Alpha Bank’s 9M 2020 Results: Improved operational performance; Profit After Tax of Euro 130.4 million
Alpha Bank’s CEO, Vassilios Psaltis stated:
“The pandemic continues to induce a significant level of volatility to the economy. Following the decision of our government to enter into a second nation-wide lockdown, relevant news-flow on the effectiveness of vaccines has provided significant underpinning to confidence. In these unprecedented circumstances, we held a steady course in our Project Galaxy, a Euro 10.8 billion NPE securitization, accompanied by the sale of our wholly owned servicer, Cepal Hellas. Despite a most challenging environment, we received two binding offers from international high-quality investors and we selected a preferred bidder, with a view to sign our transaction within the year. Shedding off these legacy assets will transform our balance sheet, as it will reduce our NPLs in Greece by 62%, to Euro 4.8 billion, within our envisaged capital envelope. Our operational transformation and digitalisation are progressing well. The strong support to our Customers, through to October 2020, gets manifested by the outstanding repayment moratoria in Greece of Euro 4.2 billion and by the new loans of Euro 4.6 billion we provided them. Our sound liquidity and capital position, at 18.3%, empower us to play a leading role in supporting our Customers in achieving an early return to normal economic activity. In the nine months, we managed to increase our core pre-provision income by 4% year-on-year, with a continuous focus on our cost base. This resilient performance allowed us to comfortably absorb loan impairments of Euro 737 million, of which circa 40% are Covid-related, thus delivering a profit of Euro 130 million, up by 42% year-on-year. In these extremely challenging conditions, I want to thank our Employees for their commitment and all the hard work they are putting in to service our Customers so that we manage the current difficulties together and we position our Bank to come out as a clear winner from this crisis.”
Main Highlights
Alpha Bank is nearing completion of Project Galaxy, the largest NPE securitisation in Greece
Galaxy has entered the final stages of the transaction process; following an assessment of the binding offers received, Davidson Kempner European Partners LLP was declared as the preferred bidder. Finalization of the agreement is targeted by year-end, with the transaction completion, anticipated within Q1 2021.
Post the acquisition of 100% of Cepal, the first independent servicing company in Greece, in July 2020, the Carve-out of Alpha Bank’s NPE Management Unit onto CEPAL will have been completed by the end of this month, ensuring a seamless transition. Employees’ acceptance of their voluntary transfer to CEPAL currently exceeds 90%.
HAPS-compliant credit pre-ratings have been received and applications for the provision of guarantees by the Greek State, on Senior notes of an amount up to Euro 3.7 billion, have been submitted for Euro 10.8 billion gross book value, securing key financials of the Transaction.
Post Galaxy, Alpha Bank’s NPL ratio in Greece will be reduced to 13%1 over total loans, while its NPE ratio will be reduced to 24%1 .
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Alpha Bank’s Full Year 2019 Profit After Tax at Euro 97 million
Main Highlights
– Robust capital position with phased-in CET 1 ratio as well as Total CAD at 17.9%, at the end of December 2019. In Q4 2019, the Group’s Tangible Book Value was the highest among Greek Banks, at Euro 7.9 billion. Tangible Book Value per Share stood at Euro 5.1.
– In February 2020, Alpha Bank successfully completed a landmark Euro 500 million Tier II bond issuance at a yield of 4.25%, optimising its capital structure and diversifying its capital sources. Our Tier II issuance adds 104bps to our capital adequacy with the pro-forma Total CAD at 19%.
– Continued improvement in liquidity profile with deposits in Greece up by Euro 1.8 billion y-o-y in 2019, primarily as a result of inflows from the private sector. Loan to deposit ratio for the Group reduced further to 97% as of December 2019 versus 104% a year ago.
– In 2019, Alpha Bank continued to extend credit to the private sector with new loan disbursements in Greece of Euro 3.5 billion.
– Organic reduction of gross NPE’s in Greece firmly negative in Q4 2019, down by Euro 0.5 billion, bringing the total organic reduction for 2019 to Euro 1.2 billion.
– In 2019, Net Interest Income declined by 11.9% to Euro 1,547.3 million as a result of deleveraging linked with NPE reduction. Net Interest Margin stood at 2.5%.
– Fees and Commission income continued to grow incrementally, up by 2.7% y-o-y to Euro 340.1 million on the back of higher revenues from asset management and bancassurance, new loan originations and a higher contribution from investment banking activity.
– Recurring Opex decreased y-o-y by 2%, mainly due to headcount reduction resulting from the Voluntary Separation Scheme (VSS) in 2018. Moreover, the successful completion of an additional VSS launched in September 2019 in our Greek operations leads to a gradual departure of 836 Employees with an annualised cost benefit estimated at circa Euro 35 million.
– Pre-Provision Income at Euro 1,135.6 million corresponding to circa 2% of Total Assets, down from Euro 1,441.3 in 2018, off the back of lower Net Interest Income and trading gains.
– In 2019, impairment losses on loans came to Euro 994.8 million or 197 bps CoR vs. Euro 1,723.1 million or 316 bps CoR for the previous year.
– In 2019, Profit After Tax stood at Euro 97 million vs. Euro 53 million in 2018.
– The outbreak of COVID-19 poses significant challenges to the growth rate of the Greek economy, which is expected to slow down considerably, with effects expected within the first semester of 2020, mainly stemming from an external demand shock, domestic uncertainty as well as a supply-side shock, due to the lockdowns in several sectors of the economy. Notably, to mitigate the potential economic impact of the COVID-19 there has been an unprecedented, coordinated monetary, fiscal and regulatory support to the Greek economy and the Banking system by both European authorities and the Greek Government. Alpha Bank’s CEO, Vassilios Psaltis stated: “In the face of the Covid-19 pandemic, our top priority is to protect our Employees, to ensure our business continuity and to deliver on our social responsibility to support our customers and the economy. We have timely switched to crisis mode and we implemented with discipline all appropriate measures to minimise risks, in line with the evolving situation. The actions taken by the Greek Government and the European authorities provide significant flexibility and support, enabling Alpha Bank to withstand the impact from this volatile period before we start to see a return to normal economic activity. Our 2019 results provide a solid foundation with our best-in-class Capital position, further strengthened with our recent Euro 500 million Tier 2 issuance, and our sound liquidity profile. We continue to be fully committed to our three-year plan, including the implementation of our Euro 12 billion Project Galaxy, the phasing of which we are pragmatically adjusting to the prevailing circumstances to ensure a successful execution. Alpha Bank has faced many complex situations in its 140-year history and I am confident that with our Board of Directors, our Management and our Employees managing this situation together, we will overcome the challenges and do everything in our power to prove to our Customers that we can stand by them and help them overcome their difficulties. “Update on COVID-19 The emergence of coronavirus in Europe in the first quarter of 2020, which soon received pandemic features, is adding a major uncertainty in terms of both macroeconomic developments and the ability of businesses to operate under the regime of the restrictive measures imposed. The financial implications depend to a large extent on how long this crisis will last and vary on a case-by-case basis as each sector of the economy is affected differently. Alpha Bank is closely monitoring the situation on COVID-19 and continuously assesses the potential impact of the pandemic on the Bank’s asset quality, risk profile and the execution of its Business Plan. In response to the COVID19 outbreak, and in light of the recent measures announced by the Greek Government, the Bank is reassessing its procedures so that a solid operational plan is in place to guarantee business continuity and ensure the Bank will continue to strongly support our economy. Amongst a series of measures offered to our customers in order to withstand the coronavirus impact, are forbearance of capital payments until September 2020 on all companies directly impacted by the crisis whereas for Individual borrowers and Small Businesses hit by the coronavirus crisis, a three-month freeze on loan repayments is offered by the Bank. Alpha Bank’s top priority throughout the outbreak is to ensure the health and safety of Customers and Employees. To this end, from the onset of the Covid-19 outbreak the Bank has taken a number of measures designed to prevent the spread of the virus and protect key groups. Firstly, we have identified our most vulnerable employees (incl. those who have to take care of minors) and allowed them to either work remotely or stay at home under the special purpose leave from work. In addition, a robust communications plan containing guidelines to protect against the virus was developed for Employees and Customers, while business trips and non-essential travel have also been restricted. Furthermore, the Bank has taken the necessary steps to secure an adequate supply of protective equipment and medical supplies (i.e. antiseptics, hand sanitizers and over-the-counter medicine) across the Group’s offices and Branches. Our office buildings and Branches are deep-cleaned and sanitised to mitigate the spread of the virus. In order to ensure the Bank can continue to operate effectively during the pandemic, circa 90% of Employees in Central units are currently working remotely. Almost half of the Bank’s Employees in Branches currently work in our premises on a rotation basis, while the rest of our Personnel either remain at reserve at home or because of leave of absence. As of today, circa one third of the Bank’s total number of Employees (in both central units and branches) are working onsite on Alpha Bank premises. The Bank has also reinforced its digital infrastructure and will regularly reassess its action plan in order to guarantee that the Bank’s Branch Network remains active to ensure the needs of Customers can continue to be met without interruption. There has been significant market dislocation due to the COVID-19 pandemic, which has disrupted nearly all transactional activity across Europe. Within this unprecedented and evolving situation, we considered it necessary and indeed our duty to allow investors sufficient time and bandwidth to absorb the recent events. We anticipate that visibility will be gradually restored by the beginning of the second half of 2020, leading to the continuation of the Bank’s planned transactions including Galaxy and Neptune.
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Alpha Bank: First Half 2019 Profit After Tax1 at Euro 86.8 million
Main Highlights
– Strong capital position with CET1 ratio increased by 80bps q-o-q to 17.8% as of June 2019, mainly affected by the improving valuation of the Greek Government Bonds portfolio. Total CAD at 17.8%, provides a buffer of Euro 1.9 billion over our SREP ratio requirements. In Q2 2019, our Tangible Equity Book Value increased to Euro 7.9billion from Euro 7.7 billion in the previous quarter.
– Liquidity profile continued to improve with deposits in Greece up by 5.6% y-o-y to Euro 33.3 billion at the end of June 2019. Loan to Deposit ratio for the Group reduced further to 102% in Q2 2019 vs.111% a year ago.
– Alpha Bank continued to extend credit to the private sector with new loan disbursements in Greece of Euro 1.5 billion in H1 2019. New financing is expected to pick up pace in the second half of 2019.
– Net Interest Income effectively flat q-o-q at Euro 388.6 million. Net Interest Margin stable q-o-q at 2.5%.
– Fees and Commission income stood at Euro 81.2 million, up by Euro 10.9 million q-o-q, mainly on the back of higher volume of credit card transactions and new loan disbursements.
– Income from financial operations in Q2 2019 stood at Euro 123.7 million, primarily attributable to gains’ realisation from our Greek Government Bonds position. Total income from financial operations for H1 2019 at Euro 197.5 million.
– Recurring Operating expenses decreased by 2.5% y-o-y, mainly as a result of lower General Expenses as well as a decrease in Staff Costs.
– In Q2 2019, Pre-Provision Income stood at Euro 322.7 million, up by 18.9% q-o-q, due to higher trading gains.
– Impairment losses on loans at Euro 246 million in Q2 2019, effectively flat q-o-q (+1.4%), implying a Cost of Risk (CoR) of 1.9% over gross loans, same as in the previous quarter vs. an average cost of risk of 3.2% for 2018.
– In H1 2019, Profit After Tax stood at Euro 86.8 million vs. Euro 12.7 million in H1 2018.
– NPE contraction accelerated in Q2, with the NPE stock in Greece down by Euro 0.4 billion on the back of lower re-defaults, as the implementation of our Retail Transformation Plan starts to produce tangible results, as well as successful corporate restructurings. The NPE ratio in Greece at the end of June 2019 stood at 48.3%, with NPE coverage at 45.3%.
– The Bank is consistently working towards meeting its NPE decrease target for this year of Euro 5.5 billion, with an improved pace of organic reduction and the completion of the two NPE portfolios transactions, totalling circa Euro 3.7 billion.
Alpha Bank’s CEO, Vassilios Psaltis stated:“We are witnessing a significant improvement in the economic outlook, evidenced by the sharp decline in Greek government bond yields and the improvement in the Economic Sentiment Indicator that has reached pre-crisis levels. On that backdrop, the full abolition of capital controls on September 1st, should allow for a further step towards full restoration of normality. Alpha Bank increased its profitability and capital levels in the second quarter whilst it continued to move ahead with the implementation of its NPE reduction plan, launching two sizeable NPE transactions. These tailwinds are shaping our confidence towards an ambitious strategy that we envisage finalizing with our Board and communicating to the market in the fourth quarter”.
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