Addiko Bank : Webcast 1Q24 Transkript (Englisch)

Herbert Juranek

Good afternoon, ladies and gentlemen. Let me welcome you to the

presentation of the First Quarter Results 2024 of Addiko Bank on

behalf of my colleagues, Ganesh, Tadej, Edgar and Constantin. We

have prepared the following agenda for you.

I will start with the key highlights of the first quarter and then pass

on to Ganesh, who will update you on our achievements on the

business side. In the second chapter, Edgar will provide you with

more insights on our financial performance and Tadej will inform

you about the development in the risk area. At the end, I will do a

short wrap-up and comment on our Outlook for 2024, before we

move on to Q&A. So let's begin with the highlights.

The results of the first quarter are quite positive. We were able to

raise our net profit by 61% year on year from €9.7 million to €15.6

million. Compared to the previous quarter, the increase amounts to

42%. This leads to €0.81 earnings per share in the first quarter. The

return on average tangible equity jumped from 5.4% in Q1 last year

to 8% this year. Our operating result grew by more than 41% year on

year to €28.5 million despite inflationary impacts on the expense

side.

This positive result is based on a double-digityear-on-year growth

in our focus business and a solid cost management in the given

environment. In addition, we were able to improve the net interest

income by 14.5% year on year despite increased funding costs and

the usual seasonality effects. Due to our Acceleration Program

efforts in product management, mostly in cards, bancassurance,

accounts and packages, we were able to improve our net

commission income by 8.4% compared to last year. Our expansion

project in Romania is also progressing according to the plan.

Now let's look at the risk side. Our cost of risk remains benign at a

low 20 basis points or €6.9 million. The NPE volume slightly

increased to €146 million with an NPE ratio of 2.9% based on the

provisioning case with one customer in the first quarter. Tadej will

give you more details later during his part of the presentation.

Nevertheless, we were able to further improve our NPE coverage

level to 81.4%.

The funding situation remained quite strong with a slight growth in

our deposit base to €5.1 billion deposits resulting in a loan-to-

deposit ratio of 69%. Our liquidity coverage ratio is currently above

400% at group level. And finally, our capital position is also very

strong with a 20.3% fully loaded CET1 ratio.

As you know, we had the AGM on 26 April, with all agenda topics

approved. Consequently, we paid out €1.26 dividend per share

yesterday on 7 May.

Now let's look at our business development. The two main messages

on this page are that we were, number one, able to continue our

double-digit growth of our focus book and, number two, that we

managed to increase our new business generation by 10% year on

year despite a bit of a slowdown in the micro and small SME

Edgar Flaggl

Many thanks, Ganesh, and hi, everybody.

Starting on page eight and the composition of our result for the first

quarter 2024. Quite a good start into the new year. Net interest

income improved significantly and, despite higher deposit funding

costs, was up 14.5% compared to the previous year. The quarterly

development is naturally muted due to starting the year 2024 at, in

our view, pretty much peaked deposit funding costs. Despite this

fact, our NIM remained at a strong 389 basis points.

Overall, our key revenue driver, the interest income, improved by

more than 25% year over year. This was driven by our focus

segments, which recorded a 22% year-over-year increase on the

back of our premium pricing of new business and the contribution

from treasury and liquidity management.

We ended the first quarter with 87% of our book in high-yielding

focus loans, compared to 83% a year earlier, and we remain on track

to exceed the 90% in 2024.

Interest expenses ramped up through the year 2023, as we have all

seen, and naturally, we started the new year with higher deposit

funding costs. We expect that we have more or less reached a peak

in terms of funding costs, which stood at 126 basis points for the

first quarter, up from 69 basis points a year ago, mainly driven by

the strategic shift into more stable term deposits. So, fully in line

with our expectations and guidance so far.

The second key income driver, the net commission income, now

started showing the results of activities performed by the business

teams and is now up 8.4% year over year in a naturally weak first

quarter. This is what we spoke about in our last earnings call, about

having a plan to get back on a positive trend going forward, and

Ganesh and his team will continue to work on further

improvements. This continued momentum on the top line led to

further improvements on net banking income with an increase of

13% year over year.

Now to the other income, which comprises the net result on

financial instruments and the other operating result. The

development in this position is mainly driven by deposit guarantee

costs and regulatory charges. In the first quarter, we recorded a

positive effect from lower deposit guarantee costs in Croatia

related to the fourth quarter last year and the first quarter this

year.

This positive effect, however, was consumed by higher bank levies,

mainly driven by the new Slovenian banking tax, for which we

booked €0.7 million in the first quarter, which corresponds to €2.8

million for the full year.

Next, to general administrative expenses, in short, OPEX, which

continued to be up year over year and remained contained at an

increase of slightly north of 6% year over year. We're currently

performing better than our full year guidance. However, the

guidance had not planned for advisory costs related to the voluntary

takeover offer that was announced in March.

Our cost-income ratio landed at 60.7%, which is a year-over-year

improvement of 3.8 percentage points. To sum up, we have

continued to deliver a positive improvement of our earnings power,

which is reflected in a 10.4% increase in the operating result

compared to the previous quarter and 41% year over year.

The next item is the other result, which includes costs for legal

claims as well as for operational banking risks, following our

prudent approach. As you can see, the first quarter charges

remained benign and normalised, while also containing a charge

related to Swiss Franc matters in Slovenia, such as for the voluntary

settlement offer that we launched for socially vulnerable

customers.

Just a note on credit loss expenses, which once again came in

benign and below expectations. Tadej will provide insights on the

development in a moment.

To conclude, a strong result on the back of our ongoing momentum

in the top line, continued cost containment, coupled with sound

risk management, which allowed us to achieve a net profit of €15.6

million, which is up 61% year over year and corresponds to an 8%

annualised return on average tangible equity.

Briefly over to page nine, which illustrates our capital position that

remains standing strong. At the end of the first quarter 2024, our

capital ratio landed at a strong 20.3% fully loaded, and all of that

in CET1 - and that is excluding interim profit and accrued dividends.

As you can see in the chart, our OCI continued the trend of recovery,

adding back roughly ten basis points in CET1, while RWAs continued

to grow on the back of loan book growth. To summarise, the

batteries are fully charged for continued growth.

And now over to Tadej to share insights on risk management.

Tadej Krašovec

Thank you, Edgar. Good afternoon to all.

We continue on slide ten with the credit risk part. In the first

quarter of 2024, our overall portfolio quality continued to be

strong. As you can see on the chart on the left-hand side, the stock

of the non-performing exposure increased from €138 million to €146

million resulting in the NPE ratio of 2.9%.

Increase of NPE portfolio was planned, but to a slightly smaller

extent. Increase happened due to two factors, first, worse risk

performance in Serbian SME portfolio, especially driven by one

legacy default client, and second, a planned debt sale in Croatia

was postponed.

For Serbian SME portfolio, we have already implemented more

restrictive risk criteria during 2023 and we are working on a further

finetune.

On a positive note, we successfully concluded the restructuring of

the two largest NPE tickets in Addiko Group and already received

the first instalment payments following the restructuring

agreements. This should bring a visible, positive effect still in 2024.

We are continuing to find solutions for a further NPE reduction, and

due to high coverage ratio and material part of portfolio being 100%

provisioned, we are solidly equipped to reduce NPEs without further

P&L input. Let's now move on the next slide.

The credit loss expenses for the first quarter amounted to €6.9

million. This resulted in a cost of risk of minus 0.20%, a performance

better than we had anticipated. At the same time, we kept the

post-model adjustment unchanged at €6.5 million. Provisions were

released in the non-focus segments, resulting in a positive cost of

risk of 0.45%, and allocated in the focus segments, with negative

cost of risk of 0.30%.

To conclude, from the risk behaviour and risk quality perspective,

we are solidly on track. We see negative deviations in the SME

portfolio in Serbia and, on a smaller level, in consumer portfolio in

Slovenia. But overall, we are inside our plans and expectations.

We are actively managing mentioned deviations by tightening our

risk criteria, where needed, and I believe this will soon be reflected

in lower NPE inflow in specific sub-segments and have a positive

impact on the NPE portfolio size also.

With that, I hand back to Herbert.

Herbert Juranek

Thank you, Tadej. Let's go to the wrap-up.

In the upper part of the slide, you see our outlook figures, which

are derived from our mid-term targets. We are in line with these

targets, and hence, we want to confirm them for this year.

Nevertheless, I would like to mention that additional costs related

to unforeseen shareholder activities are not included in our initial

assumptions.

The macroeconomic environment continues to be impacted by

uncertainty, driven by the war in the Ukraine, the Israel-Hamas war

and other factors, like the inflation and the interest rate

environment.

Altogether, the macroeconomic situation leads to a bit of

reservation and a wait-and-see attitude with the part of our SME

customers. Consequently, we see the demand in certain business

segments slowing down.

However, we are already in the process to establish measures to

compensate a potential impact on our growth plan. We share the

view of the Vienna Institute for International Economic Studies that

our region will outpace growth in the Eurozone. Therefore, we

should have enough possibilities to fuel sustainable business growth

for Addiko.

We are confident that we will get closer to our goal to be the best

specialist bank for consumers and SMEs in Southeast Europe. On that

basis, we continue to work with full energy to further improve the

bank, to create value for our clients and for our shareholders.

With that, I would like to conclude the presentation. Our next

earnings call to present to you the half year results is scheduled for

8 August. I would like to thank you for your attention. We are now

ready for questions. Operator, back to you.

Operator (Q&A)

Thank you. We will now begin the Question-and-Answer session.

Anyone who wishes to ask a question may press star and one on their

touchtone telephone. You will hear a tone to confirm that you have

entered the queue. If you wish to remove yourself from the question

queue, you may press star and two. Participants are requested to

use only handsets while asking your questions.

Anyone who has a question may press star and one at this time.

If you participate via the audio webcast, you can write questions

via the Q&A function of the webcast by pressing the question mark

button.

As a reminder, if you would like to ask a question, please press star

and one on your telephone. The first question comes from the line

of Hugo Cruz with KBW. Please go ahead.

Hugo Cruz

Hi. Thank you for the question, for the time. I wanted to ask two

things really. One was on your shareholders, Mr Kostic and the Alta

Pay Group. I was wondering if you could disclose what kind of

conversations you've had with them and what are their intentions

for their stake in the bank.

And my second question was around your comments around the

peak in deposit rates. So how do you expect your deposit rates to

evolve? Why are you confident that we are at a peak level? And if

you could give a bit of colour there around the timing and the

repricing strategy that you have for your term deposits. Thank you.

Herbert Juranek

Hello. This is Herbert. On your questions on the shareholder, since

the AGM, there was no contact with both shareholder groups. And

there is also nothing I want to share right now about it.

You know that Agri announced the acquisition, and I would assume

now the regulatory process is in place and we need to wait for the

feedback of the regulator on that side.

And as you also know, Agri Europe, that most probably between the

13th and the 16th, the proposal will be made public. And then, as a

management board, we have to reflect on that and give our opinion

on that. And we will do that according to the procedure. Who wants

to take the other question?

Edgar Flaggl

Sure. Hugo, hi. Thanks for joining. This is Edgar. Can you maybe

repeat your second question because I'm not sure if I 100%

understood it, on the term deposits?

Hugo Cruz

Sorry. It was just if you could explain what is your repricing strategy

for the time deposits and the timing of that repricing. How do you

expect deposit costs to come down as rates come down as well?

Edgar Flaggl

Yes. Look, I'm not going to share or disclose here in detail our

deposit strategy. But in general terms, our strategy was to start

earlier, where prices were still lower for term deposits, which we

did. I would say if you look at it not only at one year but across two

years' horizon, also financially until today, this has been beneficial

- let's call it this way. We are not pricing anywhere in the top of in

any of the markets. So we are usually within the average, in

contrast to loan pricing, where we are 100 to 150 bp above the

market.

And of course, we are watching, as pretty much everyone, the rate

environment and also what the competition does very closely, and

we do expect, with rate cuts coming in and with the sufficient

liquidity that is available to banks in all the markets, that also

pressure on deposit pricing will not only go down further but

reduce. We have already reduced in the network, here and there,

deposit pricing as we go and have not lost any volumes in that sense.

So maybe, Ganesh, if you want to chime in.

Ganesh Krishnamoorthi

Yes. Thank you, Edgar. Well, just to add one thing. We have also

been cautiously getting deposits with lower terms like six months

for instance, not three or four years overall from a term point of

view. So when the rate cuts come in, we can carefully also extend

those deposits with the lower rates. So what I mean is that we have

not committed into long-term deposits, where we would have more

interest expense and we can reflect more the interest environment

as we go forward.

Operator

Mr Cruz, are you done with your questions?

Hugo Cruz

Yes. Thank you very much.

Herbert Juranek

Thanks. Thanks, Hugo.

Edgar Flaggl

Thank you, Hugo.

Operator

Ladies and gentlemen, that was the last question. I would now like

to turn the conference over back to Mr Constantin for questions on

the webcast.

Constantin Gussich

Thank you very much, Operator. I have one question from Wolfgang

Matejka from Matejka & Partner Asset Management. On an actual

basis, did you see some movements within your client base in

relation to the latest announced shareholder activities?

Hebert Juranek

Well, I will take this question. We didn't see any movements in our

shareholder base. But what we are getting is we are getting

questions from our clients and we're answering these questions.

Constantin Gussich

Then I have two more questions from Aleksandra Babic from Agri

Europe Cyprus. First, any changes related to CHF topic?

Edgar Flaggl

Hi, Aleksandra. Thanks for the question. Nice to have you on the

call.

Look, overall, you have seen in the other result, we have not had

any additions in terms of provisions related to Swiss Franc in

Croatia, which has been carrying the highest charges last year.

In Slovenia, we have added some provisions for both slight additions

on legal provisions as such, but also provisions for our assumed

acceptance of the voluntary settlement offer for socially vulnerable

customers, which was, I believe, announced on 8 April, and where

we and a few other banks are actually proposing that. This has also

been positively commented by the banking association, of course,

but also the Ministry of Finance.

When it comes to verdicts on Swiss Franc legal claims in Slovenia, I

think it's worthwhile to mention that there has been a positive

Supreme Court verdict recently. Now, it's still too early to say how

this will affect the rest of the claims, but this is at least a good

start, I would say, closer to the right direction in terms of legal

stability.

Constantin Gussich

Then the second question from Aleksandra from Agri Europe Cyprus.

What is the level of NPL ratio overall and on SME segment?