Alpha Bank S.A. (ALPHA) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I am Yota, your Chorus Call operator. Welcome, and thank you for joining the Alpha Bank conference call to present and discuss the first half 2026 financial results. [Operator Instructions]. The conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Alpha Bank management. Gentlemen, you may now proceed.

Hello, everyone, and welcome to the presentation of our second quarter results. I am Iason Kepaptsoglou, Alpha Bank's Head of IR. Our CEO, Vassilios Psaltis, will lead the call with the usual summary and a few updates. Our CFO, Vassilios Kosmas, will then go through this quarter's numbers in some detail. Q&A will come up at the end of the call, and we should wrap up within the hour. Vassilios, over to you.

Good morning, everyone. Thank you for joining our call. Let's start with an overview of our results for the first half of the year on Slide 4, please. The first half of the year saw us posting close to EUR 0.5 billion in profits. On a normalized basis, this is up 6.5% versus last year. Our net interest income is up 7.3% versus last year as we continue to benefit from growth in the loan book. Fees are up 34% on a headline basis or 24%, if one excludes dividends from our participation in [ Prodea ] as we reap the benefits of investments in the business and our proactive M&A strategy. At 39%, our cost-to-income ratio has remained within guidance, showing the operating leverage of our business. Cost of risk continues to reflect the benign environment, up 42 basis points. and performing loans have grown at double digits, and we've reached 87% of this year's target for net credit expansion already in the first half of the year. Customer funds have jumped 7% in this quarter with corporate deposit inflows, strong AUM net sales and valuation tailwinds and we continue to post good levels of organic capital generation in spite of the quarter-specific headwinds. Overall, we have delivered more than half of our 2026 target for net profit with the fundamental drivers of earnings growth and profitability performing better than expected. As a result, we are upgrading our guidance for EPS to EUR 0.41. We've also accrued EUR 273 million for distribution so far this year, and we intend to distribute circa EUR 124 million as an interim cash dividend in the fourth quarter. The numbers demonstrate continuous execution. What is perhaps more important is the transformation taking place underneath those numbers. And I would like to take this opportunity to showcase how we have fundamentally upgraded our wholesale franchise starting with Slide 5. Historically, Alpha Bank's wholesale franchise was built around lending excellence. Today, we are evolving towards a universal business bank model. We have deliberately expanded our product capabilities, strengthen specialized coverage and created a platform that allow us to capture a much greater share of our clients' wallet. The objective is simple. Every relationship should generate value beyond lending, through transaction banking, investment banking, capital markets, trade finance, foreign exchange, advisory and cross-border solutions. This is precisely the model we will discuss in more detail at Investor Day, and it sits at the center of our ambition to deliver faster growth in capital-light fee income. Turning now to Slide 6. The first proof point is transaction banking. Over the last 3 years, we have invested significantly in building dedicated transaction banking capabilities. We established a specialized group, expanded product expertise and broadened our offering in payments, cash management, foreign exchange and trade finance. As a result, transaction banking is becoming increasingly embedded into our corporate relationships. Transaction banking specialists are now included in client teams working alongside RMs with clear incentives to deeper product penetration. This is allowing us to capture a larger share of the operating flows of our corporate clients and convert existing lending relationships into recurring capital-light fee income. In trade finance, where data is available for the system, we've increased our share by circa 10 percentage points in import letters of credit and more than 11 percentage points in foreign guaranteed issues. The result is a staggering 38% increase in the revenue generated by transaction banking. Turning to Slide 7. This is the second proof of point in investment banking. A concrete example of how our M&A strategy is already translating into tangible commercial outcomes. AXIA is a particularly good illustration of the type of platform we set out to acquire. Our objective was to create a leading regional investment banking and capital markets franchise that would strengthen client coverage, deepen fee generation and expand Alpha Bank's capabilities across the advisory and capital markets value chain, allowing us to complete the wholesale product shaft. The results we are seeing today validate the strategic rationale. During the first half of 2026, AXIA advised on 17 transactions across 10 different sectors with a cumulative transaction value exceeding EUR 10 billion. Activity remained broad-based across the market and demonstrates the strength of the franchise, its client relationships and its ability to originate opportunities in multiple segments of the economy. Importantly, AXIA has been active across the full spectrum of investment banking services. It participated both as a trusted financial adviser and as a leading book runner in landmark equity and debt capital market transactions serving Greek corporates, international issues and investors alike. One of the most valuable capabilities that AXIA brings to the group is its ability to mobilize international institutional capital. Across multiple transactions, AXIA has broadened investor participation, attracted foreign demand and contributed to stronger execution outcomes for clients. This directly supports our ambition to become the preferred financial partner for Greek corporates seeking to access seeking access to international capital markets. We're also beginning to see the benefits of combining AXIA's expertise with UniCredit's international footprint. Together, through the Alpha Bank Group platform, we have already participated in cross-border transactions, such as [ all wins ] EUR 550 million senior secured notes and [indiscernible] EUR 1.1 billion senior secured notes. These transactions demonstrate how partnership of this partnership extends our reach beyond our traditional markets and create opportunities that neither institution could capture as effectively on a stand-alone basis. AXIA has already strengthened our competitive position, accelerating the development of our investment banking platform and providing clear evidence that our disciplined approach to M&A is creating value for our shareholders. And then finally, on Slide 8, the third proof point, and this is the partnership with UniCredit. UniCredit extends the reach of everything that we have built. It gives our clients access to upon European network, while giving Alpha Bank access to additional product capabilities, expertise and transaction opportunities from lending to trade finance to cash management, instant payments, markets and investment banking. The partnership has now moved decisively beyond its establishment phase and is delivering benefits across lending, transaction banking, trade finance, treasury products, cross-border lending, investment banking, and client servicing. A good example is the launch of European gates. In practical terms, European gate gives Alpha Bank clients with subsidiaries abroad a seamless transaction banking presence in key UniCredit markets, allowing them to more easily access cash management services and manage liquidity, mass payment execution and cross-border account visibility through a more integrated network. This is particularly relevant as instant payments become a more important part of corporate treasury and day-to-day liquidity management. And as a key challenge for treasury departments is the handling of multiple banking relationships or mass payment execution across different countries. By combining Alpha's client relationship with UniCredit infrastructure and local market presence, we are broadening the solutions available to be corporates with international operations and reinforcing our position as the banking partner of choice for companies with international ambitions. At the same time, trade finance activity continues to grow strongly, with more than EUR 100 million of guarantees and letters of credit exchanged in the first half of the year, while joint financing opportunities are gaining momentum across both international and domestic clients. More importantly, we're now moving from product-by-product cooperation to jointly targeting client flows. Alpha and UniCredit teams are increasingly coordinating around specific client opportunities including through road shows in the countries where the 2 groups have a presence so that we can originate more costs -- more of the business, capture a greater share of operating flows and convert our combined network into tangible commercial outcomes. These efforts have already included joint client engagements in Bulgaria, a strategically important market for Greek businesses with more than EUR 5 billion in bilateral trade flows and Greece, ranking as the second largest source of foreign direct investment. Focus is on supporting our customers in one of their key markets, while capturing trade flows and increasing client access for both Alpha Bank and UniCredit through an enhanced cross-border offering in transaction banking, financing and investment banking. In the coming months, we will continue such joint initiatives supporting our clients' order ambitions and expanding our collaboration into other CE markets. We are now seeing increasing benefits from our collaboration in markets, treasury and client risk management, where UniCredit has become one of our key counterparties across a range of products, including derivatives, foreign exchange and fixed income activities. These partnerships expand the solutions available to our clients while supporting the continued development of our own product capabilities. In investment banking, the corporation has accelerated materially following the integration of AXIA into our platform. We have jointly participated in prominent transactions, and we are building a growing pipeline of cross-border advisory and financing opportunities. This collaboration enhances our ability to support [ Quicorp ] as they increasingly pursue international growth strategies. Finally, for individuals and wealth clients, UniCredit strengthens our investment proposition by expanding our product offering, including through the one market from [ ALE ]. Since the launch of our partnership we have distributed circa EUR 1.8 billion of these products, demonstrating the strong client appetite for our enhanced investment solutions. Overall, the partnership with UniCredit continues to create a meaningful competitive advantage for Alpha Bank. It expands our product capabilities, deepens our transactional reach, strengthens our dialogue with clients and reinforces our ability to generate sustainable growth. We remain confident that the commercial contribution of the partnership will continue to increase in the years ahead, creating further value for our customers, our shareholders and all of our stakeholders. Taken together, these initiatives represent a fundamental transformation of our wholesale franchise. We have upgraded the product shelf. We have strengthened specialist capabilities. We have expanded our international reach. We are now evolving our coverage model to ensure clients are served holistically rather than crude-by product. Under the new leadership structure, we are bringing together relationship management, specialized product expertise and cross-border capabilities around the single client view. The objective is straightforward. Higher product density, greater share of wallet, stronger fee generation and deeper client relationships. This is the next chapter in Alpha Bank's wholesale banking story and one of the most important drivers of our future now. I would like to take this opportunity to thank Yannis Emiris for leading our wholesale division, reestablishing it as the leading franchise in the country at a critical moment when the market returned to growth. [indiscernible] that has officially joined us as of yesterday from Bank of America, brings with him a wealth of international experience and has the right skill set to take this franchise up a level and lead the change in the coverage model. Let's now turn to the outlook, starting with Slide 9. We have mentioned before that 2026 is a transitional year for us. We are as focused on integrating the acquired entities, but quite reasonably, we will not see the full benefit of the expected synergies from year 1. Commercial trends during the first half of the year have proven to be stronger than what we're originally expecting strengthening the case for better core performance. But at the same time, we have been burdened by a number of extraordinary events. Vassilios will give you more detail on 2026 later on, but the bottom line is that we now expect to deliver 13% growth in normalized earnings. Credible recurring earnings growth is the natural outcome of our strategy and what we believe will continue to differentiate us going forward. We will be sharing more with you at our upcoming Investor Day in November. For now, on Slide 10, we present a model that is driving this credible recurring earnings growth. We've gone through this with our first quarter results, but it's worth repeating the main points. The model rests on four mutually reinforcing pillars. First, Alpha Bank now combines deep plan relationships with advisory, capital markets and transaction banking capabilities in a way no domestic peer can replicate. Our advantage is that we capture a larger share of wallet. We are no longer just a lender. Through investment banking, transaction banking, trade finance and corporal solutions, we convert existing relationships into recurring capital-light fee income. Second, we are moving retail banking beyond transactions and towards financial planning at scale. We have built a single wealth platform serving all client segments combining asset management structure products, discretionary mandates, pensions, [ bancassurance ] and international wealth capabilities. Third, the UniCredit partnership accelerates both growth engines and provides a permanent structural advantage. And finally, all of this is supported by a performance-led operating model. Our investments are focused on delivering measurable commercial outcomes, while our people model directly lean development and incentives performance. Taken together, these 4 engines create a self-reinforcing system for earnings growth, deeper client coverage, capital-light fee expansion, structural acceleration from UniCredit and disciplined execution. This supports faster compounding of EPS, tangible book value and shareholder distributions while delivering greater diversification to a larger distribution from fees and from our international insurance and real estate businesses. And lastly, on Slide 11. We've been deliberate and consistent in how we think about capital allocation and our framework and the era within remains very clear and unchanged. Our first priority is to fund profitable loan growth. Loan demand in Greece remains resilient, led by corporates and supported by a strong investment cycle. We continue to deploy capital where returns are attractive, while maintaining strict underwriting discipline and balance sheet optimization. At the same time, we are expanding transaction banking, trade finance, asset management, advisory activities increasing the quality and durability of earnings through more diversified revenue streams. Second, our capital generation supports growing shareholder distributions. Strong earnings growth gives us confidence that payouts can continue to rise over time, supported by sustainable capital generation. This is already reflected in our actions. We started dividends conservatively, increase them as confidence strengthened and have now embedded a higher payout in our capital planning. The interim dividend further underlines our commitment to predictable and growing shareholder returns while buybacks remain an important complementary tool. Finally, our excess capital provides strategic flexibility. So far, this has been deployed through highly selective value-accretive acquisitions. Going forward, we will continue to balance shareholder distributions with opportunities to deploy capital into earnings enhancing growth initiatives, ensuring we maximize long-term value creation. And with that, Vassilios.

Thank you, Vassilios, and hello from my side. Let's first go through the P&L overview on Slide 13, please. Reported profits came in at EUR 316 million this quarter, while on a normalized basis, profit stood at EUR 275 million. So let's start with an explanation of notable items. This quarter, we had an accounting recognition of circa EUR 120 million of additional deferred tax assets, the byproduct of liquidation of a subsidiary company. As you can appreciate, these [ DTAs ] are not accretive to capital, but we have created additional room in our P&L. This, in essence, crystallizes the so-called mitigating actions we have referenced in the preceding quarter, allowing us to offset a number of headwinds coming this year. The series of events this quarter have offset this. First, we had a partial recognition of a legacy cash losses that has costs circa EUR 38 million net. Second, we have another EUR 17.5 million provisions for a voluntary separation scheme in [ Cyprus ], which is primarily the Envision restructuring charge for the acquisition of [indiscernible]. And last, we had a negative effect from a number of legacy items, mainly relating to the acellular perimeter of mortgages with first residence protection and the government legislation on the back of the Supreme Court decision. The month pretty straightforward can lead to a net benefit this quarter. I would like to remind you that we had a couple of negative one-offs in the previous quarter and unlikely, and we are likely to see more voluntary contributions to various government programs in Q3. So net-net, that shouldn't change much when it comes to the outcome for this year's [indiscernible]. Speaking of which this is probably a good time to mention that our full year guidance for EUR 950 million in reported profit is reiterated. However, based on underlying drivers, we expect normalized profits to land a bit higher, as Vassilios mentioned at EUR 0.41. Clearly, there's 2 sides of that story. On [indiscernible], I think it's pretty clear that this year has been more burdensome than originally expected, mainly on account of government legislation on the [indiscernible], as well as the partial recognition of the legacy cash flow hedge. On the other hand, underlying trends are undeniable, shaping up better than expected. Rates will in all likelihood land above our 1.9% assumption for Euribor. We've done circa 90% of this year's target for net credit expansion and 3/4 of the target for net sales of [indiscernible]. In revenue terms, the latest consensus of EUR 2.45 billion, EUR 0.46 billion, seems fair against our original guidance of 2.4%. On cost and provisions, there's not much to add. Once we account for the Q1 underperformance in associates, our pretax [ has ] land closer to EUR 1.33 billion. So taking into account one-off items, we should land circa EUR 950 million in reported with underlying earnings performing better. With that, let's move to the next slide and look at the underlying trends in more detail. Operating income was up 7% Q-on-Q with growth in NII and fees. On costs, we had a more normal quarter with a quarterly growth mainly attributable to higher bonus accrual this quarter, while cost-to-income ratio landed at materially better than our full year guidance. We had a slightly better quarter in terms of impairment losses coming in at EUR 44 million or circa 39 basis points. And obviously, Q-on-Q growth in the bottom line is reflecting opposite forces on one-offs each quarter plus not at informed. What has more significance is that the net profit for the first half accounts for a bit more than half of this full year guidance. So we are firm on this guidance. Let's now move to the next slide and the balance sheet. What a spectacular quarter for performing loans, up 5% in the quarter with EUR 1.6 billion in net credit expansion. We already hinted that the high single-digit guidance for the year is likely to be outperformed. More important, the contribution of the RF envelope to this person has been low single digits in percentage [indiscernible]. So 2 things to note. One, the demand for loans is here, real present is not contingent on subsidized funding. Two, the envelope has created a good pipeline of projects have already been underwritten, and the net credit expansion in the coming quarters should be in excess of EUR 1 billion. For customer funds, headline picture on deposits is positively affected by a large single ticket on the corporate side. But even on an underlying basis, we had good inflows of deposits at EUR 600 million in net sales. Obviously, the June snapshot also reflected positive valuation effects, but more than reversed the Q1 underperformance. Tangible book value a bit more than 2% in the quarter and almost 7.5% year-on-year when adjusting for distributions. Last on capital, our CET1 ratio stands at 14.3%, down versus Q1 on account of RWA growth, the acquisition of Alpha Trust and DTA recognition. On Slide 16, we show the 2 main components of revenues. Net interest income was up for another quarter, continuing the upward trajectory. Rates have started to play a part, but the real [indiscernible] having forced this quarter is volumes. We had a significant uptick in loans and now brought forward the security purchases, conducting more of the intended purchases for the year, most of the internet purchases for the year. The same is true for the liability side with incremental [ MREL ] issuance affecting funding costs and corporate inflows affecting the deposit side. On the fee side, Brazil has already commented on the performance of the investment banking side, so no need to expand there. Real estate income as noted on this slide. I think the benefit from [ probed ] dividend and the fact of capital return, which is, however, offset by a negative revaluation of our participation with the trade line on account of a lower net asset value, positive contribution in the quarter. On an underlying basis, income from real estate was on an upward trajectory for yet another quarter. Better quarter for carded payments on account of higher activity following the seasonally low first quarter, a bit weaker on asset management and business credit-related fees. Turning to Slide 17 to look at loans and customer funds. Performing loan balances are hedging the EUR 40 billion mark up 5% in the quarter, EUR 1.6 billion in net credit expansion, a better quarter for disbursements at EUR 3.8 billion, with repayments normalizing down to EUR 2.2 million. Customer funds, deposit growth this quarter mainly came from corporate deposits, as mentioned, and likely to see part of it flow out in the coming quarters. [indiscernible] will convert corporate CapEx to further support the net credit expansion. On AUMs, very strong quarter for net sales, EUR 600 million and obviously, we have also reversed the valuation impact on the first quarter. On Slide 18 and asset quality, BNP ratio came in 10 basis, lower at 3.6%. Coverage ratio is still at 55%. Not much to say here, the underlying cost of risk is 26 basis points this quarter. So the picture looks solid. We do not expect any meaningful surprises in the coming quarters, so we feel comfortable with the 45 basis points guidance for the year. Let's turn to Slide 19 on capital to wrap it up. Holding, the CET1 ratio stands at 14.3% on a transitional basis. 71 basis points on organic capital generation in the first half of the year. As you can understand, there are a number of elements that justify the big decline we've seen. Solid loan growth was translated into higher -- from a P&L perspective, the BPA accrual is not capital generative. And on top of that, we've seen also circa 45 basis points of negatives in the quarter. Three main pieces of this. The Alpha Trust shares acquisition around about 15 basis points. A closure of synthetic securitization round about 10 basis points to be resumed P&L one-offs of around about 12 basis points and the employee share buyback program accrual roughly 10 basis points. And then also, we have the payout accrual of 15% of reported profit, with [indiscernible] coming on top. This translates into 272 million crude or distribution so far this year. And as Vassilios mentioned, we intend to distribute circa EUR 124 million as an interim cash dividend in Q4, all the subject to regulatory approval. With that, let's now open the floor for questions.

[Operator Instructions]. The first question comes from the line of Noemi Peruch with Morgan Stanley.

I was wondering if you could share with us your updated thoughts on NII and fees, given the strong volume that we are seeing in H1, the pipeline for H2 and also the rates evolution. And then on [indiscernible] carryforward, so you wrote up EUR 120 million this quarter. And I was wondering, when do you expect to use them, so to turn them into capital. And if you foresee some potential write-ups also post business plan.

I suspect both of those are for our CFO. So H2 for NII and fees, potential for further write-ups of DTAs and users.

Good. Let me start with the [ BPA ], that's the most straightforward one. I mean effectively, what happens with BPAs is that BPA is written back into capital as we grow the capital base. So this EUR 120 million we've written up this quarter will slowly be converted into capital as a capital basis is going to be growing. I mean you've seen how much of all this DTA we're converting it into capital from a quarter-to-quarter basis. So I would say around about every quarter, there is something in the tune of 30%, maybe a bit more million coming up on that front. On the NII guidance, I think we have reiterated that we're going to be landing around about million higher for the year. I think that's a matter of rates on the one hand. I remind you that our rate sensitivity for 25 basis points is circa EUR 20 million. And then an increase as we see for the year for the volumes, primarily on loans. The rest be hedging or deposit cost doesn't really move the needle. There is a bit of offset, if you like, on funding costs or the very fact that the balance sheet is growing, but nothing to really make a difference on this front. on fees, I think we have explained a lot of the upside here is coming much on all fronts, I would say, be it transaction banking, investment banking, with increased capital markets activity. But also mutual funds, the first quarter and the quarters to come.

The next question comes from the line of Ben Caven Roberts with Goldman Sachs.

So just to drill in on the CET1 first. As you mentioned, there was a step down in Q2, how are you thinking about the CET1 building blocks through to the end of the year and what landing point you'd like to be running the bank at the convergence to a 13% CET1 still a mix of M&A, organic growth, DTC amortization and shareholder return? Or are there other particular headwinds you would call out similar to what you've had over the first half? And then secondly, just to drill in again on deposits. Could you please elaborate on expectations for the deposit mix and spreads from here?

Again, I'm afraid all for our CFO.

On the CET1 evolution, I think it's very clear that the bank is very much accretive on an organic basis. We have generated around about 70 basis of capital for the first half, and there's no reason to believe that we're not going to be continuing doing that on the second half. Now the reason in the first half, we haven't seen some of that into the mix is twofold. One is that the synthetic securitizations provide some volatility. So as I mentioned, there was one transaction which we closed this half, and we will be opening this in the second half, so you will see some benefit out of that in the second half. And second, when it comes to RWA growth, growth has been pretty firm on account of 2 things, as I mentioned, on one side loans, but also a real estate investment. So you see RWA growth being somewhat elevated in that front. Our real estate portfolio is currently shy of EUR 700 million. We aim to grow it to around about EUR 1 billion. So until that happens, you see more at growth. We're very comfortable with this portfolio. Just to give you a hint, the [ Probe ] investment so far has yielded around about 40% or return on CET1. And generally, our total real estate book is yielding more than 25% on the capital that we employ before you go to the deposit is think we should to reiterate a couple of points on capital. The first is that you should focus on the very strong organic capital generation. I think that's predominantly one of the key themes that we observed also this quarter and you should strip out the noise in order to anticipate that. That's number one. Number two, you also asked about if our key choices in terms of capital would continue into the medium term. And I think the reason why we put an extra slide today is exactly to reiterate that. So our -- both are funneling in terms of priorities as well as the way that we do have thresholds for the inorganic, they definitely do hold.

On the deposit pricing, if I remember correctly, the question is all around how we would expect the deposit pricing coming up in the second half of the year. Frankly, so far, both time deposit pass-throughs and betas have been one tick better, I would say, pretty much where we would expect them to be. So it's hard for me to see that something will materially change for the rest of the year. We're running on euro deposits, we're running a pass-through and that's a good level to continue for the rest of the year. And then on total split between time deposits and core deposits, we see ourselves in the 3 quarters to 1 quarter ratio pretty stable for the rest. So we don't see I would say, much of a pressure, if you like, on deposit spreads.

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