Eleni Ismailou: Hello, and congratulations for this great set of results. I’ve got two questions for my side. My first question is on the 2025 new assumptions for NII. Also, on Slide 8, in the selected sensitivity, we see that the improved impact from a 25 bps Euribor change is between €20 million to €25 million. But on Slide 9, the change in rate assumptions for 2025 is approximately 80 bps from 3.10% to 2.30%, yet the impact from the rate ranges between €100 million to €125 million, that is larger than €30 million per 25 bps rate cut. Could you speak to these differences? And my second question is, staying on Slide 9, on the earlier bond IRS monetization, could you explain what this means and whether it is a one-off for 2025 or we’re expected to see more or less [ph] coming? Thank you.
Theo Gnardellis: Hi, Eleni. Yeah, the impact that we’re recording on Page 9 is really a nominal, I would say, delta that is affected also by the timing of the actual cuts. So on a like for like basis sensitivities, indeed, 2025, actually, I think the actual number that we’ve got on the model is around €23 million right now. But what’s going on is that the timing of the cuts and the repricing is such that creates kind of a headwind effect, which is higher in the 2025 result. In terms of the swap monetization, yeah, that was a strategy that was executed throughout the year. We’ve monetized about €2.5 billion of such swaps. We’re currently holding €3 billion. The hedge ratio has dropped from the 60s, around 65%, to something around 35% on a Tier 1 basis, and that reduces sensitivity a lot. I’ve got to say, this also is creating the tailwind as we’ve got on Page 9, as the previous guidance was running at a higher sensitivity than what we’ve got right now. And the monetization happened at an effective interest rate effect, which is, again, higher than we thought. So all of those elements, including the positive carry that we’ve got from the NMDs, are creating this kind of solid result for NII. And, of course, the loan volumes that we discussed before.
Eleni Ismailou: Thank you very much. And just a follow-up, if I may, on the impairment. If you can clarify what the impairment of other assets fee, I just think that it has closed like the group of approximately €50 million year-to-date. Thank you.
Theo Gnardellis: It’s impairment that we do across all the, I would say, the non-loan parts of the balance sheet, there are other assets there including state guarantees, state guaranteed exposures, some inventories that are there that are taking, that you need to book a loss upon kind of sales approval pending the completion of the sale. So it’s a little bit of everything over there, anything that is non-lending, we’re putting it in that line.
Eleni Ismailou: Okay. Thank you very much and, again, congratulations for this great set of results. Thanks.
Operator: The next question comes from the line of Butkov Mikhail with Goldman Sachs. Please go ahead.
Mikhail Butkov: Good day. Thank you very much for the presentation and congratulations on very strong results. I have a couple of questions. Firstly, also on NII outlook. When you discussed the guidance previously, sometimes you also referred that to potential upside areas related to lower time deposit mix, which is now incorporated into the guidance. So my question is, are there any still surprise areas which you think can help NII to get even to higher levels, maybe some unknowns, either related to lower realized sensitivity or anything else? So that’s the first question on NII. Then on asset quality, if you look at your revised cost of risk guidance of 60 bps, it is basically in line with your medium-term outlook. And so, do you think with the current progress on NPE, the leveraging low formations, you can actually get to the levels of average European levels on the cost of risk, which are like I think in the area of 40, 45 basis points. And lastly, on the capital allocation and the remaining €400 million. So you mentioned €3.5 billion of additional volumes, where potentially these volumes can come from. Do you see potential from the core market or it also takes into account some re-performing loans or retail loans? Thank you.
Theo Gnardellis: Yeah. So indeed, the lower TD mix is giving a lot of tailwind on the previous assumption, the previous guidance on the NII by €100 million to €125 million. Imagine that this is a lower TD balance by about €67 billion than what we had before. The previous guidance was assuming €20 billion, and right now we’re at €13 billion and we believe we’re going to stay there. And there’s no commercial pressure to increase it, as you can understand, on dropping interest rates. So there you have it, right, €67 billion at whatever the cost is 2%, that’s kind of your benefit. On further upside, what we can say is that the expansion right now of 2025 has not baked in what the 2024 outperformance means, right? So far we were saying kind of €1.6 billion for 2024, somewhere in that vicinity, maybe a little bit higher in 2025. Now, when you’re €1.6 billion in 1-year becomes €3 billion, what does that mean for 2025? That extra expansion and where it could come from has not been baked in. So I would say if there is upside risk to this guidance has to do not only for 2025, but also it’s a longer-term has to do with a potential accelerated create expansion in the balance sheet and overall in the market. Cost of risk, yeah, absolutely, I mean, those 60 basis points and remember that they are baking in substantial synthetic and servicer fees that we are working on as well to bring them down. Yeah, definitely we can be looking at the European levels of cost of risk sooner than we thought. As we’ve said many times, the most important operational metric that we look at to manage cost of risk for the future are inflows. And the fact that we’ve got kind of a zero net formation on NPEs for us is everything that gives us room to continue bringing down the book. As we’ve said, we’re guiding for less than 3% NPE ratio, approximating, I would say beating. If I’m right, the Spanish banks, which are an average of 3%, approximating the Italians with a 2.5%, so that in itself can give you some extra confidence. It gives us confidence that we can get to these cost of risk levels sooner. Now, in terms of capital allocation, that Page 23 is an illustrative page simply to show that as we’re running right now with a kind of base case assumption of a year of €1 billion profit and €2 billion loan expansion with everything baked in. The bank is still capital accretive, substantially capital accretive on an organic basis. And this is basically to take away some of the noise that we have spotted, that there are questions as to whether the DTC acceleration will hurt the CET1 position and what would that mean for dividends, et cetera, et cetera. So this is simply an illustration. And what could we do with that extra capital? Yes, we could grow by how much? By up to €3.5 billion. Is that a commercial reality? No, it is not a commercial reality right now. We would like it to be, and if it came, we can afford it. And as we’ve said before, this is our number one priority as to deploying this extra capital by discovering new pockets of growth in the market in the retail and SME space. And also look at the re-performing space and see whether we can onboard extra loans without increasing the risk profile of the balance as we said before. And then, we’ll see kind of what we do with the rest, but it is not an indication that we believe that there’s an extra €3.5 billion right now, this is not what we’ve got in the plan.
Mikhail Butkov: Good. Yeah, thank you very much for the clarifications and the answers. Yeah, very helpful. Thank you.
Operator: The next question comes from the line of Kemeny Gabor with Autonomous Research. Please go ahead.
Gabor Kemeny: Yes. Hi. I had a few follow-up questions on the previous topics, please, firstly, on the DTCs. Firstly, can you help us understand the nature of this proposal, I mean, is this like a new regulation which requires the Greek banks to accelerate the DTC amortization as you proposed? Or is this a fully discretionary decision to Piraeus? That’s the first question. The second question, I would like to come back to this topic of how could the accelerated DTC amortization drive higher payouts. I guess, in other words what are you expecting in return for accelerating the DTC amortization. I mean the 50% payout was part of the previous business plan before the accelerated amortization plan. I guess, the consequence or the implication of this would have to be more than 50% at some stage. Interested to hear your thoughts on that. And just the final question would be if you could please walk us through again on what you did with the hedges, the latest information, I recall, was that you had €10 billion of notional hedges and how you changed that amount recently? Thank you.
Christos Megalou: Hi, Gabor, let me answer your question, and then I will pass on to Theo Gnardellis. This is a fully discretionary idea that we have been working on, and that’s how you should take it. It’s paving the way for taking out the last few items of legacy that Greek banks had from the years of the crisis. And of course, the acceleration of DTC by a number of years, from 2041 to 2034, and the reduction even by 2027. It’s a very positive effect for the Greek banks and for Piraeus in particular, and naturally paves the way for higher dividend payouts. Theo?
Theo Gnardellis: I think your second question is, what do we get in return? This is not a negotiation. The SSM is and generally supervisory authorities are not a counterparty with which one negotiates. There are four particular pillars that any banking institution is assessed against when it comes to distribution, and it starts with self-assessment. And has to do with sustainable profitability, capital buffers, governance, and overall balance sheet health. Now, as amongst the investor community and also the analyst community, the DTC has been treated, and recently more so I have to say, as an issue of balance sheet health, as an emerging issue of balance sheet health. Now, what we’re doing here is simply to exemplify that this is not a long-term balance sheet issue that the bank needs to suffer and explain and discuss over the coming many years. What we’re doing is voluntarily putting to bed €0.01 for all, the question as to whether Piraeus Bank, and we can discuss about the Greek sector overall, because I’m sure other banks will also be coming with – will also be announcing their own plans, that this is not an issue. We’re done with this issue and, therefore, going forward any discussion that has to do with distribution will have to do with all of the elements overall. We don’t want to go necessarily above 50% if we can actually deploy the extra capital in an accretive way, so we don’t want to be a cash cow, where we distribute all of our profit, because we can’t deploy it. We would like to see more years of 2024 and even accelerated, where we can deliver superior growth to other European economies and still be able to deliver our 50% distribution. This is what we’ve got right now, so any situation that this was an exchange that we’re doing for somebody to give us the permission for something, this is not what’s real, this is not a reality. Now, to your question about hedges, what we discussed before, where the hedges on the asset side had to do with the floating conversion of the bond book and the hedge ratio of the bond book. The NMDs are sitting on the other side and they’re reverse swaps are pretty much where we’re at €10 billion. There was €1 billion of expirations who were currently around €9 billion, but they’re pretty much there to stay and they are giving us a tailwind on the NII mitigating the risk free rate drop. So within that €100 million to €125 million rate impact that we’ve got on the page, I think there’s a positive carry of €40 million for those NMDs.
Gabor Kemeny: Okay. That’s helpful. Thank you.
Operator: The next question comes from the line of Boulougouris Alexandros with Euroxx Securities. Please go ahead.
Alex Boulougouris: Hello. Thank you for the presentation. Good. Congratulations on the numbers. Most of my questions have been answered. Just a quick follow-up on the cost of risk. You mentioned the reduction and the new guidance, but again, Q4, the 2024 guidance at 60 bps, given the trends in the 9-month period look a bit conservative. I would assume it would imply, I think, 80 bps in Q4. Isn’t that a bit too aggressive? That’s my first question. And regarding the other impairments that there was a question earlier, should we consider this is largely one of when we model 2025, 2026 going forward? Thank you.
Theo Gnardellis: Hi, Alex. Yeah, indeed, Q4 is a particular quarter. I mean, we do have an extra synthetic that we do right now that will increase, I would say, the cost by a little bit. But, indeed, I would say 60 bps is kind of a round-up as to what we’re actually expecting. Overall, 2024 has done so well in terms of extractability on the 9-month that Q4 gives us leeway to, I would say, do further cleanup. We’ve also announced an inorganic trade that we’re planning on doing. There will also be some organic charges that we’re expecting to do a little bit more. The capital is still going to hold a great, I would say, 15% high, the return very, very high. So Q4 is a quarter, where we want to have some room to pave the way for a stronger 2025. And hence the guidance, I would say, generally rounded up versus what it could be. We’re not pushing the envelope to its extreme where we’re giving it some room to help also the coming years.
Alex Boulougouris: Got it. Thank you.
Operator: [Operator Instructions] The next question is from the line of Patel Sharada with Citi. Please go ahead.
Sharada Patel: Hi. Congratulations on the results and just one from me, please. Obviously, looking at the performing loan book, it’s showing great growth, 9% on the year. But when I just break that down in between the type of loans, that’s largely driven by large corporates and actually mortgages are down 1% over the year. Can you just give some color on the dynamics in the mortgage market in Greece and your expectations going forward, please?
Christos Megalou: Hi, Sharada. Look, the mortgages market is a puzzle for us and for many. We are working on many fronts to solve that puzzle. The reality is that we have seen retail real estate prices growing and not many mortgages being produced. It’s more with own equity and cash, the transactions that are taking place. At least for this year 2024 has been a little bit helped by the program that the state has been producing, the My Home program, which by and large will help mitigate the negative numbers of the past and, therefore, pave the way for what is the outlook for 2025. For 2025, we will have another €2 billion headline number Spatium [ph] program, which we believe that is going to be deployed in the market. We are having the biggest market share in that particular segment last year, this year, the running year was around 30% to 35%. We expect that to continue next year. With the natural, we believe, acceleration of the mortgage market with interest rates going down. We expect that most likely next year, mortgages will be flat, but we do see some growth on the SB business and on consumer. So all in all, we have paid, calculated some €300 million, let’s call it, positive growth from retail for next year, which we think is going to be the beginning of at least some acceleration in the retail segment. The bulk of our growth up to now is a core product in SME and will continue to be show also in the years to come.
Sharada Patel: Thank you. That’s helpful.
Operator: The next question is from the line of Memisoglu Osman with Ambrosia Capital. Please go ahead.
Osman Memisoglu: Hi, Many thanks. Quite a bit of my questions have been asked, but just qualitatively, how are the conditions on spreads evolving over Euribor? And what are you assuming, again, just very roughly for 2025? So when we see the lower rates, is there a bit coming from spread compression there or do you think it has stabilized now? And then, apologies if I missed it, but in 2025, are you including any benefit from re-performing loans being purchased back or that’s a story for a later date? Thank you.
Theo Gnardellis: Hi, Osman. Well, the new production is coming in right now lower than the stock and we are budgeting for that effect. So a slight erosion on the stock spread of a few tens of basis points, I would say, is kind of baked in into the guidance that we’re giving. So it’s not a static spread situation. There was a slight drop quarter-on-quarter. We think with the current profile of production that will continue. But I would say in a contained manner, we’re not looking at the collapse of spread, but we’re looking at, I would say, rationalization. There is a question as to what will happen with the accelerated risk free rate cuts and whether that erosion will really materialize, but for the time being, we have not touched it as an assumption. We believe that that will be there. We’ve not baked in anything spectacular on RPLs [ph] in terms of expansion. As I said before, the 2025 expansion has not even baked in the 2024 outperformance, right? Right now, it is a lower expansion than what 2024 is delivering. So we’re still kind of educating ourselves and making up our mind as to what that means for 2025 going forward, and we will be explaining that when we come out and announce the plan over the coming few weeks or months.
Osman Memisoglu: Understood. Thank you. And if I can follow-up on the, I guess, linking the SME aspirations with the network, the big footprint, you should be quite capable with that. Should we expect a pickup in OpEx or are you already set up with what you have?
Christos Megalou: We are already set up, Osman. The network is at, let’s call it, by and large optimal shape. We don’t expect further rationalization. We have been working on reducing to the number of employees per branch. And by and large, this is done. We are, of course, continuing our investment in systems and investing about €150 million a year in digitizing our offering both on the front-end and the back-end. But, we are geared to take more business as we expect that there will be some more business, especially next year in the SB segment, where a lot of the government- and EU-driven programs are going to come underway and also including the RRF program. But we don’t anticipate significant OpEx, let’s say, increases. Of course, we are doing our rationalization in raising the salaries of our full time employees. And this is a policy that will continue. But, we were coming from a very low base comparing to the competition. But, we’ll give full guidance on the numbers in our presentation of our 2025, 2026, 2027 business plan early next year.
Osman Memisoglu: Perfect. Thank you, Christos.
Operator: The next question is from the line of Nigro Alberto with Mediobanca (OTC:MDIBY). Please go ahead.
Alberto Nigro: Yes, thanks for taking my questions. The first one is on capital location, if you want to grow more and deploy your extra capital generation, would you consider some bolt-on acquisition in the future to strength the loan growth or the fee income, and if it’s, yes, what kind of targets? And just a few follow-ups on this quarter. Can you remind me how many restructuring costs we should expect in the coastline in Q4 for the new VIS [ph] that you announced? And finally, what should they expect in terms of trading income in the coming quarters? Thank you.
Christos Megalou: Hi, Alberto. On capital allocation, look, we are looking at the next few years and at the back of very strong 2024. And we are ticking some boxes here that are very important. Number one, we believe that we are in a position to deliver sustainable profitability over the cycle. And we will prove that we are already proving this in this quarter, and we will prove that in the next quarter to come. So we have been talking in the past for about €1 billion plus net income after tax over the next 3 years. And we stand by that number. And, of course, we’ll give further guidance in our planning. If we assume that we will be distributing something like 50% of our net income after tax, we generate enough excess capital to cater for the growth of the book, as well as for acquisitions. We are right now, I can tell you, looking at various ideas or possible transactions in the areas mostly, that will be announced in our fees and commissions pool. So, we are looking at asset management, we are looking at transaction banking, we are looking in the area of factoring for fading [ph] leasing, and we’re looking for platforms that could possibly be used for adding on in our platform and delivering on synergies. We are mainly focusing in the Eurozone. This is what we believe makes more sense for us. Of course, when we have something to announce, we will, but it’s driven by RARoC, it’s driven by return to our shareholders, and we will be very disciplined in whatever we’re doing, deploying the excess capital that we see building up over the years. We think that in the medium-term, even having any CET1 above 15% and total capital above 20% is, let’s call it, too much. And we want to be productive in our use of capital in our balance sheet and liability structure and deliver on the results for our shareholders.
Theo Gnardellis: And, Alberto, in terms of restructuring costs, we recently run a program that’s kind of publicly out there that’s going to cost a probably €40 million charge in Q4. It’s being finalized kind of these days, around €40 million you should think restructuring costs. Trading, it’s been a good year. Q3 has also been a very good quarter. Generally, we’re working on the assumption of about €50 million to €60 million per annum. So Q4, we’ll see where it lands, of course. The markets are still kind of open and volatile. But, overall, this is what you should be expecting from this franchise.
Alberto Nigro: Thank you so much.
Operator: The next question is from the line of Nellis Simon with Citi. Please go ahead.
Simon Nellis: Thanks very much for the opportunity. Two quick last ones from me. How are you going to get to below 3% NPE? Is there any inorganic actions that you’ll take in the fourth quarter as well? Or is there something else going on? And then just on snappi, could you confirm what the costs associated with that venture are? And are you still on track too? I think you said that it’s going to cost around €15 million in investment and OpEx this year? Thank you.
Theo Gnardellis: Hi, Simon. Yeah, the below 3% NPE is indeed linked with an inorganic trade that we’re doing, somewhere in the vicinity of €250 million of NPEs. We’re working on the trade right now. We had very good experience with the previous one, so we went ahead with another one. We are using some of the extra capital to clean up further, but it’s all working the reduction of the ratio. It is founded on the net-zero formation, right? So only if you have net-zero formation organically, does a trade help you in bringing down this ratio. So yes, there is a play. But it’s based on the net-zero formation we’ve been experiencing. Yeah, on snappi, the burn this year has been kind of mediocre as a setup situation. It’s pretty much what we’re expecting around the €10 million mark is what snappi will be contributing to the overall cost base of the group. 2025 will be a higher burn year as we’re expecting, because it’s launched here for snappi. Obviously, there will be a substantial one of our costs that snappi will be taking, but all of that has been and will be part of the 2025 budget and overall 2025-2027 plan that we’ll be coming out with. So, snappi will be a burn case of capital and that’s the way it needs to be, but it will be contained, I would say, well monitored by the group and making sure that the burn is consistent with meeting its customer growing and overall commercial aspirations.
Simon Nellis: Okay. And any steer on the kind of additional provisions that you’d have to make to get that NPE transaction done?
Theo Gnardellis: Well, we’re still working even on the perimeter it’s in play. Similar, I would say to the loss rates that we’ve experienced in the previous two transactions, we’ve done the non-HAPS ones. So, generally, I would say good loss rates, nothing extravagant and the capital of 15% expected per year and incorporates that.
Simon Nellis: Got it. Okay. Thanks so much.
Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Megalou, for any closing comments. Thank you.
Christos Megalou: Thank you. Thank you all for participating in our 9-month 2024 results conference call. Just we want to let you know that we will be in London in November and December, and we are looking forward to discussing with you all of our developments. In the meantime, our IR team will be available for any follow-up from today’s announcement. Have all a very relaxing weekend and thank you very much for participating.
Operator: Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a good afternoon.
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