National Bank of Greece: Profitability accelerated in 3Q21

The economy is recovering much faster than expected from the pandemic crisis. Many indicators of activity have already surpassed their 2019 levels, while others, such as tourism, have exceeded expectations, especially in late summer and early autumn. The two key sources of uncertainty are the most recent wave of Covid-19 cases, and the capacity-constrained supply, creating cost inflation, especially in the energy sector. Both factors should be temporary and with the support of Government measures should not significantly impact GDP growth expectations for Greece, updated to 7.5% in 2020 and 4.3% in 2022, while inflation will recede quickly and average 2.5% in 2022.

NBG’s third quarter performance reflects both the impact of the strongly recovering economy as well as the multi-year transformation effort, with tangible results as regards balance sheet strength, organic profitability and a thoroughly revamped operating and service model.

On the asset quality front, organic NPE reduction was notable – down almost 1 percentage point in the quarter – with a negligible impact from clients in default 11 months after the end of the Covid-19 moratoria; in contrast, curings continue unabated. As a result, provision coverage increased to a more than comfortable 70% in view of the solid underlying, mostly real estate, collateral. And this despite the continued gradual reduction in the cost of risk to 94bps in 3Q21. Overall, the domestic NPE ratio stood at 11.9%, with the NPE stock settling at 3.7 billion euros and 1.1 billion euros net of provisions. Regarding transactions, Frontier is expected to close in a couple of weeks.

Turning to profitability, the progress achieved in the first half of the year accelerated in 3Q21, with core operating profit up c20% for a second consecutive quarter to 134 million euros, with strong improvements in the top line as well as operating and provision costs. Thus, the 9M21 core operating profit was up by 50% yoy to c8% of tangible equity. Notably, net loan expansion so far in 2021 nears 1 billion euros– among, if not, the best performance of the sector – with high disbursements offsetting unprecedent refinancing from the bond market.

The capital accretive NPE performance, both organic and inorganic, combined with the strong profitability has led the capital ratios higher, to 17.8% and c19% for the CET1 and total capital ratios, pro forma for the closing of Frontier and Ethniki Insurance.

Looking forward, the substantial results from our transformation effort, the revamping of our service and operating model, including the impressive digital turnaround, are coinciding with a unique economic conjuncture, with the confluence of several positive forces: the decade long efforts to restructure the economy along with a global macro rebound and the inflow of significant Recovery and Resilience Funds. We are, thus, well placed to support and advise our clients in achieving their future plans, including through the NBG platform for the RRF “Ethniki 2.0”, with NBG as their partner: the bank of first choice.

PAT from continuing operations increased by 18.1% yoy to 701 million euros in 9M21, on the back of improved core income (+6.3% yoy), strong trading gains arising mostly from our GGBs portfolio (465 million euros), as well as sharply lower operating
expenses (-7.7% yoy). 9M21 core operating profit surged by 50.9% yoy to 324 million euros, confirming we are well on track
to deliver our Group core operating profit target of c490 million euros in 2022, equal to a core RoE of c9%.

NII increased by 5.2% yoy to 853 million euros in 9M21, reflecting improved deposit costs and the utilization of ECB’s TLTRO III facility.  The low-cost liquidity drawn from the ECB, coupled with the repricing of time deposits by 21bps yoy to 10bps in 3Q21 (new production at 7bps), provide support to the NII and NIM, offsetting an ongoing normalization of lending yields. The strong expansion in performing balances is maintained (+€0.8b yoy), driven by total disbursements of 2.8 billion euros in the 9-month period, of which 2.1 billion euros were allocated to corporates. In 3Q21, NII expanded by 2.9% qoq mainly on increased interest income from loans and securities, with NIM improving by 4bps qoq to 213bps.
Net fee and commission income reached 199 million euros in 9M21, expanding by 11.1% yoy. This good performance reflects
the strong growth across all key areas: retail (+7.8% yoy), corporate (+9.5% yoy) and non-core (+34.9% yoy) banking fees. On a quarterly basis, net fee and commission income rose by 4.7% qoq, capitalizing on the Transformation Program initiatives and economic growth. Most notable quarterly movements were witnessed in digital business (+30.9% qoq), cards (+16.2% qoq) and intermediation fees (+13.9% qoq).
Trading and other income reached 410 million euros in 9M21, benefitting by gains related to a GGB swap arrangement with the Greek State (209 million euros), as well as sales of sovereign bonds (mostly GGBs) and the closing of derivative positions totaling 286 million euros back in 1Q21.

Operating expenses decreased by 7.7% yoy to 525 million euros in 9M21, reflecting the sharp reduction in personnel expenses (-14.8% yoy), as the Bank realizes the benefits of the VES launched in 2020, reducing headcount in Greece gradually by c700 employees, of which c200 in 9M21. As a result, the Bank’s operating efficiency has improved significantly, with cost-core-income settling at 49.9% in 9M21 compared to 57.5% in 9M20.Loan impairments amounted to 59 million euros or 92bps over net loans in 3Q21 from 70 million euros in 2Q21, driving 9M21 impairments at 203 million euros, equal to 106bps over net loans.

In International1 operations, the Group reported PAT (continuing operations) of 13 million euros in 9M21 from 8 million euros in 9M20, reflecting lower operating expenses (-12.4% yoy) and taxes.

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