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What did the international analysts ask the CEO of the National Bank

March 17, 2022
5:59 AM

Of Leonida Stergiou

With the presentation of the fiscal year 2021 by the National Bank, the publication of the results of the four systemic banks was completed, where the EIB emerged as the one with the highest net profits and capital.

The questions of the international analysts focused mainly on three main axes:

First, whether the significant increase in organic and net profitability can be maintained, at the rates of 2021 and be in line with the ambitious targets by 2024.

Secondly, whether uncertainty due to geopolitical developments, persistent inflation and high energy prices could overturn the EIB’s plan, the positive outlook for the Greek economy, combined with increased risks of suspending investment, creating new red loans and raising interest rates from the ECB.

Thirdly, if the creation of higher and higher funds hides some other movements, such as investments, return on capital to shareholders, exit to the markets, etc.

The answers in numbers

Earnings after taxes: An increase of 41%, to 833 million euros from ongoing activities at Group level

Organic Gains: An increase of 40% to 450 million, exceeding the target, as a result of the improvement of organic revenues, the drastic reduction of costs and the de-escalation of provisions for non-performing loans, laying a strong foundation for achieving the EIB target of organic profits of 0 , 5 billion euros at Group level for 2022

Net interest income: An increase of 3% to 1.2 billion euros, due to the disbursement of new loans of 5 billion euros, with 25% of the demand for new loans coming from households.

Net credit expansion: 1.4 billion euros with serviced loans.

Non-performing loans: Reduction of 50% compared to 2020, to 2.1 billion. The red loan ratio decreased to 6.9% with a target of 6% in 2022 and below 3% in 2024 (less than 1 billion).

Proceeds from commissions: 10% increase to € 287 million linked to revenue from business loans and investment financing, from cards, international activities and the rise of digital channels. Revenues from ebanking alone increased by 29%.

Staff costs: A decrease of 12%, absorbing an increase in investments in technology and in the strategy of maintaining the cost-income ratio to 52.3%. The goal is to compress below 50%, reaching 47% in 2024.

Risk reduction: Risk costs fell below 100 basis points, falling to 68 basis points in the fourth quarter of 2021, which will be maintained at a sustainable forecast of 77 basis points.

Low default index: 4% on the 3 billion euro loans that were in a settlement program

High rate of loan consolidation: 40%.

Capital: The CET1 index increased by about 120 bp. on an annual basis, at 16.9%, with the Overall Capital Adequacy Ratio amounting to 17.5%, reflecting the benefit of both the Frontier (securitization) transaction that strengthened the Bank’s capital by + 150mp, and from strong profitability.

New capital increase: The completion of the sale of National Insurance and the strategic cooperation with Evo Payments, with the first expected to be completed in the coming weeks and the second in the fourth quarter of 2022, will further strengthen the Overall Capital Adequacy Ratio by further 160m.b. about.

Return on Tangible Equity (RoTE) at about 8% with a target of more than 10%

The answers of Mr. Mylonas

Mr. Mylonas’s answers summarize the reasons for the 2021 result and the documentation of the targets for the period up to 2024. In short, the increase in profitability is based on the increase in the percentage of income from repetitive banking operations, such as interest income, rather than lump sum income.

At the same time, one-off organic expenditures, such as securitizations and other consolidation moves, were carried forward, burdening previous fiscal years and quarters, leaving for 2021 only the part that strengthens the funds.

Remaining in interest income, Mr. Mylonas underlined the role of the quality of the loan portfolio, which is serviced, but also by the net credit expansion with serviced loans.

Indicatively, of all the support measures, such as moratoriums, Bridge 1, Bridge 2 and the bank’s programs for gradual repayment of installments due to the pandemic, only 4% remained red (out of a total of 3 billion).

In terms of commission income, these have come and will continue to grow from business development and entry into new products and industries, such as bank insurance, investments, that is, again, not in non-recurring activities.

The other side of profitability is related to cost reduction, where here, as noted in the teleconference with analysts, there was an increase in efficiency and not just cost cuts.

The reduction of staff costs was significant, but at the same time investments were made (increase of expenses) for development of digital channels, creation of new digital solutions, attracting customers and transactions in alternative channels, but also training and involvement of more than 1000 employees in more than 50 projects.

This can be seen from the vertical increase of work through digital channels and the corresponding decrease from the stores, where there was also a numerical decrease.

In terms of capital, the reduction of red loans in 2021 reduced risk costs and allowed a higher interest rate margin. Thus, profit-generating funds were created that offset the cost of securitization.

At the same time, the sale of National Insurance and the card system that will take place within the second quarter add revenue and capital in 2021 and 2022.

Long-term strategic contracts with both CVC, which bought National Insurance, and US EVO in transactions, taking into account management cost reductions, allow the National Bank to plan cross-selling revenue growth (eg insurance and bank insurance products). ) and income from other transactions.

Of the figures presented, the so-called “lump sum” revenues and expenses or non-recurring sources of fundraising were a small part compared to the corresponding recurring ones.

Regarding high capital, Mr. Mylonas noted that the goal of financing the real economy, in view of the Recovery Fund and high demand from households, requires high capital in order to have high forecast margins.

The supervisory authorities constantly draw attention to the funds of the banks and for this reason, even in the issue of dividend distribution for the year 2022, Mr. Mylonas said that we will start gradually, in cooperation with the supervisory authorities and by ensuring the funds.

In addition, despite the margin for two issues to raise funds of 200 million euros in 2022, the National Bank has the margin to consider when, how and if it will do so due to its capital.

Referring to the uncertainty due to the crisis, high inflation and the possibility of rising interest rates, Mr Mylonas clarified that the EIB’s exposure to Russia is zero, while the direct exposure of the Greek economy, which is mainly related to energy, is limited. .

The effects are mainly indirect from inflation and high energy prices, which negatively affect the disposable income of households, increase the cost of production and raw materials, indirectly “hitting” investments, while the tightening of monetary policy can lead to greater demand for liquidity (loans).

However, he pointed out that strong growth in 2021 will reward Greece’s GDP in 2022 with 1.5 percentage points, while government support measures will absorb much of the negative effects.

Finally, considering the scenario of rising interest rates, it has a positive effect on loan income, negatively on deposits and possibly negatively on the bond portfolio and the cost of money.

From the sensitivity scenario of the National Bank, it appears that there is a net interest income of 70 million euros for each interest rate increase by 50 basis points and an additional 350 million euros in the case of an increase of 200 basis points (2 percentage points, ie from -0.50 % today, at + 1.5%).