National Bank of Greece S.A.

Good afternoon, everyone, and good morning to those of you joining from the U.S. Welcome to our first half 2021 financial results call.

I’m joined by Christos Christodoulou, Group CFO; Greg Papagrigoris, Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to Q&A.

So let’s begin. In the course of the second quarter, Greece has lifted the mobility restrictions following a rapid vaccination rollout.

Vaccination levels are currently around 55% of the total population and are expected to reach the critical 70% level in autumn. These expectations have bolstered confidence, leading to a strong rebound in business turnover back to 2009 levels and consumption above 2019 levels.

In fact, following a much better-than-expected first quarter GDP outcome, second quarter activity appears even stronger with all economic indicators accelerating rapidly. The expectations are the second quarter GDP growth to exceed 10% and continue at an elevated pace into the second half of the year.

Full year GDP growth is expected to be around 5.5% and employment growth to exceed 1.5%, with actual employment creation understated due to the existence of employment suspension schemes during 2020. It is also encouraging that activity has not suffered from the withdrawal of fiscal support.

Indeed, most of the extraordinary labor market support measures and payments through the repayable advance scheme have ended in May. Another encouraging sign is a strong pickup in tourism activity, starting from late June and continuing through all of July, reaching levels on average only about 30% below those of 2019.

Finally and importantly, goods exports are booming, reflecting the global rebound in activity increasing by 20% year-on-year in the six months 2021. Now turning to NBG’s results.

A key P&L metric, our core operating profit, increased by 18% quarter-on-quarter in the second quarter, reaching €112 million relative to €95 million in the first quarter. With Q2 building on a strong set of Q1 results, core operating profit stood at €208 million in the first half of the year, registering a notable year-on-year increase of 58%.

As a result of this solid performance, we have made heavy inroads towards our full year 2022 core operating profit guidance of €490 million, equivalent to 9% core ROE. The first half performance comprises decidedly positive results across all core operating lines, NII, fees, OpEx and loan loss provisions.

Let’s take each in turn. NII increased by 7% year-on-year, driven by the repricing of liabilities and was also supported by increased loan disbursements, nearly €5 billion during the past 12 months.

Fee income accelerated to 10% year-on-year with a strong recovery post lockdown in both the retail and corporate segment, with combined fees from the two segments reaching the highest levels that has been observed since before the peaks of crisis. Strong OpEx optimization resulted in an 8% reduction year-on-year, driven by personnel cost cutting, which maintained a double-digit pace for the first quarter, mainly reflecting headcount reduction.

Loan loss provisions declined by 10 basis points in the second quarter to just above 100 basis points, increasing coverage by a further 160 basis points Q-on-Q, 360 basis points year-to-date. Coverage reached 66.8%, reflecting our conservative approach with generous management overlays due to the still uncertain environment with a COVID Delta variant.

Continued asset quality, our domestic NPE stock dropped below the €4 billion mark in July, including the Frontier effect, with the NPE ratio settling at 12.7% at end June. Importantly, organic NPE flows remained negative €100 million, with a first half organic NPE reduction of €220 million.

Organic NPE reduction is set to continue as destructions maintained a very good pace, about €40 million per month outside the Frontier perimeter. And 35% of remaining NPEs or €1.4 billion of restructured loans have the potential to cure during the next 12 months.

Equally encouraging is the fact that seven-plus months after the expiry of all moratoria measures towards clients in need of temporary support, the payment performance of these loans remained strong with just 3% of the ex-moratoria perimeter over 90dpd. Furthermore, clients in earlier years for these loans are an insignificant 1%, pointing to a strong payment performance going forward.

In sum, the impact from COVID on NBG’s asset quality is turning to be significantly less than initially expected. Turning to capital.

Our CET1 ratio position has improved by 30 basis points year-to-date despite absorbing the full 2021 IFRS 9 transitional impact. Our CET1 ratio stands at 60% with a total capital ratio 100 basis points higher at 17%, reflecting our Tier 2.

On a fully loaded basis, CET1 and total capital ratios stand at nearly 14% and 15%, respectively, before factoring in the additional 170 basis points from the imminent completion of the Frontier, Ethniki Insurance transactions in the next few months. Regarding Frontier, signings is expected over the next few weeks.

At that time, fully loaded CET1 and total capital ratios will reach close to 60% and 70%, respectively. I would like to close with a few points on the strength of our balance sheet as well as the improvements in our core and attributable profitability.

As regards the balance sheet, NBG operates with the lowest net of provisions NPE exposure in the system, specifically €1.4 billion. The execution risk of the remaining cleanup should be marginal and with hardly any meaningful capital loss.

Thus, the cleanup would lead NBG with high capital buffers and, therefore, maximize flexibility with regards to future business expansion as well as the potential to distribute dividends back to our shareholders. As regards core profitability, NBG has made steady progress over the past couple of years.

Our cost-to-core income is near 50% and our sustainable core profitability on a net operating level, not on a PPI level, has increased by nearly 60% in the first half of 2021 to an annualized level of more than €400 million. The resulting sustainable ROE has risen to a decent annualized rate of 7% and we’re well on course to deliver a 9% target next year, driven, among others, by our guidance for cost of risk near 60 basis points.

For 2023, we’re looking to deliver an even higher ROE in the double digits. Our track record provides credibility to these commitments.

We have built up a strong momentum for change through our successful transformation program, which has just completed its third year. Indeed, I believe we’re the change leaders in our sector and that this fact distinguishes us in the domestic banking space.

I feel confident that we’re getting very close to a sweet spot where transformed NBG hits a strong and underbanked economy, which, moreover, will be receiving substantial RRF funds. This confluence of circumstances will clearly allow NBG to move up to a higher playing field and be the bank of first choice.

With that, I would like to pass the floor to our Group CFO, Christos, who will provide additional insights to our financial performance before we turn to Q&A. Christos?

Thank you, Pavlos. Let’s now look into the financial performance in more detail.

Starting with the P&L highlights on Slide 10, our H1 profit after tax from continuing operations increased by 34% year-on-year to €622 million. This strong performance reflects our improved core operating income generation up by 8% year-on-year, our commitment to cost discipline yielding an 8% cost reduction, strong trading gains and moderate loan impairments with a cost of risk of 104 basis points over net loss.

More importantly, excluding trading, our core operating profit increased by 58% year-on-year to €208 million in H1 2021, confirming we are well on track to deliver on our 2022 core operating profit guidance of €105 billion and a core return on equity of 9%. Let me now turn to asset quality and liquidity highlights on Slide 11.

NPE formation remained negative in Q2, adding up to an organic NPE reduction of €0.2 billion in H1. This compares favorably with our guidance for an organic NPE reduction of €0.8 billion by end 2022, excluding inorganic efforts.

Domestic NPEs dropped to €4 billion, 12.8% over gross loans, of which 35% or €1.4 billion are component fees below 30 days past due with good potential to cure within a year. At the same time, the performance of moratoria beneficiaries is far better than anticipated with only 3% exceeding the 90 days past due mark.

Our domestic NPE coverage has improved by 360 basis points year-to-date to more than 66% and remains at the high end of the sector. Deposit covenant continued in the first half of the year to €2.5 billion of inflows, mostly from low-cost core deposits.

Loan disbursements reached €2 billion over the same period and are expected to accelerate further in the second half of the year with the growth momentum in our performing loan portfolio picking up. On Slide 12, we show our key capital metrics, which evidently are very strong with CET1 and total capital ratios up by 30 basis points year-to-date to 16% and 17%, respectively.

As already discussed in previous quarters, our best-in-class capital position will be boosted by approximately another 170 basis points upon completion of Frontier and Ethniki Insurance transactions, rendering a total capital ratio of nearly 19%. In light of our high capital levels and given the fulfillment of our interim MREL targets, there is currently no obligation for MREL issuances for the remainder of the year.

Adding to our superior capital position is a successful completion of the 2021 SSM stress test with a strong performance in relation to NII and credit impairments, confirming the quality and robustness of our balance sheet. Now let me walk you through the key drivers of our improved profitability during the first half of the year on Slide 13 to 20.

Domestic NII increased by 8% year-on-year despite the ongoing derisking, reflecting funding cost benefits from the pricing of deposits and the rising new loan production levels. The unprovided noncash NPE NII remains very low at just 4% of our total NII, highlighting the quality of our lending net interest income.

Going into domestic loan disbursements in more detail on Slide 15. This reached €2 billion in the first half of the year, reflecting strong corporate disbursements of €1.5 billion, while the retail has picked up by more than 2.5 times year-on-year.

As a result, our performing book expanded by €1.2 billion or 5% year-on-year with corporate performing loans rising by 12% over the same period. The accelerating expansion of our performing book will provide long-term support to the NII, gradually reversing the impact from the balance sheet risk.

Moving on Slide 18. Domestic fees in Q2 increased by 4% quarter-on- driving H1 fees up by 10% year-on-year, supported by the recovery in both retail and corporate.

The key drivers behind this good performance were lending fees in corporate, reflecting the growth momentum in disbursements as well as intermediation and digital fees in the retail business. Notably, in the aftermath of COVID, our transactions hedged substantially higher and are mainly conducted via digital channels, as you can see on Slide 19.

Reflecting the ongoing migration of our customers to digital channels, key banking transactions have increased by 34% year-on-year in Q2 2021, replacing branch transactions that have been reduced by more than 50% year-on-year. Turning to costs on Slide 20.

Our impressive cost cutting efforts continue, yielding a reduction in operating expenses of 8% year-on-year in H1, while our cost-to-income ratio improved by nearly 9 percentage points year-on-year to 51%. The main driver of our cost efficiency optimization is a reduction of domestic personnel costs by 15% year-on-year on the back of the 2020.

Moving on to asset quality on Slides 21 to 26, domestic NPEs kept on a downward trend from below €4 billion or just €1.4 billion net of provisions. Domestic NPE ratio was 50 basis points lower quarter-on-quarter, up 12.8%, while coverage increased by further 160 basis points to 66.4%.

Organic flows in the quarter remained negative. Curings were fairly stable quarter-on-quarter, driven mainly by mortgage restructurings while new defaults, early defaults remain at very and well below the average quarterly 2020 levels.

Performance of clients previously under moratoria seven months post moratoria expiry remains reassuring, exceeding our expectations. Currently, only 3% of the ex-moratoria performing [indiscernible] is in default and just 1% in earlier years.

Moreover, approximately 60% of performing moratoria beneficiaries are flagged as low risk and have received no subsequent payment relief. This give us confidence that the impact of defaults from COVID will be much less severe than we expected.

Turning to liquidity on Slides 27 and 28. Domestic deposits increased by €6.3 billion year-on-year, mostly through private deposit inflows against trades reaching near zero levels.

Time deposit yields decreased by a further 10 basis points year-to-date to 13 basis points with new production coming in at 8 basis points. Eurosystem funding to TLTRO stands at €11.6 billion, providing support to NII.

Summing up, in the course of H1 2021, we have managed to grow our core operating profit by nearly 60% year-on-year, demonstrating that we are well on track to deliver core operating earnings of €0.5 billion and a core return on equity of 9% next year. Our improving profitability performance is complemented by the sustained reduction in NPEs to less than 13% of gross loans and is safe guarded by the highest coverage ratios and capital levels in the segment.

And on this note, I would like to open the floor to questions. Thank you.

Yes. Hi, good afternoon, guys.

I have a few questions. So first of all, on your comments regarding COVID-related NPE inflows.

Just wondering if you have a sense of magnitude of debt flows. I think, if I’m not mistaken, your previous expectation was for something like €0.6 billion of inflows.

So just wondering what your comments now, I mean. Secondly, on trading income, I was just wondering given where GDPs are right now, if you have any of your expectation for trading gains now in the second half of the year?

And if you have any unrealized trading gains now in your portfolio, so you could share? And then finally, I just have a question on your new lending.

What is the kind of rate of repayments and amortization you’re seeing on your new lending right now on this €2 billion of new loans you disbursed now in the first half? Thanks.

Okay. On COVID-related inflows, we keep getting better and better results every month.

We had said around 20%. Your memory is correct.

We’re now at, as we said, 3%. So as time goes by, we may need to revise down that 20%.

But on a conservative basis, we will not change the 20%. And don’t forget that there are some – some loans are receiving support through the step-up solutions and the Gefyra program.

On the trading, most of the bonds are now in the held to collect. So there’s a little possibility for trading gains, even though yields have come in.

And I don’t think we disclosed the unrealized trading gains. On the new lending repayments, we’re – let me just give you an example.

We had about €5 billion of disbursements in the past 12 months, and the net increase in the performing book was about €1.2 billion. So that gives you a bit the order of magnitude of repayments versus disbursements, and disbursements are high, but there’s a churn there.

I think those were the questions. Thank you.

Yes, thanks.

Thank you. Just two questions from me, please.

One follow-up on new lending and one on costs. So in terms of new lending, given you’re already at €2 billion for the first half, which is quite strong.

And also given your previous guidance of €3.5 billion for this year, is there any additional color that you can share from the ground on this strong momentum? And would you see that as the normal run rate now excluding RRF related loans for the coming quarters?

And also given the expectation, obviously, for further acceleration in the second half, can you give us your current views on total disbursement for this year and in the coming two years, please? And just on costs, again, very strong performance.

And if we extrapolate at the first half and to second half ignoring seasonality, et cetera, you’d be already reaching your 2022 targets, it looks like this year. So how do you see costs develop in the coming two quarters?

And where should we see the run rate from this €185 million level from here? Thank you.

Okay. On disbursements, I think it’s more useful to talk about net loan expansion than disbursements because, as early on you said, there is a lot of disbursements, but the net expansion is smaller.

So on net – and that’s what creates NII, by the way. It’s the stock.

Our last year was over about €1 billion increase. And this year, we think we’re going to get between €1.5 billion and €2 billion net expansion in performing loans.

And that’s for 2021. For 2022, I think we’re going to be going higher as the RRF creates more demand, either from direct cofinancing or from the grants that come in.

Even this year, there will be need for working capital facilities from the contractors, et cetera, that will be implementing the project. So the RRF is over and above what our initial expectations were, and we’ll create that additional net loan expansion that I just described.

And with that, let me turn to Christos and – to talk about the operating costs.

Okay. Thank you, Pavlos.

So with regards to OpEx and the 2021 year-end expectations, our guidance continues to be starting in the mid-single-digit area. There is – some upside is there.

We could do slightly better. And as far as the guidance for 2022, as we shared before, we expect that in the period between 2020 and 2022 to achieve OpEx savings in the area of €70 million.

So that’s the plan going forward.

Okay. Great.

Thanks very much. So just in terms of new lending then, I guess it would be reasonable to assume, say, €7 billion or so expansion – net expansion by 2024.

Would that be reasonable to?

€7 billion divided by per year, no. It’s a bit high.

No, no, no. 2024.

So €1.5 billion, let’s say, this year, next year and then €2 billion.

On net expansion, yes, yes, yes. Sorry.

Okay, perfect. Thanks very much.

Hi, thank you very much for your time. A couple of questions on my side.

Is the improvement in ex-moratoria loans in certain sectors? Or are you seeing them across the board?

That will be my first one. Second one is, is there any commentary you can provide on the recent changes from ECB regarding the DTC – DTA?

And how it will be dealt with in terms of amortizing time frame? And then finally, more of a detailed question.

Other impairments jumped up a bit this quarter to €23 million. I was just wondering if you could provide any color on that.

Thank you.

Okay. I’ll take the first question, and Christos will take the next two.

On COVID loans, about half were mortgages and the other half were corporates. And we’re seeing the improvement or the better-than-expected performance across the board, I’d say, better on corporate – slightly better on corporates than on mortgages, but not significant.

So with the numbers being so low, 3%, it’s hard to say that one sector is better than the other. Christos?

Okay. So with regards to the second question on how does the loan affects us.

Effectively, it hasn’t really changed much for NBG. Effectively, this law protects the DTA already in the books of the banks, which NBG already did not have an issue given future profit and the recoverability of DTA.

So effectively, it will not change much. And the DTC amortization that you already see in our capital would mostly remain the same.

Now with regards to the other question on the…

Christos – just let me add to what Christos said. This law would be useful for someone who does big NPE transactions, which lead to losses.

Okay. As you – what we’ve said, Frontier was not – did not lead to losses and the remaining cleanup trade will also not lead to losses.

So for NBG, this change is not for the near future at least relevant and hopefully will never be relevant. Thanks.

Yes, fair.

On the last question on other impairments, so this is largely a one-off and it is attributed to the west trading part of the Hellenic Republic used in the expected credit losses calculation of GGBs. And this happened due to the incorporation of the European Commission’s expectations of the COVID effect in the latest DSA report issued in June.

Just to clarify that this was not included in the previous report issued in November 2020. So that’s…

So it’s COVID related then?

It’s COVID related, yes, and it’s a one-off. And it will probably reverse with the economy growing the way it’s growing.

The world economy, not just the Greek economy, after post COVID, I think they will go back to the original ECAs.

Got it. Thank you.

Yes. Hello.

A quick question on cost of risk, if I may. Given the strong data that we have up to now regarding the ex-moratoria loans, could we see this – the cost of risk going down to the 60 bps that you have mentioned in 2022 earlier, maybe in the second half as coverage is already above peers and the NPE ratio is also lower?

That is my first question. The other on the technical question that my colleagues also asked just to clarify.

So the trading income for the next quarters would it be neither positive or negative? So it will be something material because all the bonds are in helding to collect.

That’s my question. I mean – and maybe if you could clarify a bit on the discontinued operations and other.

In Q2, it was €27 million. What does that entail?

I know it’s LEPETE. But what else is there, if that could be clarified?

Thank you.

Okay. Cost of risk, clearly, it’s a tough call when to start bringing down the cost of risk.

Due to – as I said in my opening remarks, due to the Delta variant, we were cautious. But you’re right to say that it’s looking as if we can be more optimistic on when we can reach to 60 basis points compared to the 2022 target.

On the trading income, I think you answered the question yourself. It is – given the small amount of bonds in the held to collect and sell, there will be a little volatility or a little increase from the drop in rates that we’ve seen so far.

And then on the discontinued operations, Christos?

Yes. You picked that right.

One of the biggest chunk is LEPETE. And then we have some minor costs relating to one-off restructuring and COVID-related expenses.

And also, we have the normalization of the valuation we make to insurance, and we’ll have that up until we close the transaction towards the end of the year. So that’s the drivers behind the numbers that you see there.

Okay. Also on a normalized level, this other is about €10 million per quarter, more or less to LEPETE?

Relatively its lower, yes.

Lower, okay. Thank you.

Hello, good afternoon, gentlemen. Two questions from my side.

First, if you can give us an update on the Frontier and National Insurance transactions, where we stand? And second, if I recall correctly, in the last call, you said that when discussing about your – how you’re going to deploy your excess capital, you said that you are not looking at any opportunities abroad.

So my question is whether this has changed, if you are now planning to look anything abroad? I’m not asking if there is anything right now.

But if your overall stance has changed and you are now willing to look abroad for any acquisitions. Thank you.

Okay. Frontier and National Insurance – the Frontier transaction is, hopefully, a matter of weeks.

And National Insurance – it’s a question of getting regulatory approval and the updates I have on that are that November would be when we could close. Now strategy doesn’t change from quarter-to-quarter.

So we will not be surprised to say that we feel very bullish about the Greek economy. We think that it’s underbanked due to the crisis.

And with the RRF funds coming in, there’s going to be great opportunities for banks. And I don’t think there’s going to be a country in the region that could provide such opportunities for a bank.

So in terms of where you get the biggest bang for the buck in terms of capital, I think Greece and the rest of market is the answer. Now that’s not to say that we are not vigilant and looking at what can happen, but.

Okay. Thank you very much.

Yes. Thank you for taking my questions.

The first one is a clarification on the loan book. In the presentation, you are showing €14 billion performing corporate loans while in the Excel file is around €17 billion.

Can you explain the difference is due to the loans in available for sale to the Frontier NPE transaction? And the second one is on capital.

If – did you have any discussion with the regulator on the P2G guidance for the capital ratio?

Okay. I’ll take the second question, and it is a bit premature to have a discussion on the P2G.

Usually, the SREP level comes in late part of the year and the discussion happens early in the next. So that is something that’s going.

And in any case, I don’t think we disclose our P2G ratios. Christos?

Yes. On the discrepancy, that relates to a reverse repo that we have with the state.

It’s pretty short-term. So we thought it was better not to include it in the current presentation because it will go away by the end of the quarter.

It’s an accounting representation in the Excel that you have.

Okay. Sure.

Well, thank you all for taking the time on August day – hot August day to participate in our call. We are available for any follow-up questions you may have.

And I wish all of you a good holiday and vaccine break and see you all in the – hopefully, in physical form in the – in September. Thank you very much.