National Bank of Greece S.A.

Pavlos Mylonas - Deputy Chief Executive Officer Ioannis Kyriakopoulos - Chief Executive Officer George Angelides - Head of Finance Greg Papagrigoris - Head of IR

Pawel Dziedzic - Goldman Sachs Victoria Cherevach - Crédit Suisse Jonas Floriani - Axia Ventures Victoria Cherevach - Bank of America

Good afternoon, everyone. Good morning to those of you joining from the U.S.A.

Welcome to NBG's Q1 financial results call. I'm joined by Ioannis Kyriakopoulos, Group CFO; George Angelides, Head of Finance and Greg Papagrigoris, Head of IR.

After some quick remarks from my side and from Ioannis we will turn to Q&A as usual. Let's begin.

First quarter results demonstrate an improving operating performance and increasing balance sheet strength for NBG. Starting with profitability.

First quarter remained in positive territory despite the headwinds from an uncertain economic and operating environment. Growth is observed in all core operating lines.

Group core PPI reached €259 million, up 27% year-on-year and 12% quarter-on-quarter, reflecting positive trends in all three profitability -- main profitability drivers: NII, fee income and costs -- operating costs. Despite the temporary pickup in credit risk charges in Q1, reflecting, for the most part, the annual reevaluation of domestic residential real estate, a decline of 2.3% compared to Bank of Greece about 0.5%, operating profit was positive at €24 million, allowing NBG to remain profitable and capital accretive.

Moving on to balance sheet trends. NPE reduction continued in the first quarter despite uncertainty during the first few months of the year, which had a negative impact on performance.

Domestic NPEs were reduced by €0.2 billion in the quarter, reflecting zero formation and the rest were write-offs. Thus, following the NPE reduction we have achieved so far about €3 billion since 2015, NBG has a buffer of €0.7 billion versus the SSM targets.

The target for 2017 and 2017 requires a further NPE reduction of just €400 million, which could be achieved through just the write-offs. Of course, our objective is not to use this buffer but to continue to reduce NPEs ahead of targets.

On the capital front, our Core Tier 1 ratio stands at 16% and 15.8% on a fully loaded basis. Moreover, we have a large set of capital actions that would be completed in the next 12 months.

They will not only boost the capital ratio, but they will also improve our liquidity position and, with the return of confidence, allow full repayment of ELA as soon as the first half of 2018. ELA exposure currently stands at €5.6 billion, less than half the level of any other Greek bank.

Our exposure has remained unchanged year-to-date despite system-wide pressures on deposits created by the adverse seasonality and the increased uncertainty. Eurosystem exposure on the other hand has been reduced further by €2.1 billion in the first quarter, benefiting from the EFSF bond buyback program.

Looking forward, the Greek economy should perform significantly better in the first -- in the second half of 2017, the completion of the second review of the economic program will provide confidence to the economy, already evident in sovereign spreads and equity prices, thus, boosting liquidity, including through official sector funding. Thus, both monetary and fiscal conditions will be significantly less of a drag on economic activity than during the previous year.

As a result, credit demand should pick up, allowing NBG to take advantage of its superior liquidity position, supporting the economy as well as its own profitability. For the remainder of the year, we feel confident in our goals to: a, improve the quality of our profitability as last year's noncore one-off capital gains are substituted with core operating results; two -- or b, continue to reduce NPEs, remaining ahead of SSM targets; and c, improve our liquidity position, pushing ELA to even lower levels.

With those opening remarks, let me turn the floor over to Ioannis to guide you through the presentation of the financial results. Ioannis?

Thank you, Paul. Let me start with profitability on Slide 7.

Domestic core PPI increased by 30% year-on-year on the back of higher NII and fees and significant cost reduction. Domestic core PPI margin increased to a high of 310 basis points and was sufficiently strong, resulting positive domestic core operating margin of 16 basis points this quarter despite the temporary pickup in cost of risk.

In particular, domestic provision rate reached 294 basis points, almost 40 basis points higher than the Q4 levels due to the negative annual evaluation of the domestic residential prices for the 2016. Going a bit more detail, on Slide 8, domestic NII in the first quarter amounted to 398 million from 393 million the previous quarter, as low NII bounced back from the relatively low levels of the previous quarter.

Risk capital with additional term deposit repricing also reduced the costs by 3 million Q-on-Q, more than offset the pickup in Eurosystem cost of 3 million. The latter was a function of increased ELA average balances in the first quarter, following the repayment of the CoCos last December.

Domestic NIM gained 15 basis points Q-on-Q and 33 basis points year-on-year, exceeding the 300 basis points mark, assisted mainly by the buyback of EFSF ESM bonds by the ESM under its bond exchange program. The improvement of deposit costs can be further analyzed by turning to Slide 9 where we're witnessing a 6 basis points Q-on-Q drop in the time deposits spreads to 89 basis points in the Q1, but that's after a reduction of more than 40 basis points year-on-year.

The back book yield is expected to converge towards the lower new production levels within 2010 given the [certain] order book. As you see on the right-hand side graph, circa 70% of domestic deposits are core, providing a clear funding advantage.

NBG increased its leading market insurance savings accounts by 1.2 percentage points year-on-year to 36% this quarter. On the asset side on Slide 10, total lending yield remained resilient Q-on-Q, at 395 basis points, reflecting stable yields across most lines of business.

Domestic corporate performed balance stabilized in Q1 at 13 billion, aided by 500 million of new corporate disbursements, while retail loans get deleveraging driven by mortgage. Moving on to fees on Slide 11.

Excellent benefit from the Pillar II and III cost reductions. And despite the subdued banking environment, domestic banking fees were up by 14% year-on-year.

This reflects mainly the recovery of retail banking fees, 90% year-on-year on the back of increased e-banking transaction as well as fees from the credit cards. Moving on to OpEx on Slide 12.

The ongoing cost-containment in Greece, resulting a decrease of domestic cost to the tune of 7% year-on-year driven by a reduction of 12% personnel expenses over the same period, cooperating the benefit from the voluntary exit scheme completed in December '16 that involves circa 10% of the domestic workforce. On a quarterly basis, domestic OpEx dropped by 7% Q-on-Q, aided also by reduced G&A cost of the back of lower expenses related to advertising and professional services.

Cost reduction resulted in cost to core income improving to 48% from 53% the previous quarter and 56% in Q1 '16, as seen from the chart in the upper right hand side. To complete the picture on group profitability on Slide 13, our non-Greek operations, excluding UBB, generated profit after tax of 8 million in Q1 from just 1 million in Q4 driven by normalization in credit risk charges and cost cutting.

Regarding the evolution of our divestment schedule, we expect the sale of National Insurance to be agreed shortly, while the sales of UBB and Interlease would close in mid-June. Also, Banca Romaneasca is in fairly advanced stage, while the SABA disposal will be completed in the second half of the year.

Overall, excluding National Insurance and UBB, which are the biggest assets, the equity of the remaining SEE assets will be divested, amounts to 0.8 billion on risk WAs of 3.7 billion. Now turning on asset quality on Slide 15.

The quarterly NPE reduction came in at 0.2 billion this quarter, reaching an impressive reduction in the stock of NPEs of 3 billion since the end of 2016, overshooting the 2017 target submitted to the SSM by 700 million. Benefited by this buffer, NBG has an additionally reduced NPEs by just 0.4 billion for the remaining of 2017.

Regarding our performance this quarter, on Slide 16, total NPE balance contracted by another 200 million on the back of close to zero formation and 250 write-offs. With regards to NPE formation, Slide 17, domestic NPE formation came in at near zero despite the pickup in uncertainty in the first months of the year.

Looking at the 90 days past due formation in a bit more detail, Slide 18, total domestic 90 days past due formation turned positive driven mainly by the formation in mortgages, 145 million in Q1 versus 42 million in Q4 last year, most of which were already identified as NPEs. Moving on, on Slide 19.

Domestic NPE ratio remained flat during Q at 45%, combined with coverage of 57%, which is the highest in the sector. Furthermore, our below 90 days past due Forborne NPEs stand at 3.9 billion, of which 2.9 billion are below 30 days, constituting prime candidates for curing.

Moving on to Slide 20. NBG remains a bank with the lowest 90 days past due ratio in the sector, along with the highest coverage, implying the lowest exposure to unprovided NPLs.

This compares favorably to our tangible book value as can be seen in the right hand side table. Domestic cost of risk increased in the Q1, following the annual evaluation of domestic residential prices for 2016, as previously discussed.

Now turning on liquidity, Slide 22. Eurosystem funding has declined by 1.4 billion since the end of the year to 10.9 billion in May.

Yearly exposure reminded broadly stable at 5.7 billion or 8% of the assets over the same period, by far the lowest in the sector despite systemic-wide deposit outflows. The bank retains a substantial buffer of ELA-eligible collateral of 8.3 billion.

Liquidity stands to improve further with completion of UBB and SABA transactions. Four transactions in accordance with our capital plan will have meaningful full respect from the banks, liquidity and capital position in 2017 and 2018.

Deposit evolution can be further analyzed by turning to Slide 23 where domestic deposits decreased to the tune of 2.1% Q-on-Q in the first quarter 2017 as we had already indicated in the previous quarter after a seasonally strong Q4 and amidst increased uncertainty. However, looking at the year-over-year evolution of domestic deposits, these are up by 1%.

On the other side of the balance sheet, on the Slide 24, domestic gross loans decreased again this quarter. Write-offs and repayments combined outpacing production, leading to a reduction of domestic outstanding balances by 1.2% or 5 billion Q-on-Q.

Loan deposits ratio increased at 87%, remains far the lowest in the sector and well below 115% threshold, which constitutes a distraction in planned target for all Greek banks. Turning on to Slide 26.

Our CET1 ratio stands at 16% on transitional and 15.8% on a fully loaded basis and compares favorably to the '17 overall capital requirement of 12.25%. And on this note, I would like to open the floor to questions.

So just a few questions from me. The first one will be on asset quality.

You mentioned that you managed to reduce your NPE balance by another 200 million this quarter. But at the same time, we've seen a pickup in formation, in particular, for 90 day past due loans.

So from your opening remarks, I got that you feel quite confident about reaching the NPE targets for this year. But perhaps, if you could comment, if you would expect to maintain the current buffer of 0.7 billion versus the targets or you would actually think that it's going to shrink over time as you go towards the end of the year.

And also, separately, are you confident also that you will be able to reach your NPL reduction target? And I think you showed in one of the slides that you're aiming for a balance of around 12.6 billion at the end of the year.

And finally, perhaps on asset quality, if you can comment on the mix of measures that you are putting in place to bring those balances down. In other words, should we see the write-offs as the primary component of reduction or you see any success or signs of maybe curing our foreclosures picking up in 1Q or going forward?

I think some comments from your competitors suggested that this is perhaps still difficult. And then I had second question, not on asset quality but on your preprovision income that increased, as you said, 13% quarter-on-quarter.

You mentioned the drivers that contributed to this increase in Q1, but you would be -- would you be able to give us a sense of what pace of improvement would you expect for the remaining three quarters of the year, so you kind of -- so we have a better picture of the full year? And in particular, should we expect any benefits of this Voluntary Exit Schemes in Q2 and Q3?

Or they were already reflected in the results? And also in retail fees, again, you mentioned what drove them up, but is there more improvements to materialize going forward?

And then perhaps a third question, and this is quite broad, but I hope to ask it, anyway. Throughout your presentation, you essentially referred to pick up in uncertainty in Q1 that impacted your asset quality liquidity and, to some maybe lesser extent, operating trends.

But when you look at Q2, can you give us a picture? You'd said this uncertainty continue to the same extent and to the lesser extent.

And how would you see the fact that the second review is still outstanding impacting your performance over Q2?

Okay. I think, after we answered to Pawel, I don't think there will be any more questions.

But let's go down the whole list because I think you've covered most of the good questions. All right.

Asset quality, the buffer. Clearly, the objective -- it's nice to have a buffer.

We definitely want to maintain the buffer. So the objective is not to use it but to maintain it, clearly.

But we -- sometimes things go out of our control. And going to your last questions of uncertainty, the uncertainty has continued into Q2, not to the same extent as Q1, but it's still there.

And therefore, that is an issue. Now on the NPL target, that is a sort of a forerunner to the NPE because NPLs are usually -- are traditionally go down, for the most part, due to restructurings, while NPEs go down because of the curing and there's at least a 12 month lag between the two.

So the NPLs that have not gone the way we liked in the first quarter, especially in the retail, are an indication that we need to do more work on restructurings, otherwise, we'll have a problem reducing NPLs. So the fact that our redefaults went up and that was led to the small increase in NPEs compared to the reduction of the previous quarters and the fact that our restructures were less successful in attracting responses are two issues, which plagued us in the first quarter.

Things are slightly better in the second, but just slightly, okay? Now hopefully, with the economic sentiment improving, people will be more responsive to our structural proposals.

And they will -- the defaults will decline. On the PPI, -- sorry, the mix of measures, the next question on the asset quality, the bulk of them will be done -- the bulk -- about half will be done through write-offs liquidations and then another 1/3 will be through restructurings curings, okay?

On PPI, we have pace of PPI at 12%...

Core PPI was 12% of the increase.

There you have various lines, okay? NII, I think, we'll see broadly flat.

On costs, you have the drop going from Q4 to Q1, resulting from the VRS, which continued flat at the levels of Q1. So you can't annualize these -- the Q-on-Q.

And then you have the fees, which should improve a bit more through the use -- through payment fees on the deposit -- using the deposit accounts. I think I've covered all your questions.

Okay. So if not, let me know.

I have two questions, please. First of all, on asset quality.

Your NPE formation was flat this quarter. Could you please give us a bit more color on whether this is due to fewer exits from the NPE perimeter or whether this is due to inflows of performing loans to NPEs?

And my second questions -- question has to do with your contribution from loans to your NII. We feel that it was positive this quarter, differently from one of your peers reported earlier last week.

Could you please explain the driver behind this? And also, what should we expect with regards to the loan component of NII going forward?

On the NII question, the rebound is a bit paid back from poor previous quarter but also due to small successful collections, okay, a few successful collections on the corporate side. On the asset quality, the NPE was affected both by more defaults, specifically more defaults, but also...

At the mortgage book.

As you can see, it was on the mortgage book, okay, and also few less cures. But most of the defaults was the key driver on that.

It's Victoria from Bank of America. I just have a couple of questions that I was hoping you could help me with.

Could you tell me what your loan-to-deposit ratio is, please, including the loan to the Greek state? I just don't see the loans number in your presentation for that particular ratio.

And also, could you please remind us how much benefit you would get from UBB and Interlease? How much that adds to your fully loaded number?

I believe it was 100 bps. So the 15.8% would go to 16.8%.

Am I correct? Or was it something else?

I think the loan deposit ratio would go to approximately 100%, if you include the loan to the state, okay. But we don't put in that loan in the denominator when we do various NPL ratios, etcetera, okay, or the cost of risk, okay.

So that's on the -- on that one. And then the UBB transaction would add about 100 basis points to the capital ratio, but the Braum transaction will probably subtract something from that, okay?

Can you clarify how much do you have to book extra on provisions given the reevaluation of the real estate assets?

That's the only question? Sorry, it's about, I thought you had a follow-up question.

It's about 70 million...

€75 million.

€75 million.

Just one follow-up question. In terms of where you expect your time -- Greek time deposit costs to go, could you give us an understanding of how much lower they could go from where they are today, please?

The front book is a bit -- is around 70. It can go down a bit more to 65.

So you should assume that the back book will catch up with the front book over a three-month, four-month period.

Just a follow-up question. So on Slide 10, you mentioned that your performing loan balances benefit from € 0.5 billion of new loan disbursements.

Can you comment how does this compare to run rate in last year, perhaps quarterly run rate last year? And also, can you comment what, how does it split between retail, corporate banking and so on, so we get a sense of where the healthy loan demand could be?

Can you repeat the second question? I missed it.

Yes. Just the split.

So how does the € 0.5 billion split? Is it mainly retail?

Is it corporate and...

Got you. Yes.

It's simple. It's almost exclusively corporate, okay, the disbursements.

It's -- there's a very little disbursement on the retail side, okay, on the [annual] mortgages and a few on consumer. And then the question is, how does this compare to the previous year?

And I think the question -- the fact is, it's better than the last year by...

Actually, it could double down the -- double around the run rate of last year.

Double the run rate of last year.

And perhaps, in terms of businesses, which type of corporations are here, particularly active. Can you give us a sense or?

Yes. No, no.

They're large. They're the larger.

They're export-oriented or in the hotel tourism sector.

I want to thank you all for attending our Q1 results call. As usual, we will be available for questions, either myself, Ioannis or the IR team, so feel free to call.

We are going to be on the road for a couple of important conferences in the next couple of weeks, so we hope to see you there. And with that, I think we've given enough time, so that you can prepare for the next bank's conference call.

Thank you very much.