Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Piraeus Financial Holdings SA (BPIRF, Financial) delivered a record normalized net profit of EUR333 million in Q2 2024, contributing to EUR612 million for the first half of the year.
- The company paid a cash dividend of EUR72 million in Q2 2024, marking the first dividend payment in 16 years.
- Piraeus regained its investment grade rating after 14 years and became the first Greek bank to meet the final MREL requirement 1.5 years ahead of target.
- The acquisition of the pan-European license for Neo Bank Snappi signifies a significant step in the company's development.
- The company achieved a return on average tangible book value of 19% in Q2 2024, surpassing the full-year target of 15%.
Negative Points
- Despite strong performance, there is potential spread erosion and margin compression expected due to Euribor cuts and spread pressure on new loan production.
- The cost of risk guidance for the full year is 70 basis points, indicating a potential increase in the second half of the year.
- The company faces challenges in maintaining its current level of net interest income and net fee income amidst changing market conditions.
- There is a risk of increased operating expenses due to inflationary pressures and ongoing investments.
- The CET1 ratio, although improved, will face challenges from Basel IV regulations starting in 2025, potentially impacting capital levels.
Q & A Highlights
Q: This quarter was very strong for fees, especially in the card segment. Is this a new run rate level we should expect going forward? Or are there some temporary benefits here that we saw in 2Q? And could you please give us some more color on the demand you're seeing for mortgages going forward?
A: This quarter was particularly strong on cards. It's not a one-off, but it's not the run rate either. The initiatives taken have increased the fee productivity of cards. For a run rate basis, it's somewhere between Q1 and Q2, with more than EUR70 million per annum from cards. On mortgages, we have managed to reverse the negative trend and are breaking even in new production over repayments. This trend is expected to continue.
Q: Your loan yields continue to move up this quarter despite lower rates and Euribor levels. What have been the drivers behind this? And how should we think about the second half of 2024?
A: The first Euribor cut is not fully baked in yet. We do have some spread pressure on new production, but the mix of new production towards higher-yielding products is creating a resilient picture. Going forward, Euribor cuts and spread erosion will compress yields slightly, but revenue pools look well defendable given the accelerated expansion.
Q: On loan growth, how do you see the trends at Piraeus versus the overall sector? And how do you compare your pricing dynamics and appetite to lend?
A: The sector has done well in June, and we are pretty much at par with share. We haven't seen the detail yet, but June was a strong month overall for the sector. Our CET1 ratio is expected to be substantially above 14% at year-end. Basel IV will kick in on January 1st, 2025, affecting Q1.
Q: On Snappi, how many of the 2.5 million customers are already in the bank? And is the revenue pool fully incremental?
A: Snappi is addressing the entire Greek market and is not a Piraeus Bank cannibalization. It is a stand-alone franchise with a stand-alone proposition. The revenue pool is expected to be marginally incremental to the current P&L. Given the 55% share that the group owns, it is consolidated as a subsidiary.
Q: Could you help us understand the drivers behind the sequential increase in mortgage spreads? And what do you expect for cost of risk in the second half?
A: The increase in mortgage spreads is due to a technical adjustment on the system. Going forward, it's a 5.5% yielding book. For cost of risk, we are currently running at 50 basis points with a 20 basis points underlying. There are some cases that may need extra cost of risk treatment in the second half.
Q: Your AUMs grew quite quickly over the past 12 months. Do you see any migration from your deposit base into that? And how do you look at time deposit developments?
A: The mix between time deposits and total deposits has stabilized. We have been offering efficient asset management products, channeling demand for target maturity and returns to our asset management product. This trend is expected to continue.
Q: On mortgage lending, could we see growth reverting to some growth in 2025 given the government schemes in place?
A: Government initiatives are important, and we take a bigger share of that than our peers. This could be a driver for growth for the rest of the year. We expect the same neutral trend to continue until the end of 2024 and hopefully positive growth in 2025.
Q: On Snappi, which services do you think would be straightforward to export, and which eurozone markets seem attractive for expansion?
A: The MVP and the way we will be launching in the Greek market is equally exportable outside of Greece. We cannot disclose specific countries, but this is a European project. We expect solid numbers in the Greek market in 2025.
Q: Are you planning to continue to improve the mix of the MREL ratio by issuing more senior bonds? And can you confirm the Basel IV impact?
A: We have met the MREL target, but there will be issuance going forward for various reasons, including managing buffers and growth. The Basel IV impact is expected to be around EUR1 billion rather than EUR1.4 billion due to recent adjustments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
