Banco Comercial Q1 2025 presentation: Net income up 3.9%, digital growth accelerates

Banco Comercial Português (BCP) reported a 3.9% year-over-year increase in Q1 2025 net income to €243.5 million, driven by a 3.6% rise in net interest income and a 2.1% increase in commissions, though offset by a 10.4% increase in operating costs. Digital transformation efforts continue to drive customer growth, particularly in mobile banking, while international operations outperformed domestic business due to a decline in Portugal's net interest income. BCP maintains strong capital ratios (CET1 at 15.9%) and shareholder value with a 5.4% dividend yield, projecting 2025 profits consistent with 2024, although the impact of Polish CHF mortgage provisions and rising operating costs remain factors to monitor.

Analysis

Banco Comercial Português (BCP) reported a resilient Q1 2025, with net income increasing 3.9% year-over-year to €243.5 million, signaling a recovery from the Q4 2024 revenue shortfall and keeping the bank on track with its guidance for 2025 net profit to remain consistent with 2024 levels. Core income rose 3.2% to €922.5 million, driven by a 3.6% growth in net interest income (NII) to €721.1 million and a 2.1% increase in commissions to €201.4 million. This top-line growth was partly offset by a notable 10.4% rise in operating costs to €339.7 million, which led to a marginal 0.5% decrease in core operating profit to €582.8 million. However, profit before income tax saw a healthy 13.0% expansion to €378.2 million, aided by a significant 15.4% reduction in impairments and provisions. BCP's digital transformation strategy continues to yield substantial results, with the total customer base exceeding 7 million and mobile customers growing 9% to 5.09 million; this digital engagement fueled a 15% rise in digital transactions and a 56% surge in digital account openings. A key divergence was observed in regional NII performance: international operations posted a strong 10.7% NII increase to €395.2 million with a stable NIM of 4.55%, whereas Portuguese NII fell 3.9% to €325.8 million as its NIM contracted to 2.12% from 2.34%. The Polish subsidiary, Bank Millennium, contributed €42.8 million to net income despite incurring €130.8 million in charges related to its CHF mortgage portfolio. BCP maintains a robust capital position, with a CET1 ratio of 15.9% and a total capital ratio of 20.0%, and exceptional liquidity metrics including an LCR of 354%. Shareholder value is being delivered through a 13.9% ROE, a 14.5% ROTE, a 15.8% increase in book value per share plus dividends, an attractive 5.4% dividend yield, and improved asset quality, evidenced by the cost of risk declining to 38 basis points from 52 basis points year-over-year.

Key Decisions for Investors

• Acknowledge BCP's solid Q1 2025 performance, which aligns with its full-year profit guidance and reflects successful digital strategy execution, whilst noting the stock's recent 1.57% price increase to €0.6622.
• Closely monitor the 10.4% year-over-year increase in operating costs, as sustained pressure in this area could impact future profitability if not matched by stronger revenue growth.
• Evaluate the attractive 5.4% dividend yield and improving asset quality against the backdrop of ongoing CHF mortgage-related provisions in Poland and the divergent net interest income trends between the robust international operations and the challenged Portuguese domestic market.