Operator: Good day, and thank you for standing by. Welcome to the BAWAG Group Q3 2026 Results Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session.
Operator: To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again.
Operator: Please be advised that today's conference is being recorded, and there will also be a transcript on the company's website. I would now like to hand the conference over to your first speaker today, Jutta Wimmer, Head of Investor Relations. Please go ahead.
Jutta Wimmer: Good morning, everyone. Before we start with the call, let me remind you of the following. In regards of the planned transaction of Permanent TSB, be reminded that the transaction is regulated by the Irish takeover rules, and therefore, are restricted in information we can provide on this call.
Jutta Wimmer: As a result, we will not take Q&A in relation to the PTSB transaction, and any updates will be communicated for regulatory announcements. With that, I hand over to our CEO, Enver Sirucic.
Anas Abuzaakouk: Thanks, Jutta. I hope everyone is doing well this morning. I am joined by Enver, our CFO. Let us start with the summary of Q3 results on slide three. We delivered net profit of EUR 248 million, EPS of EUR 3.18, and a return on tangible common equity of 27% during Q3.
Anas Abuzaakouk: The operating performance of our business was very strong, with core revenues of EUR 599 million, up 8% versus prior year, pre-provision profits of EUR 425 million, and a cost-income ratio of 30%. We continue to realize the benefits of investments over the years as we build out a pan-European and US banking group.
Anas Abuzaakouk: Total risk costs were EUR 79 million, translating into a risk cost ratio of 56 basis points. We have a low NPL ratio of 1% and continue to see solid credit performance across our businesses.
Anas Abuzaakouk: In terms of our balance sheet and capital, average customer loans were flat, and average customer funding was down 1% quarter-over-quarter. We have a fortress balance sheet with EUR 13 billion of cash, equal to approximately 19% of our balance sheet, an LCR of 197%, and overall strong asset quality.
Anas Abuzaakouk: During the first three quarters of the year, we worked diligently to ensure we positioned ourselves to fully self-fund the PTSB transaction. As of Q3, we landed on a CET1 ratio of 17.1%, translating into over EUR 1 billion of excess capital required to self-fund the deal.
Anas Abuzaakouk: We have invested considerable time and resources in the PTSB transaction, and we look forward to the upcoming High Court decision at the end of the month and receipt of the remaining regulatory approval.
Anas Abuzaakouk: We started this process in November of 2025, when we made a strategic decision to enter the announced public auction. We spent six months of due diligence as part of a competitive auction process that required thorough analysis, planning, and coordination, and we were pleased to emerge from that process as the successful bidder.
Anas Abuzaakouk: After the signing of the transaction and subsequent shareholder approval in July, we have spent a significant amount of time communicating with regulators, the PTSB board and leadership team, and many other stakeholders introducing ourselves and our business. Our goal has been to listen, learn, and prepare for a smooth and seamless integration. We are confident in having put our best foot forward, being patient, staying disciplined, working constructively and transparently at every stage of the process, all while rising above the noise.
Anas Abuzaakouk: If the PTSB transaction is approved, this will be our 15th acquisition since 2015. Acquisitions are a key plank of our strategy as we continue to build a pan-European and US banking group with the capabilities and scale to effectively compete and deliver sustainable results long into the future. PTSB would be our first public company acquisition with different dynamics, but always staying consistent to our principles. We focus on delivering results through our actions and avoiding empty slogans and self-promotion, as our actions speak louder than our words. We have been consistent about our views of the Irish market and key focus. Ireland is one of the most attractive markets across Europe, with all the ingredients for successful banking: pro-growth economic policies, rich in human capital, and a bridge to the EU, the UK, and the US.
Anas Abuzaakouk: We aim to drive competition through significant investment and innovation, supporting PTSB's customers and, more broadly, the Irish economy while delivering long-term sustainable growth. We are excited to get to work and embrace the journey ahead. We will provide an updated midterm outlook with full-year earnings, assuming a successful close of the PTSB transaction. Excluding any potential PTSB impact, we reconfirm all of our 2026 targets with net profit over EUR 960 million, return on tangible common equity over 20%, and a cost-income ratio under 33%. Moving to slide 4. As far as capital development, our reported CET1 ratio landed at 17.1%, equal to over EUR 1 billion of excess capital above our CET1 target of 12.5%. This puts us in the position to fully self-fund the PTSB acquisition, which requires approximately 450 basis points of capital subject to High Court and regulatory approvals.
Anas Abuzaakouk: We generated 116 basis points of gross capital from earnings during the Q3. RWA growth accounted for approximately 30 basis points of capital, reflecting the changing asset mix and growth in our consumer and SME business, which has been on a positive trajectory the past few quarters. We also restarted our dividend accrual, accruing 100% of earnings in the Q3, equal to EUR 248 million of net profit or EUR 3.21 per share, and plan to do the same for the Q4 as well. With that, I'll hand it over to Enver.
Enver Siručić: Thank you, Anas. Moving to slide six, our P&L and balance sheet overview. We delivered a strong Q3 with net profit of EUR 248 million and a profit before tax of EUR 335 million. Net profit was down 3% versus prior quarter due to a positive tax effect in the Q2, following a participation sale. While profit before tax was up 1%. Return on tangible common equity was 27%, based on a current CET1 ratio of 17.1%. Core revenues amounted to EUR 599 million, up 8% versus the prior year and 2% versus prior quarter. While pre-provision profits reached EUR 425 million. The cost-income ratio was below 30%, with synergy gains materializing faster than anticipated. Risk costs amounted to EUR 79 million, translating into a risk cost ratio of 56 basis points, reflecting the changing asset mix. Underlying credit performance remained solid with an NPL ratio of 1%.
Enver Siručić: Earnings generated 116 basis points of gross capital during the Q3, supporting a reported CET1 ratio of 17.1%. We also resumed the dividend accrual at 100% of Q3 earnings, which is already deducted in the CET1 ratio. In terms of balance sheet, average customer loans were flat, and average customer funding declined by 1% quarter-over-quarter. We continue to maintain a fortress balance sheet with EUR 13 billion in cash, representing 19% of total assets and an LCR of 197%, and a strong assets quality. Moving to slide seven, core revenues. Net interest income increased by 2% in the quarter, with customer loans flat in Q3 2026 and supported by continued positive trend in consumer SME, including credit cards. Mortgage volumes remain subdued. Net interest margin at 350 basis points reflects the ongoing changing asset mix, while the deposit beta decreased to 28%. NII rate sensitivity is unchanged.
Enver Siručić: Every 25 basis points increase delivers EUR 25 million per year after 12 months, and EUR 50 million per year after 24 months. Net commission income with a stable development at EUR 102 million, results across business lines of retail SME continue to perform well. For the Q4, we expect net interest income to grow gradually at a stable development in net commission income. On slide eight, operating expenses amounted to EUR 181 million, representing a 2% quarterly decline with a cost-income ratio of below 30%. Our initiatives across the group developed better than anticipated, therefore expect to outperform our outlook. Risk costs for the quarter came in at EUR 79 million, up EUR 3 million versus prior quarter. The increase reflects continued shift in asset mix toward higher margin consumer and non-secured lending. Importantly, underlying credit performance remains strong, with an NPL ratio of just 1%.
Enver Siručić: On slide nine, the retail SME segment delivered net profit of EUR 218 million, a return on tangible common equity of 35.8%. Pre-provision profits amounted to EUR 379 million, 4% higher than the previous quarter. Risk costs amounted to EUR 75 million or 77 basis points, driven by the asset mix change, while credit quality remained solid with an NPL ratio of 1.6%. We expect continued growth across the franchise. On corporate real estate and public sector, the segment delivered net profit of EUR 35 million, with a return on tangible common equity of 23.2%. We saw more redemptions in the quarter, but our focus remains unchanged on disciplined underwriting and risk-adjusted returns. Finally, on slide 10, we are entering the last quarter of the year.
Enver Siručić: Profitability remains robust, capital generation continues to be strong, asset quality is resilient, and we remain on track to deliver our 2026 targets while preparing for the next phase of growth through the planned acquisition of PTSB. As mentioned earlier, we will provide updated midterm targets with our full-year results in February. With that operator, let us open the call for Q&A. Thank you.
Operator: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to the first question. One moment, please. Your first question today comes from the line of Gulnara Saitkulova from Morgan Stanley. Please go ahead.
Gulnara Saitkulova: Hi. Good morning. Thank you for presentation, and thank you for taking my questions. The first question on the deposit momentum and NII, can you please unpack the key drivers behind the deposit outflows, with the corporate real estate and public sector down 26% year-on-year and retail and SME down 2%? Where are you seeing the most intense competition across products and geographies for the deposits? Looking ahead, where do you expect the deposit volumes to stabilize by segment, and how should we think about the pricing trends across key products? Related to that, to what extent can the shift towards higher yielding lending offset funding pressures and support NII growth? When should we expect the benefits from this asset mix shift to become visible in NII? The second question on risk-weighted assets.
Gulnara Saitkulova: How should we think about the risk-weighted assets growth relative to organic growth going forward, particularly as the portfolio shifts towards high-risk assets? Do you expect the resulting capital headwinds to persist going forward? What levers could you pull to mitigate the impact on capital generation? Thank you.
Anas Abuzaakouk: Okay, great. Hi, Gulnara. That was a lot to digest. Enver.
Enver Siručić: Let me take the first one. I think you asked about the deposits momentum, the outflows. So more of the same that we have seen in the past. It is mainly two products. One is the online German deposit business. We decided a few quarters ago not to compete in the market because we think it is overpriced, and we are still seeing outflows in that segment. The second one is the Austrian public sector deposit base, where the competition comes from the Austrian Bundesschatz, so the government offer. Which is again, that is why we decided not to compete. But all the other franchises, all the other deposits are quite stable or growing. You ask about stabilization. Well, I think once that normalizes, but we see already lower outflows compared to the prior quarters in that segment.
Enver Siručić: I think the second block of questions was about asset growth, I guess, and also part of the. Is that right, Gulnara?
Gulnara Saitkulova: Yes, correct. So if we look about the moving parts of NII, to what extent the shift towards high yielding lending to unsecured lending can offset the funding pressures and support the growth?
Enver Siručić: So I think on the consumer SME side, we will see that trend continuing. It was quite stable over the last couple of quarters. What is harder to predict is mortgages. We did expect more growth this year, but competition was really very intense in terms of pricing levels. That is why we stayed very patient, and that is why you see a small decline there. Also in Q3, we had more redemptions in the non-retail segment, especially on the real estate. Again, depends on the overall market. For us, nothing changes. We will be disciplined and will not chase loans in a particular quarter, but more a look at it from a long-term perspective.
Gulnara Saitkulova: And when it comes to risk-weighted assets?
Enver Siručić: Well, it will grow in line with the asset development, and the only thing that we have not disclosed is obviously that we are working on different measures, including SRTs, to potentially offset these.
Gulnara Saitkulova: So you don't expect these headwinds to persist going forward, that the 30 basis points headwind that we saw from the mix shift. So you expect this to phase out, essentially to not persist going forward?
Enver Siručić: Oh, it's the same. So as long as we have that asset mix change, you will see high front book RWA density, obviously, given the mix of the assets. The only thing I said is we will work on different measures to offset that RWA growth, and that's not reflecting Q3 and might be different in the coming quarters.
Gulnara Saitkulova: Thank you.
Operator: Thank you. Your next question today comes from the line of Amit Brandan from JP Morgan. Please go ahead.
Amit Ranjan: Yes, hi, good morning, and thank you for taking my questions. I have two, please. The first one is on risk costs. How should we think about the 50 basis points outlook for 2026? You have 56 basis points during the quarter, 52 basis points year to date. Can you talk about the drivers here? I think you mentioned solid underlying trends. So anything that you can give between a split between asset growth and stage 3 coverage provision-based. The second one is on costs. You are running well ahead. Should we expect this trend to continue? Anything seasonal that we should keep in mind for Q4 that could drive the number higher, please? Thank you.
Enver Siručić: Thanks, Amit. On the risk of outlook, pretty much the same answer as I gave to Gulnara is, as long as we see that asset mix change going on, you will see a high risk cost ratio. What is hard to predict is the redemption profile. If you see earlier redemptions than expected, as well as the mortgage growth, which was more muted than what we expected, which then becomes a technical thing of a denominator. If you then look at the risk cost ratio, it might be a bit elevated. I think we are still confident it will be around the 50 basis points for the full year. On op ex, yeah, I think trend is very obvious. Q3 lower than Q2. It should be quite stable for Q4, I would assume. We don't expect any one-offs or any seasonal effects for Q4.
Amit Ranjan: Okay. Thank you.
Operator: Thank you. Your next question today comes from the line of Mate Nemes from UBS. Please go ahead.
Máté Nemes: Yes, good morning, and thank you for taking my questions. Two of these, please. The first one would be on your cash balances. I was just wondering if you could update us on potential deployment of cash into high yield securities. I think you being uncomfortable with the spread environment. Now we've seen some spread widening, clearly. Any updated thoughts on that? What's holding you back? What can hold you back from larger deployments going forward? The second would be just a quick update on your lending pipeline on non-retail. I hear you, it's hard to predict redemptions or repayments. But if you could just talk a little bit about opportunities, particularly in corporate lending and also perhaps in real estate, what you're seeing in the market at the moment. Thank you.
Anas Abuzaakouk: All right. Thanks, Mate. Cash deployment. We are seeing the spreads starting to widen across certain asset classes. Obviously, sovereign, I think is first and foremost, which we have almost no exposure. It's pretty de minimis, under 1%, but that's been the case for a number of years. I think we'll be patient. There's a lot going on. We see some areas that we think could be attractive, but we're going to be disciplined and patient and just assess the overall market as we think risk is repricing generally across the board. That's something hopefully we'll be able to be the beneficiaries of as we've been patient for a number of years now. Then on the non-retail, I think that's a good question. The reality is you see a pipeline build up.
Anas Abuzaakouk: In those times, you see pretty fast redemptions that are unexpected, and that's one that we just got to be patient. We're not going to manage it by quarter in terms of volume growth. We feel pretty good about the pipeline that we have going into the end of the year, but that's just cyclical. To be quite frank, it's hard to pinpoint in any given quarter, let alone, I guess, across the whole year or so.
Anas Abuzaakouk: But we'll be patient. We see some good opportunities, but we're never going to chase anything for the sake of volume growth. Thanks, Mate.
Enver Siručić: Thank you.
Operator: Thank you. Your next question today comes from the line of Gabor Kemeny from Autonomous Research. Please go ahead.
Gábor Kemény: Yeah. Morning. Firstly, on the NII outlook, please. I know you commented on the deposit flows. How much competitive pressure do you see on deposit spread? Looking at your NII sensitivity guidance, I guess how much kind of offset can we possibly assume from deposit spreads drifting a bit from the current levels, limiting the upside from higher rates? That's the first one. Secondly, coming back to costs, you keep beating on consensus and on expectations. Can you comment on what levers have you found to improve the cost efficiency? Is this kind of fully in line with your budget, or are there any trends which have been more supportive than you assumed initially? Thank you.
Enver Siručić: Yeah. Gabor, on deposit competition, I mentioned the two examples. We have seen quite an intense market in Germany, especially for the online deposits, as well as the Bundesschatz offer in Austria. Overall, we would assume that the competition will pick up. If you look at it differently, what we have seen early days is not so much the deposit pricing that has picked up, other than a few offers that you see in the market. But it translated into much higher mortgage pricing intensity. The mortgage spreads dropped significantly over the last couple of months, which we think is a reflection of the higher deposit margins that you see on the other side. But going forward, yes, we would expect more intense competition in the market overall.
Anas Abuzaakouk: I'll just say, on the cost side, Gabor, I would say it's no different than how we've approached it over the past decade now that we've been a public company. It's every quarter, you try to strive for just getting a little bit better, and we talk about continuous improvement. There's no silver bullet. It's not AI, which I think is a bit of a cliché. AI is an enabler, just like every other technological improvement that has happened that we've seen. So I think the key is being disciplined. The approach in terms of taking an absolute cost focus as opposed to just looking at cost-income ratio. There's a lot of things that impact the denominator on the cost-income ratio. Yeah, just more of the same and being very disciplined. We are starting to see more broadly the benefits of a scalable platform.
Anas Abuzaakouk: When you really understand your technology stack, what we call technology operations or tech ops, I think that makes a real difference. Being able to control that technology when you insource as opposed to relying on third parties. That's something that I think has been consistent over the years.
Gábor Kemény: Thank you.
Operator: Thank you. Your next question today comes from the line of Jordan Bartlam from Mediobanca. Please go ahead.
Jordan Bartlam: Good morning, and thanks for the questions. One firstly on other income or fees specifically. The fees and commissions was flat on the last quarter, and you are continuing to guide for stable development for the rest of the year. Just curious what is causing that line not to grow more from here. The advisory type revenues seem like they should be growing a bit quicker. I think the track record there has been pretty stellar. Why is this not really translating into more growth? That would be my first question. Then secondly, on the cost side, again, you flagged a few of the drivers. I just wonder how much more we could expect in terms of cost synergies from the Knab and Barclays deals, or are they largely done at this stage? Those are my two questions. Thank you.
Anas Abuzaakouk: Yeah. Let me just take the cost, then Enver will address your other question. Jordan, it is not so much any one particular acquisition. We look at it at a group level. That is how we manage things centrally. It is hard to pinpoint to any particular entity or acquisition. It is just part of your continuous improvement cycle. I think that is a competitive advantage, that we look at things centrally. We try to manage in terms of the overall platform. I mentioned the technology operations, but it also is in the central functions. Commercially, obviously, that is more local in terms of customer-facing roles, but I think there is still quite a bit to do on this front. Technology is like the greatest enabler, right? Coupled with having, I think, a centrally steered business I think is a competitive advantage. Enver.
Enver Siručić: Yes, Jordan, on the fee income question. In reality, we were ahead of plan in the first three quarters, especially Q3 and Q2 were stronger than what we expected. Keeping it stable is actually above what we initially forecasted for the fee income. That is the main reason. The second reason is just given the seasonality of it. Certain fee lines are cut off basically before Christmas, if you think about advisory and the likes. There is that seasonal effect, and again, we are ahead of plan on the overall line. That is why we think being stable in Q4 is actually a strong outcome.
Jordan Bartlam: Thank you.
Operator: Thank you. Your next question comes from the line of Jovan Sikimik from Oddo BHF. Please go ahead.
Jovan Sikimić: Yes. Good morning. Thanks a lot for the call. Maybe at this stage, if you could provide, what is your rate outlook for the next quarters? Of course, in combination with organic long growth outlook, where would you see actually NII trajectory going into 2027? Of course, I am not talking with including PTSB. I think somebody asked in the call about, what is the likelihood of deploying cash into high yielding security. Overall, where would you see, let us say, on current run rate of NII improving next year or not? Thanks.
Enver Siručić: Yeah. Thanks, Owen. I do not want to start talking about next year's forecast, but I think I can provide some guidance how we think about it. We do not have a rate opinion, so we try to be very neutral in terms of our positioning. But the underlying franchise obviously has a rate sensitivity, as we have disclosed, especially on the deposit side. I think if you go through the main drivers, obviously the positives are higher rates, higher sensitivity, higher deposit margin. That is something that we will expect to see in Q4 but also going into 2027. The asset mix change on secured consumer and SME is a positive driver, and that is also reflected in the prior quarters. I would say on the more cautious side, I think competition deposits will pick up, so that will add obviously to the deposit beta. They should go up.
Enver Siručić: The other thing is, it does not matter so much in the short term, but we see obviously very intense pricing on the mortgage side, and that is why volumes have been low. So there is a mix. I think overall it is a positive trend that will continue, but there are a couple of things that we need to look out for.
Jovan Sikimić: Okay. Very helpful. Thanks a lot.
Operator: Thank you. Your next question comes from the line of Domenico Maggio from Jefferies. Please go ahead.
Domenico Maggio: Hello. Good morning. One on credit, if I may. You have this very useful slide on MREL, where you basically mentioned that you intend to have a single point of entry with PTSB and that you expect existing MREL resources to still count during a transitional period. I just wanted to check with you, is the transitional period basically 2027, and then from end of the year 2027, you will basically get a requirement for the combined entity, and therefore the existing MREL from PTSB will not count in 2028?
Enver Siručić: Yeah. Thank you, Domenico. We are not in a position to disclose that yet. We will disclose it as soon as we have it, and we will make it public.
Domenico Maggio: Okay. Capital is AT1 and Tier 2 are still expected to count. Is that correct? On the slide you just touch on MREL. Just wanted to make sure that there are no nuances between the two.
Enver Siručić: No.
Domenico Maggio: Is there a transitional period also for capital?
Enver Siručić: No. Previously we already did capital on a group level, and MREL was done at the opco level, and that is going to migrate to group level. I think that's the reason why.
Domenico Maggio: Okay. So no transitional period for AT1 and Tier 2?
Enver Siručić: No, I would not assume that.
Domenico Maggio: They would still count. Okay. Thank you.
Operator: Thank you. Your next question comes from the line of Jeremy Sigee from BNP Paribas. Please go ahead.
Jeremy Sigee: Morning. Thank you. Could you just come back onto any areas of organic growth where you see attractive opportunities? Could you just talk a little bit more about that? Perhaps linked to that or perhaps not, I do not know. What opportunities do you see in the US market at the moment? You emphasize your identity now as a Pan-European and US banking group. I just wonder what that sort of second part of it means at this point in time, where you see opportunities to do good business in the US.
Anas Abuzaakouk: Thanks, Jeremy. We have been in the US market for 15 years, so this was not a recent development. Just more broadly to your question, or specifically to your question around opportunities. I think Enver touched on it. The one area that is the most challenged is mortgage volumes. Not so much from volume standpoint, people are lending out there. It is just from a spread standpoint, it is pretty anemic. We will be patient. We will stick to our credit box. Consumer and SME, whether it is credit cards, consumer loans, specialty finance, that has actually gone pretty well, I think better than expected this year. So that has been an interesting dynamic or interplay between mortgages and non-mortgages in the retail and SME. Then on the corporate real estate public sector, real estate has been the one that has been the most volatile.
Anas Abuzaakouk: We have had, I would say, unusually high redemptions this particular year. But we have a good pipeline, so not to front run, but we think hopefully that should materialize in Q4. Then in the corporates, it is a tough slog in terms of just where corporate lending is at. That is a lot of volume that we do not see really attractive spreads at the moment. In public sector, we will see how things reprice, given just the developments more broadly. AI has been a big area of focus for a lot of banks and private credit platforms. We do not have any exposure there. That is something that we have just never been able to get our hands around, to be quite honest. So we will be patient. We see some good opportunities.
Jeremy Sigee: Thanks. In the US, obviously I am aware you have been there for a while. It is just whether there is any growth opportunities, whether that is a better place to deploy capital at this point.
Anas Abuzaakouk: I think on the commercial real estate front, particularly when you think about resi, industrial, even some idiosyncratic office opportunities, I think the US is pretty attractive, but also the US is where we have seen the highest redemptions, Jeremy. So it is interesting in the market. We will be patient, but we see pretty good opportunities. Question is, will they materialize?
Jeremy Sigee: Okay. Understood. Thanks very much.
Anas Abuzaakouk: Thank you.
Operator: Thank you. That was our final question for today. I will now hand the call back to Anas Abuzaakouk, CEO, for closing remarks.
Anas Abuzaakouk: Thank you, operator. Thank you, everyone, for joining this morning. We look forward to being in touch in the coming weeks, in coming months, and at year-end if we don't speak before. Take care. Have a nice day.
Operator: Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.
