• Income Growth: Increased by 8.8%, reaching nearly EUR606 million.
• Net Income (Bank Millennium): Increased by over 18%, amounting to EUR127 million.
• Capital Ratios: CET1 at 16.5% and total capital at 20.8%, with increases of 219 and 225 basis points respectively.
• Customer Funds: Increased by 9%, exceeding EUR100 billion.
• Non-Productive Assets Reduction: Decreased by EUR92 million in NPS and EUR60 million in foreclosed assets.
• NPL Ratio: Reduced to 3.5% with total cash coverage of approximately 80%.
• Customer Base Expansion: Grew by 4%, surpassing 6.9 million customers.
• Mobile Customers: Increased by 11%, representing 71% of the customer base.
• Operating Costs: Increased by around 11% due to inflation, particularly in Poland.
• Net Interest Margin (NIM): Above 3%, with international operations exceeding 4.5%.
• Cost of Risk: Improved, remaining below 50 basis points.
• Return on Equity (ROE): Projected to be above 13.5% over the strategic plan period.
• Shareholder Distribution: Up to 75% through dividends and share buybacks, subject to regulatory approval.

• Warning! GuruFocus has detected 5 Warning Sign with BPCGY.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Banco Comercial Portugues SA (BPCGY) reported an 8.8% increase in income, reaching nearly EUR 606 million, showcasing the profitability and efficiency of its business model.
• The bank's net income from its Mozambique operations remained strong at EUR 64 million, confirming the quality and profitability of this franchise.
• Bank Millennium's net income increased by more than 18%, amounting to EUR 127 million, despite significant costs associated with FX mortgage loans.
• The bank achieved a solid capital position with capital ratios comfortably above regulatory requirements, including a CET1 ratio of 16.5% and total capital at 20.8%.
• Customer funds increased by 9%, exceeding EUR 100 billion, supported by strong commercial skills and a competitive retail banking business model.

Negative Points

• Banco Comercial Portugues SA (BPCGY) faced substantial costs related to FX mortgage loans, amounting to EUR 550 million in the first nine months.
• The extension of mortgage moratoriums resulted in costs of EUR 36.66 million, although below the provisioned amount.
• Operating costs increased by around 11% due to inflation, particularly in Poland, impacting core operating profit, which decreased by around 4%.
• The bank's cost of risk remains a concern, although it has improved, it is still a significant factor in the overall business model.
• The competitive landscape for deposits is increasingly challenging, which could impact future profitability and growth.

Q & A Highlights

Q: Could you provide more color on your capital distribution guidance and what might trigger a distribution back to shareholders? A: Miguel Braganca, CFO & Executive Director, explained that the bank aims to maintain a CET1 ratio above 13.5%. The distribution of capital back to shareholders would depend on organic growth and investment needs. The bank plans to distribute up to 75% of earnings, but this is contingent on achieving business targets and regulatory approval.

Q: Can you elaborate on the NII sensitivity in Portugal and expectations for 2028? A: Miguel Braganca noted that the NII sensitivity in Portugal is relatively low, with an impact of EUR 50-60 million for each 1% change in interest rates. The bank expects NII to remain broadly constant in 2025 compared to 2024, with growth aligned with volume increases thereafter.

Q: Why is the cost of risk guidance for Portugal set at 45 basis points, and is there potential upside? A: Braganca acknowledged that the cost of risk guidance is conservative, reflecting a cautious approach despite significant NPL reductions. The bank sees potential upside if economic conditions remain benign, but it also considers competitive pressures in the market.

Q: What are the main drivers behind your loan and deposit growth targets? A: The bank's growth targets are based on historical performance and expectations of nominal GDP growth. Specific initiatives include supply chain finance, new partnerships, and leveraging technology to enhance customer service and capture market share.

Q: How will you manage interest rate swaps in Portugal, and what is the expected impact? A: The bank uses interest rate swaps to manage interest rate risk, targeting a low sensitivity for both NII and economic value. The swaps are aligned with the repricing periods of liabilities, typically around 4.5 to 5 years, to hedge non-maturity deposits.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.