- NBG: Q3 17 Results Review
NBG reported Q3 17 results with NII at €378mn (-7% qoq) reflecting continuous deleveraging (gross loans down by €0.6bn qoq) and lower loan yields (in Greece yields fell 5bps qoq to 388bps) both of which subtracted €13mn qoq and lower income from bonds (€12mn lower qoq) as total securities reduced by €3.3bn qoq. Domestic NIM fell to 305bps from 309bps in Q2. With trading & other losses of €81mn operating income fell 9% qoq to €354mn. As a result, and following a 3% qoq increase in opex, PPI fell 27% qoq to €116mn (core PPI down 15% qoq to €196mn). LLPs at €156mn from €200mn in Q2 leading to net income of €-35mn or €-44mn (cont. operations).
Other BS Items and Liquidity
On BS items, deposits grew by €0.45bn qoq. Loans over deposits ratio fell to 83% from 86% in Q2. Eurosystem funding fell by €2.4bn qoq to €6bn (fell to €4.7bn by Oct), thereof ELA at €2.3.bn from €3.8bn in Q2 (at €1bn by Oct) on the back of higher deposits, the issuance of the €0.75bn covered bond and deleveraging.
On asset quality, NPEs stock reduced by €0.2bn qoq (with pace of reduction slowing compared with a €0.4bn qoq decrease in Q2) driven by €119mn negative formation. NPEs ratio at 45.2%, up 20bps qoq and cash coverage at 55.9%, up 20bps qoq. NBG has already achieved the 2017 NPEs reduction targets, i.e. with NPEs stock at €18bn compared with a target of €18.1bn. On the other hand, NPLs formation was positive, at €66mn driven by the NPEs corporate book, with NPLs ratio at 34.1% (cash coverage at 74.1%).
CET 1 at €6.5bn, flat qoq with the ratio at 16.8%, up 30bps qoq (16.6% FL basis), on €0.5bn lower RWAs.
Ethniki Insurance deal is expected to be closed within Q1 18, with positive impact of 110bps on capital ratios and about €0.77bn in liquidity release. The Serbian and Romanian operations are expected to be finalized by early 2018 with positive impact on capital ratios of about 75bps and liquidity release of €1bn.
- a) On asset quality, Mgmt sounded confident there would likely be no notable change regarding the NPEs revised targets to SSM, as NBG is already ahead of 2017 target. Mgmt cited that qualitative movements within the NPEs perimeter have improved with curings up and re-defaults down. NBG plans to proceed with a sale of unsecured plus secured (SBLs) portfolios within Q1-Q2 18, b) On P&L trends, Mgmt cited that the negative impact from lower unwinding (due to higher provisioning) will likely be offset by improved loan mix on higher demand for corporate loans on the back of increased fixed investments in Greece. CoR was guided to about 1.8% for 2018 (2.4% in 9m 17) before any adjustments enacted by the expected new regulation on provisioning, c) Mgmt expects a positive annual benefit of about €70-80mn from the settlement of the auxiliary pension fund case currently under negotiation.
Shares likely to react negatively as market participants are likely to re-assess income generation. Weak operating lines with deleveraging, rapid dilution on loan yields and lower bond income affecting NII, while on the funding side, the incremental, ensuing benefit from lower ELA funding is expected to be minor as ELA balance has fallen to just €1bn. This implies that ex the notable recurring benefit from the likely agreement as regards to the auxiliary pension fund, the operating income should continue to struggle over the upcoming quarters till new loan generation gathers pace.
On the other hand, on NPEs trends, NBG is clearly on track having evidenced lower NPEs stock with still negative formation and lower CoR qoq, with SSM reduction targets already achieved for 2017, however, we sense that the pace of NPEs reduction has not been that outstanding for offsetting the negative sentiment likely to be gauged by investors following the top line miss, especially if taking into account that consensus estimates were higher than AFe.
Note: From 2018 onwards, the Titlos instrument will be handled differently (not accounted for on NII where Mgmt expects about €160mn lower income from that) but it should have no effect on the PPI level (as it will be fully accounted on the trading line).
Target Price : €0.4300
Share Price : €0.2460