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PIRAEUS BANK Σοφοκλέους 10 Τοις Μετρητοίς

PIRAEUS/EUROXX: Improved Performance on a Core PPI Basis while PPI and Bottom Line Weighed by COVID

 In Q1’20 Piraeus reported losses of €232m vs profit of €190m in Q4’19 negatively impacted by €324m COVID-19 impairments, €46m trading losses (vs €359mn gains in Q4’19 mainly from the NPE servicing platform carve out) and lower fees despite the resilient NII and lower OpEx. NII slightly above our call while PPI was below our call on lower than expected trading income ; Finally bottom line (below our call) was negatively impacted by higher than expected impairments on loans

In more detail, NII was slightly lower by 0.8% q-o-q to €363m (Exx at €353m), mainly on the back of improved liability side and funding costs. NIM was flattish q-o-q to 239bps vs 236bps in Q4’19. Fees dropped by c22.0% q-o-q to €71m (Exx at €75m), due to the significant drop in transaction volumes in Mar’20 due to COVID-19. .As a result, core banking income decreased by 5% q-o-q to €431m (Exx at €428m). Accounting for non-core losses of €19m (including losses of €46m in its trading portfolio due to the disruption in the market because of the COVID-19 crisis post late Feb.2020) in Q1’20 vs profit of €359m (included €351mn gain from the NPE servicing platform carve out) in Q4’19 , total operating income settled at €412m (Exx at €429m), 49% lower q-o-q. OpEx decreased by c14.0% q-o-q to €227m in Q1’20 (Exx at €233m), attributed mainly to seasonally lower administrative expense and additional cost savings. Bringing Pre-provision income down by 66.1% to €185m, lower than our call of €196m mainly because of lower than expected trading income. Total impairments settled at €510m (including €72m other impairment) from €270m in Q4’19 materially affected by additional impairments of c€324m to account for the impact of COVID-19 (on a v-shape scenario, providing for a cumulative change in GDP of -1.0% for 2020-2021) with a CoR at 260bps (the underlying CoR at 1.9%). Net income settled at a loss of -€232m (Exx at -€135m) vs. €190m profit in previous quarter lower than our call mainly due to higher than expected impairment on loans.

NPE ratio shaped at 49.6% (at 50.3% in Q4’19) on NPE coverage of c45.6% (vs. 44.9% in Q4’19). The transformation plan is on progress working on the NPE securitisations of c.€7bn (c.€5bn “Vega”, c.€2bn “Phoenix”) and the hive down (expected to be completed by Q4’20).Both securitisation (with total impact of 180bps on capital) structures are expected to be finalized in the upcoming months and to be eligible for the HAPS guarantee, in contemplation of a potential accounting and regulatory de-recognition of the related NPEs (Significant Risk Transfer “SRT” expected in Q4’20 –Q1’21). In terms of timeline, the Phoenix securitisation is at a more advanced phase, hence it is expected to be completed earlier than Vega while the Iris and Trinity projects are in the final phase of the sale. Following the positive developments of FY’19, Q1.20 marked a clear increase in the performing book (by c0.5bn) coming from business lending, while households’ loans stabilized. For the following quarters the trend is expected to remain upward, with business loans contributing the majority of new loan generation

Turning to the B/S side, gross loans (excl.OPEKEPE loans) increased by 0.2% q-o-q to €48.7bn, while net loans and deposits decreased by 3.8% and 1.4% q-o-q respectively. As a result, (net) L/D ratio (excluding OPEKEPE loans) landed at 80.7% in Q1’20 from 82.7% in Q4’19. Common equity (excluding CoCos) settled at €5.4bn (-4.7% q-o-q), with tangible equity at €5.0bn. DTA increased by 2% q-o-q at €6.6bn. The Q1’20 pro-forma CET 1 ratio settled at 13.2%, while CAD stood at 15.2% negatively impacted by the increased impairments taken due to the COVID-19 crisis and IFRS 9 phasing. Fully loaded CET1 and total capital ratio stood at 10.8% and 12.9% respectively. We should note here that a capital benefit of ~0.7% derived from EC amendments to capital regime is anticipated in 2020.Eurosystem funding currently stands at €4bn with the ability to double it by year end.

Conference Call Highlights: Management gave a guidance for flattish NII and Fees with lower OpEx by a mid –single digit contraction leading to a flattish or slightly reduced Core PPI and PPI ( supported by improved trading income vs in Q1’20).Finally Mr Megalou clarified that the coupon payment of Cocos in 2020e will be in cash.

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