Alpha Services and Holdings S.A.
Q2 2022 Earnings Call Transcript

Published: 26 Aug 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. I am Meridio [ph], your Chorus Call operator. Welcome and thank you for joining the Alpha Bank Holdings conference call to present and discuss the first half 2021 financial results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Alpha Services and Holdings Management. Gentlemen, you may now proceed.

[Vassilios Psaltis:]

Good afternoon, everyone, and good morning to those dialing in from the US. Welcome to Alpha Bank’s second quarter earnings conference call. This is Vassilios Psaltis, Alpha Bank’s CEO, and I'm joined by Lazaros Papagaryfallou, our CFO; and Dimitrios Kostopoulos, our Head of IR. Starting from page 4 on the economic front, domestic economic activity is expected to bounce back from the second quarter of this year on works with real GDP projected to grow more than 5% in 2021 supported by high-frequency data which shows that tourism arrivals exceeded expectations and economic sentiment improved in the second quarter. In particular, in the first week of August, the number of international tourist arrivals through Athens International Airport reached over 70% of the amount recorded in the corresponding period in 2019 pointing to a recovery in tourism in 2021 as we expected. Additionally, total passenger traffic from the Athens International Airport grew by 371% year-on-year in the second quarter while, in July, it increased by 108% on an annual basis. More specifically, based on anecdotal estimations by Business Insiders, international tourist arrivals in July reached 65% of 2019 levels while, thus far, August data suggests arrival's will be over 80% of 2090 levels. Subject to no further adverse developments in respect to the pandemic, wildfires or anything else, tourism revenues this year might settle to up more than 50% of 2019 levels. And mind you, 2019 we had €18.2 billion in revenues while in 2020 revenues reached only 24% of those levels. As a consequence, September and October will be the crucial month for Greek tourism and whether 2021 revenues as a whole could exceed 50% of those recorded in 2019. Additionally, the economic sentiment indicator also improved slightly in the first seven months to 2021 compared to the corresponding period of last year, further supporting the expected growth from the second quarter onwards. Retail trade continues its upward trend for the second consecutive month, increasing by 15% year-on-year in May. Similarly, the manufacturing production index has remained on an upward trajectory from November 2020 onwards, significantly improved in operating conditions across the Greek manufacturing sector. Finally, despite the heavy toll of the pandemic on economic activity, house prices in the construction sector remains resilient in the first quarter of this year. Specifically, house prices continue to rise by 3.2% year-on-year, more rapidly against the fourth quarter of last year with private building activity also increasing sharply in the first five months of 2021 by 53%. Lastly, as you will remember from our first quarter results and strategy update, Greece is the largest relative recipient of the Euro [ph] grants in Europe that are aimed at supporting Greece in a transition to sustainability, digitalization and modernization. There has been notable progress on enabling the fund flow in the last few months. On the 17th of June, Greece became one of the first five countries to receive EU Commission's formal approval of its RRF plan code-named Greece 2.0. As a result, Greece has also been one of the first five countries to receive a pre-financing of €4 billion on the 9th of August. Following the approval of the plan, the Greek government has launched the first 12 projects amounting to €1.9 billion, the largest of which are focusing on the construction of a highway section, upgrading local urban infrastructure, and the digitalization of the land registry. The Greek government anticipates that it will receive an additional €2.6 billion of subsidies in the third and the fourth quarter this year and is expected to launch additional projects. Greek banks are currently in discussions with the government to set up the legal framework for our repo linked lending which we expect to be completed in the fourth quarter. With regards to the process of bank engagement, we expect that the banks will be invited to sign framework cooperation agreements on the base of our rep business plans to enable the planning of disbursements in the satisfaction of eligibility criteria as it was specified. Alpha Bank’s capital increased which was concluded successfully in July of 2021, positioned us to be one of the key banking pillars that will unlock our rev funds for customers. Having seen the progress made during the summer months, both of the institution with the Alpha Bank level, our confidence in our ability to deploy this capital to work has further increased. Now, moving to slide 5, the decisive reduction of NPEs remains a key priority of our plan. With Galaxy now completed and our servicing partner CEPAL fully operational, we have switched service on preparing and delivering the next leg of inorganic and organic NPE reduction. This consists of a series of transactions, both under the Hellenic Asset Protection Scheme and non-HAPS transactions, spanning over this year and next year. We’re working confidently to work delivering the first set of transactions at year-end, with a total envelope of €7 billion, that means 85% of the €8.1 billion perimeter expected to be effectively delivered within 2021. Market conditions permitting, this would lead the group to an NPE ratio of circa 13% by the end of this year. In more detail, Project Cosmos at €3.5 billion have securitization, that’s fairly advanced in terms of preparation of significant activity planned for the next six months, including the receipt of a preliminary rating and the submission for [indiscernible], which locks in the overall costs. Our plan is to have a start the approval by year-end. In parallel, Project Orbit and Sky, the first one being an unsecured portfolio sale, the latter in the Cyprus secured portfolio sale, are expected to launch eminently and bids should be received during the fourth quarter. Having said that, we also have our eyes focused on the 2022 production pipeline with proprietary actions already underway for the remaining €1.1 billion permitted. We expect to be in a position of delivering solid progress in the first quarter of next year for the majority of this envelope. On slide 6, in line with our strategy, we have continued to make progress in maximizing the value of our business and enhancing our franchise through strategic partnership with top tier international base. Following on from the bancassurance agreement with Generali, we have recently announced the signing of a binding MOU [ph], the European leaders in payments acceptance to form a long-term partnership in payment solutions and merchant inquiries. We think it’s a key value We think it’s a key value driver for these transactions. It would set it apart from other precedence in the market. First, this is a partnership with Alpha Bank retaining an initial 49% stake in the business. Payment solutions is one of the highest growth areas globally and we expect this business to capitalize on its market leading stages, the quality of the partners and the superior technological capacity of Nexi to continue to deliver solid growth and profitability. Remaining in the business for the long term gives us exposure to the upside potential embedded in the sector. Second, in terms of value, we have agreed a base valuation of €307 million, which lies at the higher end of the current trading multiples in transaction precedence. As we're now selling 51% of the business, we expect the record third quarter gain also for the 49% stake we will retain having joined the full capital benefit of the value of the business which is projected up like 60 basis points of total cash. Third, we’re highly incentivized to make this a profitable venture through an important earn out structure of up to €60 million enterprise value in the four years. We expect this upside to be obtainable and we’ll strive to capture it. Finally, we have consciously struck a balance between upfront consideration and long-term profitability through the terms of our referral agreement with Nexi. A significant part of the value of this partnership brought us come in the full fee income on the back of merchant revenues procured by Alpha Bank. This is very similar to what we have agreed with Generali and ideally the strong distribution capacity of our channels. We anticipate total fees of around €200 million over the course of the agreement. Moving on to slide 7, we had also initiated Project Skyline where we aim to form an alliance with an international partner to capitalize on the growth prospects of the Greek real estate market. Via our listed subsidiary, Alpha Astika Akinita, we will create a large-scale real estate investment platform focusing mostly on commercial real estate. The vehicle will establish a long-term service agreement with our in-house real estate management unit creating new revenue streams for the bank. The deal is expected to be capital accretive and signing should be expected in early next year. We have also undertaken several of the announced actions aimed at optimizing our balance sheet to deliver further capital relief and business model simplification. The sale of our subsidiary in Albania is progressing well with interest exceeding our initial expectations. The transaction is now in an advanced phase with binding offers expected in the last quarter of this year. Similarly, the sale of our UK subsidiary is expected to launch in the fourth quarter of this year with signing in the first half of next year. We also wanted to take an opportunity to provide you with a few more details on our €2 billion synthetic securitization of SME and corporate loans with the code name project Aurora. Strong investor interest has been expressed in phase one with several nonbinding offers received. Phase two of investor engagement is now commencing. The transaction is expected to be concluded within this year. On slide 8, we highlight that our performance during the first half shows that we will be able to comfortably meet out full-year guidance and profitability, asset quality and capital adequacy. Trends continue to evolve in line with our expectations on all forms. And as I mentioned earlier, we’re now looking for 13% NPE ratio by year-end versus the 18% we have guided when we announced Project Tomorrow. The following quarters will see the completion of critical milestones in our plan, unlocking the path to double-digit returns with growing capital buffers. Lastly, on capital, I'd like to note the outstanding performance out of unregistered in this year's stress test posting the highest estimated and fully loaded Core Equity Tier 1 among Greek systemic banks under the baseline and adverse scenario of 17.3% and 8.3%, respectively, while 2023 fully loaded leverage ratio in the adverse scenario came up 6.1% at the top range of EU banks and best in class among Greek peers. And, with that, I turn the floor to Lazaros Papagaryfallou for a closer look in our financial performance in the second quarter.

[Lazaros Papagaryfallou:]

Thank you, Vassilios, and good afternoon to everyone. With regards to second quarter 2021 performance, I will now provide the summary of the key financial trends looking at slide 10 of the presentation. This quarter, we have closed the Galaxy transaction and booked the resulting €2.1 billion net income, leading to a reported loss after tax of €2.3 billion in the first half. With the deconsolidation of Galaxy and net of the retained similar note, loan balances have decreased by €1.9 billion with the partial impact on net interest income. All of the above are in line with the bank’s estimates and capital plan. Leaving Galaxy side, our core pre-provision income generation decreased by 4.5% this quarter, reaching to €226 million. The derecognition of Galaxy and the lower retrospective TLTRO-III benefit versus the first quarter are the main drivers. On an adjusted basis, pro forma on an adjusted basis, pro forma core pre-provision income increased by 3% on a quarterly basis. Reported pre-provision income stood at €243 million versus €137 million in the previous quarter as €160.1 million of restructuring costs and other one-off charges related with the bank transformation impacted the previous quarter’s results. Trading income amounted to a loss of €2.2 billion due to the recognition of Galaxy. On an adjusted basis as shown here it stood at €30.4 million on lower GDP transaction activity. Impairment losses significantly de-escalated to the second quarter to €125 million versus €391 million in the previous quarter driving total cost of risk ratio 1.3% with the underlying cost of risk excluding impairment losses allocated to portfolio transactions down to 0.9% better than our financial year 2021 guidance. Regarding year-to-date performance on a normalized basis, first half profit after tax stands at €213 million comparing that the bank is on course to meet its near term target to deliver a 5% return on positive to book value in 2021. Now, turning on slide 11, in terms of new credit, we continue to steadfast the support of customers as we dispersed a further €1.2 billion of new loans and risks this quarter bringing the total to €2.3 billion addressing credit demand mainly from businesses. Net credit expansion namely disbursements minus repayments was positive again this quarter and stands at €0.4 billion for the first half, reflecting credit demand from businesses. As highlighted in the bottom right chart, a the group level, our year-to-date performing loans expansion is well ahead of our year-end target, and we expect momentum to hold on the second half of the year. Lending spreads on performing exposures show some pressure in the quarter, also affected by specific corporate repayments. In line with our budget and our business plan, we expect some further pressure on loan spreads during the second half, especially on business lending to the tune of 5 basis points to 8 basis points. Spreads of our new production, however, remained resilient and at very satisfactory levels which together with the positive mix of net credit expansion should support the profitability of our loan book. Beyond the RRF [ph] projects that are expected to materialize from September onwards, it’s worth highlighting that the bank is currently in the process of underwriting significant projects not related to RRF and has already announced two. The first is in the energy sector with public part operations green bond loan. The second is at the Greek hospitality sector and relates to the financing of the Blackstone managed [ph] investment partners investment program concerning five hotels in key Greek resort locations. Current short-term pipeline includes projects beyond these two in the energy, hospitality and infrastructure sectors and for now amongst the total size would exceed €900 million. On deposit gathering on slide 12, the group’s deposits base expanded by €1.4 billion in the quarter, comprising more than 70% of the bank’s total funding sources. At the end of the second quarter, domestic deposits stood at the highest post-crisis level, reflecting inflows from core deposits that now account for 79% of domestic deposits. The continued shift of the product mix produces an overall positive impact on the bank’s interest expense. On a year-on-year basis, our group deposit base has expanded by €4.1 billion or 10.2%. Liquidity drawn from ECB remained stable Q-on-Q at €12.9 billion, reflecting the full utilization of TLTRO-III borrowing allowance or 18% of our total assets. Benefiting from the low cost liquidity drawn the ECB, the bank’s blended funding cost remain in negative territory in the second quarter at minus 7 basis points and continue to support net interest income. Finally, the group’s loan to deposit ratio materially improved to 83%, enabling the bank to address the credit demand expected under the utilization of RRF funds. The group’s liquidity coverage ratio surged to 164%, far exceeding the regulatory threshold. Let’s now see the drivers of our net interest income performance during the second quarter in more detail on the next slide. Net interest income in the second quarter stood at €371 million, down by 7.2% Q-on-Q or €28.6 million. This quarter, the bank recognized an additional €6.9 million one-off retrospective benefit for the second half of 2022 as a result of the accrual of minus 1% for the total amount ECB borrowing of the respective period versus a higher amount of €24.7 million that we booked in the first quarter of 2021 as we illustrate on the chart. The underlying performance of net interest income was flattish on the back of three main drivers. One, to a lesser extent we had the lowest contribution from performing loans by €0.4 million mainly on the back of lower spreads on specific corporate repayments and repricing as discussed previously. Two, we have an €8.1 million impact from the recognition of the Galaxy perimeter with a further €1.3 million driven by lower average non-performing loan balances due to the increased provisioning. And three, we have a negative effect from bonds and other of €2.9 million, reflecting GGB’s recycling and lower one-off items. On the liability side, there was no impact from deposits as contingent repricing offset the increase in balances, whereas funding, net interest income have deposited contribution of €1.8 million has increased ECB borrowing offset the fully phased cost of the Tier 2 issued in March. Turning to slide 14, we show the main drivers of our fee income generation. On a quarterly basis, net fee and commissioning income surged to €105.4 million, up by 25.1% Q-on-Q. Excluding a €10 million fee from AXA, related to the signing of a new [indiscernible] loans agreement with Generali, it would still leave underlying fee income up by 13%. Asset management had a better quarter on the back of a sustained growth in AUMs primarily non-money market funds that were up by €0.8 billion. The bank has already accomplished almost one quarter of its 2024 target of a €3.5 billion growth in related AUMs. Revenues from cards and payments increased with transaction volumes surpassing 2019 levels, on increased penetration of noncash transactions. Business credit-related fees were also up on higher activity. On a yearly basis, fee income generation picked up by 14% or €23 million supported by increased fees from business lending, increased commission income from mutual funds stemming from AUMs and credit mix evolution and credit cards and payments due to increased volume of transactions. The aforementioned €10 million fee income from AXA compensated and declined in other fees versus the first half of 2020 which had benefitted by €11.8 million of fees received from the amendment of collateral agreements on derivative transaction last year. The observed pick-up in commercial activity, the growth in asset management along with the recently announced business development initiatives that strengthened our franchise positioning allow us to be confident that we are on track to meet our fee income generation target of circa €0.4 billion for the year. On the OpEx side, on slide 15, recurring operating expenses on a group level for Cepal consolidation increased slightly year-on-year as savings from HR initiatives are temporarily offset from HR initiatives are temporarily offset and importantly offset by increasing non-staff costs mainly due to higher IT and transaction-related items with the latter linked to higher revenue generation. Looking on each line separately, personnel expenses on a pro-forma basis with the impact of Cepal stand-alone personnel costs before the carve-out of the bank’s NPL units, decreased by €9.1 million year-on-year, reflecting the voluntary separation scheme in our separate operations but was completed in the fourth quarter of 2020 as well as the impact from HR initiatives in Greece. Going forward, the reduction in head count by 820 FTEs from the disposal of Cepal that took place in mid-June 2021, we felt the reduced group staff costs. General expenses were higher on a pro-forma basis by €12.3 million year-on-year in the first half, mainly reflecting increased expenses from existing capital activity in our cards business and higher IT costs. Finally, the depreciation charge stood at €4.2 million, higher year-on-year again on a pro-forma basis due to an increase in intangible assets linked to IT investments as part of the group’s transformation. As depicted in the top-right chart, NPA management costs constituted more than 15% of our regaining cost base and in the medium term, we aim for a sharp decrease in line with the reduction of our NPE and REO [ph] portfolio. The reduction in associated service increase which are expected to decline by 6% by 2024. Our strategic plan also targets a decline in the core operations cost base to a significantly lesser degree supported by the voluntary separation scheme to be implemented in our Greek operations by year-end 2020. Moving on to the next page. Quarterly NPE formation in Greece remains flat as entries only slightly deteriorated due to higher inflows from expired moratoria fully offset by higher curings and repayments and increased management actions. This flat incentive formation performance in the first half is better than initially expected, making us optimistic for the remainder of the year and also, compared with our business plan expectations for formation of 0.6 per year. On the right-hand side of the slide, you can see further information on our cost of risk evolution. The overall cost of risk of our net loans stood at 1.3% out of which 0.4% relates to exposures expected to be sold or under securitization and portfolio sales. Underlying cost of risk, on the other hand remains consistently below the 1% levels and better than our 1.2% full year guidance. Finally, in the bottom right graph, you will see that post-Galaxy, our group NPE ratio has decreased significantly from 43% down to 26% whereas, our NPE cash coverage increased from 49% to 54% or 105% including collateral. Moving on to slide 17. We expect to reduce our NPE volume by another 45% this year at group level by reducing gross NPEs from €11.4 billion in June 2021, after the closing of Galaxy to approximately €5 billion by year-end This will allow us to reach an NPL ratio of 13% which is a 5 percentage points better than what we expected at the time of our business plan announcement. This is effectively driven by the acceleration of Project Sky. They say of an NPL portfolio in Cyprus where the front loading of the truck work including transaction structure will allow us to launch imminently and receive offers within the fourth quarter of the year. Project Cosmos in Nordic are progressing according to plan with submission for Cosmos expected in October and finding office for Orbit targeted for the fourth quarter of this year. We iterate our guidance with regards to the total of budget of €1.6 billion out of which more than €0.6 billion has already been incurred in the last three quarters. As we have discussed in the previous slide, organic formation this year has come in better than expected leaving some room to potentially outperform our year-end target. This will be a function of the second half asset quality trends and successful progress on our transactions. Above developments continue to underpin our consequence in meeting our medium term goal of which in a single digit group NPE and NPL ratio well within 2022. While converting to the EU average level by 2024 which in term will lead to the full normalization of our cost of risk. At the same time, we have had a notably improvement in the group’s NPE coverage ratio from 0.7% in the December 2020 to 54% in June 2021 whilst maintaining our robust capital position. On page 18, you can see the quarterly evolution of our capital Post the share capital increase, it stood at €6.7 billion resulting in a capital adequacy ratio of 17.4%, down by 90 basis points versus March 2021. The total capital ratio was negatively affected by Galaxy and Cepal to the tune of 285 basis points in line with advanced guidance, whereas the share capital increase impacted capital positively by 220 basis points. Organic capital generation stood at 2 basis points in this quarter. The buffer over the regulatory total capital ratio of 14%, therefore stands at €1.3 billion. The respected fully loaded total capital ratio stood at 15.4% and the fully loaded common equity Tier 1 at 12.7%. On the right part of the waterfall, we note that we expect internal capital measures to enhance capital measures in the next quarters by 1.5% percentage point which will more than offset the anticipated negative impact on the upcoming NPE transactions. The impact of both internal capital measures and upcoming NPE transactions will be fully reported by then of the first-half 2022. In the bottom-right chart, we show the expected evolution of our capital ratio during each year until 2024 according to our business plan presented in May. The timing of internal capital measures, the loss budget accrual and RWA relief from NPE transactions will likely lead to a reduction in capital ratios in master plan with total capital ratio always above our management target levels of 16.5%. Lastly, turning on page 19. The bank completed successfully these stress tests, registering an outstanding performance, posting the highest estimated ending fully loaded common equity tier 1 ratio for year-end 2023 among Greek systemic banks under the baseline and adverse scenarios of 17.3% and 8.3%, respectively, and a 10.2% fully loaded in the adverse scenario when taking into account the share capital increase. The capital depletion excluding IFRS 9 improved to 6.3 percentage points when comparing to iterations of the stress test while the fully loaded leverage ratio in the adverse scenario came in at 6.9% at the top range of banks and best in class among Greek peers. Finally, looking at the bottom right-hand side of the slide, I would like to highlight that the bank’s capital generation for the three-year period was 2.7%, absorbing the impact of IFRS 9 phasing resulting in a 2023 common equity tier 1 transitional ratio of 17.4%. And now, let’s open the floor to questions.

[Operator:]

[Operator Instructions] The first question comes from the line of Floriani Jonas with AXIA Ventures. Please go ahead.

[Floriani Jonas:]

Yes. Hi, guys. Good afternoon, everybody. Thanks for the presentation, and well done on the execution presentation. Well done on the execution on the plan. So my first question, I think, all of my questions, they relate to some comments you made during the presentation. The first question relates to the outlook on disbursements following the comments by Lazaros. I remember that during the period of the share capital increase, we discussed a lot about the growth opportunities in Greece and also how Alpha was preparing itself to start disbursing as soon as possible, especially also to benefit from the RRF boost. I know it hasn't been long yet, but following Lazaros’ comments, could you update us or linking the comments that you made on the call where that links in relation to expectations for the full year if you include this project that you mentioned there. I was just wondering if your expectations for total disbursements in 2021 and also expectations for the increase in the net loan book has changed or improved over the last two or three months? So my second then relates to the NPE dynamics. I see that on slide 18 you're mentioning or you're showing the interest in excess of NPEs including the breakdown of the moratoria loans. I'm just curious to understand, on the entry side, what has been the driver of those used NPEs? Are these coming from new defaults or are these early defaults exposures? And also, in terms of your moratoria loans, your expectation for the year is €0.8 billion, and you have now €0.3 billion in the first half. So, have you changed your expectation for the second half or it's fair to assume that this €0.5 billion as it's coming now in the coming quarters. And then my final question probably relates to the previous one. I was curious to understand if you already have seen some tangible signs in terms of the new insolvency law in Greece, if there's anything that is already reflected in the numbers or maybe on the discussions that you have with Cepal, how that is affecting collections or the relationship with the borrowers in these early months. And I’ll leave it at that. Thanks.

[Vassilios Psaltis:]

All right. Jonas, thank you for the questions. Coming to your first question on net credit expansion, we have been quite careful to analyze disbursements and repayments in a manner that can illustrate the development of the net credit expansion rather just talking about gross disbursements. And you have seen that in the first half of the year, the net credit expansion in the performing book amounted to €0.4 billion level out of which €0.6 billion is businesses whereas there was a small deleveraging from household lending. That is a higher run rate than the one we have incorporated in our budget and in the business plan that we have presented in May. You may recall in May and that you can see on the lower right part of page 11 where we benchmark the credit expansion vis-à-vis the targets that we have portrayed in our business plan. You will see that the run rate is higher than the one that we have showed back in May as we have not been expecting really RRF to kick in in the second quarter of the year. We have not started yet. I mean, the disbursements from our EU partners came to Greece late in the summer and new projects, new RRF projects should expect to affect our numbers in a tangible manner from 2022 onwards. So all that was expected. On the other hand, as we see a lot of traction in the corporate market, we have already seen demand for very good projects at very good returns on allocated capital in tourism, energy infrastructure. We have already announced a couple of projects which are good and larger projects based on the – our risk appetite and we have a pipeline currently in these sectors that I have said in the short-term could procure an additional €900 million of new disbursements in good projects. So momentum is building up in the second half of the year, not necessarily related to RRF, but mainly to corporate lending and as RRF conditions mature and infrastructure gets in place, we expect obviously much more traction from 2022 onwards as per the business plan projections. Now, on your second question, with regards to the NPE dynamics. I said that, we’re quite optimistic on the organic formation for the year, we have provided a budget of €0.6 trillion and what we see currently is a better run rate. When it comes to new defaults, we have seen €400 million of ex-moratoria defaulting within the first half of the year and also the last quarter of 2022 out of €0.8b billion projection that we had for this particular universe, so almost 50% of what we have projected has defaulted in the last three quarters. However, what we have also seen is a significant performance with regards to cure and repayments that has effectively counterbalanced fully in addressing the first half of the year. And this has been better than what we had in the budget. Now if you ask me whether we are changing our guidance from €0.6 billion formation for the year, as I said, we are optimistic. We want to see some more data points with regards to certain restructurings that we have offered to the clients including the bridge program and some step-up facilities and we want to see how they perform prior to amending the target towards a lower level for the year. But it is likely that this will be the case. And your last question had to do with insolvency law. I understand that you are referring to the out-of-court settlement in the platform that has been introduced by the government. We have seen the first applications flung into the system in July. No processing has taken place in August. So, traction will start in September. So in a nutshell, it hasn’t moved the needle in any respect nor the numbers in the volumes that we have sent today make us believe that there is some sort of deterioration in payment cultural behavior.

[Floriani Jonas:]

That's clear. Thank you.

[Operator:]

The next question comes from the line of Sevim Mehmet with JPMorgan. Please go ahead.

[Sevim Mehmet:]

Good evening. Thanks very much for the presentation. I have a couple of questions, please. Lazaros, you mentioned that there are several RFS [ph] related investment projects currently in the pipeline, and you also mentioned that €900 million figure for the total size. Can I please confirm that this is the loan disbursements figure that you expect for Alpha Bank specifically from these projects, and what would be the timeline here for these loans to be disbursed? That will be my first question. My second question is on the repayments. So thanks very much for the detailed data that you're providing on the performing loan movements. And there, I can see that the repayments are actually quite high at €1 billion. There's a slight pickup quarter-on-quarter. Was this business as usual or would you – should we take this as a run rate going forward, so let's say €3 billion to €4 billion of repayments each year for the coming several years? And my final question is on a NPA management costs. Your full-year guidance would imply a pickup in those costs in the second half. But given that Galaxy is now out of the books, would you expect that some relief in there in the second half or is there something else that is still keeping the costs related to NPAs high in the second half? Thanks very much.

[Lazaros Papagaryfallou:]

Regarding to your first question about the disbursements, yes, the €900 million short-term pipeline that I had referred to in corporate loans have to do with disbursements. I have not given any guidance from repayments for the year. So, in order to set the record straight, in terms of guidance, you should have in your numbers, I think, the year-end target that we present on page 11 has the balance for performing loans. That, that was the number we put in May, then that is the guidance we’re giving. We may end up higher at the end of the year, but currently, we give – not a guidance under one presented in our plan, and reiterate it in page 11. So, on your second question on repayment – disbursements, the second quarter of the year has been much better than the first quarter of the year in terms of loan disbursements. Actually, the run rate in the second quarter has doubled compared to the first quarter and make us believe that this is more representative of what we are going to see happening in the coming quarters. Still, the trajectory of disbursements and payments are such, that most probably, the numbers we have put for household performing loans are €10.8 billion at the end of the year, is representative of new disbursement and payments in the second half of the year. But, the demand is picking up definitely, especially in auto loans. We definitely see positive trends and that goes on for housing loans.

[Sevim Mehmet:]

Thank you and…

[Vassilios Psaltis:]

Yes. Yes, in fact, yes. When it comes to NPE management costs, unfortunately or fortunately, there is a lot of noise coming out of Cepal consolidation and deconsolidation within the year. I mean, you remember we have acquired Cepal and consolidated its P&L in our group P&L in the second half of 2020. We are consolidating Cepal until 18th of June 2021, and subsequently, we’re divesting Cepal, therefore, all that is creating some noise. And I have tried to present on page 15 some pro forma numbers so that we take the noise out of it. But when it comes to NPA management costs, you may recall in our business presentation that that was a big driver of cost reduction until 2024. And we have traction there. It’s happening from 2022 onwards. That was also presented back in May where we have started counting from 2022 onwards in terms of cost reduction. We should not expect to see a material reduction in 2021. In the contrary, this noise has increased somewhat the costs. However, in alignment with the full guidance that we have given for €173 million for 2021 and presented back in May. After the Galaxy deconsolidation which happens – or which happened obviously, and the sale of additional €8.1 billion which is happening in the coming quarters, we are going to generate a very significant decrease of NPA servicing cost. Same goes with values cost money, taxes and other servicing fees. And we have planned REO transactions including the Skyline transaction. So, all that is decreasing NPA management cost to a good extent. So, more traction on that line from 2022 onwards after the planned projection.

[Sevim Mehmet:]

Okay. That’s all very clear. Thank you very much, Lazaros. Maybe just one follow-up, if I may, on project Skyline. Could you please walk me through the expected impact coming from there? I mean, you presented earlier that the main benefit will come from RWA release. But is there any equity impact in there that you would expect from the sale of the 51% at least of the portfolio as well?

[Vassilios Psaltis:]

Indeed, there are a few benefits. The first has to do with an RWA release as we will be disposing assets which are risk weighted by almost 100% in our balance sheet. And we will also experience a reduction in costs vis-à-vis carrying these assets in our balance sheet. But no equity cost is risk objective in this respect.

[Sevim Mehmet:]

Okay. Great. Thank you very much for the help. Thank you.

[Operator:]

The next question will come from the line of Memisoglu Osman with Ambrosia Capital. Please go ahead.

[Memisoglu Osman:]

Hello. Many thanks for your time. Just following up on the NPE formation potentially being too conservative and tying along maybe the cost of risk angle to it as well which also seems to be trending much better than your 1.2% guidance for the underlying BP. When would you consider revising them, maybe along with Q3? Or would – are you looking to wait a bit longer? That’s my first question. And then on the cost BP, I appreciate the NPE and later on. But in the shorter-term, I see quarter-on-quarter, there was a pickup in general expenses. If you could give us a bit color on that? Should we expect that level to be sustained for the rest of the year? Thank you.

[Vassilios Psaltis:]

Well, on your first question with regards to cost of risk guidance, we have two building blocks there. The one is provisions for transactions. The other building block is the underlying cost of risk. Now, the underlying cost of risk move to date within our guidance of 1.2% over net loans. So, we expect to trend within the year within that guidance. It could be lower if defaults in the second half are lower than the one we have budgeted. So, until we change our guidance for organic formation, we want to keep the 1.2% of our net loans guidance for underlying cost of risk. What is around the €400 million level in terms of Euro? Coming to transaction costs, let me clarify that the new NPE plan of €8.1 billion NPE transactions that we have presented in May has a loss budget in Euro amounts of €1.6 billion or thereabout. And we have already absorbed in our P&L almost €600 million or north of €600 million if we take into account for second quarter additional provisions in this respect. So, we have €1 billion more provisions to take in order to fully implement the €8.1 billion incremental leveraging. Now, that, the phasing of this provisioning the phasing of this provisioning in our P&L will depend to a very good extent on the progress made on these projects. As we do sale scenarios under IFRS, we calculate the profitability of completing these projects and we take gradually the heat in our books knowing that we will need to take an additional €1 billion protect of these transactions. Given the progress so far and the fact that we expect the three main projects to be completed by year-end namely Cosmos, Orbit and Sky, I would expect that during this year there's going to be an additional €700 million or so of additional provisions related to transactions that will hit this year’s P&L after our previous guidance. And the remaining may shift our first quarter results in 2022 of the second quarter. The impact of these transaction in capital terms taking also into account the RWA relief is presented on page 18 at the upper right part of the page, which 1% in total capital adequacy terms. And it is the by-product of the provisions and the RWA relief. And we expect to take all these impact by the first half of 2022. On the other hand, in order to counterbalance this impact, we have already initiated the series for internal capital generation measures namely the merchant acquiring sale already announced to be completed in the coming quarters and the synthetic securitization, the total impact of these internal capital measures will exceed the impact of NPE organic reduction, inorganic reduction. So from a capital point of view, we are very much aligned already with the capital targets that we have given in the business plan providing for at least a 16.5% total capital adequacy ratio in this journey of further deleveraging the balance sheet.

[Memisoglu Osman:]

Thank you. And on the cost side for the shorter term? Any…

[Vassilios Psaltis:]

Indeed on G&A, we have seen some higher IT costs as we are progressing our transformation plan. We have also seen an increase in certain G&A related to volume driven costs on the cards business. But are associated also with higher revenues. But they also see the OpEx and G&As with the respected numbers.

[Memisoglu Osman:]

Got it. That reminds me, given the one-off of €10 million underlying fee income at quite respectable €95 million. How should we expect that to trend in the short-term levels or…

[Vassilios Psaltis:]

Yeah. Yeah. On the top line, on the top line coming to fees, our guidance for the year is for a significant increase compared to 2020 by approximately 13%. On the other hand, we expect net interest income to drop by high-single digit number after our previous guidance approximately 9%. That is our current projection as the Galaxy impact in the second half of the year will be approximately €110 million in our top line. And we expect OpEx, recurring OpEx to trend flattish expect OpEx – recurring OpEx to trend flattish year-on-year.

[Operator:]

[Operator Instructions] The next question comes from the line of Manolopoulos, Kostantinos with Optima Bank. Please go ahead.

[Kostantinos Manolopoulos:]

Yes. Hello. Thanks for the presentation. Well done on the results and then the good execution of the business plan. I have a very quick question on your agreement with Nexi. So once the deal concludes, I guess, sometime in Q4, will you guys book the entire profit – the entire valuation of the – of your own business or that’s the 51% - sorry, yeah, the 51% that you are selling?

[Vassilios Psaltis:]

Most probably in the first quarter of 2022, we agreed to book the P&L for selling 51% and the reval of our remaining 49%. And that is providing a significant boost in the bottom line as you will appreciate, providing 60 basis points of internal capital generation.

[Kostantinos Manolopoulos:]

Okay. Got it. Thank you.

[Operator:]

The next question comes from the line of Boulougouris, Alexandros with WOOD & Co. Please go ahead.

[Alex Boulougouris:]

Yes. Hello. Quick question on my end on the €799 million that you mentioned additional provisions for transactions expected in the second half had to be referred mostly to Cosmos and Orbit and securitization of Cosmos mainly or also for Sky because I believe in Cyprus you are more better covered in terms of cost coverage, if I remember correctly at least. Maybe a bit on that Sky. What led to this acceleration, is it – do you see higher interest or in a stage you are in and you're moving faster because of that? What is the reason behind that? Thanks.

[Lazaros Papagaryfallou:]

The €700 million budget, the remaining budget for these three transactions encompasses scenarios 400% probability to affect this transactions end of this year. So, in this -- it’s on very traditional impairment for all three projects including Sky. For Sky which is NPE sale of €2.2 billion, we have booked €320 million in the first quarter of the year. We are effectively marking the €0.30 and we expect recoveries to be such that will require an additional impairment in 2021 accounts. And we will be taking additional provisions for Cosmos and Orbit. Your question on Sky with regards to investor’s interest in deal. There is interest on this transaction. We have prepared very well to keep the market and again with investors that’s why we are kind of front loading our previous guidance expecting to have signing in the fourth quarter of the year.

[Alex Boulougouris:]

Many thanks, Lazaros

[Operator:]

[Operator Instructions] 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 participating in our first half results. And we're very much looking forward to welcoming you on our nine-month results in November. Thank you very much.