Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total customer funds grew by 2.7% year on year, indicating a positive trend in business activity.
- Banking margin increased by 27% year on year, improving the cost-to-income ratio to 45%.
- Half-year net income almost doubled compared to last year, reaching EUR 294 million.
- NPAs balances continued to fall, with Stage 3 loans down 10% year to date and foreclosed assets down 13%.
- CET1 ratio improved by 58 basis points to 15.1%, indicating strong solvency.
Negative Points
- Net interest income decreased by 1.8% in the quarter, despite a 25.7% increase year on year.
- Fees fell by 3.5% in the quarter and 5% year on year, due to lower transactional fees from commercial campaigns.
- Corporate loans fell by 3% in the quarter, indicating a decline in this segment.
- Total costs grew by mid-single digits compared to the first half of 2023, driven by higher personnel costs.
- Customer spread declined by 8 basis points in the quarter, reflecting increased cost of deposits.
Q & A Highlights
Q: Could you please explain the reason for the increase in other provisions and whether we should consider it as a new run rate? What prevents you from improving guidance for the cost of risk for 2024?
A: The increase in other provisions is mainly due to legal risks, particularly customer claims related to mortgage costs. We initially expected a 15% reduction in provisions for the year, but the first half has been similar to last year. We don't expect this to change our profitability outlook. Regarding the cost of risk, it has been positive at 23 basis points for the quarter. Given the better-than-expected economic performance, we might see the cost of risk at the lower end of our 30-35 basis points guidance.
Q: What are your expectations for the customer spread after the decline in the second quarter? Could you update us on the NII guidance for 2024?
A: The customer spread closed at 2.83%, 8 basis points below the first quarter but still 60 basis points above last year. We expect some lag in deposit costs, especially for household deposits. For NII, we now expect close to 10% growth for the year, up from the low-single-digit growth initially forecasted.
Q: What should we expect for fees into 2024, especially considering the impact of commercial campaigns?
A: We initially expected fees to decrease by low-single digits due to our focus on value-added services. However, due to extended commercial campaigns, we now expect fees to decrease by mid-single digits for the year. This strategy aims to improve customer relationships and will be positive in the medium term.
Q: What are your expectations for loan growth into 2024?
A: We expect a low- to mid-single-digit decrease in loan volumes for the year. Mortgages have been lower than anticipated due to competition and higher prepayments, but we are seeing positive trends. Corporate loans are stabilizing, and public sector loans are also seeing lower prepayments and new lending growth.
Q: Can you give us some hints on how to think about your profit evolution in 2025?
A: It's too early to provide a clear view for 2025 due to uncertainties in interest rates and inflation dynamics. We are working on improving our structural profitability and will update you in future presentations.
Q: Could you provide more details on the potential partnership with Indra and Fiserv on the payment side?
A: We are in discussions with potential partners to improve our payment services for SMEs and households. Our focus is on enhancing service quality, speed, and customer experience. We aim to offer best-in-class payment solutions.
Q: Can you provide information on front-book and back-book yields on mortgages and corporates?
A: Corporate loans have a front-book yield about 1.5% higher than the back book. Public sector loans have a similar spread. For mortgages, we are focusing on short-term fixed rates to stabilize yields in a lower interest rate environment.
Q: What are your plans for utilizing excess capital, given your strong CET1 position?
A: We are currently in a share buyback program and are actively searching for opportunities to deploy excess capital. We aim to maintain a high level of shareholder remuneration while exploring growth opportunities in lending and other areas.
Q: Could you elaborate on the rationale behind the quarter-on-quarter increase in other provisions?
A: The increase is mainly due to higher customer claims related to mortgage costs. We expect the level of provisions to be similar to last year, but this is subject to change based on future claims.
Q: Can you provide more details on the lower ALCO contribution in the quarter?
A: The lower ALCO contribution, which is EUR1.8 million, is due to a lower yield on the ALCO portfolio. We have hedged interest rates to stabilize contributions in the coming years, which has a short-term negative impact but will be beneficial in the long term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
