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Article Excerpt
OPERATOR: Good afternoon, ladies and gentlemen. This is the ChorusCall conference operator. Welcome and thank you for joining Alpha Bank's nine-month 2008 financial results conference call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Marinos Yannopoulos, General Manager and CFO, Mr. Michael Massourakis, Group Chief Economist, and Mr. Vassilios Psaltis, Head of Group IR and Corporate Development. Mr. Yannopoulos, please go ahead.
MARINOS YANNOPOULOS, GENERAL MANAGER AND CFO, ALPHA BANK: Thank you very much. Good afternoon, everybody, and good morning for the ones from the U.S. Ladies and gentlemen, we are here from Athens to discuss with you the nine-month results of Alpha Bank. I am going to give you a quick overview of recent developments that affected our business in the third quarter and then I will open the floor for questions from the audience.
If you turn to page four of your presentation, the third quarter was another strong quarter with solid operating performance resulting in a 25% increase in loans and 30% increase in deposits, bringing the loan-to-deposit ratio down to 118%. Furthermore, pre-provision profit increased by 10%. The bottom line, however, was slightly down by 3.6%, following a decision to increase preemptively our impairment charges in light of the rapidly deteriorating economic environment. I have to note here that our portfolio has not shown any signs of deteriorations. However, we consider prudent to build our provisions given this outlook.
Getting to the end of a very difficult year for financial institutions, we at Alpha Bank feel appropriately positioned to face the current market challenges. With historic deposit focus leaving significant funding sources untapped, a defensive loan portfolio and a strong high quality capital base, we can continue to support -- and that I think is very important to stress again -- to support our clients through the economic downturn. Alpha Bank also intends to participate in the Greek government's EUR28 billion economic stimulus package. This will be providing in total approximately EUR5 billion of liquidity for us, of which about EUR800 million will be Tier I capital.
Page five. Ladies and gentlemen, we are experiencing a very tough operating environment in the banking sector with sustained adverse market conditions. The global shutdown of wholesale market is leading to an unprecedented fight for deposits. A number of players that were not traditionally very strong in these fields are competing fiercely through pricing. This leads to an increase in cost of funding across the sector. Furthermore, growing financing and refinancing requirements have led to extensive use of the European Central Bank facility. Moreover, the economic slowdown is added to the liquidity squeeze. On the one hand, Greece should continue to have positive real GDP growth. But on the other, there are capital outflows from Balkan countries and currencies and pressure on their currencies which, if added to an over global economic slowdown, create a highly uncertain environment.
At the micro-level, we expect the slowdown to lead to credit quality deterioration. The Greek government, following other European Union countries has a market and economic stimulus package ensuring continuous support of banking credit to the economy. This includes EUR5 billion of preference non-dilutive shares, strengthening Tier I by approximately 2% for the sector and further liquidity measures of EUR23 billion providing total liquidity to the system of EUR28 billion or about 10% of Greek banking sector's loan portfolio.
Turn page. Alpha Bank, with its defensive characteristic and its focus on bread-and-butter business is best positioned to face current challenges. We are an established bank that will be operating in Greece next year for 130 years. We are historically a deposit collection institution and we enjoy strong brand recognition and customer confidence that allows us to continue funding our business primarily through deposits. Our loan portfolio is defensive in its nature. It has been built through longstanding relationships as Alpha Bank has lived through previous economic downturns.
Overall exposures to more risk areas such as shipping, consumer, and non-Eurozone country lending is lower than the sector average, while the whole portfolio has been built organically with the principles of our long-established credit culture. Nonetheless, we've built up our provisioning levels in light of the forthcoming microeconomic deterioration. Our capital and leverage is very comfortable with only 12 times asset to regulatory capital and our high-quality Tier I of EUR4.2 billion includes only EUR60 million of goodwill and EUR40 million of minorities. And this is against EUR50 billion of loans only.
Page seven. Looking in more detail into our balance sheet structure and overall funding position, we can see that we fund our EUR50 billion loan portfolio with EUR43 billion of deposits and about EUR8 billion of senior bonds. Our interbank exposure is matched by our interbank receivables and cash position and our regulatory equity of EUR5 billion is matched with our secured portfolios accounting for only 8% of our assets. Lastly, our balance sheet has very limited non-banking exposures on both the assets and liability side, with interest-earning assets accounting for more than 95% of total losses. This structures translates into a comfortable loan deposit ratio, as I said earlier, of 118% at the end of September.
Since 2004 we have taken advantage of the cheap funding opportunities largely through senior bonds. This has allowed us to increase our loan-to-deposit ratio from below 100% to over 100%, accommodating the strong growth of our Southeastern European business where the network is only now maturing. Of course, in the future this network is going to attract more deposits and will be self-funded.
Page eight. Our funding profile is supported by Alpha Bank's position in the Greek market as a traditional deposit collecting institution with a longstanding network of more than 400 branches and, as I said, high brand recognition. Our longstanding position is reflected in the high proportion of our EUR15 billion sight and savings deposits, accounting for 37% of our overall EUR42 billion of deposits. Our deposit focus is also starting to show in the growth of our international deposits that registered a 35% increase.
Deposits have been building up quarter by quarter at an average rate of about EUR1.5 billion to EUR2 billion per quarter adjusted, of course, for certain seasonality. In the third quarter, we have accelerated that pace as we are paying the prevailing market rate for term deposits. Furthermore, we have brought on balance sheet our money market fund customers, essentially a time deposit product to benefit directly from this additional pool of liquidity.
Page nine. We have funded loan growth in the nine months using almost entirely customer deposits. By September we had a pool of eligible paper at the ECB facility in the order of EUR3.7 billion. Out of that, our net utilization has been only EUR600 million. And in the course of the next five quarters, we are working on specific initiatives that would allow us to grow this pool of ECB eligible securities in excess of EUR10 billion by the end of 2009.
We have not been tapping on our assets for securitization throughout all these years, so we have a lot of potential to securitize a lot of our asset base. This more than suffices to meet our 2009 maturities of EUR3 billion only and allows for a lot of flexibility, especially if we take into account the EUR5 billion liquidity through the government stimulus package. Of course, we should not and we will not forget our deposit gathering capabilities which I've explained earlier.
Moving away now from funding and looking into our loan portfolio, we feel comfortable with our current exposures. 87% of our portfolio is Eurozone in UK, essentially Greece and Cyprus, of course. 97% of the portfolio is European Union exposures, when Romania and Bulgaria portfolio is included. Only 3% of the portfolio is to non-EU countries, namely Serbia, Albania, the former Yugoslav Republic of Macedonia and our tiny Ukrainian business.
On SEE now, 73% of the portfolio is corporate lending including a large part Greek subsidiaries that are operating in those countries. Mortgages in that region account for 14% while consumer accounts for 13%. On shipping, currently this stands at EUR1.5 billion, but we also have EUR2.5 billion of deposits. In shipping, we have a longstanding track record building relationships through the mid-90s with selected high-quality names. We entertain excellent relationships for more than ten years with these 50 groups to whom we not only lend money, but we also have them as significant depositors.
Over the past two years, we have taken a number of steps to improve our credit underwriting procedures to systematically control loans in areas and we have consistently been writing off bad debts. The outcome of all that is that our non-performing loans have been reduced to 3.5% of our portfolio, the same as of June, but down a lot from a year ago. This is covered through cash provisions by 56% with collaterals covering another 80%, essentially leading to good levels of overall coverage.
Despite our defensive portfolio and our improving asset quality trend, we have deliberately decided to increase impairment charge for the last quarter and bring it to 1% of the loan portfolio or adding in euros an extra EUR50 million to our run rate of approximately EUR70 million per quarter. Looking into the segments of our...
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