Moneta Money Bk

Dear ladies and gentlemen, welcome to the conference call of Moneta Money Bank AF. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a 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 the zero on your telephone for an operator assistance. May I now hand over to you, Mr. Spurney, Chief Executive Operator and Chairman of the Board of Directors. Sir, please go ahead.

Good afternoon, ladies and gentlemen. It is my pleasure to introduce today's presentation of Momentum Money Bank 2020, results, early cover, both the full year and the developments of the last quarter. First and foremost, I have with me Linda Cavanova, our Head of Investor Relations. Then let me introduce other presenters. We have Karl Norman Fox, our Chief Risk Officer. We have Mr. Andrew Gerber, Chief Product Marketing Officer. We also have Mr. Novosny, Jan Novosny, Chief Business Development Officer on the commercial side, and Jan Srecek, our CFO. I would like to ask you please to turn attention to page number four of the presentation, which is going to provide a couple of highlights on governance of the bank. If you look at the MSCI index, the bank achieved in 2020 an A rating of corporate governance, which pleases us. Secondly, we are also increasingly environmentally conscientious band where we reduce carbon footprint by close to 60% and we will continue in doing so and we are also very proud of the fact that Moneta is the only Czech company included in the Bloomberg Gender Equality Index, where we had a stable score for a second year running. If you turn the page to page number five, Let me briefly comment our achievements of 2020 from financial perspective. The bank generated operating income of 12.1 billion crowns. We've incurred cost base of 5.5 billion. This translates into E-Conferment profit increase of 19.5% and incidentally this actually meets the very original guidance that we provided prior to breakout of the COVID-19 pandemic. Cost of risk heavily impacted by the pandemic. We have incurred 3.6 billion cost of risk in 2020 and all of the above translates into net profit of 2.6 billion. Then if we continue on page six, commercial and other quality indicators of the banks. The bank generated the deposit growth in excess of 47%. It also paralleled that growth with lending expansion, which is nearly at 45%. We've registered the increase of non-performing loans. We currently stand at 2.8% level. With respect to capital position, we recommend a strong capital of 18.2%, which is the total capital equity ratio, and enjoy solid liquidity expressed in 190% liquidity coverage ratio. Turning the page, one of the key subsequent events of following closure of the year is the receipt of key documents from VPF Group. VPF Group sends us a proposal, initially voluntary, offers to purchase. up to 20 or 29% of our shares at 80 crowns per share. With respect to this matter, we've provided the position statement of the Management Board as required by the Czech legislation. In addition to that, the intent of ETF Group is to stimulate the bank into acquisitions and mergers, a frequent merger of Airbanks and certain affiliated companies, and I'm sure we will cover this matter in context of the Q&A session. Now, if you allow me, I will turn to our strategy and how we perform against strategies that we've published and provide reporting again. If you look at patient time and trends, here we cover both commercial and financial targets of the bank and I would summarize that the bank is developing quite well in the context of the target of increasing the shares. of profitable and return-producing retail banking. If we then look at retail and small business targets, what is positive here is that we have successfully, through both organic and acquisition-related growth, significantly increased our position in relevant mortgage lending. We are successfully defending position in unsecured retail market share obeyed the COC year 2020 was a challenging year and we also successfully developed both deposit-taking market share as well as distribution of third-party asset management products and this is coupled with success on the ability of Moneta to distribute insurance products If we turn the page and we look at financial targets, overall the bank produced 10.8% return on tangible equity, which we consider satisfactory result in view of the crisis that we've experienced throughout 2020. We've also suffered due to that decrease of incremental profitability of the small business sub-segments in the line where we've posted significant anticipatory provisioning. If we then look at the overall quality and sustainability of our risk position, I think what is very important here is that our NPL position still remains relatively low, albeit we have, and you will see later, downgraded significant portion of the book in anticipation of potential losses. being incurred in conjunction with the COVID-19 pandemic. It essentially increased our coverage of the lending portfolio. The overall coverage stands at 2.6% and coverage of non-performing exposures is at 110%. So it's above the target that we have. And lastly, due to both organic and acquisition driven growth, we successfully increased the client base of the bank to nearly and beyond 1.2 million customers and we comment on that also later in the presentation. On pages 11 and 12, we provide you with a more granular overview of the bank's performance. So, few comments here. Undevelopment of the retail franchise lending growth accomplished exceeds 68% year-on-year, while the deposit-taking activity in retail exceeds 60-65%. This is again a sheet driven by the acquisition. Memo S, the bank generated respectable rates of growth through organic expansion. Lending the organic growth was at 15%, in excess of 15% on deposit-taking. 21%. You will see that these brokerages also stand very well against the development of the overall market. On the entire franchise basis, mortgage lending expanded at the rate of 124%. while the organic growth in that category nearly comes at 40%. On unsecured lending, the bank reports a very good headline growth number of 20.6% year-on-year growth, but this is cheaply and entirely driven due to the acquisition of Western Rose. Our pre-acquisition perimeter portfolio actually decreased by 6.4% and this is due to lower demand for consumer-related lending in the Czech Republic during 2020 when the new production suffered and contracted by more than 30%. What is also important here However, with the production we have accomplished, we actually increased new production market share, what was available on the market. to about 20% while in 2019 we had about 16% market share on average of the new production. If I then move on to the small business franchise again, we've generated respectable growth of nearly 19% of the loan portfolio. On the core deposit growth, we had even better results appearing 30% growth on the 8.2TB specific and it shows that the bank successfully developed primary banking type of our services with this sub-segment of customers that is self-employed, professional and trades people and the like. If you look at our lending activity, what was in this segment very decisive for us, is the ability to distribute in a fairly industrial manner, all with related guarantees. But according to cheque, Moravian Guarantee Bank, we had in some months, Around 50% market share in providing COVID guaranteed loans where the bank enjoys state guarantee of up to 90% of the loan exposure. This was a great success as our market share is very much disproportionate to the overall market share of the bank. In terms of SME banking, I would say that here, again, on pre-acquisition basis, we have flat portfolios slightly increasing due to the system growth, as the system growth finances home improvements from condominiums and co-ops. We continue to enjoy above the market strong yields from the SME portfolio and we have again successfully managed $3.8 billion of loans which are covered by the state. This pertains mainly to working capital facilities and you will see that the nominal value of working capital facilities limit is significantly higher than a year ago and a significant portion of that increase is covered by state guarantees. We've also generated a respectable growth of 11.7% on FME. On digital capabilities, we continue to expand both digital usage and distribution through digital channels and this is evident from the numbers. Turning the page to page number 12. If you look at our exposition, I have commented this, what is important is that the overall coverage of our long portfolios through long loss provision allowances increased to a level of 267 basis points from 2019 year end level at 194%. So 194 basis points as it shows. that the bank deployed conservative policies and I dare to say that we are in top 10% in terms of coverage among the banks operating in Czech Republic. Capital position super strong, 18.2% with CT1 ratio exceeding 15% and this time frame to excess capital that the bank commands in absolute number of 6.4 billion. This is excess over regulatory requirements plus the 100 basis points management buffer. So, and you will see that also in the capital section, the RWA density remains stable and grows at 6.4 billion. but has a rate of growth of our overall loan exposures. On cost control, here I would like to get across the message that on pre-acquisition basis, our cost base remains flat. It actually decreased by 20 basis points. and the inflation in our operating costs is driven by acquisition of external and related integration and restructuring charges. So we report a very good cost income ratio which if you adjusted for one-off impact of the estimate of acquisition would come at 5% higher. We would be below 51% on the cost income ratio basis. And I'm the Acquired Experimenter, Acquired Experimenter of WesternRock. We have lost in synergies of $300 million. We accomplished the legal merger of WesternRock Mortgage Funds. And we've also improved commercial performance, obtaining 12.8% market share on suspicion for take-up of new building savings contracts, etc. I'll let the interest rate get subsidized by premium provided by the state. So, overall, we believe the situation is satisfactory, it's not favorable. I would like to comment a little bit on the shape of our operating platform. I think the key word here is that we saw efficiency improvement throughout 2020. If you look at employment in the bank, it increased by 60 FTEs to the level of 3,009 FTEs. Please bear in mind that the acquisition of WesternRock brought roughly 300 SEs into the bank in the second quarter of 2020. So through efficiency driven actions of the management, we've actually accomplished fairly significant efficiency improvement. With respect to branches, We ended the year with 159 units, decreasing free space by about 2,500 square meters, and in January, as an event subsequent, we are closing additional six units, so the branch network will be somewhere around 153. We've also added last year Thai-Asian network which we've inherited from Dexedros. That network has 51 consultation offices which we do not pay for. These are financed by the agents themselves. However, their brand is Simuneta, improving recognition and relevance of Simuneta brand. On ATM, we have optimized the ATM network for efficiency, closing about 80 locations. This action was prepared actually in the fourth quarter of 2019 prior to the pandemic. Significantly improving cost positions and we are the only bank in Czech Republic that actually reduced the ATM, the only ATM network. The same, we've installed 66 new machines throughout the year, eliminating some significant operational risk arising from outbases. Outdated equipment that's been inherited from the previous owner of the bank and you can see that we've substantially increased the compact life and he has positive development overall on development of the client base through both organic and acquisition growth and he's registered significant improvement in usage of outages growth of our digital channel. Now if I could ask you On page 15 I would like to start with the key macroeconomic indicators on GDP. The contraction of GDP has come in at a better rate than was previously expected by market participants. The contraction is now estimated at 5.6% while at last quarter we reported more than 7% expected contraction. The forecast for 2021 has been actually yesterday increased by the Czech National Bank to a level of 2.2% from the 1.7 that we had here and the Bloomberg consensus is 3.5%. Here we also show you industrial production and foreign trade which both suffered throughout 2020 due to various restrictions and emergency states declared in the Czech Republic and on the GDP development The only government spending creates a positive contribution to GDP. All the other three categories are unfortunately negative. Nonetheless, even with the government stimulus, Czech Republic maintains Strong Rating and AA Linus with a stable Outlook. Now, turning phase to phase 16, we commented briefly on the job market and expected level of employment. If you look at 2020, the Czech Statistical Office reports unemployment at 8.2%, so we have a fairly strong increase from the level of 2019 with the market consensus expecting the unemployment to rise to 4.5% during the current year. If you then look at demand for employment and job vacancies and unemployed You can see that Czech Republic still remains positive gas in vacancies against unemployment. However, that gas is narrowing quite significantly compared to 2019. And then if we look at another indicator and that is the State Budget Deficit, in 2020 the current forecast is that the deficit will come in in excess of 367 billion. This is a record number in the history of Czech Republic and I believe this is actually a record number in the history of Czechoslovakia. all the way back to 1918. We've never had a budget deficit like this. From the current year 2021, the deficit is expected to be 320 billion. This is agreed upon deficit by the parliament of Czech Republic. The January number of the deficit came in at more than 31 billion crowns and it doesn't have impact of the tax relief that were agreed upon by the Parliament in December 2020, so the number could be higher. In other words, the government is doing whatever it can to support the stability of the economy and employment. On page 17, briefly on inflation and interest rates. The inflation for 2020 3.2% with expectations that this number will come down to 2.6% and consensus by the market analysts that rate hikes will come. If you look at statements published by the Czech National Bank as of yesterday, there was a strong theme of normalization of the monetary policy in the second half of the year, made conditional to some other comments. All of this reflects itself into the exchange rate of the Czech crown, as the Czech crown is currently the strongest against Euro since beginning of this crisis in February and March of last year. And the last comment on the operating environment on page 18. We tried to summarize level of bankruptcies or insolvencies of individual entrepreneurs and of the country. You can see that actually the number throughout the 2020 has decreased and it does not seem currently to cause any concern, nonetheless we are remaining cautious on this front. I have commented with reflected into the 2020 provisioning policy and approach that we adopted. Now if you allow me, I will briefly comment on the banking market zero trend and how Moneta stands against such. so if we can go to page number 20 we start with the deposit market the deposit market expanded to about 4.9 trillion grams the market overall grew uh in excess of nine percent while as we have said moneta um moneta grew in excess of 47 percent and this is the most visible from the retail deposit position where we generated not only high growth but currently we command 192 billion of deposits entering the year with a position of 116 billion of deposits if I round it up to a whole number. We've also had double the market growth on the commercial deposit side although we do not really take deposits from large depositors Corporate Deposits. We've increased the deposit position by 7 billion 65 billion overall. So we consider this performance to be fairly good. On page 21, we take you through development of the lending markets in Czech Republic. The overall lending market which we consider relevant to our trade count figures of Czech National Bank stands at 8.2 trillion crowns. The market expanded 3.8% while the generated growth in excess of 45%. This is most noticeable again from the retail side where retail, as you know, is part of our strategy where we've increased the portfolio to a level in excess of 165 billion crowns. and on commercial side, we have increased the portfolio by about 10 billion to 76.6 billion, which translates into headline growth of 13%. So, throughout the difficulty of the recombination, of acquisition and solid organic growth the bank managed to expand substantially. On the next page, on page 22, let us comment on development of pricing. Unfortunately, the pricing on the asset side continues to deteriorate. You can see that the market is deteriorating both on mortgages and on accused credit. In unsecured credits in the fourth quarter, we reduced our pricing through various promotions and marketing communication and we came in 40 basis points below the market as we have sought to obtain additional volumes in the market. Nonetheless, the situation is complex as I said. In the entire year, the lending activity decreased by 30%, even though we've increased our market share on new volumes from 16% to 20%, comparing 2020 results to 2019. On mortgages, price-wise, we are aligned with the market. On deposits, we show you details subsequently in the presentation. We've had success with repricing and lowering the cost of funds. This is visible from both annual and quarterly numbers and this process will continue throughout the first quarter of 2021 and will be fully visible in Paris. in the second quarter of 2021. So let me stop here before I turn over to Jan. I want to again reiterate 2020 operationally was a very difficult year. The bank fulfilled most of its strategic aspirations except Facing significant difficulties on the unconfused consumer market. Nonetheless, we are firmly in line and exceeding the strategic aspirations that we have set for the bank. And now, Jan will take you through the guidance and our results.

Thank you so much. Good afternoon ladies and gentlemen. As you can see on page 24, in 2020, Moneta successfully delivered against all Guided metrics with outperformance at several places. On operating income by 100 million, accompanied by a tickle-reducing Guided cost of rate, And on net profit, we are at about 200 million more, which is also reflected in higher return on tangible equity. Now if you turn two pages, We can review our 2020 income statement in more detail. Last year, our profit was heavily impacted by three material events. Starting with the positives, it was the acquisition reflected in one-off gain of $1.1 billion and subsequent consolidation of three quarters. On the negatives, COVID-19 pandemic led to elevation of profits by $2.8 billion and subsequent lowering of the interest rate environment, which put more pressure on the net interest margin. Despite the negatives, we delivered 4.5% growth of the net interest income, which supported the operating income growth of 15%. Elevated cost base, as you will see in a minute, was driven by the acquisition, while on the pre-quisition parameters, we kept cost base even at thick growth 2019 level. and nearly 7 times higher cost of rates resulted in the net profit decrease by 35% year-on-year. So altogether, the reported cost-income ratio dropped to 45.7%. However, the ratio will be by nearly 5% higher once we exclude 1% gain from the acquisition. Now, on page 27, on the right-hand side, we provide you with the decomposition of net interest income. The interest income strengthening came predominantly from the loan portfolio expansion by nearly 45% year-on-year. This upside was partially offset by continuing to lose erosion caused by changing product mix and worsened interest rate environment. The chart below shows positive effects of continuing repricing actions of our customer deposit base. This obviously helps to partially compensate for yield erosion in land use. Further details of these actions will be provided in the balance sheet section later. And the third component of the NII composes of the other interest bearing assets and liabilities. In the second half of the year, the interest income from our investment portfolio of government bonds and from excess liquidity was almost fully offset by higher cost of hedging and wholesale funding costs. On the next page, you can see the composition of the next year's commission income. The incomes are rented out by 1.3% and are expensive, including by nearly 30% year-on-year. Main drivers of the elevated fee expense are conditions paid to the tight agents network of building savings bank for distribution deposit products and accounting declassification of summer investment from fees to operating expenses as these concerns predominantly are outlined. The red space through further decomposition of the income side. You can see positive and negative trends there. On the positive, the third party commission income scheme was expanded by 5.6%. In 2020, we doubled the distributed volume of investment funds with the great support of our new specialized sales network and further amplified by the management decision to rely rather on the trailing fee instead of the opening fee. And secondly, the servicing fee income increased by 10.5% year-on-year and we successfully reversed the decreasing trend through consolidation of the very same product generating recurring servicing fees. And on the negative, the transactional activity slowdown of COVID-19 outbreak predominantly on ATMs resulted in the transaction fee income decline by 15.2%. Now, let's have a look on the cost performance. Firstly, the trade position perimeter. On the right hand side, you can see that the cost base of the trade position perimeter was many stable, or more precisely, at many basis points below the last year. This demonstrates continuing strong short discipline of the bank. There are basically too many inflationary pressures underneath, visible on the DNA line and regulatory charges, which is predominantly a contribution to the deposit insurance fund connected with our customer deposit base expansion. These pressures are successfully offset mainly through low marketing expenditure during country lockdowns and savings on rental costs. And if we turn the page, we can continue with the consolidated view. In this instance, if we go from the chart on the left-hand side, it has basically two main drivers. First and foremost, the acquisition, namely a consolidated cost base of acquired entities, together with balance cost of their post-acquisition structural integration with Moneta. The incremental cost base was partially offset by already realized cost synergies. However, the full potential of $300 million will be realized only in 2021. And secondly, higher personal expenses were impacted by two factors. The first was of equity acquisition and the second, accrual for management bonuses, recognizing the cost water. It is important to highlight here that the accrual for 2020 is at 60% of the previous year, aligned with the performance on the bottom line. So this concludes the profit and loss section and now I will hand you over to Jan Novotny who will continue with the balance sheet section.