Eurobank Ergasias Services and Holdings SA

ATHEX:EUROB

Q3-2025 Earnings Call

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome, and thank you for joining the Eurobank Holdings Conference Call to present and discuss the third quarter 2025 financial results.

At this time, I would like to turn the conference over to Mr. Fokion Karavias, CEO. Mr. Karavias, you may now proceed.

[Fokion Karavias, executive]

Thank you. Ladies and gentlemen, good afternoon, and welcome to the Eurobank 9 Months Results Presentation. Together with me is our CFO, Harris Kokologiannis; and the Investor Relations team. We are starting with some key recent developments, then presenting our results and answering your questions.

The macroeconomic environment remains favorable across our core markets, Greece, Bulgaria and Cyprus, which continue to outperform the EU average in terms of growth. In Greece, fiscal performance remains solid, with the debt-to-GDP ratio improving the most among EU member states. At the same time, investments continue to be a key driver of economic expansion. Bulgaria's adoption of the euro on January 1 represents a significant milestone in its economic convergence. These positive trends are supporting banking business overall, and are reflected in sustained credit growth with expansion rates reaching double digits in both countries.

Let's now focus on Eurobank's strategic initiatives. As stated in the past, one of the pillars of our strategy is to diversify our income sources, both geographically across our core markets as well as through our primary business lines, that is banking, insurance and wealth management.

Milestones reflecting this strategy include the acquisition and integration of 3 banks in Bulgaria in the past and more recently, the acquisitions of Hellenic Bank and CNP Insurance in Cyprus. The legal merger of the 2 banks in Cyprus was successfully completed on September 1, and we are now advancing into the operational integration phase. Synergy realization is well underway with the initiatives implemented to date, capturing approximately 40% of the total targeted EUR 120 million envelope.

As part of this strategy, we recently announced the acquisition of the remaining 80% of Eurolife's life insurance operations in Greece, as shown on Slide 7. This transaction carries strong strategic importance, fully aligned with our vision of becoming a leading integrated banking and insurance organization. Eurolife was the natural partner for our group, given our long-lasting collaboration through the bancassurance partnership.

As such, we expect a smooth integration, which will strengthen our capacity to deliver integrated financial solutions to our customers. Eurolife has consistently demonstrated robust and recurring profitability. The acquisition is expected to increase fee and commission income by approximately 12%, or around EUR 100 million, driving the contribution of insurance and asset management to over 30% of total fees. Additionally, the transaction will enhance return on tangible book value by about 100 basis points, and earnings per share by EUR 0.02 before any potential revenue and cost synergies.

Slide 8 highlights our regional insurance presence. ERB Cyprialife commands a 30% market share in Cyprus and Eurolife holds 22% in Greece. In Bulgaria, we continue to operate successfully through a well-established bancassurance model, cooperating with a major European partner.

Now, let's move on to our financial results as highlighted on Slides 5 to 12. Eurobank reported robust financial performance for the 9-month period, achieving an adjusted net profit of EUR 1.058 billion and a return on tangible book value of 16.2%. In more detail, net interest income was up by 4% year-on-year to EUR 1.9 billion, stable quarter-on-quarter, while commissions were up by 24% year-on-year. Core operating profit approached EUR 1.3 billion at par with the previous year.

Loan growth continued unabated with quarterly and 9-month net increases of EUR 1.1 billion and EUR 3.3 billion, respectively, on track to exceed the revised full year target of EUR 4 billion. Deposits were also up by EUR 900 million quarter-on-quarter, and Wealth Management performance has been impressive, with managed funds ending EUR 900 million in the quarter and being up by 32% year-on-year, already exceeding the full year targets.

On our regional operations, performance was strong for another quarter, netting EUR 557 million or 53% of total, highlighting the group's diversified franchise. Cyprus net profit reached EUR 370 million and Bulgaria's EUR 167 million.

Asset quality remained resilient for another quarter at the group level. The CET1 ratio stood at 15.5% and the total capital at 18.9%, following the legacy Tier 2 call in September.

So in conclusion, the 9-month results confirmed our strong track record to deliver organic results as well as take inorganic growth initiatives. Going forward, our priorities are the operational merger of Eurobank Limited in Cyprus and the integration of Eurolife's activities.

On organic performance, the 9-month results were better than our initial plan. We now expect return on tangible book value roughly 1 percentage point higher than the original target that is close to 16%, supported by higher NII and stronger fees. Our dividend policy remains unchanged, so we are distributing an interim dividend of EUR 0.047 per share in a couple of weeks, actually on November 12, and overall, more than 50% of our profits for the year.

At this point, I would like to ask our CFO, Harris Kokologiannis, to present our third quarter results before opening the Q&A session.

[Charalambos Harris Kokologiannis, executive]

Thank you, Fokion. Before start, let me note that reported profit has been affected by EUR 25 million contribution to the school's refurbishment project. This has been offset by the positive impact from additional negative goodwill related with the CNP insurance acquisition in Cyprus.

Let's now provide more insight and look into the third quarter results. Starting on Page 21 on lending volumes. The group continued its solid growth trajectory with EUR 1.1 billion and EUR 3.3 billion in the third quarter and 9 months, respectively. Corporate loans in Greece and mortgages in Bulgaria were the primary drivers of this increase. In Greece, there are signs of increased activity for mortgage lending as we are experiencing net growth for a second consecutive quarter, along with an acceleration in consumer lending.

Given these trends and the current pipeline, the full year loan growth is projected to be at least EUR 4 billion. Group deposits on Page 22 increased in the third quarter by EUR 0.9 billion, mainly due to retail deposits in Greece with positive contribution from Bulgaria.

The loan-to-deposit ratio on Page 23 remains stable at 67%, while the liquidity coverage ratio reached a healthy 180% despite the legacy EUR 950 million Tier 2 call. As regards managed funds on Page 25, as at September end, managed funds reached EUR 9.3 billion, exceeding the full year target.

More specifically, in the third quarter, wealth sector accelerated its growth pace. Quarter-on-quarter, managed funds increased by EUR 800 million and year-on-year are higher by EUR 2.2 billion, or 32%. Private banking customers' assets and liabilities amounted to EUR 14 billion, up by 10% year-on-year.

Moving to profitability on Page 29. On a year-on-year basis, NII is higher by 4%. Quarter-on-quarter, net interest income remained stable as the impact from the lower Euribor by circa 25 basis points and lending spread decrease in Greece and Bulgaria was fully offset by the higher loan and bond volumes. The net interest margin for the 9 months stood at 246 basis points.

Moving on fees on Page 30. This quarter matched previous period's record performance with a reading of EUR 193 million. On a year-on-year basis, commissions are higher by 24%. Fees over asset ratio stood at 75 basis points for the group, and 84 basis points for Greece.

On Page 31, group operating costs increased by 6% on a like-for-like basis, with Greece expenses rising by 6.8% due to higher IT spending and staff remuneration. The cost-to-core-income ratio for the 9 months was 37.8%.

On Page 33, we summarize operating performance for the 9 months of the year. Core PPI reached EUR 1.529 billion, stable year-on-year. Loan loss provisions for the period amounted to EUR 238 million, or 61 basis points in line with our plan. Consequently, core operating profit reached EUR 1.292 billion at par with the previous year.

Moving on to asset quality on Page 35. NPE ratio stayed at 2.8% with coverage rising further to 94%. On capital on Page 39, organic profitability contributed 67 basis points to the CET1 ratio, which remained stable quarter-on-quarter, absorbing the impact of strong asset growth, payout accrual and DTC amortization.

The total CAD ratio on Page 40 decreased by 90 basis points to 18.9% after the EUR 950 million legacy Tier 2 call. In conclusion, during the third quarter, the group maintained a strong performance momentum, driven by high lending growth, increased deposits, and assets under management and solid profitability. Net interest income was stable quarter-on-quarter as loan and bond growth offset lower base rates, while fee income remained strong across all segments.

Based on the performance over the past 9 months, the group anticipates surpassing its 2025 revenue targets. Additionally, the return on tangible book value for the year is now projected to be approximately 100 basis points higher than the planned 15% level. This completes my presentation, and we may now open the floor for your questions.

[Operator]

The first question comes from the line of Kemeny, Gabor with Autonomous Research.

[Gabor Kemeny, analyst]

First one would be on NII, which impressively stabilized in the third quarter. Shall we see this as a kind of inflection point? And going forward, do you think that your NII will possibly switch to growth modes, together with loans and securities? That's the first question.

Second question would be on the payout, which I believe you indicated could be above 50%. Could you be possibly a bit more specific here? And indicate how high could this possibly get? And my third question is the Eurolife deal, another substantially from Eurobank. Having -- once you close the deal, and I guess you guide for this 120 basis points capital impact, do you see yourselves as fully utilizing your capital surplus? Or do you view Eurobank to have any excess left post completion?

[Charalambos Harris Kokologiannis, executive]

Let me take the first and the third question, if I have understood well the third question because the line is not so clear. And then Fokion may elaborate on the payout issue. As you saw, NII was indeed flat quarter-on-quarter and 4% up year-on-year. So in this context, it is expected to easily exceed the EUR 2.5 billion budget target, assuming, of course, that rates will remain at 2% until year-end. And this is due to higher loan and bond volumes and better wholesale funding cost, while we see some controls and measuring on the deposit cost and the gradual slow improvement of deposit mix.

Now whether third quarter, we are at an inflection point, my view is that second, third and fourth quarter will be at quite close level and third quarter NII is close to bottom level. Let's stay there on for the moment. On Eurolife and as regards our capital standing regarding Eurolife acquisition, let me start with the current position. As we speak, our excess capital currently stands at 150 basis points. That is comparing 15.5% with 14% that it is the level of capital where we feel comfortable, including not only P2G, but also management buffer.

If we utilize the additional AT1 capacity of 100 to 110 basis points, the internal management target is being reduced to 13%. So that means that our excess capital rises up to 250, 260 basis points. And accounting for the Eurolife acquisition and the capital impact of 120 basis points, the excess capital becomes 130 basis points. This is, let's say, the picture regarding our capital spending. I don't know whether that was your question or something else. Let's pass to Fokion for the moment for the payout.

[Fokion Karavias, executive]

Yes. In terms of the payout, we keep saying that we commit on a payout ratio higher than 50%. Let's say, it's going to be in the range between 50% to 60%.

[Gabor Kemeny, analyst]

Very clear and helpful. Just one small follow-up on -- do you -- are you planning to issue AT1 to fund the Eurolife deal? Or is this just a possibility for the more remote future?

[Charalambos Harris Kokologiannis, executive]

As I have said, we have an unused capacity of 100 basis points. This may be utilized depending on market condition on an opportunistic basis.

[Operator]

The next question comes from the line of Munari, Filippo with JPMorgan.

[Filippo Munari, analyst]

So just one actually on the Eurolife deal. Can you maybe please give us some initial indication of what level and also the nature of the revenue and cost synergies that we might be seeing?

[Charalambos Harris Kokologiannis, executive]

Actually, the full P&L of Eurolife on a before tax basis will be incorporated in the insurance income of -- as regards the group P&L. And on that front, we should expect something close to EUR 100 million additional insurance income. Did I answer your question or...

[Filippo Munari, analyst]

Yes. Maybe if you can just give us an indication if there is any potential kind of like additional cost synergies that you can realize or revenue synergies that can sort of like see through P&L despite -- I mean, besides the integration.

[Fokion Karavias, executive]

This EUR 100 million is the normalized current profit before tax of Eurolife. We are now in the process of reviewing the possibility of cost and revenue synergies. But then in due course, we should be able to update you. But what is more important than the synergies is the growth potential of this business because insurance penetration in Greece is well below the EU average. Premiums as a percentage of GDP is about half of what is in the rest of the EU. Therefore, this is where we see the value of this acquisition. We expect that we have, over time, quite strong growth rates of this business, both through bancassurance, but also through the independent agents of Eurolife.

[Operator]

The next question comes from the line of Novosselsky, Ilija with Bank of America.

[Ilija Novosselsky, analyst]

Two questions from my side. First, on your security strategy. Currently, you have about EUR 24.6 billion in your securities portfolio. If I remember correctly, in your business plan, you were saying that by the end of this year, it will be EUR 23 billion. And then by the end of 2027, it's going to be more than EUR 25 billion. So can I just ask how can we expect this to move from now on, and whether you would get some benefit from reinvestment maturing securities, or it would be mainly from nuance? And my second question is for the fees that you pay for NPE servicers. Do you have any update on what is happening on that front? So for example, whether you're renegotiating, and what can we expect to come with that in the future?

[Charalambos Harris Kokologiannis, executive]

Regarding your first question, currently, we stand the investment securities to total assets at close to 23%. Now actually, we have set specific limits for each country based on selective and idiosyncratic KPIs such as loan assets, loans to assets or investment securities to assets. For instance, limits in Bulgaria are quite lower as it has higher proportion of loans over assets. While on the contrary, in Cyprus are higher given its substantial excess liquidity. Overall, for the group, the proportion of bonds to total assets may reach up to 27% area. Now as regards to your second question, our intention is to enter to some sort of renegotiation with doValue in the next 12 months.

[Operator]

The next question comes from the line of Butkov, Mikhail with Goldman Sachs.

[Mikhail Butkov, analyst]

I have a few questions. One on NII. I think your -- in the previous conference call, you said that EUR 2.5 billion NII is confirmed on the basis of 1.5% policy rate. So as we are at around 2% on consensus outlook, what is -- can you remind maybe on the sensitivity to -- for 25 basis points, and what incremental support can it have? And then maybe -- apologies, maybe I didn't catch the answer on the first question related to Eurolife, but what is your current internal target capital ratio? And do you see it changing as a result of acquisition of the insurance company? And also, when do you expect to receive the Danish compromise status?

[Charalambos Harris Kokologiannis, executive]

Yes. Let me start from the NII. Our sensitivity hasn't changed since the last call. So it remains at EUR 35 million per 25 basis point rate cut. So as I said at the beginning, considering that base rates remained at the 2% level until year-end, our NII is expected to easily exceed EUR 2.5 billion.

Now regarding your second question as regards our internal capital level currently stands at 14% following a potential issuance of AT1, this will go down to 13%. Now as regards our Danish compromise, the first step is to qualify as a financial conglomerate. This is something that as we have included in the announcement of the transaction, it is within our intention to do as of 2026, but you may appreciate that it is a long process, may take longer than 2026, but it is something that, of course, it does reserve any effort to get the qualification to proceed with the Danish compromise.

[Mikhail Butkov, analyst]

So the process is, first, you receive the financial conglomerate status, and then there will be some other -- some additional time to get their Danish compromise.

[Charalambos Harris Kokologiannis, executive]

Correct. Correct.

[Mikhail Butkov, analyst]

Is that correct?

[Charalambos Harris Kokologiannis, executive]

Correct. Correct. Because we have to be assessed under the financial conglomerate that we fulfill all the quantitative and qualitative criteria by the regulator. We have to be assessed by the regulator that we fulfill all the quantitative and qualitative criteria so as to be eligible for the Danish compromise.

[Operator]

The next question comes from the line of Kladis, Panagiotis with Alpha Finance.

[Panagiotis Kladis, analyst]

Three questions from my side, please. First, on spreads. We see some pressure mainly on corporate spreads in Greece. So I would like your comment on your expectations going forward. And if we can have a comment on the other segments on the retail front. Second, on the loan growth for 2026, what are your expectations? Maybe it's a bit early, but I think any comment would be useful. So what are your expectations for 2026? And if you can comment per country? And last one, and forgive me if I missed that, if there are any estimates, what will be the relief on your regulatory capital if you manage to use the Danish compromise?

[Charalambos Harris Kokologiannis, executive]

Okay. Starting from letting spread, I think what we see is fully anticipated in our budget. So in our budget, we had assumed a decrease in the corporate spreads in Greece from 210 to 185. We are well within this range. At the end, we may be a few bps better. On the retail segment, we don't see any material movements in one direction or the other. In Cyprus as well, we don't see any material movement. In Bulgaria, we see some normalization of spreads coming from very, very high levels in the previous years, also taking into account the adoption as of next year.

Now as regards, this gives me an opportunity to refer to loan growth for 2025. In 9 months, the loan portfolio, as you have seen, expanded organically by EUR 3.3 billion, out of which, in Greece -- from Greece are coming the EUR 2.1 billion. And from Southeastern Europe is coming the rest EUR 1.2 billion. So EUR 3.3 billion versus initial target of EUR 3.5 billion for the full year 2025. So it appears that we are on track to meet or even exceed the revised target of EUR 4 billion.

Now as regards the composition in Greece, it's mostly driven by Greek corporates and in Bulgaria, primarily from mortgage and business loans. While I have to say we are also present in the international syndicate loan market. In Greece, the growth is coming from the sectors that we have mentioned in the past, such as energy production, storage and distribution, infrastructure projects, logistics, pharmaceutical, tourism. While we have seen lately, some net positive growth, although it's quite early and the numbers are small, but we have seen for a couple of consecutive quarters, net growth in the mortgage market in Greece.

Now for 2026, we are -- you may appreciate that we are in a stage to -- of preparing our business plan for the next 3 years. So we are going to be able to update you in our full year 2025 call, where, as every year, we update you in detail of our business plan, but what I can say that 2026 is going to be one more good year for loan growth. Now as regards to your last question on Danish compromise, when achieved, it's going to give us a capital relief of 50 basis points -- of close to 50 basis points.

[Panagiotis Kladis, analyst]

Okay. If I may follow up on the first question on the corporate loan spreads, do you think that we have seen the trough or you expect some further deterioration over the coming quarters?

[Charalambos Harris Kokologiannis, executive]

For certainty, I can say that we see a deceleration at the declining pace.

[Operator]

The next question comes from the line of Nigro, Alberto with Medionanca.

[Alberto Nigro, analyst]

The first one is more technical question on Eurolife impact on capital. Can you tell us how much is going as deductions and how much is within the threshold -- the capital thresholds? The second one is still on bancassurance. You will be a fully vertically integrated bancassurance model in Greece and Cyprus. How easily would be to expand this model also in Bulgaria? And if you see any upside from this strategy? And the third one is on fees. If you can update us on the fee income target for 2025.

[Charalambos Harris Kokologiannis, executive]

Regarding your first question, the smaller part of the consideration will be weighted at 250 basis points, for the room corresponding to the significant financial institution. While the major one is one-to-one deduction from capital. And the combination of the above results is the 120 basis points total CET1 impact.

On fee commission income, following 2 very good quarters and based on the 9 months performance, we have revised upwards our guidance to levels higher than EUR 740 million, mainly driven by transaction, bancassurance and wealth management fees. Now, on your second question, it is true that now we have an integrated -- fully integrated model for insurance/bancassurance in Greece and Cyprus.

In Bulgaria, I mentioned during my introductory call, we continue to operate successfully through a well-established and tested bancassurance model, cooperating with a major European partner. At the moment, we don't have any plans or we don't see any opportunity to get a factory within the group in Bulgaria. But obviously, if such opportunity arises, it is something that we may review quite carefully.

[Operator]

The next question comes from the line of Memisoglu, Osman with Ambrosia Capital.

[Osman Memisoglu, analyst]

Most of my questions have been answered. I wanted to ask you about Cyprus in specifically post-acquisition, how are things going on the ground versus your plans? Regarding synergies, what is left out there? Are we close to normal operations per your plan? Or are there still opportunities, challenges that are in front of you? Any color there would be helpful.

[Fokion Karavias, executive]

Yes. Thanks for the question. Opportunities and challenges never stop, as a general answer to your question. Now as I said before, we completed on September 1, the legal merger of the 2 banks. On October 10, we completed the legal merger of the insurance companies. So we operate under one bank and under one insurance company for life and P&C.

However, we have ahead of us the operating integration, especially in the bank, therefore, moving into a single IT platform, this will take something like 15 to 18 months. So we should be in place by the end of 2026 or beginning of 2027.

Now in terms of synergies, as I mentioned during my introductory note, we have completed -- we have realized, as a matter of fact, 40% of the EUR 120 million, which is the total envelope. Therefore, there is still work for us to do there, both on the cost side and the synergy side. So all in all, the integration is moving ahead according to plan, but it is far from completed. We still have a lot of work to do.

[Osman Memisoglu, analyst]

Understood. And if I could maybe squeeze in 2 relatively technical questions. One, on your loan growth, do you have organic at 1.1%, reported at 0.7%. Just wondering what the gap is. I guess part of it is Cyprus, from my understanding, but if there's something else there because FX was not really a factor. And also with regards to NII outlook, deposit -- time deposit repricing, is it going as you had expected? Or are there any material changes on that front?

[Charalambos Harris Kokologiannis, executive]

On the first part, the difference is twofold. The one is FX. And the second is the sale of a EUR 200 million NPE portfolio in Cyprus from Eurobank Ltd to the Cyprus Asset Management Company State Interest Asset Management Company with the acronym KEDIPES. So these are loans, which now have been reclassified as assets held for sale. This was a legacy portfolio originated from the ex-Cooperative Bank and Cyprus Asset Management Company has guaranteed this portfolio and its NPEs. And with this agreement, KEDIPES takes back these NPEs on its balance sheet and the guarantee ends. And the result of this transaction was a gain of EUR 10 million that it is under our other income line.

The rest is FX mainly coming from dollar. And as regards deposit pricing evolution, I think it is going quite smoothly and well within our plan. What you may appreciate is that if you go on Page 22 of the presentation, you may see that gradually with -- on the upper right-hand side of the presentation, gradually with the decrease of base rates, we see some deescalation of the mix of time to total. So from a peak of 36%, now on a group basis, we are at 33%. And in Greece from 33% peak, we are currently at 29%, which is, of course, a positive evolution.

[Operator]

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karavias for any closing comments.

[Fokion Karavias, executive]

Okay. I would like to thank you all for participating in this call. I would like to thank you also for the very interesting questions that we received. And hopefully, we fully answered. For any follow-up questions, any clarifications, our investment -- our investor team will be available. Thank you very much.