PTA-News: BAWAG Group AG: Net profit of EUR 111 million, EPS EUR 1.24, and ROTCE of 14.2% in Q1 2022

Tuesday, 26. April 2022 07:15

Business news for the stock market

Vienna (pta005/26.04.2022/07:15) -
* Net profit of EUR 111 million, EPS of EUR 1.24 and RoTCE of 14.2% for Q1 '22
* Underlying RoTCE 19.5% when pro-rating regulatory charges and deducting EUR 425 million earmarked for buybacks
* Pre-provision profit of EUR 205 million (+14% vPY) and CIR at 37.0%
* Risk cost ratio of 19 basis points … ECL management overlay at EUR 64 million
* Q1 '22 including EUR 38 million regulatory charges … representing approximately 80% of FY charges
* CET1 ratio of 14.7% post-deduction of Q1 '22 dividend accrual
* Targeting share buybacks of EUR 425 million in 2022 across two tranches, subject to regulatory approvals
* 2022 targets reconfirmed: Profit before tax > EUR 675 million, RoTCE > 17%, and CIR < 38%

BAWAG Group today released its results for the first quarter 2022, reporting a net profit of EUR 111 million, EUR 1.24 earnings per share, and a RoTCE of 14.2%. When pro-rating the front-loaded regulatory charges and deducting EUR 425 million capital earmarked for buybacks, the underlying RoTCE was 19.5%.

The operating performance of our business was strong during the first quarter 2022 with pre-provision profits of EUR 205 million and a cost-income ratio of 37.0%. Total risk costs returned to more normalized levels of EUR 20 million, with a risk cost ratio of 19 basis points. We maintained a management overlay of EUR 64 million in light of the overall economic uncertainty stemming from the ongoing geopolitical conflict, while overall asset quality remained strong.

In terms of loan growth and capital, average customer loans were flat versus year-end 2021 and up 8% versus prior year. We generated approximately 60 basis points of gross capital from earnings. As of the first quarter 2022, our CET1 ratio was 14.7%, down approximately 30 basis points versus December 2021, tied to RWAs, negative OCI movements and considers the deduction of EUR 61 million dividend for the first quarter 2022; which is based on our dividend policy to accrue 55% of net profit from financial year 2022 onwards.

In terms of capital distribution, we committed to a share buyback of EUR 425 million during our year-end 2021 results. Given the current geopolitical environment, volatility, and potential for dislocations, we want to make sure we are prudent in our buyback approach, always maintain a fortress balance sheet, and prepare for potential opportunities arising from market dislocations, which will provide us with dry powder to address organic and inorganic growth opportunities in the coming quarters. Therefore, we decided to break-up the buyback into two tranches. The first tranche equaling EUR 325 million, which we filed, and a second tranche of EUR 100 million, which we would file in the second half of the year. Our goal is to hopefully complete the EUR 425 million share buyback through the course of 2022, subject to all regulatory approvals. After deducting the targeted buyback of EUR 425 million, we would land at a CET1 ratio of 12.6%.

Anas Abuzaakouk, CEO, commented: "In the first quarter 2022 we delivered a strong set of results with net profit of EUR 111 million, EPS of EUR 1.24, an RoTCE of 14.2% and a cost-income ratio of 37%. Our underlying RoTCE was 19.5% when pro-rating regulatory charges and deducting EUR 425 million of capital earmarked for buybacks in 2022. During the first quarter we witnessed greater market volatility driven by geopolitical conflict, significant inflationary pressures and shifting global supply chains; requiring us to be even more vigilant in how we manage these risks. We have a resilient business across all cycles with consistent earnings and capital generation that should serve us well in the quarters ahead. We have no direct exposure to Russia or Ukraine and de minimis exposure to eastern Europe reflecting our strategic focus towards the DACH/NL region, Western Europe, and United States over the past decade. While our secondary exposures are de minimis, we will continue to remain cautious and prudent. Our thoughts and prayers are with all those who have been impacted in Ukraine and we pray that the sanctity of life will be preserved."

Delivering strong results in Q1 2022

In EUR millionQ1 2022Change versus prior year
Core revenues 323 9%
Operating income 325 8%
Operating expenses (120) (1%)
Pre-provision profit 205 14%
Regulatory charges (38) (29%)
Risk costs (20) (31%)
Profit before tax 146 52%
Net profit 111 50%
RoTCE 14.2% 4.0pts
CIR 37.0% (3.5pts)
EPS (EUR) 1.24 50%

Core revenues increased by 9% to EUR 323 million in the first quarter 2022. Net interest income rose by 5% to EUR 242 million driven by higher average customer loans. Net fee and commission income increased by 20% to EUR 81 million, driven by ongoing recovery following the pandemic as well as the acquisition of Hello bank! Austria in Q4 '21, but still impacted by the COVID-19 restrictions. Operating expenses decreased by 1% as a result of multiple operational initiatives executed over the past two years, more than compensating significant inflationary pressures. The cost-income ratio decreased by 3.5 points to 37.0%. This resulted in a pre-provision profit of EUR 205 million, up 14% versus prior year.

The first quarter 2022 also included regulatory charges of EUR 38 million, down 29% versus prior year, reflecting recoveries from prior bank insolvencies. These represent approximately 80% of the full-year charges that are expected to be required during 2022.

Risk costs were EUR 20 million in the first quarter 2022, a decrease of EUR 9 million, or 31%, compared to the previous year. We do not have any direct exposure to Russia, Ukraine or Belarus and de minimis secondary exposures. ECL provisions totaled EUR 138 million, of which EUR 64 million was the result of a management overlay to ensure adequate provisioning in light of the current economic stemming from the ongoing geopolitical conflict.

Our goal is, and will always be, maintaining a strong balance sheet, solid capitalization levels, low leverage and conservative underwriting, a cornerstone of how we run the Bank. The customer loan book is comprised of 73% exposure to the DACH/NL region (Germany, Austria, Switzerland, Netherlands) and 27% exposure to Western Europe and the United States. Our NPL ratio of 1.5% is one of the lowest across Europe (1.1% excluding the City of Linz receivable), with a conservative reserve ratio of 1.4% on customer loans, an increase of 43 basis points on pre-pandemic levels, despite a decreasing NPL ratio.

Customer Business performance in Q1 2022 versus Q1 2021

Segment PBT
(in EUR million) Net profit
(in EUR million) RoTCE Cost-income ratio
Retail & SME 133 / +48% 99 / +48% 28.1% 35.1%
Corporates, Real Estate & Public Sector 51 / +50% 38 / +50% 15.2% 22.5%

Retail & SME delivered a net profit of EUR 99 million, up 48% versus the first quarter 2021, generating a strong RoTCE of 28% and cost-income ratio of 35%. Average assets increased by 8% versus prior year, driven by growth in housing and consumer loans across our core markets. Pre-provision profits were EUR 160 million, up 18% compared to the prior year, with operating income up 10% although we still see customer activity impacted by restrictions due to COVID in selected business lines. Operating expenses were down 3%, resulting from prior year operational initiatives with a continued focus on driving synergies across our various channels and products. Risk costs were EUR 15 million, reflecting a normalization of risk costs. The NPL ratio was flat year-over-year at 1.9% across the Retail & SME business.

We continue to execute on our long-term strategy centered around our 2.2 million customers, ensuring the best products and services are offered in the most efficient and simple manner. Our simplified operating model and focus on efficiency provides a cost advantage, enabling us to compete in low-risk but highly competitive markets and invest more to the benefit of both customers and shareholders.

Corporates, Real Estate & Public Sector business delivered net profit of EUR 38 million, up 50% versus the prior year and generating a solid RoTCE of 15% and a cost-income ratio of 22%. Average assets increased by 6% versus prior year. Pre-provision profits were EUR 62 million, up 12% compared to the prior year. Risks costs were EUR 3 million, down 79%, and the NPL ratio was stable at 0.9%.

We continue to see a solid lending pipeline with diversified opportunities in the remainder of 2022. However, competition for defensive, high-quality assets continues to remain high. Our focus will be maintaining our disciplined and conservative underwriting and focusing on risk-adjusted returns without ever chasing blind volume growth. We anticipate this year will bring greater volatility as central banks across our core markets begin a process of increasing interest rates and unwinding their balance sheets after years of quantitative easing. There are both risks and opportunities in this process, but we are cautiously optimistic that this will bring back greater discipline into the credit markets with a general repricing of risk.

Outlook and targets

In our outlook for 2022, we see full year core revenues growing by over 4% and operating expenses down by approximately 2%. We expect regulatory charges to be below EUR 50 million and total risk costs amounting to approximately 20 basis points risk cost ratio, without the benefit of any reserve releases. We are targeting a profit before tax over EUR 675 million. In terms of return targets, we target a RoTCE over 17% and a CIR under 38% in 2022.

Our targets are as follows:

Financial targets 2022 Outlook 2021
Core revenues >4% EUR 1,220 million
Operating expenses ~ (2%) EUR 485 million
Regulatory charges < EUR 50 million EUR 52 million
Risk cost ratio ~ 20 basis points 23 basis points
Profit before tax > EUR 675 million EUR 600 million
Return targets 2022 Outlook 2021
Return on tangible common equity >17% 16.1%
Cost-income ratio EUR 750 million
Earnings per share >EUR 7.25
Dividend per share >EUR 4.00
Return targets 2022 &
beyond
Return on tangible common equity >17%
Cost/Income ratio 50% reduction
Women quota
- Supervisory Board
- Senior Leadership Team 17%
15% 33%
33%
Green lending new business EUR 0.8 billion >EUR 1.6 billion

Note: Financial and return targets are excluding any outcome of the City of Linz case. Dividend payout will be based on net profit excluding a City of Linz case impact.

In terms of capital distribution, we increase the dividend payout ratio to 55% starting from financial year 2022, resulting in a targeted dividend distribution of ~ EUR 1.4 billion for the financial years 2021 through 2025.

We committed to a share buyback of EUR 425 million during our year-end 2021 results. Given the current geopolitical environment, volatility, and potential for dislocations, we want to make sure we are prudent in our buyback approach, always maintain a fortress balance sheet, and prepare for potential opportunities arising from market dislocations, which will provide us with dry powder to address organic and inorganic growth opportunities in the coming quarters. Therefore, we decided to break-up the buyback into two tranches. The first tranche equaling EUR 325 million, which we filed, and a second tranche of EUR 100 million, which we would file in the second half of the year. Our goal is to hopefully complete the EUR 425 million share buyback through the course of 2022, subject to all regulatory approvals. After deducting the targeted buyback of EUR 425 million, we would land at a CET1 ratio of 12.6%.

Additional capital through 2025 of ~ EUR 0.8 billion will be allocated to business growth, M&A, and/or share buybacks and special dividends, subject to our routine annual assessment.

Our strong operating performance during the pandemic so far was a true testament to the resilience of BAWAG Group's franchise and strategic focus. We will continue to maintain our low-risk strategy focused on the DACH/NL region, Western Europe, and the United States; providing simple, transparent, and affordable financial products and services that our customers need.

About BAWAG Group

BAWAG Group AG is a publicly listed holding company headquartered in Vienna, Austria, serving 2.2 million retail, small business, corporate, real estate and public sector customers across Austria, Germany, Switzerland, Netherlands, Western Europe, and the United States. The Group operates under various brands and across multiple channels offering comprehensive savings, payment, lending, leasing, investment, building society, factoring and insurance products and services. Our goal is to deliver simple, transparent, and affordable financial products and services that our customers need.

BAWAG Group's Investor Relations website https://www.bawaggroup.com/ir contains further information, including financial and other information for investors.

Contact:

Financial Community:

Jutta Wimmer (Head of Investor Relations)
Tel: +43 (0) 5 99 05-22474
IR Hotline: +43 (0) 5 99 05-34444
E-mail: investor.relations@bawaggroup.com

Media:

Manfred Rapolter (Head of Corporate Affairs)
Tel: +43 (0) 5 99 05-31210
E-mail: communications@bawaggroup.com
This text can also be downloaded from our website: https://www.bawaggroup.com

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emitter: BAWAG Group AG
address: Wiedner Gürtel 11, 1100 Wien
country: Austria
contact person: BAWAG Group Investor Relations
phone: +43 (0)59905-34444
e-mail: investor.relations@bawaggroup.com
website: www.bawaggroup.com

ISIN(s): AT0000BAWAG2 (share)
stock exchanges: official trade in Vienna

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