Alpha Services and Holdings, the parent company of Alpha Bank (ALPHA.AT), reported a robust first-quarter profit of €211 million for 2024, marking the highest earnings the bank has achieved since the third quarter of 2007. The bank has expressed confidence in its full-year outlook, expecting to maintain strong performance with a 13% return on tangible equity and €0.31 in earnings per share. Alpha Bank, which has seen a healthy increase in loan and asset management balances, is also looking forward to the resumption of dividend payments from 2023 profits, pending regulatory approval.
Key Takeaways
- Alpha Bank reported a Q1 profit of €211 million, the highest since Q3 2007.
- The return on tangible equity stood at 13.5%, with earnings per share of €0.09.
- Loan and asset management balances grew, with a capital buffer of over 16% accounting for pending transactions.
- Alpha Bank has requested to resume dividends, intending to pay €122 million through cash dividends and a buyback program.
- The bank is investing in human resources and digital capabilities, with 25% of sales made through digital channels in Q1.
- The partnership with UniCredit is on track, contributing to the bank’s strategic growth.
- Positive trends in net interest income and fee income, with an 18% year-over-year increase in fees.
- Asset quality remains stable despite reclassification of state-guaranteed loans to non-performing exposures.
Company Outlook
- Alpha Bank expects continued improvement across key metrics and aims for around 14% profitability.
- Full-year outlook remains positive with anticipated returns of 13% and €0.31 earnings per share.
- The bank plans to distribute €1.1 billion in the next three years through dividends and buybacks.
Bearish Highlights
- Increased hedging costs and issuance of a senior preferred instrument impacted the top line.
- Higher wholesale funding costs and hedging strategy adjustments are expected to continue affecting financials.
- Loan volumes are expected to offset increased deposit costs.
Bullish Highlights
- Strong organic capital generation supports the plan for significant capital distribution.
- Robust growth in fee income, particularly from asset management and bancassurance.
- Positive asset quality trends and strong collateral backing for loans.
Misses
- Certain exposures were transferred to Stage 3 and provisions were made to meet supervisory expectations.
- Full-year guidance suggests a 5% lower net interest income for 2024, although trends suggest potential tailwinds.
Q&A Highlights
- The bank aims to reach €50 billion in deposits by the end of the year.
- Servicing fees are expected to decrease as non-performing exposures are reduced.
- Securitization expenses will depend on capital optimization opportunities.
- Alpha Bank is developing new initiatives in transaction banking, TCM, ECM, syndicated loans, and FX markets.
- The company confirmed its cost income guidance and expects higher costs in the second half of the year.
Alpha Bank’s solid performance in the first quarter of 2024 reflects its strategic focus on maximizing value for stakeholders and improving operating efficiency. The bank’s confidence in its full-year outlook, alongside its commitment to resuming dividends and its partnership with UniCredit, positions Alpha Bank for continued success in the competitive banking landscape. Investors and customers alike will be watching closely as the bank moves forward with its digital transformation and capital distribution plans.
InvestingPro Insights
Alpha Bank’s parent company, Alpha Services and Holdings, has demonstrated a strong financial performance in the first quarter of 2024. To further understand the company’s market position and investor sentiment, we look at metrics provided by InvestingPro.
InvestingPro Data shows a market capitalization of $4.36 billion, underscoring the bank’s significant presence in the market. The Price/Earnings (P/E) ratio, a key indicator of market expectations about the company’s earnings growth, stands at a low 6.59. This suggests that the stock might be undervalued compared to its earnings potential, a point further supported by an even lower adjusted P/E ratio for the last twelve months as of Q1 2024, at 6.47. The bank’s revenue growth is also notable, with a 10.28% increase over the last twelve months, reflecting the bank’s ability to expand its financial base.
Among the InvestingPro Tips, two are particularly relevant to Alpha Bank’s current performance and outlook:
1. Analysts predict the company will be profitable this year. This aligns with the robust first-quarter profit reported by Alpha Bank and supports the bank’s positive full-year outlook for 2024.
2. The company is trading at a low earnings multiple. This could be an attractive point for investors, as it suggests the stock may be undervalued relative to its earnings capacity, potentially offering a buying opportunity.
InvestingPro offers additional insights into Alpha Bank’s financial health and future prospects. For those interested in a deeper analysis, there are 6 more InvestingPro Tips available which can be accessed by visiting the dedicated page at To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, allowing you to stay ahead with comprehensive data and expert analysis.
Full transcript – Alpha Bank AE (ALBKY) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Alpha Services and Holdings’ conference call to present and discuss the first quarter 2024 financial results. All participants will be in listen-only mode, and the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Alpha Services and Holdings’ management. Gentlemen, you may now proceed.
Iason Kepaptsoglou: Hello, everyone. I am Iason Kepaptsoglou, Alpha Bank’s Head of Investor Relations. Thank you for joining us. As usual, Vassilios Psaltis, our CEO, will lead the call, summarizing Q1 and providing you with a few updates on the outlook. And then, Lazaros Papagaryfallou, our CFO, will take the floor to take you through this quarter’s numbers. As ever, we will take Q&A in the end, and we hope to finish within the hour. Vassili, over to you.
Vassilios Psaltis: Thank you, Iason. Good morning, everyone, and thank you for joining. Let’s start with the Q1 results on Slide 4, please. This quarter, we are very proud to have delivered €211 million in profit, which is, please note, the highest number reported since the third quarter of 2007 in the onset of the global financial crisis. We have delivered a 13.5% return on tangible equity and €0.09 of earnings per share for our shareholders. Our operating performance has been fueled by growth in our top line, marked progress in fee income generation, solid management of operating leverage and a continuing improvement in provisions. We continue to grow our loan and AUM balances and position the business to maximize the recurring value we can create for our stakeholders. Our capital buffers continue to grow on 68 basis points of organic capital generation, reaching a reported level of 14.6% in Q1, or above 16% when accounting for the completion of pending transactions. And these numbers are net of a 35% accrual for dividends out of 2024 profits, which is up from the 20% accrual of 2023. Recently, we have also submitted our request to the supervisor for the resumption of dividends out of 2023 profits with an intention to pay €122 million, equally split between a cash dividend and a buyback program. We expect to receive a response early in the summer. Moving on to Slide 5. This is a reminder that we expect to maintain this trajectory of constant improvement across all key metrics over the coming years. Our profitability should grow towards a level of around 14%, our earnings per share and book value should trend higher, whilst we continue building solid capital buffers throughout the plan, allowing us to maximize the value we can deliver to our shareholders. The trends we have experienced in the first quarter reconfirm our outlook for the year. It is still early days, but risks appear to be tilting to the upside. Interest rates are hovering slightly higher than what we had budgeted for. Concurrently, we’re experiencing a smaller-than-anticipated increase in retail funding costs on accounting of a slower-than-expected transition to term deposits. As a result, we are confident in the full year 2024 outlook for 13% returns and €0.31 of earnings. On to Slide 6, please. We remain focused on maximizing the value that we can add to our stakeholders. Our balance sheet positioning, our franchise strengths, our partnerships, our focus on operating efficiency and our efforts on asset quality underpin our promise to deliver profitable, self-sustained growth. This should allow us to deliver 30% of our current market cap to shareholders in distributions, subject to regulatory approvals while still leaving us with 40% of our current market cap in excess capital. In our recent application to the supervisor, we reinstate shareholder remuneration for 2023 profits, we have opted to ask for half of the distribution to be in the form of buybacks. As we are cognizant of the fact that a good part of our investor community put significant weight on the existence of cash dividends, so we have incorporated that in our decision. At current levels, however, the return on our buyback program, indeed, far outweighs other possible alternatives even under the more stringent criteria, making it the best use of funds for our shareholders. And with that, let’s move to Slide 7, please. Following our Investor Day in 2023, we have continuously updated you on the progress we are making on the various faucets of the plan. On our full year results, we focused on the six main pillars of our strategy, and today, I would like to give you an update on our two enablers: human resources and digital. It is important to remember that our plan hinges on these two critical elements. An increasing portion of our revenue growth and diversification rests upon digital sales of products. Physical sales are also increasingly enabled by our digital capabilities. And then again, we’re operating in a competitive job market, and our HR proposition is pivotal in enabling us to attract and retain talent as well as to ensure that our people have the right skills, the right mindset, and we are aligned to produce the desired outcomes. Moving on to Slide 8. As you can see, we have reshaped our HR landscape, introducing a number of new roles spanning HR strategy, organizational effectiveness, talent management, change management and more. This redefinition has allowed us to allocate HR business partners across all business units, ensuring strategic alignments and tailored support. Through automation, via our new self-service platform, we have embarked on the review and streamlining of processes, enhancing efficiency across the board. Moreover, our focus on attracting and nurturing talent has resulted in circa 400 new hires over the past year, 190 of which were in the front-facing and digital teams. To cement a high-performance culture, we have implemented a combined variable plan, introduced a new talent retention scheme and integrated linked business unit targets with our business plan. Investing in our employees’ growth lies at the core of our strategy. We have witnessed a significant uptick in training hours and enrollments, signaling our commitment to learning and development. Flexible career paths have been introduced, offering employees a dual career option and through the reduction in organizational levels, we further foster agility. Establishing job profiles for all unique roles across the organization and clustering them into job families facilitates seamless internal mobility. Building robust succession pipelines demonstrate our dedication to nurturing future leaders. At the heart of our employer value proposition lies our new culture as expressed through the Alpha Way. We’ve commissioned a group of senior leaders, what we call champions, in a number of transformative initiatives aimed at embedding our new purpose and values in everything what we do. Our dedication to diversity, equity and inclusion is evidenced through the implementation of a comparison strategy, along with initiatives empowering women and fostering financial inclusion. Additionally, our commitment to employee communities of change is an excellent example of our strong belief in fostering collaboration and driving change from within. Through these three pillars, we are not just transforming HR, we are shaping a future where our employees can thrive and achieve our cascaded business plan goals guided by purpose and inclusivity. On Slide 9, please. We have made significant progress in advancing our digital offering. Our products are built upon a core banking system that was transformed as recently as 2018 and is based on modern standards and cloud-native technologies. Our in-house digital factory team is fully established with new processes and new ways of working. Alongside them, we have two centers of excellence for CX/UX and advanced analytics. This backbone has allowed us to launch a series of products and services and to redesign existing digital journeys to increase uptake and boost our sales capabilities. Our investments on translating [Technical Difficulty] as of the first quarter of the year, 25% of our sales are made through digital channels, reaching our year-end targets ahead of schedule and paving the way to outperform our target of getting to 30% by the end of next year. More than 80% of daily banking services are currently digitized. And we expect to reach 100% by the end of next year, while active users continue to increase. And of course, transactions are almost fully digitized. Let’s briefly look at one practical example on Slide 10. We were the first bank in the market with a digital solution, allowing parents to provide their kids with pocket money called myAlpha Vibe. Despite a short life, the application has already received numerous awards, and it’s not hard to understand why. Teenagers are introduced to banking in a controlled manner, improving financial inclusion, providing them with a solution that is both safer than cash and in tune with the times. Parents have the flexibility of reloading the card remotely while overseeing transactions, and placing safeguards around certain types of transactions, such as betting or alcohol. You can find more details on products that we have launched for retail clients and businesses in the appendix of this presentation. Lastly, from my side, a brief update on our partnership with UniCredit on Slide 11. The various faucets of the transaction remain on track, with Romania expected to close later in the year. The launch of UniCredit’s investment products through one market in early summer and AlphaLife on track for the first half of 2025. On the wider commercial agreement, we have already completed 14 trades on trade finance guarantees and letters of credit, have launched a structured market-linked deposit targets to our gold customers and are working more closely on clearing, trading and treasury, factoring as well as brokerage. We still have a lot of ground to cover, and we’ll continue to update you on the progress that we make. As a reminder, we expect the transaction to be EPS neutral, not including any potential upside from the commercial agreement, we’re adding more than 100 basis points to capital. Lazaros, the floor is yours.
Lazaros Papagaryfallou: Thank you, Vassilios. Let’s go to Page 13, please. This quarter, we are reporting a positive bottom line of €211 million, which, as Vassilios mentioned, is the highest in the last few years. Excluding one-offs, normalized profits came in at €222 million, up 3% versus the previous quarter and 37% versus Q1 of last year. Slide 14, on our balance sheet. Our tangible book value grew 13% year-on-year, whilst our regulatory capital is up 13% over last year’s levels. Remember that tangible book value has not yet reflected the intended dividend payments, which have been accrued in our regulatory capital position. Slide 15, on the main profit and loss components. Net interest income has expectedly turned a corner this quarter, but we have been able to offset this by retaining a high level of fees, maintaining our cost discipline and having a strong quarter in terms of cost of risk. Turning now to Slide 16 to start digging into the details. Higher loan volumes have offset the increase in deposit costs that have, however, come in somewhat better than expected as the mix and overall beta on deposits continues to increase slowly similarly to the market. Growth in reinvestments in our securities book continue to add to the top line. The decline in our top line this quarter is thus largely attributable to increased hedging costs alongside the issuance of a senior preferred instrument in the earlier part of this quarter. Slide 17 serves as a reminder of the drivers of our top line going forward based on our business plan assumptions. We expect the drivers of this quarter to more or less persist over the coming months with loans and deposits on the commercial side netting off, and some help from the growth and reinvestments in our securities book being offset by higher wholesale funding costs. As rates have stabilized, our relative positioning is becoming apparent with our quarterly performance in line with our peers. As rates move lower, we expect to see lower deposit costs, a positive delta from hedging as well as a lower cost for our interbank position. Slide 18 on fees, which are up 18% versus last year with growth across all categories, especially on elements that reflect our franchise differentiation. Higher activity on disbursements and loan guarantees has led business credit-related fees higher. The growth in higher-margin AUM balances is getting reflected in asset management fees, and bancassurance is benefiting from new product launches with our market share in this segment having grown by 6 percentage points in the past two years. Cards and payments fees continued to perform well, reflecting the rollout of increased digital capabilities, including digital cards and transaction boundaries. Slide 19 on costs. Quarterly performance is explained by the write-back recorded in Q4 related to the single resolution fund contribution. The carried costs came in 2.5% better year-on-year on lower resolution fund charges, lower IT expenses, maintenance and building costs and higher staff costs, reflecting inflation and variable remuneration accruals. Depreciation was also higher on a year-on-year basis on IT investments and digital transformation. Slide 20, on loans. Our performing loan balances are growing at 6% on an annual basis while we continue to meet our profitability threshold for disbursements above 50%, with this quarter, landing above the average of 2023 as well as the fourth quarter of last year. Repayments remain elevated given the prevailing interest rate environment, partially explaining the drop of corporate deposits in the quarter. The pipeline for the year remains solid and we are maintaining our guidance. Turning to Slide 21, in deposits that have seen the typical seasonal decline. Deposit outflows from individuals have remained under the management of the bank as they have been largely converted to predominantly high-margin asset management products. The drop in corporate deposits reflects, as mentioned, loan repayments as well as investments from corporates. Importantly, despite the drop in balances, the proportion of time deposits has remained stable in the quarter at 25% of the total increase in line with the sector trends. And with that, let’s move to asset quality on Slide 22. As highlighted with full year results and following guidance from SSM, this quarter, we have reclassified the portfolio of state guaranteed loans to NPEs in line with supervisory expectations and our internal policy. The inflow has been more than offset by robust levels of curing activity and has not affected our cost of risk. This quarter’s ordinary cost of risk has, however, been affected by the inclusion of a €29 million provision for a perimeter that has been earmarked for sale, leading to a potential further 25 basis point reduction in the NPE ratio. The overall cost of risk, excluding the impact from this perimeter, would have landed at just 38 basis points, benefiting from strong curing activity. And then finally, on capital, on Slide 23. Our organic capital generation was strong for another quarter at 68 basis points despite the payment of the AT1 coupon this quarter. We continue to fund growth through internal means whilst our capital generation capacity is further levered through the recovery of deferred tax assets. Other capital elements include the provision of circa €12 million for the calendar provisioning impact from the reclassification of state guaranteed loans to NPEs while transactions did not have a material impact this quarter. Note that as mentioned by Vassilios, we are accruing 35% of profit for dividend payments so our 14.6% core equity Tier 1 ratio is net of that, while pro forma for remaining transaction, it stands higher at 16.2%. And with that, let’s now open the floor for questions.
Operator: [Operator Instructions] The first question is from the line of Iqbal, Nida with Morgan Stanley. Please go ahead.
Nida Iqbal: Hi, thank you for the presentation, and congratulations on the great set of results. My first question is on the 2023 payout and the proposal for a 50% cash dividend and the 50% buyback. Just wanted to understand the rationale a bit better, and importantly, to the extent that you can comment, is there or could there be any regulatory hurdles to a full cash payout and — as part of the buyback related to that in any way? And also, how should we think about the next two to three years in terms of payouts, cash versus buyback? So that’s my first question. And the second question is on asset quality and cost of risk. Clearly, cost of risk is trending well below guidance. So is there upside? Is there a potential for an upgrade later on in the year? Any color there would be helpful. Thank you.
Iason Kepaptsoglou: Okay, obviously, the cost of risk guidance, Lazaros, maybe you can start with that and then we can discuss on the payout in case Vassilios wants to add something.
Lazaros Papagaryfallou: Hello, good morning, again. Indeed, we have experienced benign asset quality trends in the first quarter of the year. And as you have seen, the provisions of the first quarter included, among other things, an extraordinary charge for a sale perimeter of €29 million, excluding which the underlying cost of risk would have landed at 38 basis points. Overall, we do see the good trends of the first quarter organically continue throughout the year. And we are confident that numbers will trend within our guidance for 2024. We are not changing our guidance at this point in time. We want to have more data points through the year, and we will be providing more background at the end of the second quarter with the results.
Vassilios Psaltis: Now as far as the structure of — the intended structure of the payout is concerned, as we said, we have submitted that to a regulator. This is subject to approval. The idea is the following. Number one, Alpha Bank always had a trusted followship among shareholders that look at the yield on the cash dividend. This is something that we have repeatedly said in the past. Alpha Bank has been the only listed group company, which has uninterruptedly paid a dividend from 1949 until the onset of the Greek crisis. Second point is that we have taken the conscious decision to split it and include the buyback option because we feel that this is the one legitimate case where management can make a statement about how it feels about the valuation of its stock. And this is a tangible way of expressing that we feel that there is a mismatch between what we feel is the internal value of our stock and what the market shows. Now if that is the case going forward or not, obviously, this is part of circumstantial case. So this decision would be taken up on due time.
Lazaros Papagaryfallou: If I may add Vassilios on your comments, there was a question about regulatory hurdles for cash dividends or buybacks. Obviously, we do expect the decision from the regulator early June. So that is an important milestone. We have applied for a 50% cash dividend and a 50% buyback for the reasons Vassilios explained. As long as the total remuneration to shareholders is within our capital planning, there is no preference from the regulator with regards to the split between a cash dividend or a buyback. You need to move within the total remuneration that has been included in the capital planning submitted to them. And as far as the mix in the coming years, to start with, I remind the target that we have communicated with the fourth quarter results that we want to distribute, one way or another, €1.1 billion in the next three years. And obviously, this is a pool which is going to be used subject to regulatory approval, for both cash dividends and buybacks. The mix will be determined down the road depending on market conditions, the evolution of our share price and alternatives for the uses of our capital.
Nida Iqbal: Thank you very much. Very clear.
Operator: The next question is from the line of Ismailou, Eleni with Axia Ventures. Please go ahead.
Eleni Ismailou: Good morning, and congratulations for this very strong set of results. I’ve got a couple of questions from my end. The first one is with regards to the state guaranteed loans. I was wondering why have you taken a different approach to your peers and reclassified them to NPEs? And now the second question is whether you could give us — whether you could help us understand a little more with regards to your hedging strategy in terms of hedges against the non-maturing deposits. What is the current size of the position? And how this has changed quarter-on-quarter? And whether you expect it to increase further? And how should we think about its mechanics, vis-à-vis, the changes in interest rates? Thank you.
Iason Kepaptsoglou: Okay. I guess Lazaros both of those are for you for — in terms of the peers on state guaranteed loans and hedging strategy.
Lazaros Papagaryfallou: Yes. Eleni, thanks for the questions. On state guaranteed loans, there was a supervisory expectation for the loans guaranteed by the Hellenic Republic, which are reported to SSM now as non-performing exposures. As per our internal policy adopted back in 2018, we have equalized the treatment of defaulted loans with impaired loans as well as NPEs under EBA definition. So it was a one-way street for us as long as they are reported as NPEs to the regulator, we do reclassify to Stage 3, and we report them as a Stage 3 loan. So there is no difference between the IFRS treatment and the regulatory treatment. Now with regards to those loans, the balance that we have transferred is €0.1 billion. That is the total amount we had in our Stage 1 and Stage 2 for those exposures and has now been transferred to Stage 3. We have also taken a calendar provisioning to reflect the phasing as per the supervisory expectations. We do expect to see good recoveries because there’s strong collateral behind those exposures, and 75% of these exposures are mortgage loans. Now, with regards to the hedging strategy that you have asked, on top of the natural hedges that we have been building since early 2023 to reducing the registration sensitivity, we have added €4 billion of overlay receiver derivatives year-to-date against non-maturing deposits, capitalizing on the high rates observed in the first quarter as market repriced the rate cuts from the end of the year. The current yield of these derivatives is 3.3% and the quarterly run rate is €7 million. And to give you a sense for the sensitivity, for every 25 basis points that Euribor is lower, this number will be improving by €12 million annually. And as we have communicated also on our previous calls, the amount of overlay derivatives is a function of natural hedges, plus the total amount of first demand deposits that we’re having. Our current ratio of fixed rate assets to first demand deposits is circa 75% from 40% in the end of 2021 as we have been gradually increasing fixed rate assets and converting fixed rate liabilities to floating. If the conversion of first demand deposits to time materializes as we have in the budget, this ratio will be above 100%. Now on your question, whether overlay derivatives will be increased? This is a function of balance sheet developments as well as macro, given the timing and depth of cuts is a very unknown parameter.
Eleni Ismailou: Excellent. This is all very clear. Thank you very much. And again, congratulations for the great set of results.
Operator: The next question is from the line of Kemeny, Gabor with Autonomous Research. Please go ahead.
Gabor Kemeny: Hi. A question on the NII outlook, please. The NII has been trending pretty well in the first quarter. I think you were guiding for NII down 5% for the year. I think in Q1, you were 7% above that if I annualize the Q1 result. So, how do you think about the guidance at this stage? Maybe you can give us a sense of how you expect NII to develop in the next few quarters? And the other question I had is a follow-up on the buyback. Is there any upside — I mean, is there a chance that you might be able to do buybacks above the 35% accrual? Maybe you can walk us through with the moving part around meeting your MREL target and doing potentially more buybacks? Because, as you say, this seems to be a very sensible investment.
Lazaros Papagaryfallou: I will start with the latter question on buybacks. We have provided a guidance on the payout until 2026. So for 2023, it was 20%. For 2024, it’s 35%, and the coming two years, it is 50%. That is the total remuneration to shareholders, including cash dividends and buybacks, which if you take into consideration our projected business plan targets, may lead to €1.1 billion of total remuneration, which is a good part of our existing market cap. At the end of that period, 2026, we will be having significant excess capital at €1.5 billion for which we have not given yet any guidance on how that may affect total payout. So for the time being, I think you should stick to the payout that we have portrayed until 2026 year-by-year, which make up 30% of our market cap. And you should factor in the fact that by the end of 2026, we project to have another 40% of our existing market cap in excess equity. And we will be giving more data points as to the uses of the excess cash as we implement our business plan and we engage in the supervisory dialogue. The first question was about net interest income. Indeed, in anticipation of higher rates and deposit betas by year-end 2024, early March, we have given a full year guidance for the year for 5% lower NII in 2024. And I remind that we have based our guidance on an average Euribor and DFR at 3.5% and a deposit beta of 24%. We have also provided sensitivities on rates, deposit betas, loan growth, wholesale spread. The trends year-to-date suggest some positive tailwinds on the back of these drivers, so we’re moving within our guidance. We have started the year with good loan volume trends versus the market, new disbursements 25% higher in household lending and 9% in businesses with a risk-adjusted return standing at 17% versus an average of 16% in 2023. Loan contribution in net interest income increases nicely and offsets high deposit costs. Securities income grows as new investments and reinvestments of the stock contribute towards a higher net interest income, offsetting higher wholesale funding costs. And the deposit mix is shifting lower to time deposits than initially expected, and deposit beta moves slower from 15% to 17%. The first quarter NII drop at 4% is mainly attributed to calendar days, hedging costs and the front-loading of our MREL issuance in the first quarter. These drivers explain the bulk of the first quarter movement, and I believe this is a trend in line with the market. We will give more color for the outlook in the second quarter results, but we are not changing guidance now nor we are marking to market our NII guidance every 12 weeks.
Gabor Kemeny: That all makes sense. Thank you very much.
Operator: The next question is from the line of Sevim, Mehmet with JPMorgan. Please go ahead.
Mehmet Sevim: Good morning. Thanks very much for your time. I have one question on the Romania sale, please. If you could just update us where you are now in the sale and when we could expect the closure to happen? And the reason I’m asking is because if you look at your pro forma CET1 accounting for all the remaining transactions, including Romania, it’s at 16.2%. And clearly, it’s very strong. And if we consider this, I’d like to ask what your latest thinking would be on an accelerated NPE cleanup from here through inorganic sales? Has your view changed now, given where your peers are versus Alpha Bank and if you could share any further details on that, that would be helpful, I think? And just one clarification on the buyback. So I understand we expect the communication from the ECB in June. So, can I therefore ask what the timeline would be related to the buyback itself so when you would expect it to launch and finish? That’s all for me.
Vassilios Psaltis: I’ll take the last technical question, and I’ll let Lazaros take Romania and maybe on the potential for accelerating NPEs. With regards to the buyback, obviously, first, we need to get the supervisory approval, which is going to come in the early summer. And then we would certainly to put a resolution through the AGM and expect approval. The AGM is scheduled for late July. The buyback would be able to start thereafter. And obviously, the length or the duration will depend on various faucets, and I don’t think we ought to be commenting on that currently. With that to Lazaros for Romania and potential inorganic or maybe you want to…
Iason Kepaptsoglou: I’ll take the Romanian part. In Romania, we’re working hand-in-hand with our partners at UniCredit. And we are working according to schedule. The idea is that we will be able to get the respective benefit by year-end into our accounts. We have a couple of milestones ahead of that, but we have delivered a strong preparation on this one, and we don’t have any information that would make a sign away from this target.
Lazaros Papagaryfallou: Yeah. On your question on NPE cleanup, you have seen us doing one more transaction that we have classified in the held for sale that in the fourth quarter of 2023. And we are upsizing this by €100 million or so. So, we do have, in the pipeline, €500 million of an additional sale perimeter to be transacted in 2024, thus leading the NPE ratio lower to 5.7% level. And as we have guided in previous quarters, we are now taking a more opportunistic stance on transactions in the sense that we don’t have any bulk, big, jumbo securitization transactions in front of us, but we have bits and pieces over Alpha Group in order to affect transactions in the range of €100 million or €200 million when opportune, as we have also expanded the ecosystem of our counterparties, and we have agility and flexibility to transact in various asset classes. So, whenever we see that opportunity, we will definitely tap on it with a view to decrease NPEs below 5%, and get it towards the targets we have in the business plan and European average.
Mehmet Sevim: Okay, that’s very clear. Thanks very much.
Operator: [Operator Instructions] The next question is from the line of Memisoglu, Osman with AMBROSIA CAPITAL. Please go ahead.
Osman Memisoglu: Hello. Many thanks for your time and the presentation. Just on the performance on fees, which was quite impressive, could we say other than NII and cost of risk looking like upside risk, could fees also be an upside risk opportunity for 2024? And any color how you would expect fees to perform post the collaboration with UniCredit starting? I believe you said summer. Thank you.
Lazaros Papagaryfallou: Indeed, in fees, we had a strong quarter. On a year-on-year basis, you have seen healthy growth across categories on the back of higher loan disbursements in both retail and wholesale, other loan-related fees and credit business like LGs performing good. We have seen also a very healthy increase of asset management fees on the back of a very strong increase in our AUMs, especially those that relate to higher-margin mutual funds manufactured by our product factories. We have seen a growing presence in the bancassurance market. As I said, we have increased in the last couple of years, our presence there by a few percentage points in terms of market share. And we’re doing more progress on transaction banking and payment fees. Having said that, we do aspire to higher fees. And we are now working with UniCredit on various initiatives that relate, not just to the core of our commercial partnership that has been announced, that is asset management and bancassurance in AlphaLife products. We also work together to develop propositions for transaction banking, TCM, ECM, the syndicated loan market, FX. There is a series of initiatives currently, a factory at the level of the operating teams that work in order to increase the ambition to levels that can be communicated to you later on as those initiatives crystallize and can carry a financial envelope that we will be able to communicate later on to the market.
Osman Memisoglu: Understood. Thank you very much.
Operator: The next question is from the line of Nellis, Simon with Citibank. Please go ahead.
Simon Nellis: Hi. Thanks for the opportunity. A few quick ones for me. Firstly, just a clarification on the buyback. I assume this is the case, but can you just confirm you’re looking to cancel the shares if you do get approval and you — once you buy them back? That would be my first question. Second question, more technical. Just on the servicing fees and securitization expenses that you show in your risk cost, what’s the long-term trajectory expected on these, will these fade out over time? That would be my second question. Yes, I guess those are my two questions. Thank you.
Lazaros Papagaryfallou: On your first question, yes, the idea is to cancel shares after we affect the buyback. On your second question about the long-term outlook of servicing fees and securitization expenses, on servicing fees, there has been a reduction in the last couple of years because the stock of non-performing exposures goes down. And that is the medium- to long-term outlook that you should take into account as NPEs and assets assigned to our servicer, Cepal, go lower, this line will trend lower in line with the drop of nonperforming exposures. As far as securitization expenses are concerned, we have been using securitization from performing exposures across asset classes, be that corporates, shipping and looking also into mortgages in order to reduce RWA density on these portfolios and improve the risk-adjusted return on capital of the various business segments. That obviously improves the risk-adjusted return and enable them to compete more effectively in the market with a lighter capital allocation. We will be using this tool in order to affect capital optimization going forward, as long as the cost of doing that transaction, especially the post-tax cost is much lower than the cost of capital of the bank, which raising capital in essence, since synthetically in a very efficient way. So, depending on the cost of the securitizations and the opportunities to further optimize RWA density, you would expect to see us incurring such a cost over the coming years.
Simon Nellis: Thanks very much for that. Actually, just one last one on funding. So, I think you’re targeting €50 billion of deposits by the year-end, but you were down 2% year-to-date to €47 billion, or just over €47 billion. How do you see funding issues going forward from here? It seems that deposit growth is a bit weak, which is seasonal, or do you still think you can get close to that €50 billion target by year-end? Thank you.
Lazaros Papagaryfallou: The deposit trends in the first quarter are typical of first quarter performance, both in retail and wholesale and are in line with the market. Actually, in wholesale based on Bank of Greece data, we have increased our market share in corporate deposits. Whereas in retail, if you take into account the conversion of retail balances to mutual funds manufactured by our product factories, we are flattish quarter-on-quarter. In corporates, what we have seen is the usage of cash and liquidity for the prepayment of some facilities. That is accounting for 1/3 almost of corporate deposit outflows. The rest relates to the business objectives of our corporate customers, especially some bigger customers who are implementing their own plans, plus some seasonality that you always observe in the first quarter of the year compared to the year-end. In retail, as I said, it’s the conversion of deposits to target maturity and mutual funds that have a higher margin for us, north of 2%, that we have promoted quite aggressively in the first quarter of the year with great success, as you can see in the numbers and also on a relative basis with the market. The way we will balance AUMs and deposits in the coming quarters is something we dynamically discussed at the asset liability management committee, depending on rates, investment appetite and alternatives for our customers. We do not expect any deviation from the business plan targets that we have on the way, our balance sheet is funded.
Simon Nellis: Okay. Thank you very much.
Operator: The next question is from the line of Souvleros, Andreas with Eurobank Equities. Please go ahead.
Andreas Souvleros: Hello. Congratulations for the set of results. Most of my questions have been answered, so I have left with a quick one. It’s the topic of expenses. You have guided for an annual growth rate of circa 1.4% annually. But in your first quarter, you experienced a year-on-year reduction of circa 3%. Is this an indication for the rest of the year, which may lead to an update in your guidance?
Lazaros Papagaryfallou: Thank you for the question. We have guided for a cost income around the 40% level for the full year. And typically, the first quarter is more benign in terms of costs. Of course, we have managed the cost base in order to counter the impact of inflation and increased investments on both human capital and technology. That’s why you see recurring costs going down to 2.5% year-on-year. We do expect higher costs in the second half of the year. So, we stick to our guidance for the cost income at the levels we have portrayed in March.
Andreas Souvleros: Thank you very much. Very clear.
Operator: The next question is from the line of Nigro, Alberto with Mediobanca (OTC:). Please go ahead.
Alberto Nigro: Yes, thanks for taking my question. Just a follow-up question on AUM. We saw a very strong performance this quarter in assets under management. If you can give us more color on your strategy going forward on asset management and how you will grow in this segment? Can we assume that a portion of the current term deposits can become AUM in the coming years when rates go down and if you are thinking to gain more market share from your competitor in this segment? Thank you.
Vassilios Psaltis: Well, our strategy in terms of asset management, which we, I think very clearly articulated when we had — back our Investor Day, it launches upon a variety of issues. Number one is that, indeed, we have the customer. We are the strongest represented bank in the affluent space, which is the customer cohort, which is much more prone towards a canal to great concept as far as its financials is concerned. And given the fact that in Greece, following this protracted financial crisis that we have been having, the issue of reestablishing trust was quite important. We felt that we have done all the right moves in order to do that, both in terms of providing the right set of relationship managers in order to build and cultivate that relationship as well also with the product platform that is related to that. In particular [Technical Difficulty] element, we do have high hopes from the implementation also of the UniCredit bundle of one market, which we are about to soft launch in the summer and then having the formal launch in September. That will amplify the options that our customers is having. So with an investment penetration, which is still one of the lowest in Europe, we do have high hopes as long as the situation in Greece continues and we don’t have any sort of adverse situation in the market, we will be able, quarter-by-quarter, to continue this trend. The last point that I want to mention is that one of the key reasons for change in the operating model in our retail is exactly that, is to free up capacity from transaction-related elements. And you’ve heard before that we are almost taken completely out of the branch the transaction element and freeing up this time in order to devote to our customers, the good part of which will go into speaking to them for their asset allocation and for the choice of investment programs — products.
Operator: Mr. Nigro, are you finish with your questions?
Alberto Nigro: Yeah. Thank you.
Operator: Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Vassilios Psaltis: Well, thank you very much for taking the time to participate in our entire call and your active engagement, and we’re very much looking forward to catching up with you in the early August with our first half results. Thank you very much, and have a good day.
Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
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