National Bank of Greece 2014 Comprehensive Assessment Results NBG - - PowerPoint PPT Presentation

NBG achieves a €2bn capital surplus

Athens Sunday, October 26 2014

National Bank of Greece

2014 Comprehensive Assessment Results

IMPORTANT DISCLAIMER : This presentation and all information contained hereto (the “Presentation”) has been prepared by National Bank of Greece SA (hereafter “NBG”) and/or its subsidiaries (together with NBG, the “NBG Group”) in order to explain in more detail the outcome of the Comprehensive Assessment (“CA”) pursuant to Article 33(4) of Council Regulation (EU) No 1024/2013 and should not be used for any other purpose. This Presentation should be viewed solely in conjunction with, the official announcement and template for the CA outcome for NBG as it will be published by the European Central Bank (ECB). No representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information contained herein and no reliance should be placed on it. It has not been independently reviewed or assessed by a legal or financial advisor from a legal, regulatory, compliance or accounting and risk perspective, as appropriate. None of NBG, its affiliates, the NBG Group as a whole, nor any of their directors, partners, officers, representatives, employees, advisers or agents (the "Relevant Persons") shall be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on the accuracy of any information or any statement in, or errors in, or omission from, this Presentation. This Presentation is based or otherwise compiled or developed based on information provided to NBG and/or its subsidiaries from both public and non-public sources, including the outcome of the CA and the relevant templates. NBG and each of its subsidiaries assume no responsibility for independent investigation or verification of such information (including, without limitation, data from third parties) and has relied on such information being complete and accurate in all material respects. This Presentation speaks only as of the date it is given (unless an earlier date is otherwise indicated in the presentation), and the views expressed are subject to change based upon a number of factors, including market conditions and NBG's business and prospects and no responsibility or liability will be accepted by NBG, its affiliates, the NBG Group or any of their respective Relevant Persons for updating this Presentation or correcting any inaccuracies herein which may become apparent. Any estimates, projections or other forward looking statements in this Presentation, including estimates of revenue, expense, returns or performance, comments with respect to NBG’s objectives and strategies, or the results of its operations and business, or the business or prospects of domestic or foreign markets and peers or competitors are forward-looking statements based upon certain assumptions that may prove to be erroneous or influenced by factors of significant economic, business, and other uncertainties beyond the control of NBG. Therefore, and although such projections are believed to be realistic, no representations can be made as to their attainability. Actual results may vary from the projections and such variations may be material. NBG disclaims any obligation to update any forward‐looking statements contained herein and does not intend to amend or update this Presentation in case such estimates, projections or forward looking statements do not materialize or change in the future. This Presentation is governed by Greek law and by accepting this material the recipient agrees that the Greek Courts shall have exclusive jurisdiction to settle any disputes arising or connected with this Presentation..

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EXECUTIVE SUMMARY 3 - 5 STRESS TEST ASSUMPTIONS AND METHODOLOGY 6 - 8 ASSET QUALITY REVIEW 9 - 14 STATIC STRESS TEST 15 - 18 DYNAMIC STRESS TEST 19 - 21 DEFERRED TAX CREDITS 22 - 23

Table of Contents

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EXECUTIVE SUMMARY

2014 EU-wide stress test – no further capital action required of NBG

• EU-wide stress test of 130 banks under very severe, uniform rules
• The Adverse Dynamic Balance Sheet (DBS) Stress Test results in a 8.9% CET I ratio at end

2016, and a capital surplus of €2.0bn and − 340 basis points above the 5.5% minimum − The DBS takes into account NBG’s 2014-18 Restructuring Plan agreed on 23.7.14 with the European Commission.

• The Adverse Static Balance Sheet (SBS) stress test results in a capital shortfall of €0.9bn1

− SBS stresses 2013 – a particularly challenging year for NBG − Already NBG’s 2014 profitability and actions to Sept. 14 fully mitigate this

• Asset quality review resulted in a €1.7bn impact, originating mainly from the Greek retail

loan portfolio, and the severe assumptions regarding the valuation of real estate collateral

• All above results do not include the impact of the new Deferred Tax Credit law voted on

16.10.2014, of approx. €0.7 – 1.2bn (110 – 220 bps).

• No further capital action required of NBG.

1 including the Share Capital Increase (SCI) completed in May 2014 4

Adverse Dynamic Balance Sheet stress results in a capital surplus of € 2.0 bn at end 2016

€2.0bn

10.7% CA result 3.4% Surplus end 2016

€3.3bn, 5.5%

€5.3bn

• 10.9%

€6.0bn €2.5bn

Dynamic BS CA

2.0

3.2% May 14 SCI

€6.3bn

8.9%

1.1

1.8%

€3.1bn

Static BS CA1 4.2% 2013 CET I

RWA’s in €bn minimum threshold Dynamic BS 56.7 57.9 57.9 60.0 60.0 60.0

5 1 CA = Comprehensive Assessment, incorporates Asset Quality Review, Stress Test and AQR join-up 2 Already completed Restructuring Plan actions, see also page 18

Completed RP actions2

Adverse scenario CET 1, € bn

CET 1 ratio, %

€2.0bn capital surplus Does not include DTC



STRESS TEST ASSUMPTIONS AND METHODOLOGY

Overview of major assumptions /methodology for the adverse scenarios

Line item Static Balance Sheet (SBS)

Net Interest Income

• NII not higher than 2013
• Pass through of sovereign spread shock to funding costs
• 50% of increase of funding costs applied to mortgage lending rates

(75% for other loans)

• NII not higher than that derived from top-down ECB model

Trading

• 1x standard deviation of last 3 historical values plus 2x standard

deviation of last 5 historical values (thus including Greek PSI and Grexit fears impact on trading losses) Fees & Commissions

• Cap on ratio of F&C /Total Assets at level of 2013,

the 6th year of recession Credit Risk

• Loss rate not lower than top-down ECB model
• Loss rate adjusted for AQR results
• Apply similar LGD shock for defaulted and non-defaulted assets

Opex

• Not lower than 2013 level, which includes staff cost of 2,490 staff

that departed in Dec-13 DTA

• Phase out as per CRR IV
• DTC law not yet enacted
• Excludes DTA recognised in H1.2014

Dynamic Balance Sheet (DBS)

• Not lower than 2013 ratio to Total Assets,

after excluding the 2,490 staff

• RP figure for baseline plus 2x standard deviation
• f last 5 historical values (includes Greek PSI

and Grexit fears impact on trading losses)

7

Volumes

• Loan and deposit total volumes as per

Restructuring Plan (RP)

• Loan mix as at 31.12.13
• As at 31.12.13
• same as SBS except NII ceiling as per RP
• same as SBS
• same as SBS
• same as SBS

Residential House Price inflation 2009 – 2016, Base = 2009 (100)

Macro assumptions for Greece double up on steep recession of 2009-13

• n bonds and house prices vs the periphery

Gov’t bond adverse valuation haircut 3Y, loss rate,% GDP adverse deviation 2009 – 2016, Base = 2009 (100) Unemployment Rate 2009 – 2016, %

2.1 10.2 8.1 2.2 16.5

Italy Portugal Ireland Spain Greece Ø 8

H: Historical , F: Forecasts (EBA adverse scenario)

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ASSET QUALITY REVIEW

AQR impact resulting mainly from Greek Mortgage and SME loan portfolios

10

• AQR workblock has reviewed 11 Greek and Turkish loan portfolios, with gross

balances in excess of €60 bn

− 79% of total loans

• Challenger model resulted in € 2.2 bn additional regulatory provisions, of which

€2.0bn in Greek mortgage and SME portfolios

• Greek Mortgage loans

− No impact from credit file review − Provision gap resulting from severe collateral valuation assumptions

• Greek SME loans

− € 0.6 bn in a € 12.0 bn portfolio re-classification to NPE − Majority of NPE’s classified as “gone concern” − Provision gap resulting from severe collateral valuation assumptions

• Insignificant provision gap in all Turkish portfolios
• NBG transparency on troubled assets validated

<90 dpd 2.9

Increase of mortgage provisions following severe collateral mark downs and rigid treatment of rescheduled loans

Risk bucket Balance € bn Stratification of NPE EBA by delinquency ΝPG = 9 - 43% AQR* = 70 - 100% 90+ LLA’s* €m, Dec-13 balance

820

Regulatory LLA’s Challenger* model 1,475 1,150 IFRS LLA’s

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NBG estimates* Nil 1.9 1-29 dpd 0.4 30-59 dpd 0.2 60-89 dpd 0.4

*

NBG estimates, back-solving Comprehensive Assessment AQR Challenger model with limited high level input from ECB. Actual parameter values may vary

• AQR Challenger model classified ~€ 2.9 bn

Performing Rescheduled NBG loans as NPE, resulting in an increase of ~€ 400m in provisions

• EBA definition of NPE includes all rescheduled

loans, but AQR applies very high PI’s to NPE’s irrespective of actual performance

• An alternative classification to High Risk and High

Risk Cure segments would result in ~€ 400m less provisions

• AQR Challenger model used severe liquidation

assumptions

• Discount vs. 2013 PropIndex valuation of 8%
• Forward HPI -4% per annum vs. NBG -2% per annum
• Time to liquidation 3 years vs. NBG 5 years
• Forced sale haircut ~20% vs. NBG 10%
• No re-classification from extensive credit file review
• Corresponds to an increase of ~€ 650 m in provisions,
• f which ~€ 330 m are already provided for by IRB

regulatory provisions

Defaulted loans Re-scheduled loans

Probability of impairment

Retail SME: Severe collateral haircut led to higher provision charges

• Greek Retail SME loans

− No NPE re-classification /impact

from credit file review

− Provision gap resulting from severe

collateral valuation assumptions for secured NPE’s

• Valuation haircuts:

− NBG 40% on average − AQR* Challenger model implicit

valuation haircuts of ~55-60%

• NPE coverage post AQR @55%

Provision calculation for NPE loans – Retail SME

12 * NBG estimates, back-solving Comprehensive assessment Challenger model with limited high level input from ECB. Actual parameter values may vary

AQR* Challenger Model Collateral haircut

1,647 1,269

NBG Collateral haircut

2,994

Nominal value of tangible collateral Provision gap

NBG estimates*

c.55-60% c.40%

€m, Dec-13

SME increase of provisions is due to reclassified NPE’s and severe collateral haircuts

• AQR Challenger model reduced collateral values by 35%
• vs. NBG’s c.30%
• Collateral treatment prior to haircuts led to a 6%

reduction in NBG reported collateral value

• Sales haircuts and discounting averaged 29% for

gone concern debtors

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• Net additional NPE exposure of ~€ 620m was identified

(7% of total book)

• For the majority of the cases the driver for

reclassification was a debt service coverage ratio <1.1 in 2013 in the 6th year of Greece’s severe recession (-25%

• f GDP during 2008-13)
• Majority of NPE’s were assessed under “gone concern”

rather than “going concern”, leading to provisions based on liquidation value

* NBG estimates, back-solving Comprehensive assessment Challenger model with limited high level input from ECB. Actual parameter values may vary

Performing loans re-classification Collateral under gone concern NBG estimates*

622 4,707 NPE Post-AQR 4,085 NPE Pre-AQR AQR impact

47% 54%

NPE ratio

NPE Post-AQR 2,023 1,526 AQR impact NPE Pre-AQR

Coverage ratio

37% 43%

497

NPE Provisions in €m; Dec. 13

NPE balances in €m, Dec. 13

Post AQR NPEs in line with IFRS reported impaired loans NBG transparency on troubled assets validated

% of total Group Balances as at 31.12.2013 3

Post-AQR NPEs in line with IFRS reported impaired loans1, 2

NPE Post-AQR AQR NPE Reclassification NPE Pre- AQR NPLs Performing Restructured Other impaired 1.071

22.5% 1.5% 8.2% 32.2% 34.4% Restructured loans clearly marked as such (even while below 90+ days past due) and receive proper impairment treatment. NBG estimates* NPE %

1 As included in NBG’s 2013 Annual Report, Note 4.2.7 “Loans and Advances to Customers”. 2 “Titlos” excluded from loan balances. 3 ECB disclosure templates refer to EAD on exposures reviewed.

* NBG estimates, back-solving Comprehensive Assessment challenger model with limited high level input from ECB. Actual parameter values may vary.

% of total Group Balances as at 31.12.2013 3

22.5% 1.5% 8.2% 32.2% 2.3% 34.4% NPE %

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STATIC STRESS TEST

Adverse Static Balance Sheet Stress results in a capital shortfall of €0.9bn end 2016, covered by actions already implemented in 2014

Adverse scenario

€ million

5.5% €3,186m

CA result adjusted for completed actions Actions completed*

1,114

Shortfall

933

Stress Test result

2,253

CA impact

6,305

SCI

2,500

2013 CET I capital

6,058

16 * See page 18

minimum threshold Static BS

RWA’s in €bn 56.7 57.9 57.9 57.9 57.9 57.9 57.9

3,367 

Do not include DTC

3Q.14 PPI DTC

The Static Balance Sheet Stress test is especially severe both on credit losses and PPI, despite EBA’s expectations for improved GDP and unemployment by 2016

€ million Sovereign risk Credit losses AQR

17

• 5,600
• 1,710

16.9% on Greek sov. risk

+2,970

PPI

40% less than 1H14* every year 2014-17

+1,890

Tax

• 1,400

DTA derecognised

• 200

Other Capital

• 6,300

CA impact

30% except AQR at 26% 32% more than 1H14* every year 2014-16

* 1H14 annualised

The Adverse Static Balance Sheet stress test shortfall is covered by measures already implemented in the first 9 months of 2014

Stress Test shortfall (static)

933

Total Astir Disposal Sovereign Bonds VES PPI (1H.14)

• Actual H1’14 Pre Provision Income almost

double the 1H14 Stress Test result

– the difference is considered a capital action

• NBG Pillar 1 Bonds of €1,485m repaid in

2014, which had been subject to 16.9% haircut – Repayment included in the Restructuring Plan

• Voluntary Exit Scheme (VES) was taken up

by 2,490 employees and completed in Dec-13; ST methodology requires continuation of salary expense for above mentioned staff in 2014-16

• SPA for Astir Palace disposal was signed
• n September 17, 2014
• Conversion of DTAs to DTCs as per current

Law (passed through Greek Parliament on 16.10.14) results in an incremental positive impact

2014 Realization and capital actions € million

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DTC 3Q.14 PPI

DYNAMIC STRESS TEST

The Adverse Dynamic Balance Sheet stress test (DBS) results in a capital surplus in excess of € 2.0 bn.

Adverse scenario

€ million

€3,300m 2,022

Surplus Stress Test result

5,322

CA impact

• 3,236

SCI May 14 2013 CET I

6,058

20

Does not include DTC



10.7% minimum threshold Dynamic BS

2,500

4.2%

• 5.9%

8.9% 3.4%

€2.0bn capital surplus

RWA’s in €bn 56.7 57.9 60.0 60.0 60.0

The DBS stresses the 2014-17 Restructuring Plan agreed with the European Commission

• n 23 July 2014

The Dynamic Balance Sheet (DBS) reverses the majority of the Static Balance Sheet (SBS) result with improved profitability and capital actions

2,020

CA result 3.4% Surplus end 2016

€3.3bn, 5.5%

5,320

• 10.9%
• 6,300

8.9% Static BS CA1

minimum threshold Dynamic BS

21 1 CA = Comprehensive Assessment, incorporates Asset Quality Review, Stress Test and AQR join-up

Adverse scenario CET 1, € million

CET 1 ratio, %



1,500 940 1,560

170

Improved DBS profitability DBS Capital Actions

DEFERRED TAX CREDIT

Conversion of DTAs to DTCs as per current Law (passed through Greek Parliament on 25.09.14) results into an incremental positive impact of €810m against Stress Test Static (adverse) scenario.

Legal Framework

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• Effective from 1st January 2015
• Income Tax attributable to:

— Unutilized amount of the PSI loss; and — Accumulated provisions for credit losses on loans granted as at 31.12.2014 for which DTA has been recognised can be converted to a receivable (Tax Credit) from the Greek State, upon Accounting (IFRS) losses after tax1,

• Unused Tax Credit2 is replaced with a claim on the

Greek State. In exchange, the Bank issues ordinary shares3 with value equal to 110% of the unused amount NBG actions

• An

Extraordinary General Assembly has been convened for 7.11.14 to enable NBG to convert DTA amounts into DTCs, i.e. Deferred Tax not dependent

• n future profitability and not subject to CRD IV caps.

1 or resolution of the entity 2 if not settled against Corporate Tax due for the year 3 at the VWAP of the last 30 days

• Impact on Adverse Static BS results (period to end 2016) :

The new law enables the recognition of approximately €1.2bn of capital or 220 bps

• Impact on Adverse Dynamic BS results (period to end 2016) :

The new law enables the recognition of approximately €0.7bn of capital or 110 bps

Impact on capital adequacy

The new Deferred Tax Law would improve the stress test results by €0.7- 1.2bn

Stress Test

Capital Adequacy

• Impact on CET 1 under 2024 CRD IV rules on the 30.6.14

position : The new law prevents the eventual derecognition of approximately €2.6bn.

National Bank of Greece

Contact details

Greg Papagrigoris

Head of IR +30210 334 2310 papagrigoris.gr@nbg.gr ir@nbg.gr

Paula Hadjisotiriou

Deputy CEO +30210 334 3051 phadjisotiriou@nbg.gr

Paul Mylonas

Deputy CEO +30210 334 1521 pmylonas@nbg.gr

Apostolos Kazakos

Assistant General Manager Group Strategy +30210 334 3071 akazakos@nbg.gr