National Bank of Greece (NBG) has reported a solid financial performance in the first half of 2024, with CEO Pavlos Mylonas announcing a group core profit after tax increase to €646 million, marking a 27% year-over-year growth. The bank's core return on tangible equity reached 17.4%, and loan disbursements hit a record quarterly high of €2.8 billion.
Amidst a thriving Greek economy, bolstered by strong tourism and domestic demand, NBG has upgraded its full-year 2024 guidance, expecting net interest income (NII) to surpass the previous year's record and projecting credit growth to reach €1.5 billion.
Moreover, the bank's cost of risk is anticipated to be below 60 basis points for the year. The bank's CET1 ratio stood at 18.3%, well above the internal target of 14%. Rating agencies, including Moody's (NYSE:MCO), have upgraded NBG's senior rating to one notch above investment grade, acknowledging the bank's profitability, liquidity, and capital position.
Key Takeaways
- National Bank of Greece reports a 27% increase in H1 2024 core profit after tax to €646 million.
- The Greek economy shows solid growth with over 2% GDP increase in Q1 2024, driven by tourism and domestic demand.
- Loan disbursements at NBG reached a record €2.8 billion for the quarter.
- NBG upgraded its full-year 2024 guidance with expected NII to exceed previous year's record.
- The bank's CET1 ratio is strong at 18.3%, and Moody's upgraded its senior rating to above investment grade.
- NBG plans to optimize excess capital, considering buybacks with regulatory approval.
Company Outlook
- NBG expects a strong tourist season to break revenue records.
- Full-year guidance for 2024 has been upgraded, with credit growth forecasted to hit €1.5 billion.
- The bank maintains a high single-digit increase in core income and aims for a cost-to-core income ratio below 33% in 2024.
- NBG targets a core profit after tax of over €1.3 billion in 2026.
Bearish Highlights
- The bank expects only marginal NII growth for the full year.
- There is a disconnect between core PAT and EPS due to accounting principles.
Bullish Highlights
- The Greek economy is recovering well with strong fixed capital formation and high foreign investor interest.
- NBG's loan expansion target for 2024 has been increased to approximately €1.5 billion.
- The bank's NPE ratio improved, and capital ratios increased.
Misses
- Despite the strong performance, the bank initially expected a decrease in NII, which has now been adjusted to marginal growth.
Q&A Highlights
- NII growth is expected to be in the range of €20 million to €30 million for the full year, better than initially expected.
- Corporate spreads are performing well, with no significant increase in compression expected in the next 12 months.
- The time deposit mix is anticipated to remain stable due to decreasing interest rates.
- Any changes to the business plan will be updated with year-end results.
In conclusion, the National Bank of Greece is demonstrating resilience and growth in a recovering Greek economy. With upgraded financial targets and a strong capital position, the bank is poised to continue its positive trajectory while also considering shareholder remuneration strategies, including potential buybacks. The bank's focus on maintaining a stable deposit mix and managing its capital efficiently reflects a strategic approach to navigating the current economic landscape.
InvestingPro Insights
As the National Bank of Greece (NBG) showcases a robust financial performance, with core profit after tax soaring and loan disbursements reaching new heights, it's important to consider additional insights that could inform investors about the bank's stock potential. According to InvestingPro Tips, NBG is trading at a low P/E ratio relative to near-term earnings growth, which could indicate that the stock is undervalued given its recent profit uptick. This is bolstered by the fact that analysts predict the company will be profitable this year, a sentiment reflected in the bank's upgraded full-year guidance for 2024.
Delving into the InvestingPro Data, NBG's market capitalization stands at $7.64 billion, underscoring its substantial presence in the financial sector. The bank's P/E ratio is currently 5.43, which is relatively low, suggesting that the stock might be attractively priced compared to its earnings. Additionally, the revenue growth for the last twelve months as of Q2 2024 is reported at 16.49%, indicating a healthy expansion in the bank's business operations.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips on the National Bank of Greece, providing deeper insights into the bank's financial health, stock performance, and market valuation. Currently, there are 10 more InvestingPro Tips available that can be accessed to gain a fuller understanding of NBG's investment potential.
InvestingPro Tips: https://www.investing.com/pro/NBGIF
Full transcript - National Bank of Greece SA (NBGIF) Q2 2024:
Operator: Ladies and gentlemen, thank you for standing by. I am Mia, your Chorus Call operator. Welcome and thank you for joining the National Bank of Greece Conference Call to present and discuss the Second Quarter 2024 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pavlos Mylonas, CEO of National Bank of Greece. Mr. Mylonas, you may now proceed.
Pavlos Mylonas: Good morning, everyone. Welcome to our second quarter 2024 financial results call. I'm joined by Christos Christodoulou, Group CFO; and Greg Papagrigoris, Group Head of IR. After my introductory remarks, Christos will go into more detail on our financial performance and then we will turn to Q&A. Let me start by providing a brief overview of Greece's economic developments and outlook. During the first half of 2024, the Greek economy has remained on a solid footing with growth spearheaded by a strong tourism and supported by resilient domestic demand. Specifically, Greece's GDP growth accelerated in the first quarter to over 2%, recovering strongly from the slowdown witnessed in late 2023 due to the floods. Let me describe some of the key factors driving activity. First, strength in fixed capital formation up by 9% year-on-year as regards the corporate sector to a total of 14.8% of GDP on an annualized basis. Moreover, foreign investors' interest in the country remains high with FDI heading for another strong year following approximately €20 billion of inward FDI during the past three years. FDI is attracted by political stability and solid economic fundamentals, including a primary budget surplus of 2% of GDP. Such strong investment prospects point to continued robust demand for corporate loans. Second, support from private consumption due to a further improvement in the labor market comprising both employment growth of 2.5% approximately as well as rising employee compensation in real terms 2.5% as well. Third, the residential real estate market remains buoyant with price increases of over 10% so far this year. The growth momentum in real estate prices is expected to continue in the medium term in view of the sustained supply shortages combined with rising demand for residential real estate. The labor market and the real estate market together should support household loan demand going forward. Fourth, the tourist season is expected to break all records with annual revenue at €23 billion and Euribor's increasing at a double-digit pace for a fourth consecutive year. Fifth, leading indicators point to a further strengthening in business and investment activity. Of special note, economic sentiment has edged up to a two year high and capacity utilization rates, which bode well for investment, are at multiyear highs. Overall, we expect GDP growth to be near 2.5% in 2024. Now let me turn to the first half 2024 results of the bank. In this positive economic environment combined with the accomplishments from our ambitious and still ongoing 5-year transformation as well as the inherent competitive advantages of our balance sheet and our technology, the bank's performance has continued to perform well across all key metrics. In terms of profitability, we have delivered a first half group core PAT of €646 million, up 27% year-on-year comparing very favorably with our full year 2024 initial core profit guidance of €1.2 billion. In fact our second quarter 2024 core PAT was slightly higher than the first quarter despite lower rates. This performance implies a core RoTE of 17.4% compared with our initial guidance for over 15% for the full year 2024. Among the key highlights of the quarter, which Christos will analyze in more detail shortly, NII normalization continued at a pace similar to the one in the first quarter minus 3% Q-on-Q in both quarters. Important to note are the following: drags on NII with a hedging cost of carry, which was carried in full in the second quarter as was the full cost of the MREL issuances of the first quarter. More importantly, loan NII increased despite the negative impact of lower market interest rates as this was offset by the impact from strong credit expansion. In fact loan disbursements reached €2.8 billion in the second quarter, which is a multiyear record quarterly high. As a result, our performing loan book increased by a solid €1.1 billion in the second quarter. Other key highlights of our second quarter 2024 results are: one, the sustained double-digit growth in fees up by 15% year-on-year; two, the containment of our recurring operating cost to low single digits; and three, our cost of risk, which continues to decline reaching 55 basis points with little new gross formation flat on a net basis. Our sustained high profitability further enhanced our capital buffers with our CET1 rising by 100 basis points year-to-date before dividend accrual for a 40% payout from this year's earnings to be paid in 2025. Our CET1 ratio at 18.3% is currently 450 basis points approximately above our internal target of 14% enhancing our strategic flexibility, including with regards to the increasing shareholder remuneration. Turning to liquidity. Our net cash position remained above €9 billion in June despite a large net loan expansion as well as the broadening shift towards mutual funds. In fact we experienced a sizable increase in our deposits during the quarter with the bulk of the increase comprising core deposits. The latter rose by a solid €1.3 billion quarter-on-quarter leading to an improvement in our core to total deposit mix to close to 80% at the end of the second quarter. All these positive results continue to be recognized by rating agencies and in early July, Moody's proceeded with a two notch upgrade of the senior rating of NBG now standing one notch above investment grade. Our strong first half 2024 financial results have prompted us to upgrade our full year 2024 guidance. We now expect our full year 2024 NII to exceed slightly the full year 2023 record level reflecting a more gradual benchmark rate normalization as well as stronger credit growth. Circa €1.5 billion for the full year is the new guidance, up from €1.2 billion previously. Our confidence in delivering the revised credit growth target rests on the solid performance in the second quarter as well as on a strong corporate production pipeline, i.e., approved but not yet disbursed loans, which stands at approximately €2.5 billion. Fee growth will remain strong while cost of risk also positively revised is now seen below 60 basis points for full year 2024. Chiefly due to improved NII dynamics, core PAT and core return on tangible equity guidance for full year 2024 have been revised upwards to €1.3 billion and circa greater than 16%, respectively. Looking forward, our results will continue to reflect the support of macro trends in the buoyed banking environment as well as our inherent competitive advantages. These include our transformation program, which is bringing rapid, efficient and innovative change most notably to our technology. In fact our step change in technology has improved our agility and is a factor that distinguishes us. With that, I would like to pass the floor to our group CFO, Christos, who will provide additional insight to our financial performance before we return to Q&A. Christos, floor to you.
Christos Christodoulou: Thank you, Pavlos. Let's start with profitability on Slide 10. Our H1 '24 core profit after tax reached €646 million, up by 27% year-on-year implying an EPS of €1.4 per share and a core return on tangible equity of 17.4% before adjusting for excess capital. The positive momentum in H1 profitability reflects core income strength driven by NII resilience up 15% year-on-year, an impressive growth in fees up 15% year-on-year, supported by cost discipline and a normalizing cost of risk on the part of favorable asset quality trends. Going into more detail. Our Q2 NII continues to leverage a more gradual interest rate normalization path as shown on Slide 15 with quarterly reduction sustained in the low single-digit area and the public loan NII benefiting from strong disbursements in Q2, which reached a multiyear quarterly high of €2.8 billion. The accelerated credit expansion offsets the market rate impact due to lower Euribor rate, partially absorbing the full impact of the hedging cost on deposits as well as higher volume-driven MREL costs. At the same time, lending spread normalization continues at a low pace with corporate spreads nearly flat year-to-date. Our deposit mix shifted closer to 80% in favor of core deposits in Q2 supporting our funding costs and NIM. Furthermore, time deposit repricing has abated with yields in euro terms coming in at circa 200 basis points in Q2 implying a beta of circa 50%. On a first half basis, NII reached €1.2 billion with NIM at 323 basis points, well above our previous full year '24 target of less than 290 basis points prompting us to update guidance to over 300 basis points. Going forward, our upgraded net credit expansion, our increased exposure in fixed rate assets and the reduction of hedging costs as ECB rates gradually come off are anticipated to offset the impact of lower rates on our NII. Complementing our resilient NII, net fees continued on a double-digit growth path up 15% year-on-year and 6% quarter-on-quarter driving fees over assets up nearly 10 basis points year-on-year to 0.6% in H1 '24. As shown on Slide 20, this was supported by retail fees increasing by 14% year-on-year on double-digit growth across product with the most notable movements witnessed in investment products, up 36% year-on-year and bancassurance up 27% year-on-year. Retail lending fees are up by 30% year-on-year benefiting from higher new production volumes while corporate fees increased by 10% year-on-year also driven by loan origination. Meanwhile, transactions through e-banking channels were up 22% year-on-year in Q2, testament to the quality of our digital offering, total transactions 10% higher year-on-year. Moving to costs on Slide 21. Adjusting for the base effect from variable remuneration accounted for in the second half of last year versus evenly in 2024, expenses were contained in H1 '24 increasing by just 3.6% year-on-year, allowing our cost-to-core income ratio to remain low and well inside our upgraded full year '24 target of less than 33%. The major increase in costs reflect the collectively accreted wage rises of last December, the impact from inflation and the bank's strategic investment in IT infrastructure and digitization, which is already enhancing our operational efficiency and significantly improving our commercial offering and customer experience. Now let me walk you through our balance sheet highlights summarized on Slide 11. Loan disbursements mostly driven by corporate accelerated to €2.8 billion in Q2 driving group performing loans up by €2.4 billion year-on-year and €0.9 billion year-to-date to €31.4 billion with retail also maintaining the positive Q1 momentum. Disbursements were spread across all segments indicative of our diversified approach and market appetite. Our strong pipeline provides confidence for the attainment of our upgraded loan expansion target of circa €1.5 billion for 2024. With regards to liquidity, our net cash position increased by €1.1 billion year-to-date to €9.1 billion standing at the high end of the sector even post the full repayment of our TLTRO exposure in March, providing ongoing support to our NII and NIM. Deposits in Q2 reversed Q1 seasonality with balances ending up nearly flat year-to-date, increasing by a solid €1.4 billion year-on-year due to core deposit inflows from retail customers. Our loan-to-deposit and liquidity coverage ratios stood at 60% and 240%, respectively, standing at the high end amongst European peers. Finally, our liquidity profile entails a total funding cost of just 77 basis points supported by deposits, which comprise 95% of our total funds. Turning to asset quality on Slides 22 to 24. Group NPE stock declined further to €1.2 billion in Q2, just €0.2 billion net of provisions within significant organic formation leading to a normalizing cost of risk of 55 basis points in H1 versus 68 basis points a year ago. Our NPE ratio stood at 3.3%, lower by 40 basis points quarter-on-quarter with cash coverage at 86% and coverage across all three stage being at the high end of the European banks. Regarding capital on Slide 12. Our strong H1 profitability drove our class-leading CET1 ratio higher by 100 basis points year-to-date or plus 50 basis points post dividend accruals at 18.3% with total capital ratio coming in at 20.9% and our MREL ratio settling at 25.9%, already exceeding the January '25 requirement of 25.3%. Following the 30% dividend payout in 2024, we have increased our dividend accruals in H1 '24 to reflect a target payout of 40% in 2025 out of 2024 profits. Our balance sheet superiority as depicted on Slide 13 underpinned by our leading liquidity and capital profile complemented by sustainable profitability led Moody's recently to upgrade our rating by two notches to BBB,1 notch above investment grade, following the PPRS upgrade to investment-grade stable in April. On Slide 32 to 34, we provide a snapshot of our ESG priorities. We lead the market in sustainable energy financing, accelerating the transition to sustainable economy while our ambitious emission targets substantiate our net 0 commitment. We continue to receive further recognition for our ESG activity and practices recently achieving further upgrades from ISS and Sustainalytics. Our strong outperformance in the first half of 2024 coupled with the extended interest trade normalization horizon is driving an upward revision for our core return on tangible equity guidance for 2024 to over 16% versus 15% previously with our core profit after tax now expected at circa €1.3 billion versus €1.2 billion before as shown on Slide 39. This translates into a higher EPS of circa €1.4 per share from €1.2 before. The key driver behind revising upwards our profitability guidance is the strength in our core income, which is now seen higher in 2024 despite obtaining record high levels in 2023, leveraging NII strength and sustained momentum in fees. With regards to NII, it is now expected to edge marginally higher versus the 2023 record levels despite lower in base rates thus driving a 2024 NIM above 300 basis points versus the initial guidance of less than 290 basis points. The NII trajectory is supported by stronger loan growth fueled by healthy corporate pipeline, allowing us to upgrade our 2024 loan expansion target to circa €1.5 billion versus €1.2 billion previously. Fees so far also outperformed our initial expectations leveraging the sharp pickup in loan origination as well as the accelerating cross-sell of investment and bancassurance products. This momentum is testament to the success of our strategic direction to enhance the bank's fee generating capacity via improved product and service offerings and digital channel leverage. We maintain our guidance for a high single-digit increase for this year with upside risk potential. Core income growth and continued cost discipline should allow our cost-to-core income ratio to remain below the 33% mark in 2024. Furthermore, we now anticipate our cost of risk to remain below 60 basis points providing further cushion to our profitability and returns tactics. Favorable asset quality trends year-to-date allow a revised 2024 NPE ratio target of circa 3% versus 3.5% initially. Looking into the medium term, our 2026 core profit after tax target is revised higher to over €1.3 billion from over €1.2 billion initially implying an EPS above €1.4 per share. Our NIM expectation is now in excess of 270 basis points compared to less than 270 basis points previously mostly due to more favorable benchmark rates. Adjusting for excess capital defined over our internal CET1 target of 14%, normalized core return on tangible equity for 2026 is expected to exceed 18%. At this profitability rate, capital generation will continue strong exceeding 500 basis points until 2026 driving our CET1 ratio pre-dividends to over 23% as shown on Slide 42. This level of capital against the 14% CET1 internal target level implies more than 900 basis points of excess providing amongst other things strategic flexibility as regards shareholders' remuneration. NBG delivered a solid financial performance in H1 that exceeded expectations triggering guidance upgrade across key performance indicators. Our financial results are a testament to the hardware and commitment of our team as well as of the change momentum at the bank. As we move forward, we are confident in our ability to continue generating value for our shareholders, efficiently utilizing our class-leading levels of capital. And with that, let's now open the floor to questions.
Operator: [Operator Instructions] The first question comes from the line of Butkov Mikhail with Goldman Sachs (NYSE:GS). Please go ahead.
Mikhail Butkov: Good day. Thank you very much for the presentation. I have two questions. One is on your performing loans growth, which was quite strong and there was quite strong acceleration in the second quarter of the year. How do you see the pipeline so far for the second half given that last year for example the second half was stronger than the first half and do you see the chances of that repeating this year as well? And another question is on your capital allocation. Maybe any updates with regards to this given the upgraded guidance on several metrics plus? Any views on the potential buybacks and appetite for that? Thank you.
Pavlos Mylonas: Okay. Let me start and Christos can add. On the loan growth, you noted that it's choppy. It is the corporate loan book that is the key driver of loan expansion and it gets choppy and sometimes you have large disbursement especially at the end of the quarter. So that's why we've upgraded the guidance significantly. But let's see with the pipeline, whether some of this pipeline that I mentioned falls on this side or not of the calendar year. So you need to smooth out a little bit the flows and therefore, let's see how we go. We will give more guidance at the end of the year, but I think that the upgrade has been quite large so far. Now on the capital allocation, nothing really much has changed. We are on track as before. You mentioned buybacks, buybacks have to be approved by the regulator. I think that we got a very solid nod with the dividend distribution of 30%. We mentioned that we are now accruing for 40%. The buyback we'll need to discuss with the regulator down the road. I think if the question is with respect to if there's any placement and there's a buyback, I think on that one, it is less likely; but let's see. And with that, maybe Christos wants to add.
Christos Christodoulou: Thank you, Pavlo. I will add something to the capital question. So first of all the first, let's say, change that has occurred is us upgrading our target payout for next year. As you may have seen, we started accruing for the 40% payout for 2025 out of this year's profit. But also the guidance for 2026 implies a buffer over our internal CET1 of 14%, that's about 900 basis points. We want to optimize on that excess capital partially growing our balance sheet, but also we want to set aside about half of it to return capital to the shareholders. So that's more or less the plan. We want the economy increase to grow and explore any other opportunities where we can deploy capital. We discussed about, let's say, the NP ecosystem. The performing loans that will come in play maybe two or three years down the road. We need to be ready for that as well with the use of our capital. So that's more or less it.
Mikhail Butkov: Great, thank you very much for the questions. Much appreciated.
Operator: The next question comes from the line of Ismailou Eleni with Axia Ventures. Please go ahead.
EleniIsmailou: Good morning, and congratulations for this very strong set of results from my side. And thanks for taking my question. So the first one would be on NII. If you could help us understand the dynamics that will drive profitability in the second half of the year meaning how you expect the loan spreads to unfold and the deposit betas coupled with the mix? In NII on the outlook, if you could elaborate on any changes in your hedging strategy that we should have in mind for the second half? What is the current size of the position and how for example has it changed if it has changed at all quarter-on-quarter vis-a-vis the changes in interest rates? And the third question would be follow-up on capital because as profitability is one of the drivers behind the accelerated DTC reduction. Should we expect any changes in the outlook there in the coming periods or in any other of the moving parts that we should be accounting for going forward? Thank you.
Christos Christodoulou: Okay. Eleni, thank you for the questions. So I'll start with NII and the dynamics in the second half. So there are several drivers for the expected overperformance year-on-year and the better second half than we originally expected. First of all, the key driver is base rates. It seems that base rates are coming with a slower pace than we expected initially so that would serve us a nice tailwind with regard to sustaining high levels of NII. The second point that I would like to make is deposits both in terms of mix as well as in terms of betas. Our deposit mix while we originally expected something in the area of [75 core 25x], now it seems that it's unfolding better. As you may have seen, we're about 79% core deposits in H2. So that is supporting our NII for the last two quarters of the year as well. And also deposit betas seem to have stabilized at 50%. We haven't seen pressure on increasing time deposit costs by much. So that's another, let's say, positive development with regard to initial expectations. Obviously you have to add to the equation the stronger credit expansion we have experienced early enough in the year so this will support NII growth for the second half of the year as well. And also we seem to have optimized a bit on MREL costs in terms of pricing during the first two issuances that we have in the year, which also supports NII. And lastly, which I will link this point to your next question is the benefit of hedging costs and deposits. As rates come off, the pattern of the negative carry will also be a bit more light than what we experience at the moment. Now moving on to the second part of your question with regards to our hedging strategy. It is a dynamic world. We need to be proactive and always check the maturity of our balance sheet. Currently our strategy don't differentiate Q2 from Q1. We have about €10 billion of hedges of demand deposits with an average maturity of about five years. The pattern that we experienced per month in the first few months of the year was in the area of €6 million to €7 million per month and we expect that cost to go down as the rates also go down in the future. And with regards to your last question on capital, I think what we are saying is that we do expect the generation of capital on the back of the increased profitability to be above 500 basis points. So there is room for additional increase there. And the uses of capital is as I've described them in the question from Mikhail before.
EleniIsmailou: Excellent. Thank you, Chris, very much for your clear answers. And again congratulations for the results.
Operator: The next question comes from the line of Iqbal Nida with Morgan Stanley (NYSE:MS). Please go ahead.
NidaIqbal: Thank you very much for the presentation. I have my first question is a follow-up on the capital again. Just want to understand better given the amount of excess capital you have, could dividend payouts as we look out to 2026 surprise to the upside? Just trying to understand if there may be any hurdles to pay out above 50%? From a regulatory perspective, are DTCs a concern? So that's the first question on capital. Secondly, buybacks. Just wanted to clarify is there a potential for buybacks in addition to dividends or would it be a situation of, for example, 50% payout being split between dividends and buybacks? And then thirdly, on the capital again and the asset growth potential, would you be looking at inorganic opportunities at all? Thank you very much.
Pavlos Mylonas: Okay. I'll take the questions. The strategy is to gradually increase remuneration to shareholders to European levels. Currently, that's around 70% with about two-thirds being dividends and one-third being buybacks. That's our goal to be a normal European bank and reach these levels. Now how quickly we can do so? We're going to do it gradually. It's not going to be tomorrow. It's going to be gradually over time. So that's the strategy for the remuneration. There are no hurdles as we know. You saw the approval of the regulator, it is so far clear sailing. Inorganic, we always look for inorganic and it has to be something that's accretive, it has to be something that creates value for shareholders. There have to be synergies. So we are looking, but they have to meet these criteria. I hope that helps.
NidaIqbal: Thank you very much.
Operator: The next question comes from the line of Kemeny Gabor with Autonomous Research. Please go ahead.
Gabor Kemeny: Hi. A few follow-up questions from me, please. First one is again on NII. Can you give us your sensitivity to lower EURIBOR rates, please? I understand this has been mitigated by the hedges. The other question I had, you talked about the NII support from a better-than-expected deposit mix. Could you clarify what deposit beta you assume for this year? I'm asking because I saw your beta has been stable in Q2 at only 12%. And the other one would be on capital I mean and the dividend. I understand you are saying that there are no hurdles to doing dividends and buybacks. But still I mean given your excess capital position, what would prevent you to get to that 70% level I mean relatively soon? So I guess one question I have is if there is any discussion about doing more on the DTC reduction, DTC amortization than the linear schedule which is in place now? Thank you.
Christos Christodoulou: Thank you, Gabor. Let me start with NII sensitivity. So assuming a steady balance sheet following all the actions that we've taken so far, our sensitivity with a rate reduction in the area of 25 basis points would be on an annualized basis in the area of €30 million to €35 million. So that's the current sensitivity of the balance sheet. Now with regards to the deposit beta that you asked, what we had originally budgeted for in the business plan was for the time deposit beta to go north of 50%. Currently we've seen that not move up with the speed we expected. It's doing better. So our expectation now is that deposit betas will remain in the area of 50% for the rest of the year especially with benchmark rates going down, there will be less pressure with regards to time deposits. And as you may have also heard from our CEO, we do have a strategy of shifting -- diverting time depositors to asset management products, which is also something we offer to our clients. Now with regards to capital and dividend and the question that you asked with regard to DTC. So firstly, let me clarify that DTC is something that is improving dramatically compared to where we have been a couple of years ago. With regards to NBG, DTC as a share of CET1 is now at 51.5% if I'm not mistaken and the path going forward is for that to decrease to below 35% by the end of the business bank horizon and that's by 2026. We have also described in the past that in our planning period, DTC will take about 17 years to fully amortize based on the current legislation that is in place. Nevertheless, I do agree that our excess capital provides us with strategic flexibility if we would opt a way to amortize that DTC sooner. But as the CEO said, you've seen us unlock dividends after 16 years with a payout at 30%, pretty healthy to start with and our intention is to increase payouts gradually. It's not only about paying out money, it's about also optimizing strategy with regards to growing our balance sheet. So that's the mix effectively that will influence our path towards increasing the payouts in the future. But we are pretty comfortable with the excess and the strategic flexibility that is excessive, Gabor.
Gabor Kemeny: That's very helpful. At what stage would you expect a discussion about the strategic options on capital? Would it be Q4?
Christos Christodoulou: It's ongoing so depending on opportunities and how things unfold, if we have anything new to say, we'll be guiding you every time we have a point of reference at the results call.
Gabor Kemeny: Thank you.
Operator: The next question comes from the line of Kantarovich Alexander with Roemer Capital. Please go ahead.
Alexander Kantarovich: Yes. Thank you. Gentlemen, I have a brief question on your headcount. I noted that in your presentation it's unchanged from previous year. Could you please share with us how this will evolve in 2024 and 2025 headcount, branches perhaps and how this would affect operating costs? Thank you.
Pavlos Mylonas: Headcount: we have achieved approximately a 40% reduction in net headcount over the past three, four years. We are getting near to the level we wish. We still have a little bit more to go. I think more important on headcount is retraining rejuvenation and maybe hires in critical areas like the digital banking and the IT. So we will need to either do some retraining or some [BS] with which to do some rejuvenation of the headcount. So I think you will not see the very large reduction in staff costs that you've seen over the past few years, but it will remain broadly flattish with the key driver being more the wages with next year being the new 3-year collective agreement and the job market here in Greece despite being better than Northern Europe is starting to heat up. So that would be more of a concern than the headcount.
Alexander Kantarovich: Yes, thank you very much. And my line was kind of bad. Could you please repeat what you said about sensitivity of your deposit rates to the policy rate?
Christos Christodoulou: Yes. What I said, let me repeat that. With regards to time deposit betas is that our expectation for the rest of the year is that it will remain in the area of 50% despite that originally we expected that number to be a bit higher north of 50%. I also mentioned the deposit mix is favorable compared to original expectations and it seems to have been stabilized at 79%, 80%. Originally we expected it a bit lower to 75%. And the other reference I made to NII sensitivity is that for every 25 basis points of increase in the benchmark rates, our NII sensitivity is about €30 million to €35 million on an annualized basis.
Alexander Kantarovich: Yes, thank you very much. That's all I have. Cheers.
Operator: The next question comes from the line of Sevim Mehmet with JPMorgan (NYSE:JPM). Please go ahead.
Mehmet Sevim: Good morning. Thanks very much for taking my question. I had just two follow-ups remaining and one on your NII guidance. Clearly the momentum is better than initially expected in NII and I think your comments also on the second half sounds quite encouraging especially with the better volumes and stable margins and the hedges also in the book. So when you say marginal growth that you expect in the full year versus last year, would you be able to quantify what that level would be given obviously at a low single-digit level that would still imply quite a visible decrease in the second half? And just one technical one that will be on the guidance again. Core PAT and EPS, the disconnect there. I just want to understand why the EPS is growing faster than the nominal profit figure? Thank you.
Christos Christodoulou: Thanks for the question, Sevim. So on NII guidance, marginal NII growth versus last year implies something in the millions, not very much. If you want to take a number, in the area of €20 million to €30 million. But things are unfolding in the year, we have to wait and see exactly how this number will be. But still pretty happy compared to where we were a few quarters ago when we expected NII to be in the low single digits decrease down compared to last year. So we're very happy with this development. Now with regards to the second question, I think it's a matter of groundings. There's nothing there. If we open up this year margin, would see that it's correlated directly with Copa.
Mehmet Sevim: Thank you very much.
Operator: [Operator Instructions] The next question comes from the line of Boulougouris Alexandros with Euroxx Securities. Please go ahead.
Alexandros Boulougouris: Hello, good morning on my end as well. A quick follow-up as well on my side. Regarding corporate spreads, which we've seen a very mild pressure of flattening trends. Do you think this will sustain going forward and what is your assumption on the 2026 guidance? And also on the 2026 guidance regarding the time deposit mix, do you assume the current trends of very low 20%-something time deposit total to sustain at this level or increase? Thank you.
Christos Christodoulou: Alex, thanks for the question. So on the corporate spreads, we are very happy to see this performance at the first six months of the year just 2 basis points of the year-end point of reference and despite as we acknowledge the competition we experienced in the trade market for new loans. Now what we've been saying, it still sustains. We do not expect at least in the next, let's say, 12 months to experience an increase in the compression in the spreads of over 20 basis points. So that's where we still have today. Obviously we'll monitor developments and to the extent of any changes, we'll update the market. And with regards to the deposit mix, well, it's a bit early to talk about '26, the same goes for spread in 2026. So currently with the mix, we believe that it will maintain the levels that we see today especially given that the rates are going down. So pressure will be less for a shift in deposits from core time. But I think we should wait until the updating of our business plan and when we issue guidance with the year-end results, if we have any different views from what I'm sharing with you now, we'll update you then. But so far, nothing changed compared to what we said before.
Alexandros Boulougouris: Thank you.
Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Mylonas for any closing comments. Thank you.
Pavlos Mylonas: Thank you all for joining us despite the date of the 1st of August. I wish you all happy holidays, relaxing holidays and I'm sure we'll be in close touch in September. So thank you all very much.
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