Piraeus Bank's second quarter earnings that will be announced tomorrow will mark the lender's move from the legacy of the crisis to a total return to normality onto a path of strong growth.
According to analysts' estimates and based on what the bank's CEO Christos Megalou reported at the General Meeting of shareholders, the results, despite the challenges created by the war in Ukraine, will include a contraction of the NPLs index to a single-digit level for the first time since the outbreak of the crisis, strong credit expansion, record commission and banking income and the strengthening of its capital adequacy.
The bank's strong recovery will also be reflected in profitability. With a record performance in the first half and a momentum that creates expectations that the bank will significantly exceed goals set by the management in the business plan for the period 2022 – 2025, Piraeus Bank leaves behind the problems and an image of weakness and uncertainty: just a few years ago the non-performing loan ratio of Piraeus Bank was at 50%, which, combined with the weak capital base, had made the bank the "black sheep" of the sector, a weak link with increased chances of being forced into a merger.
The specter of a forced merger began to fade after 2015 amidst fading concerns about Greece's future in the euro, however the pile of NPLs that burdened domestic banks in general kept the bank captive to concerns about the possibility of dealing with the large volume of NPLs without a capital increase.
This was also reflected in the Athens Stock Exchange, with Piraeus Bank's stock being valued at a large discount from the other systemic banks. The market's concern was to some extent confirmed, as the capital increase required to shore up the bank's balance sheet led to a large dilution of the holdings of existing shareholders. However, despite the dramatic improvement in the bank's data on non-performing loans, business output, profitability and capital adequacy, the large discount remains.
From the crisis to the... sunrise
In order to deal with the heavy legacy of the crisis, the management of Piraeus Bank, in full cooperation with SSM, proceeded to draw up an ambitious restructuring program with the aim, in the first phase, to put the bank on a path of normality. The Agenda 2020 strategic plan was presented at the end of 2017 with the main objectives of reducing the NPE ratio to internationally acceptable levels, returning to profitability, strengthening the capital base and restoring the bank's access to financing from international markets.
As part of the restructuring plan, it sold subsidiary Avis Leasing, Piraeus Bank Belgrade, Piraeus Bank Romania and Tirana Bank. After the completion of Agenda 2020, in March 2021 Piraeus Bank announced the Sunrise plan for the complete return of the bank to normality. The Sunrise project included 3 main pillars with a drastic reduction of NPEs through securitizations of NPLs with a gross book value of 19 billion euros, an increase in share capital by approximately 1 billion euros and other actions aimed at a cumulative capital enhancement of approximately 2.6 billion euros and an extensive transformation program aimed at strengthening earnings before provisions through coordinated actions to strengthen revenues and reduce operating costs.
A few months later, at the end of 2021, the bank had implemented 95% of the actions according to Sunrise's planning:
- The ratio of non-performing exposures from 45% in December 2020, fell to 13% in December 2021, with the stock of NPLs limited to 4.9 billion, compared to 22.5 billion in December 2020 and to 37.7 billion in September 2015.
- The capital increase was successfully completed in April 2021 with the bank raising a total of 1.38 billion euros, while the issuance of an Additional Tier 1 hybrid bond in the amount of 0.6 billion euros followed in June 2021. The bank finally strengthened its funds by 3.1 billion euros, exceeding the target of 2.6 billion euros. The overall capital adequacy ratio rose to 15.9% at the end of 2021.
- New loan disbursements of 6.5 billion euros were made, higher than the target of 5.7 billion euros, while net credit growth (disbursements minus repayments) reached 1billion euros in 2021.
At the same time the bank achieved strong growth in fee income (+ 25% on an annual basis) and a reduction of operating expenses by -4% on an annual basis.
From consolidation to flight forward
In April, the CEO of Piraeus Bank. Christos Megalou, presented the 2022- 2025 Business Plan, which, among other things, foresees an NPE ratio of 3% until the end of 2025, return on equity of 12%, new loan disbursements of 27 billion, doubling of profitability before provisions, reduction of operating costs by -25% and a leading position of the bank in asset management. The results of the first quarter confirmed the recovery of the bank and the achievement of the objectives, however, in the second quarter there is a significant acceleration of growth rates. As Megalou, noted, speaking at the bank's General Meeting of shareholders last week, "the emerging trends of the first half of 2022 are encouraging in terms of achieving the goals even earlier than the initial planning of the 2022- 2025 business plan".
As he stressed, credit growth in the first half of the year amounted to 1 billion euros, compared to an annual target of 1.2 billion for 2022, commission income in the second quarter exceeded any previous record, while the increase in interest rates by the ECB will bring an additional boost to the bank's income, a benefit that for Piraeus Bank will exceed 100 million euros in 2023. All this leads to a positive revision of the goals both for this year and for the business plan for the 2022 – 2025 period. At the same time, the bank places a lot of weight on the strategy of capitalizing on holdings, creating an independent digital bank and strengthening its position in the fund management sector. As Megalou noted at the General Meeting: "we are proceeding with the utilization of the bank's assets. In this context, this morning the IMITHEA company, owner of ERRIKOS DYNAN hospital, announced an agreement for the absorption of the EUROMEDICA Group, with the aim of creating one of the largest Healthcare groups in Greece.”
Finally, he highlighted the important strategic initiatives with the joint venture with the company Natech, for the development of an independent innovative digital bank for customers in Greece and the rest of the European market for the provision of financial and banking services, as well as the acquisition of Iolcus Investments.