Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bankinter SA (BKIMF, Financial) reported a 13% increase in net profit, reaching EUR 473 million for the first half of 2024.
- The company achieved a 9% growth in net interest income despite a decline in Euribor rates.
- Fee income grew by 13%, driven by strong performance in off-balance sheet funds and customer transactional activity.
- The NPL ratio improved to 2.17%, with an increase in the coverage ratio to 68%.
- Bankinter SA (BKIMF) maintained a best-in-class efficiency level with a cost-to-income ratio of 37% and a return on equity of 17.7%.
Negative Points
- Operating expenses increased by 6% year-on-year, reflecting higher costs to support business growth and projects.
- The cost of risk rose by 7% year-on-year, indicating higher provisions for potential loan losses.
- The company's ALCO portfolio size increased, which may expose it to interest rate risks.
- Loan loss provisions totaled EUR 176 million, with a cost of risk at the high end of the annual guidance at 40 basis points.
- The integration of EVO Banco and expansion in Ireland may lead to higher costs and operational challenges in the short term.
Q & A Highlights
Q: Last quarter, you mentioned you saw deposit costs declining in March versus December. Could you please update us on how you have seen monthly evolution in the second quarter? And what do you expect for the rest of the year?
A: We have managed to keep deposit costs stable. We continue to compete and price our deposits to capture new funds, converting them into off-balance sheet value-added products. The mix between site and term deposits has changed, and we feel confident in managing customer margins and deposit costs going forward. (Jacobo Diaz Garcia, CFO)
Q: Could you share more color on the quarterly evolutions of fees? Were there any one-offs? Is growth in AUM fees driven by mix effect or increased prices? And what prevents you from improving guidance for 2024?
A: There were no one-off fees this quarter. The strong fee generation is a result of our commercial activity and the ability to transform net new money into value-added products. We have seen strong growth in assets under management fees and brokerage fees. We will review our guidance in the next quarter. (Jacobo Diaz Garcia, CFO)
Q: You've guided to mid-single-digit growth in NII this year. Could you shed more light on your key assumptions, including Euribor volumes, deposit cost, and your strategy on the ALCO book?
A: We assume an additional official rate cut, likely in September and possibly another by year-end. Euribor is expected to finish around 3.30%. We anticipate strong client margin resilience and volume growth. Our ALCO portfolio size has increased with a yield of 2.5%. (Jacobo Diaz Garcia, CFO)
Q: From your comment on volumes, it seems like we're reaching an inflection point on new loan origination and that deposits have stabilized. Can you share what you're seeing from competition, especially since the BBVA bid for Sabadell, and your expectations on loans and deposit dynamics in Spain?
A: We are growing in enterprises, particularly in corporates and mid-size enterprises, focusing on working capital financing and international trade. We have also seen a recovery in mortgage financing in Spain. Competition is steady and hard, but we are accustomed to it. (Gloria Ortiz Portero, CEO)
Q: How should we think about your plans in Ireland, including your deposit offering and ensuring asset quality?
A: We maintain a very low NPL ratio in Ireland by selling NPL portfolios regularly. Our credit policy in Ireland is similar to Spain, ensuring high asset quality. We plan to start offering savings products and capturing deposits in Ireland by mid-2025. (Jacobo Diaz Garcia, CFO)
Q: What is the year two impact of a 100 basis points decline in rates on NII sensitivity?
A: The impact remains below 3% for the first 12 months and is similar for the following 12 months. We manage the balance sheet structure to limit sensitivity to rate reductions. (Jacobo Diaz Garcia, CFO)
Q: The fees paid to agents are down 3.5% year-on-year despite business growth. What is driving this trend, and should we expect any catch-up in the second half of the year?
A: The business with agents includes loans, and fees are recorded in different lines across the P&L. The reduction in payments to agents this quarter is due to the way business is performed and recorded. (Jacobo Diaz Garcia, CFO)
Q: NII in Ireland is growing by just 8% in the first half of the year against a 40% jump in the loan book. Can you comment on the margin dynamics in this market?
A: We do not have retail deposits in Ireland, so we fund it with a higher transfer cost of funds. However, the margins on mortgage products in Ireland are much higher than in Spain, around 100 basis points better. (Gloria Ortiz Portero, CEO)
Q: How do you see the cost of deposits evolving next year, and how fast can you transfer to clients?
A: We manage the cost of deposits closely, with short durations allowing us to adapt to market conditions. We link deposit costs with commercial activities and cross-selling opportunities, ensuring long-term profitability. (Jacobo Diaz Garcia, CFO)
Q: Could you provide details on the yield and duration of the ALCO portfolio purchases during the quarter, and will this continue to grow?
A: The ALCO portfolio yield is around 2.5%, with an average duration of five years. The size of the portfolio is within our risk appetite framework, and we do not expect significant increases. (Jacobo Diaz Garcia, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
