- Net Profit: EUR175 million, up 5% versus prior quarter, down 3% versus prior year.
- Earnings Per Share (EPS): EUR2.22.
- Return on Tangible Common Equity (RoTCE): 24%.
- Pre-Provision Profits: EUR263 million.
- Cost-Income Ratio: 33%.
- Total Risk Costs: EUR28 million.
- Risk Cost Ratio: 27 basis points.
- Non-Performing Loan (NPL) Ratio: 1.1%.
- Customer Loans: Down 1% quarter-over-quarter.
- Customer Deposits: Up 1% quarter-over-quarter.
- CET1 Ratio: 16.5%, up 90 basis points from prior quarter.
- Cash Position: EUR12.5 billion.
- Liquidity Coverage Ratio (LCR): 220%.
- Excess Capital: EUR770 million.
- Retail and SME Net Profit: EUR135 million, flat versus prior year.
- Retail and SME Return on Tangible Common Equity: 35%.
- Retail and SME Cost-Income Ratio: 31%.
- Retail and SME Pre-Provision Profits: EUR206 million, up 4% versus prior year.
- Retail and SME Risk Costs: EUR25 million.
- Corporates, Real Estate, and Public Sector Net Profit: EUR42 million, down 16% versus prior year.
- Corporates, Real Estate, and Public Sector Return on Tangible Common Equity: 24%.
- Corporates, Real Estate, and Public Sector Cost-Income Ratio: 23%.
- Corporates, Real Estate, and Public Sector Pre-Provision Profits: EUR59 million, down 10% versus prior year.
- Corporates, Real Estate, and Public Sector Risk Costs: EUR2 million.
- US Office Portfolio: EUR375 million, less than 1% of total customer loans.
- Net Interest Income: Down 1% versus prior quarter.
- Net Commission Income: Up 1% versus prior quarter.
- Core Revenues: Up 1% year-over-year, flat versus prior quarter.
- Operating Expenses: Up 1% versus prior quarter.
- Customer Funding: EUR46.5 billion, up 1% versus prior quarter.
- Net Interest Margin: 300 basis points.
- Deposit Betas: 32%.
- Regulatory Charges: Expected EUR16 million for 2024.
- Risk Cost Ratio for 2024: Expected 25-30 basis points.
- Profit Before Tax Target for 2024: Greater than EUR920 million.
- Return on Tangible Common Equity Target for 2024: Greater than 20%.
- Cost-Income Ratio Target for 2024: Under 34%.
Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bawag Group AG (BWAGF, Financial) delivered a net profit of EUR175 million in Q2, with earnings per share of EUR2.22 and a return on tangible common equity of 24%.
- The company maintained a low NPL ratio of 1.1%, indicating solid credit performance across its businesses.
- Bawag Group AG (BWAGF) has a strong balance sheet with EUR12.5 billion in cash and an LCR of 220%.
- The company signed two strategic acquisitions, Canara Bank in the Netherlands and Barclays Consumer Lending business in Germany, expected to add significant pre-tax profit by 2026 and 2027 respectively.
- The CET1 ratio increased to 16.5%, up 90 basis points from the prior quarter, reflecting strong capital generation.
Negative Points
- Customer loans were down 3% in Q2 and 4% year-over-year, largely driven by the corporate business.
- Net interest income was down 1% versus the prior quarter, reflecting challenges in maintaining revenue growth.
- The company expects muted customer loan growth for the year due to the overall economic environment and subdued demand for mortgages.
- Operating expenses increased by 1% in the quarter, driven by inflationary pressures and collective bargaining agreements.
- The retail risk costs have returned to pre-COVID levels, indicating potential challenges in maintaining low risk costs moving forward.
Q & A Highlights
Q: Can you run us through the rationale on how you got to the accretive EUR100 million pretax guidance for the Barclays deal?
A: The Barclays deal is P&L accretive from day one, expected to contribute over EUR100 million in pretax profit by 2027. The core franchise is the EUR2 billion credit card portfolio. We see opportunities in operating expenses through system migrations and third-party service agreements, coupled with Barclays' strong credit card expertise.
Q: How do you expect to achieve your 1% year-over-year NII guidance given the rate cuts?
A: We expect a stable trend for the rest of the year. The NIM for 2024 is expected to be similar to 2023's 290 basis points, though we are trending better at around 300 basis points in the first half. Customer loan growth is behind expectations, but we feel comfortable with the stable NII trend.
Q: Could you unpack your expectations for retail and SME loan growth, particularly in residential mortgages?
A: Consumer and SME segments are holding up well, but mortgage volumes are down significantly, especially in Austria. We expect muted mortgage growth for the rest of the year, with potential normalization in 2025. Corporate and public sector segments have a good pipeline, but we remain disciplined in our lending approach.
Q: Can you provide more color on the strategic rationale of increasing your DACH/NL and Retail & SME footprint to around 90% midterm?
A: The target is to increase the customer franchise and core revenues from around 70% to 90% midterm. This will be achieved through the acquisitions of Knab Bank and Barclays' German consumer lending business, along with organic growth.
Q: What do you see differently from Barclays' portfolio, especially outside of the credit card business?
A: The core franchise is the credit card business, which Barclays has been successfully operating for 30 years. We see opportunities in personal loans through specific channels. The strong leadership team and deep credit card expertise are key differentiators.
Q: What is the likelihood of deposit betas exceeding 35% by year-end?
A: We are confident that deposit betas will stay within the 30%-35% range for 2024. This guidance is before considering any M&A impacts, such as the Knab Bank acquisition, which may have higher deposit betas.
Q: Could you talk about the outlook for NII in 2025 and 2026, considering rate cuts and hedges rolling over?
A: The replication hedge roll-off is a positive factor. The impact will depend on the timing and extent of rate cuts. We will provide more detailed guidance at year-end 2024 or during the Capital Markets Day.
Q: How are you thinking about possible additional capital returns around year-end, given the large amount of surplus capital?
A: We will assess the excess capital situation at year-end, especially post-deal closings. We generate significant excess capital quarterly, and we will address potential capital returns in due course.
Q: Can you provide more details on the integration plans for the Barclays acquisition and its impact on capital?
A: The integration will focus on leveraging Barclays' credit card expertise and our operating infrastructure. The non-core part of the loan book is expected to run off by the time of closing, with the capital impact being around 140 basis points.
Q: How do you expect deposit costs to evolve for the rest of the year, and what is the average maturity of your deposit base?
A: Deposit costs are expected to move in line with ECB rates. Most deposits are daily or overnight, but behaviorally longer. The guidance for deposit betas remains at 30%-35% for 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
