Moneta Money Bk

Ladies and gentlemen, welcome to the conference call of Moneta Money Bank. At our customer's request, this conference will be recorded. As a reminder, all participants will be in the listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Thomas Bournie, CEO. Please go ahead.

Good morning, ladies and gentlemen. It's a pleasure to start today's quarterly presentation. We have the senior management team of Moneta, namely Karl Norman Focht, our chief risk officer, Jan Fricek, our chief financial officer, also Jan Novotny, the head of commercial banking in the bank, and Andrew Gerberer. for product and marketing. So, if you allow me, I will start on page four with the highlights. The first quarter of 2020, Moneta delivered net profit of 731 million crowns. Apart from that, we posted a very solid growth of the pre-impermanent profit at 31% on the basis of strong operating income growth in a flat cost space. We also generated lending growth of 13.1% year-on-year, and we will cover this later, what that growth originates from. On page five, five key developments, as already mentioned, operating income grew nearly 15% on the basis a fairly strong growth of net interest income and net fee commission income. Additional to that, we have successfully sold some sovereign bonds and generated 277 million crown gain on that. Our operating base remains flat. Apart from flatness when we go to branches, you will see that according to the plan we closed 16 units on the basis of strong development of our digital capabilities. On cost of risk we had posted fairly strong charge in the first quarter translating 273 basis points. The charge has inside 475 million related to COVID pandemic and Norman in the risk section will walk you through where that originates from. On liquidity, we enjoy very strong position, 44 billion of free liquidity. The LCR ratio stands at 155.6%, which is a significant improvement from year end. 2019. And on capital, we enjoyed a very solid position of 21%, mainly as a result of optimizing the capital base. We issued, as you know, Tier 2 bond in the amount of 2.6 billion in the beginning of this quarter in January. So we also had fairly good timing with distribution of that instrument. On page 6, the key financial metrics, we have posted strong growth on operating income as a combination of all components of operating income in lending and deposit-taking. You can see that the bank on year-to-year basis generated very strong liquidity. 28 billion of deposits and we had posted growth of 18 billion in excess of 18 billion of loans. On asset quality the NPR ratio has decreased to 1.9% so we have a very strong position in terms of both the relative absolute size of NPR portfolio And as you will see in Norman's part of the presentation, we also are increasing the coverage across all stages of our portfolio. On liquidity, very strong and solid position, which will further improve once we consolidate the Western Road acquisition in the second quarter of this year. And capital, I've mentioned. What is also important is that we have risk-rated assets of $128.6 billion on a year-to-year basis. This constitutes growth of 6.5% on end of year. I believe it's 2.3%. 2.4%. 2.4%. So, on page 7, just a couple of highlights on this. we've completed the acquisition on 1st of April so as an event subsequent we included here we paid cash 175 million euro the equity position of the companies we've acquired standard euro 207 million so the acquisition is equity accreted from the day one now we begin integration process of the company which constitutes of staff relocation. We actually relocated about 20% of the staff to our headquarters already. We will optimize the real estate and we hope to do it by third quarter of this year. Within next 12 months we would like to integrate IT and legally merged by the end of the year Western Road Mortgage Bank into Moneta. The Western Road Building Savings Bank will remain as a separate entity enjoying efficiencies of the Moneta's operating platform and we are working on that. This is a requirement, by the way, of the regulator that we maintain separate license for that overall as already stated previously we continue to expect integration cost in the amount of 400 million crowns split 150 million we will most likely post this year and 250 million will be posted in 2021 so the full scope and impact of Synergy is is estimated at 300 million crowns and it should come in fully in 2022 at the latest. On page 8, we show you the key metrics of the balance sheets that we've acquired. it's really 70 billion. What is notable here is that liquidity position of the bank overall will be strengthened by deposit base, the amount of 58 billion crowns, of which 31 billion are building savings which enjoy state support in form of subsidy of interest rates paid to the client. So this is an attractive product. On the lending side, we increase mortgage position by 39.6 billion crowns. So we will nearly double our market share. And there are about 18 billion crowns of other loans. Mainly, these are loans to retail, residential needs, reconstructions, etc. So this is a significant acquisition that will bring the balance sheet of Moneta to excess of 300 billion and the loan portfolio will be nearly 220 billion crowns. So it's fairly material event from the time of the IPO you actually more than double the bank. On page 9 we provide you with the financial performance in the first quarter. So Whiston Road delivered in the first quarter net profit of 118 million crowns which constitutes growth of about 36% on With respect to year-on-year basis, the overall operating income position was $376 million and cost base $226 million. Please note the regulatory charges, which are booked once per year in the first quarter, so the cost base is a little bit overstated. So all in all, both from a profitability point of view, and from balance sheet point of view the acquisition actually is fully in line with the expectations that we had during the diligence building our financial projections model and signing the SBA so this had been completed. Now let's go into the operating environment and banking markets dynamics on page 11. The COVID-related crisis has brought what we call internally a perfect storm. If we start in the upper left corner, you can see that the expectation as to GDP evolution has entirely changed. Here we use the Ministry of Finance forecast where the 2020 is expected to come in at negative 5.6% and recover in 2021 at a level of 3.1%. If we look at the ex-post key macro data, what is notable is the evolution of exchange rates. Crown considerably weakened from the quarter before to a level of 27.3 crowns per euro. So this is clearly a negative development. With respect to inflation, the inflation actually increased in the first quarter to 3.1%. Unemployment had been reported as stable. Nonetheless, signs of increasing unemployment across the board as the economic inactivity of last nine weeks had considerably impacted the Czech economy. Another key development exposed are interest rate swaps and interest rate environments altogether. If you look at the pricing of the swaps, this had declined by 100 basis points from a quarter before, reflecting the two consecutive cuts by Czech National Bank Reducing the two-week repo rate from 225 basis points to 100 basis points. So not only that we have the headwind of higher risk arising from the economic inactivity, but we also have headwind on the interest rate environment, and that also has projected itself into one-year government bond, which plummeted by 100 basis points. that about in the first quarter of this year. Now on page 12, let's cover a little bit the evolution of the banking market. First we start with the deposit market. The deposit market overall reached $4.7 billion. The market grew at 12%. Moneta performed at 18.2% growth rate. Then we split it into retail and commercial. You can see that in retail we have considerably outperformed the market. We posted a growth rate of 22.5 against market growth of 9.2. And we also have a fairly solid growth on commercial deposits at 10.5%. As you know, we don't enjoy business of large corporates, large depositors. So is based on the strength of our SME presence in the market. On page 13, we look at the evolution of the lending market, relevant lending market in Czech Republic. Moneta grew overall at 13% against the overall market growth of 6.8. Again, in the retail market, we have posted significantly stronger growth than the rest of the market. We had been growing at 19%, whereas the market was at 6.9 level. And on commercial, we are fairly in line with the market growth, posting 5.7% growth, again, 6.6% growth on a three-year basis. So we are continuing to perform in a rather strong Strong Banner. On page 16, key contractual pricing. I would like to caution these are not effective yields, but these are contractual prices. If I go clockwise on consumer lending, for all that matters, we continue to perform at 70 basis points premium against the market. You can see that the market declined in the Q1 to 8.1%, whereas Moneta generated contracts at the average rate of 8.8%. On the mortgage market, we are fully aligned with the market. In the first quarter, we were 10 basis points above, but this is the fastest growing lending category of the bank, so we are competing at the market level. The price has stabilized in the past two quarters and we expect some declines linked to both the two-week repo reduction and also to some other competitive dynamics. On the commercial deposit pricing, it continues to overperform the market. and on the retail deposit pricing you see that the overall cost of funds has gone down to 56 basis points from 63 the quarter before, so we have the first signs of the repricing that we promised in the previous quarter. Now, I would ask you to turn the page, team. And we covered The COVID-related situation in Czech Republic, and as part of this, we will provide you with some outlook on the bank's performance. Well, there are two key stakeholders, government and central banks. The government declared state of emergency on March 12th. We've been impacted, broadly speaking, by two measures. taken by the Czech government. First and foremost is the loan repayment moratorium or postponement of installments which is also including a ceiling on consumer unsecured pricing which exceeds 9% rate per annum. The ceiling, the interest rate ceiling is now constructed as a two-week repo rate plus 8% margin. So this will have some impact on repricing of some portion of our unsecured loans, namely at the level of Moneta and Moneta Auto subsidiary where we finance typically used automobiles at higher rates. The government also communicated a commitment of $100 billion of direct support and 900 billion in state guarantees provided to enterprises in order to obtain additional liquidity from the banks. We've also seen a fairly significant compensation subsidy to self-employed individuals in the Czech Republic for the months of March and April. This constitutes a potential pool of one million people that are self-employed in this country, and the government provided a postponement on payment of taxes. The central bank reduced rates two times to the level of 100 basis points. It also lowered capital requirement, namely the counter-cyclical buffer to 1% level. As you know, the counter-cyclical buffer was originally anticipated or mandated to increase 200 basis points by middle by July of this year so this is a good development however the regulator communicated a very strong message that there should be suspension of dividends from banks across the board and also the central bank had taken some measures to on the ability to deliver liquidity to the banking sector should it be needed. On page 17, we outlined measures that we have taken on multiple fronts during the COVID crisis. What is I think the most important is that we've managed very well to keep the bank operating throughout throughout this period we had more than 50% of our employees working from home 90% of our daily activities with respect to call centers were actually conducted on a flex on a home office basis so apart from that the other highlight is that we've been standing behind our customers we have worked several weekends in order to ensure access of our clients to COVID programs and we changed our policies. Apart from that, we've also built a very solid plan for additional liquidity to be garnered by the bank to support the lending activity and existing customers. I suppose most importantly, we have taken up review of our cost base and came up with 300 million cuts in the cost base. We also reduced the investment budget by 170 million in order to postpone or cancel some activities. And we have been forced to move the shareholder meeting due to the restrictions placed upon us by Czech authorities. On page 18, we had also suspended guidance. So we've built a couple of scenarios, economic scenarios going forward. If you look at the chart on the gray, you have the previous prognosis that we've used. with respect to GDP, unemployment, interest rates, and inflation rates. And then we built two scenarios, moderate. Moderate scenario is milder as it encompasses a very strong government support to the industry, and severe scenario projects a more steeper decline of the GDP in the unemployment and the period of recessionary environment is actually prolonged. These are sort of U-shaped scenarios that were built at the end of March on the basis of information that we had available at that time, which was, quite frankly, not very much. so this is the basis that we have used to actually construct on page 19 some guidance as to performance of the bank in 2020 on total operating income we expect a minimum level of 11.6 billion this could be higher this could reach perhaps 12 billion it depends very much on if and when the interest rates are cut down to zero. That's one contingency. The second contingency is actually take up of the moratorium, state-sponsored loan repayment moratorium because it includes impact on the effective interest rates in the unsecured portfolio, retail unsecured portfolio. And the third uncertainty with respect to the operating income is how much of the acquisition gain on this we will post in the second quarter of 2020 and we have taken a very conservative estimate into this number so it could be slightly higher on the cost base we are fairly confident we are confident that we can push the cost base down to a level of 5.4 billion as opposed to 5.9 that we've communicated, or 5.8 that we've communicated in the previous guidance. On the cost of risk, we foresee a range of 170 to 185 basis points where, broadly speaking, 40% of this is linked to change of the economic Economic Indicators and 60% is related to envisaged increase in defaults across the portfolio. Below, what we would like to emphasize is that this scenario sort of depends on strong government support that is $100 billion. of direct aid flowing into the economy and better parts of the $900 billion of state guarantees to be provided for SME lending. This also envisages a relatively mild unemployment of 4.1% and a relatively moderate GDP contraction. So we plan to We plan to provide more detailed guidance at the close of the second quarter when we will have a little bit more to go on that we had at this time and we will also have the ability and integration of Western Roads. into the overall guidance. So let me cover a third part of my presentation, which is strategic objectives and results. If you look at page 21, this remains pretty much the same. We are aiming across eight dimensions or seven commercial dimensions at a stellar performance. The only thing that we've altered is risk management where we would like to strengthen our ability for collection recovery restructuring and we are focusing very much on building capabilities deal with issues that will come with the worst economic performance or worsened economic performance in Czech Republic on page 22 we reiterate performance again the our target retail we are performing according to the target posting strong growth the same situation prevails on small business banking and in SME we believe that we are continuingly or continuously improving the contribution this business line generates for the bank Digital strategy is on track. We are seeing movement from the digitally initiated to branch finished to fully online digital sales. Andrew will cover it. On risk management, I have covered this. We have so far stable NPLs, and we have taken proactive, prudent view of the COVID situation. I think what today is a very respectable rate of 379 basis points. And on cost control, I believe that we continue to demonstrate commitment to manage costs. On page 23 the overall platform remains pretty much unchanged except that we have fulfilled our commitment on branch closure. Later on in the cost section you will see a two year evolution of the space, high street space that we utilized to run the model of Moneta and you see the level of efficiency On employment in the bank we have gone down by about 2% on year to year basis and you can see that we breached the 1 million client threshold as we had written off sold a lot of portfolios the customer base of the bank is moving in the right direction albeit we would like the movement to be faster and we have continuing strong utilization digital platform SmartBank that we have built and on page 24 you see movements of our customer base I think in the first quarter we were impacted we were impacted by the pandemic nonetheless we generated 19.2 of new customers. This is on top of the page. So the net amount is 92,000 customers after we take into account the churn of the customer base. You can see steady growth of 4.4% of the primary customers of the bank and as I said we are above 1 million of performing customers and This is quite important. With that, I will turn over to Andrew Gerber, who will take you through the digital distribution and services.

Thank you so much. So if you go to page 26, we provide a brief update on Refinanso, our fully digital mortgage platform, which we developed over the course of last year. We began to scale this business up in Q1 2020. during which we approved 626 applications and signed 161 contracts, which represents roughly 20% of the bank's total flow in mortgage refinancing. While the flow of new deals here has obviously declined dramatically since the onset of the pandemic, we will continue to invest in developing this platform as planned, as we still believe this will have an important role to play in the future of our mortgage business going forward, and perhaps even more so than would have been the case without the present crisis. Going on to page 27. We continue to see increasing adoption of the two main mobile banking platforms, Apple Pay and Google Pay, albeit at a slower rate than in the case over the last year. At the end of Q1, we had 135,000 cards active across both platforms, up 113% year-over-year, although you see the quarter-on-quarter growth has slowed as the penetration into the portfolio has increased. The same pattern is visible in the transaction volumes which are up 268.3% year-over-year. Going on to page 28, online originated lending declined year-on-year in both the retail and small business segments down 5.9% and 5.3% respectively, reflecting the broader slowdown in the unsecured lending during Q1. At the same time, the fully online component has continued to grow in both segments, up 35.1% year-over-year in retail and 48.2% year-over-year in small business. We've already maintained the available pre-approved limits for both our retail and small business clients during Q1. However, as the severity of the situation became apparent during April, we took measures to position ourselves more conservatively while still seeking to maintain the availability of credit to our existing clients. This will be visible in the second quarter where you will see some reduction in the number of limits as we avoid lending to the riskiest clients but mainly a reduction in the size of the individual limits offered to position ourselves a little bit more conservatively than we have been. On page 29, on the weekend of the 4th of April, we completed the migration of our card business from an internally managed platform hosted in Australia, which was the legacy of our previous owners, to a multi-client outsourced platform based in Frankfurt. This is a market-leading platform with 80 million accounts on file in the EMEA region for more than 30 large clients. This move will save us more than $50 million per year over the 10 year life of the agreement and also allow us to benefit from the extensive capabilities available off the shelf and therefore largely to avoid custom development. This was a very substantial exercise for us which has been in the planning since 2017 and when you consider that three weeks before the go live weekend we suddenly faced the prospect of having to re-plan everything for execution remotely. I think it's a remarkable achievement that it was delivered on time and without any major disruption to the ongoing operations of the bank. I won't dwell on the digital roadmap on page 30 except to say that we continue to increase our focus on deposit related initiatives to complement our excellent progress in credit distribution, and at the same time we're working rapidly to integrate Distinrot into the bank's propositions and services. And with that, I will hand over to Jan Prycek who will take you through the P&L development.