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Article Excerpt
OPERATOR: Welcome to the National Bank of Greece Quarter Three 2008 Results Call. My name is Sarah and I will be your coordinator for today's conference. For the duration of the call, you will be on listen-only. However, at the end of the call you will have the opportunity to ask questions.
(Operator Instructions)
I'm handing over to Paul Mylonas to begin today's conference.
PAUL MYLONAS, HEAD - IR, CHIEF ECONOMIST, NATIONAL BANK OF GREECE SA: Good morning and good afternoon to all of you. Thanks for joining us for the Q3 results call. As usual, we'll start with opening remarks from Anthimos Thomopoulos and then we will continue with Q-and-A. So without further ado, Anthimos.
ANTHIMOS THOMOPOULOS, CFO, COO, NATIONAL BANK OF GREECE SA: Thanks, Paul. Good morning and good afternoon to all of you.
I'm shooting ahead straight to the presentation, which you must have received. As you can see, the group had profitable income for the nine months that exceeded EUR1.2 billion. For the quarter, the group netted EUR400 million, pretty much close to what we had netted in the first and the second quarter of the year.
Considering that this is summer, so in a quarter which traditionally is not favored by seasonal trends, and most significantly, of course, that at the quarter end, we had experienced really extreme market conditions. This is, by all means, not a positive result.
Core profitability in 3Q came in at EUR569 million, and this is despite the technically much lower insurance income, and this has to be attributed to the flexibility and the strength of [our size] and weather the difficulties should be the month of September pretty strongly.
NII is up 4% quarter-on-quarter, has gone over EUR900 million. Period ending for the nine months stands at 425 basis. That is unchanged year-on-year. So we had eight months of crisis, plus one month of extreme crisis, and managed to maintain margin steady.
On the quarterly basis, margin went down to 430 basis, practically defying the rise in short-term rates and, of course, the fierce competition that we are experiencing in deposit pricing in the domestic markets.
Operating cost has increased by just 3% year-on-year and has increased by the same percentage quarter-on-quarter. This is mostly attributed to the results of the effect of successful headcount management in prior years.
Efficiency gains have registered across the board. Cost of income is down almost two full percentage points to a record low of 47%. Even in very difficult times, the return on equity has steadied at 25%, a tad lower than the second quarter.
Turning to the second slide of the presentation, again, that quarter is probably the last before extraordinary market conditions. Core profit grew by 35% and that's, I guess, the [higher hit] on expenses, as well as strong NII, are the two main themes underpinning this performance. All regions, and this is also important, delivered excellent results in terms of core profitability. I'll spend a little bit more time on operating expenses. Next slide.
Operating OpEx went up 3% year-on-year and this trend clearly provides additional support to the bottom line. As our expansion abroad is close to completion and given that we continue our operating deleverage in Greece, we expect cost containment to play a crucial role, defending bottom line, as we move deeper in the downturn. In fact, we expect to realize the full benefit of the completed expansion plan starting from 2009.
In all regions, this is particularly important in regions where we anticipate a market slowdown, operating cost growth is below growth in core income and we get into this era of challenging macro environment with a cost-to-income base below 50% across geographies, even those geographies where intensive expansion has taken place throughout 2007 and 2008.
Getting into the balance sheet growth. Balance sheets at the end of the quarter came pretty close to EUR66 million. The loan book grew 7% or by almost EUR4.5 billion in the quarter, and growth spent from 5% to 9% on a quarterly basis. At the same time, cost of funds increased by EUR3.3 billion, broadly funding this long expansion out of a balance of EUR1 billion.
The domestic market, EUR2.2 billion additions in loans, total book is now EUR44.5 billion. Turkey, 36% growth year-on-year to EUR12.2 billion; SEE, over EUR9 billion, net of (inaudible) EUR100 million in the quarter.
In terms of asset quality, we maintain a pretty solid picture. NPLs at the end of the quarter declined to an all-time low at 3.1% for the group. This is 50 basis down compared to a year ago and, most significantly, as we're moving into a more challenging time, coverage is up 78%.
So before taking into account the value of the collaterals and before considering that our book is heavily skewed toward (inaudible - background noise), the coverage is one of the highest in the region. The cost of this for the quarter has gone up 72 basis as we are tightening the internal models in times of deteriorating expectations. All regions, as you can tell, maintain significant coverage. In Greece, we have 77 percent. If we knock off the mortgage book, this coverage goes pretty close to 100%.
I need to mention that the NPLs have declined to 2.7% in Southeastern Europe. Excluding the (inaudible), which are 100% covered, we maintain a coverage of 77%, with provisioning up on a counted basis on the average loan book. In Turkey, coverage is up 80%. Cost of risk, as we have guided in the previous quarter, has been increased to 72 basis from 57 in the second quarter.
The business model, as I said, is heavily geared towards low risk segments and we need to remind people that we are much less exposed to vulnerable sectors, such as SBLs and consumer loans, where we reasonably anticipate the effects of this crisis to be felt first or probably deeper.
In mortgage lending, we are one-fourth of the domestic market. As a matter of fact, we have as many mortgages as our two nearest competitors put together. In corporate lending, if you look at the composition, this is heavily weighted towards the largest corporates of the country, as well as public enterprises and the wider public sector, given the long-term relationship of this bank with the Greek state.
The exposure to construction is minimal. The exposure to shipping is second to none. Probably one of the most defensive portfolios around, with a heavy bias towards the sectors of the shipping industry, like tankers and specialized containers that have felt the effects of this crisis the least.
LTV in our mortgage books across the board range between 40% to 60%, with the average being around 54%. So plenty of room to go before we really suffer. The most significant and differentiating feature of this group, a highly liquid financial institution with a unique funding structure, 70% of that from customer funds. It's worth noting that group deposits are up 17% year-on-year and a full 5% or EUR4.2 billion since the last quarter.
The group deposit ratio went up by a percentage point in the third quarter, up 95%, only to go down to 91% in the month of October and mid-November, else we have been experiencing an influx of close to EUR6 billion worth of customer deposits post-Lehman.
Still, the bank and the group maintain significantly good results, about EUR1.5 billion to EUR2 billion of excess cash and EUR10 billion worth of untouched reserves in terms of government bonds yet to be refinanced with ECB. Other bonds that we have just [written] today, EUR2 billion transfer, to be followed by another EUR2 billion next week. Securitization, which, in terms of -- will be printed in a couple of weeks and a lot of transactions yet to come to the market in terms of if we were to tap the ECB facility of that magnitude.
Turning to capital base in this next slide, not only very strong in terms of capital, as such, but, also, uniquely positioned to generate capital internally. We are probably one of the very few banks to manage to increase the core assets by 50 basis from Q2 to Q3. Upper Tier-one at the moment is 10.4% from 9.9% in Q2, equity tier-one at 8.2%. We need to reiterate that we are actively managing our exposure to FX volatility or the impact of the FX volatility on capital position.
On top of the natural mitigant of risk-rated [passes] devaluation, as regional currencies or emerging market currencies is the regions of Southeastern Europe and Turkey devalue. In the bottom right graph of the slide or the bottom left of the slide demonstrates exactly what the sensitivity of the group's capital base is to Turkey's lira movements.
The position is that even at extreme devaluation scenarios, the likely impact or the likely dent of our capital base is very well contained, even taking away the hedges that we have put on our capital, even if we were to go back to 220 to the euro. Then it would have been 20 basis. If it were to go beyond unprecedented levels of devaluation, the impact would have been manageable. If you take into account the hedges that we have put in place, the impact is practically neutral.
Turning to the outlook going forward, I think it is worth spending one minute or two with Paul to give us a bit of wrap-up on the macro outlook for the region. Paul?
PAUL MYLONAS: Okay. Thanks Anthimos. Clearly, the outlook in terms of activity is far more sobering than in 2007. Going from one region to the next, starting with Greece, outlook for GDP is 1.8%, which is about almost 1.5% percentage points less than the level for 2008. That is among the more pessimistic projections I have seen. OECD came out yesterday with 1.9%, IMF is around 2%. Euroarea of the commission is at 2.5%.
In Turkey, the expectations are for growth of 2.3%. There are some who are more pessimistic than I coming around 1.5%....
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