Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Banco Comercial Portugues SA (BPCGF, Financial) reported a net income of EUR485 million for the first six months of 2024, a 15% increase year-on-year.
- The bank's core operating profit remained stable at almost EUR1.2 billion, despite a challenging interest rate environment.
- Customer funds grew by 8.9% year-on-year, surpassing the EUR100 billion mark for the first time in the bank's history.
- The bank's digital transformation efforts have been successful, with mobile customers growing by more than 11% and accounting for 70% of the customer base.
- Banco Comercial Portugues SA (BPCGF) maintained a strong capital position with common equity Tier 1 at 16.2% and total capital at 20.6%, comfortably above regulatory requirements.
Negative Points
- Bank Millennium in Poland faced significant costs related to legal risks for FX loans, amounting to EUR276 million in the first six months.
- Operating costs in Portugal increased by 3.1%, driven by higher staff and administrative costs.
- The net interest margin in Portugal decreased from 2.52% to 2.29% year-on-year, reflecting higher costs associated with deposit remuneration.
- Loans to companies in Portugal decreased due to higher interest rates and delays in investment projects, particularly those co-financed with European funds.
- The bank's cost of risk remains relatively high, with an adjusted cost of risk around 50 basis points, reflecting a cautious approach compared to competitors.
Q & A Highlights
Q: At the beginning of the year, you suggested that earnings in Portugal should remain flattish in '24 versus '23. Now after two quarters, it seems that you're going to meet that guidance, but I would like to know your thoughts into 2025. Do you think you can also hold the line in terms of earnings in Portugal in 2025?
A: We expect stability in earnings for 2025, with the normalization of the cost of risk broadly compensating the normalization in terms of NIM as interest rates in the euro area approach normal levels. We anticipate maintaining our P&L with the top line being compensated by impairment charges in the next years.
Q: What are you seeing in BCP in terms of cost of deposits within the quarter, and what do you expect for the coming quarters?
A: We are seeing a stabilization of the cost of deposits and a slight decline. We expect the cost of deposits to decrease somewhat over time as the front book has already shown reductions for some months.
Q: Could you please share your view on the outlook for loan book growth in Portugal for the second half?
A: We expect some growth in loans to private individuals and a low growth in the SME portfolio by year-end, assuming the measures taken by the government and European funds stimulate business confidence and investment.
Q: Could you give us more color on the reversal of provision and the expected cost of risk for 2024?
A: The reversal was due to an extraordinary recovery of a written-off loan. We expect the cost of risk to be between 40 basis points and 50 basis points going forward, reflecting the prudence of our approach.
Q: What kind of impact do you expect from Basel IV?
A: We do not expect any material impacts from Basel IV in terms of credit risk. We are still analyzing the trading risk and operational risk areas, but overall, we do not foresee major changes.
Q: How do you see the buildup of capital going forward? Is the 20 basis points per quarter a go-to level?
A: We expect to maintain around 20 basis points of capital accretion per quarter, assuming no significant RWA growth. This is aligned with our strategic plan and capital discipline.
Q: Should we consider any constraints on the ability to remove capital out of Poland and Mozambique to support group distributions?
A: We do not see material restrictions on distributing dividends from Poland and Mozambique. Our consolidated capital ratios are the primary constraint, and we do not need dividends from these regions to pay dividends to our shareholders.
Q: Can you provide guidance for NII in Portugal and Poland for 2025?
A: In Portugal, we expect stability in NII with some volume growth needed to offset potential reductions in interest rates. In Poland, we expect NII to be resilient with low sensitivity to interest rate changes.
Q: What is the pass-through rate for deposits in Portugal, and how do you see total deposit volumes moving forward?
A: The pass-through rate for term deposits is around 45% for individuals and 50% for individuals and companies. We expect deposit volumes to continue growing at rates above 5%.
Q: Are you considering buybacks as part of the payout, or will cash dividends be a priority?
A: We will consider both options and engage with investors and shareholders to determine the best distribution method. We do not have any prejudice against share buybacks and will analyze the best approach for value creation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
