Piraeus Financial Holdings S.A.

Good afternoon, ladies and gentlemen and thank you very much for attending our 2021 financial results conference call. I'm Christos Megalou and I'm joined here today by Theodore Gnardellis, Piraeus group Chief Financial Officer; and Chrys Berbati, Head of Business Planning, IR and ESG.

Before getting into our 2021 financial results and performance, let me share my views on the developing macro backdrop. Turning to Slides 4 and 5.

The prospects for the Greek economy remained positive. Real GDP has recovered strongly in 2021 rising to pre-COVID levels.

Economic sentiment is on the rise, in line that the macro momentum is intact. This is supported by a number of tailwinds, namely tourists and the utilization of the recovery and resilience front.

At the same time, employment is expected to continue showing sign of recovery, while the real estate market dynamics continue to be positive. Of course, the latest development of the Ukrainian crisis are still unfolding with potentially significant political, economic and above all humanitarian implications.

However, it is still early to assess the exact impact these evolving events could have on the global and the Greek economy. Strengthened inflationary pressures might be a challenge, while second order effects might have a negative impact on consumption and the business activity.

Nevertheless, these pressures could be mitigated with coordinated support measures at European level as currently being discussed. Piraeus Group exposure to Ukraine is very small, mainly relates to a small bank and corresponds to approximately €22 million net asset value along with €10 million of intra-group funding plus €10 million of real estate exposure.

Even in the case of a full write-down of the Ukrainian operations, capital depletion will be approximately six basis points taking into account risk-weighted assets. We are aware of the challenges that the current environment and developments might entail but we are confident that we are very well positioned to address them.

In year 2021, Piraeus delivered tangible results on all it’s targets and in record time, demonstrating once again the inherent value of our franchise. We have been able to execute on our strategic levers, bringing a closure to delivering a return on tangible equity above 5% and a single-digit NPE ratio in 2022.

As shown on Slide 6, our execution has been strong on all fronts. The accelerated derisking resulted to a sharp drop in the NPE ratio to 12.5%.

While at the same time, we safeguarded the right level of capital at 16% on the back of a well synchronized capital enhancement actions. All this effort was complemented by an improved macro environment, resulting to a significant normalization in cost of risk which landed to 74 basis points over net loans in 2021.

While recording in Q4 '21, an all-time low, of 53 basis points after many years. At the same time, we continued our cost discipline and managed to improve the cost-to-income ratio at 46% and affirmed our operational capacity to produce returns, attaining a return on tangible equity of 7% based on profitability, excluding the one-offs.

Slide 7 mirrors our targets with our full year accomplishments. The group's multi-project execution capacity and the high precision budget allocation has enabled the timely derisking effort and the ability to mitigate the impact.

This continues unabated, bringing us to the last mile in the race leading to a single-digit NPE ratio in 2022. In parallel, our commercial KPIs had substantially overperformed.

Indicatively, net fees were up 25%, while asset management portfolio exceeded target by €0.5 billion to €3.5 billion versus €3 billion funds under management. We continued focusing on strengthening our cost business, as shown on Slide 8.

New loan generation reached €6.5 billion in 2021, surpassing the target of €5.7 billion. The last quarter of 2021 was particularly strong with more than €2 billion disbursements in the quarter, contributing to a net credit expansion of €1 billion for the year.

Client assets under management, mainly deposits and mutual fund assets, increased substantially by approximately €7 billion in 2021 to a new historic high of €59 billion. New business and higher volumes contributed to our top line, especially in the net fee income streams that increased to almost €400 million, a record high for Piraeus Bank, up 25% year-on-year.

Moving to Slide 9. We have delivered more than 95% of the cleanup and the capital enhancement actions of our business plan.

The final chapter of the Sunrise Plan is well underway and relates with the Sunrise three NPE securitization and two more synthetic securitizations, all projects in progress and scheduled to be completed by Q3 2022. The cards merchant acquiring carve-out project, Thalis is imminent to close and very soon, we will inform the market accordingly.

Touching upon our NPE cleanup plan and turning to Slide 10, I would like to highlight that the unprecedented €16.8 billion NPE securitizations and sales were carried out in less than a year. This accelerated effort landed us at 4.9 billion NPEs in December of 2021 compared to €22.5 billion in December of 2020.

Moreover, I need to stress that gross NPE inflows outperformed budget by €0.5 billion, landing to €1.5 billion against €1.7 billion. We have outperformed our yearly plan on organic NPE management, achieving negative formation of €0.2 billion for year '21 compared to positive formation of €0.2 billion initially expected, while at the same time, mitigating all the COVID-19 effect as depicted on Slide 11.

Regarding the remaining NPE book of €4.9 billion which is presented on Slide 12, this is clearly segmented and each slides will be addressed in a targeted way, paving the way for a circa 8% NPE ratio at the end of the year. It is important to note that approximately 30% of the remaining NPEs are UTPs with zero arrears.

Another 20% will be sold this year and the other half will be either queued or gradually divested. Slide 13 illustrates our balance sheet evolution which apart from the NPE cleanup effort, is also characterized by it’s ample liquidity strength, the increasing contribution of performing loans and the enhanced securities portfolio.

A major area of interest is credit expansion. We have been witnessing credit demand across all industry sectors and business segments as shown on Slide 14.

Our main sectoral strategy focuses on financing industries that we reckon they produce high risk-adjusted returns namely energy, manufacturing and hospitality will be our key focus for 2022 and beyond. On Slide 15, we present the operating performance in 2021 which resulted in a core operating profit of €0.7 billion.

One key driver of our transformation program has been the reduction of our operating expenses base which continued it’s downward course. This result has been achieved also by significant staff cost rationalization and branch optimization, noting that we are 10% down in terms of full-time employees and minus 70 units in terms of branches since December 2020.

We aim to accelerate our effort also in the G&A front and anticipate to attain tangible results on this front further. Turning to capital on Slide 16.

Our primary focus is to maintain the level of capital that is necessary for our bank's risk appetite and we believe that this level is around 16% total phased-in capital ratio or 15% fully loaded. This is our current status and where we aim to stand after the conclusion of the NPE cleanup plan.

The clean and derisk Piraeus is in position to generate operating profits that provide the necessary capital buffers. Turning now to our core operating performance on Slide 17.

We leverage our competitive strengths in all our business operations, achieving resilient and high-quality net interest income, while producing fees with consistent €100 million plus mark for three consecutive quarters. The €47 million organic cost of risk which we booked in Q4 '21 comes from the back of an already positive €48 million level in Q3 '21, clearly trending positive forward estimates.

Moving on, I would like to present in brief the financial KPIs, the business sector on Slide 18 and -- to 20 which we are happy to discuss further in the second part of the call. We are stepping up the implementation, namely stimulating credit demand, leveraging the recovery and resilience fund -- structural funds assuming the role of financial adviser to business operating in Greece.

We reiterate our more than 5% return on tangible equity target for this year and we remain committed to achieve a double-digit return on equity shortly thereafter. This path will be presented on the 6th of April in the context of our new 2025 business plan trajectory for which we are now in the final preparation.

And with this remark, let's open the floor to the Q&A session.

Hi guys, good evening. Thanks for the presentation.

I have a few questions. The first of them is regarding your business plan.

I know that everything is planned for the 6th of April. I don't want you guys to front-run any information.

But I was just wondering if that you already contemplate any potential headwinds from the current situation, especially having in mind that the two banks that already reported have not done that yet because for obvious reasons, so just wondering how you are thinking about that for the business plan. Again, yes, it's 2025 but maybe for 2022, we may have an impact?

Then second question is on your NPE reduction. It looks like it was a bit faster than expected reduction in Q4, especially because you had some write-offs.

So just wondering if you could expand a bit more on those write-offs and what kind of assets they were? And also linked to that, I was wondering if you can give any color on how should I think about the dynamics of increasing your coverage ratio going forward?

And then finally, it's a question on yields. As you show on Slide 28, quite a significant drop on the performing exposure business yields between Q3 and Q4 from 3.40% to 2.87%.

So I'm just wondering what is it related to, if it maybe is as the coming out from the securitization or something like that? So that's it.

Let me answer the first question. And then Theodore Gnardellis will follow on with the remaining questions.

Now of course, still it's pretty early to assess the impact of the current situation in 2022 and beyond. But of course, as we are looking for our planning, we are looking at an effect on inflation which for average for 2022, we estimate that for Greece could be something which could look like a 6% to 7%.

And this will have an effect of growth which at this level are very minor estimates is that we could see it at the 3% to 4% mark. Of course, this is a number which we still expect to be higher than the European average.

On our loan book and as far as second order effects are concerned, we don't expect to have significant impact on tourism which is a very important part. We do not foresee to have a significant impact on the agricultural business as there is no reliance on Ukraine and Russia.

And we are currently assessing the impact on the energy portfolio, manufacturing and retail. However, at this stage, it's typically mature to come up with any numbers going forward.

There will be some headwinds on our operating costs but we have already been working on in that capacity to make sure. But this is not going to be affected our projections for 2022 going forward.

So we stand by our numbers as a better guidance. Theo?

Jonas. So to your question around NPE organic flows, actually, it's really as per planned.

We were really catching up with the write-off program and as we're projecting for the original outflow. As you'll see, the Q2 and Q3 were very minimal in terms of the write-offs.

So really, the €0.5 billion that we're seeing on Q4 is really catching up on the overall write-offs and the end balance is as per plan. So it's really catch-up effect in Q4.

On the coverage, coverage is about 41%. It's really a bottom-up calculation.

We're also disclosing the breakout of the €4.9 billion that remains, what it consists of. And therefore, try to explain why the coverage is what it is.

And as you see, it's primarily driven by the fact that a very big part of the remainder NPEs are zero DPDs -- UTPs as well as some free government guaranteed loans that result in a lower coverage. So it's really not about increasing the coverage but rather resolving the cases and running them down with the provisions are available which are marked, as we said, kind of bottom up.

Third question on Page 28. The yield of the actual lending book is not decreasing.

It still lands at the 3.5% area. What you're seeing there is a technical effect of increasing balances on the back of senior note recognition on PE book with the recognition of the hub securitizations.

So it's not really a decreasing real interest-bearing capability of the lending book but rather a technical depiction of the evolution of the PE exposure.

Thank you.

Good afternoon. Thanks very much for the presentation and congratulations on the strong growth.

I have one question on loan growth, please. Your new loan disbursements in the quarter look very strong at €2.2 billion.

Can you please explain if there's any seasonality or one-offs in this figure? Like the seasonal agricultural loans that you do in the fourth quarter or something like that?

And I appreciate you'll present your updated business plan on the 6th of April but are you able to give us an idea of what net credit expansion we should expect this year taking into account the recent momentum but also the higher-than-expected prepayments, etcetera, that you saw last year?

Mehmet, thank you very much for the question. We present in our presentation in Page 14, the disbursements for 2021.

The fourth quarter, there was nothing one-off or abnormal. It was as per the plan and it was indeed a very strong quarter.

As you see for the disbursements for the year, quite granular across sectors and a pretty good result, too. So there's nothing -- there is nothing one-off in that capacity.

As for 2022, we do expect -- taking into account the very recent headwinds, we do expect net capital growth -- net credit growth which will be something to the tune of €1.3 billion is the headline number that we are working on. And we see the first quarter new disbursements coming in at around €1 billion so far.

So we will be in a position to discuss more on the '22 number and the '22, '25 plan on the 6th of April. But the current number we are working on, on credit expansion is €1.3 billion.

Okay, that's very helpful. Can I just ask on this, some of your peers are guiding for, say, €2 billion to €2.5 billion net credit expansion levels.

For us to better understand the difference, can you explain the underlying assumptions behind this figure? Or should we wait for the 6th of April?

We -- I mean, looking at some of our peers, we think that there will be a number there in the numbers announced that relate to international as well as Greece. As you know, we are focusing on Greece.

And our numbers are compressed because of the Greek business.

Okay, sure. And finally, a very similar question again.

Fees were very strong also in the fourth quarter. Can I just check again, how that makes you think about the next few quarters as a run rate?

I mean, they were strong throughout 2021 but then increasing each quarter almost. So how does that make you think about 2022?

It was indeed a very, very good result of the last three quarters. It's because of our orchestrated effort to achieve significant fees in the areas where we are particularly strong, like bancassurance, where we are indeed possibly the stronger in the Greek market but also areas where we are aspiring to be a market leader which is asset management.

We had a significant increase in the assets under management and the fees associated from that and we see this continuing over the next quarters. The first two months for fees were particularly encouraging and much higher than the relevant fees of 2021, January and February.

So we see that as trending to the right direction.

Okay, thanks very much for your comments. Thank you.

Hello, many thanks for your time and presentation. Just following up on my colleague's question on loan growth.

This €1.3 billion, that's for full year '22 performing book expansion? Or is it just net credit expansion, you'll see some sport maybe from curings?

That's my first question. And maybe if you could give us a bit of color?

I know, again, it's April 6 but this figure is -- I guess, we should expect it to be a larger figure for '23 and '24, I'm guessing. But any color there would be helpful.

And then my second question is on asset quality trends so far in Q1. Any color there would be helpful.

It was quite impressive, particularly on defaults and redefaults being quite low in Q4. Just trying to get a feel on how things are going.

And then the third one is the one-off in OpEx in Q4. If you could give us any color there?

And finally, a small technical question on tax expense. I know it was a bit inflated because of, I guess, Mayfair any color for out to come tax expense would be great.

Well, the expansion I said for '22, we're now guiding for a €1.2 billion net expansion. That is a slightly contained estimate for '22 versus the previous communicated number of €1.5 billion.

So it's not a major impact and a very minimal impact to the NII projection as you'll see. But we feel it's kind of a more -- let's just say, a more prudent approach to a net expansion indication with disbursement minus repayment.

It is still a very strong disbursement plan with more than €6 billion planned disbursals for the year, with almost €1 billion already done but with a higher kind of fund repayments given also the very liquid status that the economy still enjoys. We generally take a returns-based approach when it comes to credit expansion.

The strategy of the plan -- and we will describe is about making sure that all the new credits pay for the cost of capital and generally guide to a healthy interest-generating book. So it's not about necessarily the flagship number but more about returns and bottom line.

So this is the overall strategy of the '25 Plan. Of course, depending on the GDP projections also for '22 onwards, the number will increase versus the -- versus what we currently do right now.

But let's talk more about the projections and the rationale on the 6th of April. To your question about asset quality.

I think was the second one. Yes, I mean, we're not seeing anything right now.

The €4.9 billion levels of NPEs are flattish to date. We do have a clean path for another €0.9 billion of further derisking with securitizations for the year and particular ideas about how to resolve the other €4 billion and that will get us straight to a solid and safe single-digit ratio within the year and then continue the diverse plan.

So no spikes, not warning signs right now. We're also monitoring the protective programs from COVID.

Nothing that makes us worry still but kind of early to tell, definitely an attention point for a year. I think you had a question about OpEx regarding Q4.

Yes, I mean, we did have some spikes, especially on the admin cost that we typically observed but nothing beyond the plan. The important thing for us right now is to land the cost base below €150 million for 2022, despite the headwinds that we know are coming, we've seen them already.

We have measured them. We can qualify them and we mitigated them in the new plan to secure the -- a much more efficient cost base and a 6% return for 2022 as we be baked in.

And to your last question, you were -- I think you were referring to the tax charge for Q4. Yes, we -- with the new tax plan and with the NPE plan that's now been replaced, there was a DTA impairment that we did.

This is not affecting our large capital. It's really on the DTA that is invested deducted from CET1 anyway.

So it's really a technical adjustment to the DTA book.

So how should we think about future quarters in terms of tax charge? Any rough number you can share?

I revert to the new tax plan that will be part of the business plan, so if you don't mind and it's quite a technical topic. It does not affect organic capital generation.

As we said, it's really more about the non-loan GGB and returns but let's just stay at the 6% return on tangible book for this year that we're still guiding for.

Okay. And just one follow-up.

In OpEx actually, there seems to be a positive one-off, right? Or your staff costs have come down?

Just curious why that was the case.

We have -- we can -- we will also explain it offline to many of you that are interested. But generally, there was -- with the voluntary exit scheme closing, there was a granting of the balance sheet when it comes to reserves.

And so we're starting to escalate out of 2022 with the rationalization program.

Perfect. Thank you.

Hi, good afternoon. Congratulations on the results and thanks for taking the questions.

I hear what you say about the new strategy. I just have a quick question on capital and one on issuance.

So just thinking about the capital headwinds and tailwinds that we're likely to see in 2022. Just looking back at your Q3 slides, I think you were flagging 120 basis points of IFRS 9 phase-in and 70 basis points of capital generation.

Are those -- should we still take those as kind of the numbers to look at until we hear more from you in April? And also, I just wanted to check, is there any other project impacts that are yet to come through in the capital line?

That would be good to know. And then also related to capital, just thinking about your government bond portfolio.

if you could give us any guidance on what you're seeing in Q1 with regard to fair value movements and the impact on capital, that would be helpful. And then finally, just on issuance plans, if you could just talk us through -- assuming that the primary market stabilized somewhat, what you're planning issuance-wise for the year?

That would be great.

Okay. So when it comes to the capital, yes, the numbers are, as you said, there's nothing marked up but there.

We do have the rest of the cleanup that's going to happen as well as further capital-enhancing initiatives out there. But generally, the fully noted CET1 number is going to stay a little bit above the 10% area towards year-end.

So right now, 9.8%, as you said, pro forma for the acquiring transaction that will close imminently. And then kind of organic capital generation together with capital-enhancing actions will more than cover for the derisking that's still taking us through for this year.

So above numbers kind of proves it all with CET1 with NPE buffers rather possible but again, will come in more details on the business on the 6th. In terms of the fair valuation of GDPs.

Overall, there has been a movement downwards as a part of the fair valuation on the OCI book but this has been fully mitigated by fair valuation gains that we have seen on a lot of derivative contracts that we have. It's almost like they have been realized.

So it's all right you're now that the capital impact of this trend that we saw in the first two months have been fully mitigated. we're so currently at the neutral -- slightly positive capital impact from January and February.

In terms of issuance plan, I mean, yes, at the end of plan, I have the guidance figure for the 1st of January '23. And there is a plan for an issuance of €1 billion in the second semester of the year.

But as you said, this assumes market stabilization. And we also need to see how this crisis will evolve and what will be also the guidance that will come out as a result of this also from the supervisory front.

Just to check, was that €1 billion in senior preferred?

Well, it's €1 billion in notes, whether it's senior preferred or non-preferred, it's kind of our progress as well as the tenure and the timing. But €1 billion is a nominal amount but it's currently the annual plan, yes.

Thank you.

Hi. On the rate potential increases, if you could give us an update on sensitivity preferably for 10 bps or 20 bps?

Something around there would be great. And then second question on NII in your Slide 27.

Usually, the other liabilities are a larger number. But this quarter, you have the NII from other assets exceeding other liabilities a bit quite heftily.

And I'm wondering if that's a sustainable figure we should keep in mind going forward.

Right. So Osman, when it comes to rate sensitivities first of all, our new plan that there will be some assumption about rate increases but something quite shallow, where we're still kind of discussing Germany market on this.

But I can tell you that right now, given the fact that we have kind of contained flows in our lending book. We do expect a €60 million NII benefit, 6-0 that is, for the first -- for the next 50 basis points.

So up -- from the minus 50 up to 0. that's a €60 million uplift.

For another 50 basis points above that, so from zero to 0.50, that's another €100 million benefit on top, so cumulatively from the minus 50 bps to plus 50 bps, that €160 million benefit on the NII. Beyond that, any sensitivity, we also have to bake in liability cost increase.

So let's not cross that bridge yet. When it comes to your -- to the sort of other part of the NII , there is a TLTRO, 50 basis points on extra of €36 million in there which is a result of us making credit expansion targets for the observation period.

As a result, baking in already the accrued part up until December '21 of €36 million in the Q4 results. The remainder part of the accrual up until June, you will see in the upcoming quarters.

So a similar amount?

For half one, yes. For half one currently, yes.

Is it possible to give any color on the TLTRO income for '22 that you are budgeting for?

Well, it's -- I said €36 million for the duration period was booked in Q4. There's another €36 million one-off.

I'm talking about the extra 50 basis points that will be booked between Q1 and Q2.

Got it. Thank you.

Good day. Thank you very much for the presentation.

My -- one of the questions was already answered. The other one is on your credit expansion.

Basically, can you maybe share some color how do you expect the mix to change between the key streams retail, corporate over the medium term? I appreciate you will share more color on your strategy day but still interested to ask.

So we're expecting a rather static view, maybe slightly accumulating in the retail front. So let's -- so it's between minus €100 million and zero in this current plan when it comes to retail.

So the net expansion is actually coming from the sort of business front. This is a slightly changing story from the observation of the previous years, where retail was actually decumulating and kind of business was overcompensated.

Right now, we're trending to a situation where we retail's going to be static and then the net expansion business and then eventually retail starts contributing more into the net expansion story as of '23 onwards. And we have seen kind of the first indication also from the pickup on market disbursements which we -- I would say we were expecting to strongly continue on improving these prices but still coming to be seen going forward.

But overall, I said, static retail net expansion from the business portfolio.

All right. Thanks very much.

Yes, thank you very much for the call. I have two questions on capital, please.

Can you take us through the quarter-on-quarter change in your reported fully loaded CET1 ratio? What has caused the move the one percentage point increase to 8.6%?

Can you talk about which transactions are included in there and which are still to come? I think you've mentioned the merchant acquiring is soon to close.

So when do you expect the benefit of that to accrue to capital? And then secondly, on MREL.

Just to understand the 16.4% January '22 ratio that you report on Slide 33, is this the actual reported transitional ratio? Or does it include any pro forma adjustments like many of the other ratios on the slide?

So when it comes to the fully loaded CET1 and what has moved the needle versus the Q3 results, primarily two things: one was the recognition of Sunrise 2, right? So the other is the lesser denominator on the back of us receiving the decision and recognized for the guarantee of hubs and therefore, they're optimizing the exposures as well as one in the second was the major transaction where we booked a €185 million on the P&L, slightly higher on the capital.

This is what got us to 8.6%. Pro forma for the merchant acquiring deal.

It will get us to the 9.8% which is kind of the level as a result of going to navigate with -- throughout 2022. As I said supported by further capital analysis, particularly, we have synthetic securitization front as well as organic profit minus derisking costs on a few transactions that we've got under way.

So from 8.6% we reported in December. Pro forma close to 10% for the merchant acquiring deal, everything else baked in above 10% area towards year-end.

To your question about MREL, there's no pro forma calculation in there. It's the actual reported figure that was also submitted to the supervisor.

Thank you very much.

Ladies and gentlemen, thank you all for participating in our full year 2021 financial results presentation conference call. We look forward to discussing with you virtually and physically during our corporate outreach schedule in the forthcoming weeks, both in Europe and the U.S.

And of course, on the 6th of April, where we're presenting our business plan to 2025. Thank you all for participating.