Moneta Money Bk

Ladies and gentlemen, welcome to the conference call of Monetary Money Bank. At our customer's 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 zero on your telephone for operator assistance. May I now hand you over to Thomas Dooney,

Good afternoon ladies and gentlemen. I welcome you on our quarterly call. I have our senior management team with me and we will present the results. I would like to start this with page 4. where we started the highlights of the quarter. He has generated net profit after tax of 598 million Czech crowns. This is on the basis of operating income of 2.7 billion, operating expenses of 1.5 billion, and cost of risk of 418 million. The bank continues to generate a very strong growth. If you look at page 5, you will see that on year-on-year basis, our deposit base has increased more than 49%. We have had nearly 44% growth in the lending activity. of the bank. Additional to that, we see a slight increase of MPL stocks which currently stands at 2.8%. The bank additionally continues to have robust capital. The overall capital stands at 18.5% ratio and solid liquidity at nearly 184% LCR. Now, if we could turn into our fulfillment of strategic targets on page seven. If you look at page seven, there's a couple of comments here. The proportion of our retail and small business franchise increased to 71.4% measured by structure of our loan book and the overall composition of our balance sheet. Importantly, on the mortgage market, as of end of February, quite close the numbers are not out. We've increased market share to 7.2%. We are keeping steady. We're maintaining the market share in the unsecured retail market. and again I would put emphasis on a very strong growth in both the asset management where we have reached 3.2% in the distribution of investment funds and we are growing fairly robustly in the distribution of insurance products but the growth of growth is in premium is nearly at 17% year-on-year. Additional to that, we are producing robust growth levels in the small business segment with moderate increase of the customer base and the growth on lending is currently supported by the government schemes which provides state guarantees under these exposures and we see significant improvement in deposit-taking activity, namely through current accounts. In the SME target, likewise, we are fairly successful in distributing liquidity to our medium-sized customers. That activity is, again, embellished by our ability to distribute state guaranteed loans and we also have strong growth in the SME deposit rating mainly again through current income. On the following page we show you the financial and sustainability targets In terms of return on tangible equity, the first quarter came in at 9.7%. This is below our expectations for the year and that's mainly driven by incurring the annual cost of regulatory contributions and booking them in full as we do. The profitability of our business line has improved quarter to quarter and this is by lower cost of funds, which is the result of changing mix of the deposits and also targeted repricing, which is positively impacting our performance. On non-performing loans, as I said, the ratio climbed up to 2.8%. Nonetheless, we are maintaining a very prudent position. The overall provisioning of our loan book spend at 2.6% is one of the highest we believe in the Czech market. And NPL coverage ended up at 94.4%. And on client base, we have steady development. We've added about 2,000 customers in the first quarter. On page nine, I will go the growth rates of the individual targets with respect to our segments on retail. You see that not only we have respectable growth in the overall portfolio, nearly 7% with 69.4% where the organic growth actually 20%. We have phenomenal performance on mortgages, nonetheless we face fairly strong difficulties on the consumer loan portfolio, and this is due to intense competition, dropping demand, and significantly higher extraordinary prepayments of those loans. The organic growth came in at nearly 25% and core growth was at 66%. With small business franchise, again, we had very robust numbers. 16% growth in the portfolio of loans. Deposit taking expanded by nearly 32% and redistributed during the quarter. 1.4 billion loans covered by the COVID state guarantees. We are actually outperforming the market. This is mainly due to the acquisition as the SME portfolio on organic basis dropped or declined by 4.6% year on year. Nonetheless, we are maintaining above the market commercial yields of the portfolio. and are generating solid deposits and redistributed, again, 4.1 billion of COVID guarantees. On the digital front, we provide you here with the shares of digital distributions This is developing nicely. I would put emphasis on the mortgage distribution as our refinance digital platform now constitutes close to 14%, 13.7% of our overall mortgage production. And this platform is getting a very good traction. In terms of risk management, the cost of risk on an annualized basis improves both against the fourth quarter and the third quarter came in at 73 basis points and we have slightly improved the overall coverage by three basis points. On capital, we are carrying 3.6 billion on excess capital This is after subtracting the year end, 2021 year end, the MERL requirement of 4.8 billion. The Czech National Bank is requiring us this year to fulfill 50% of the calculated amount. On the cost control, The cost base expanded by 13.9%. This is due to the fact that we suffer higher regulatory changes through increase of the deposit base. And as I said, we booked the entire amount in the first quarter. Additionally, we see pressure on amortization and depreciation We invest on Thursday in this quarter. We also have full remaining cost of the 2020 acquisition which was missing from the third quarter of previous year. On dividend policy, we have submitted application to Czech National Bank to pay out 1.5 billion according to set of rules communicated to us and we expect the answer at the end of September. With respect to this year's profit, 2021, the bank continues to accrue 80% of its earnings into dividend accounts, not recognizing these into the capital of the bank. We have stable operating platform. You can see that on page 11 where in terms of branches, we closed five units in the first quarter, reduced the high-speed space by about 1,500 square meters. We also continue in modernization of our ATM network. You can see that We have continued improvement in the usage of our digital channels, namely on SmartBanka, and the employment level in the bank remains pretty much flat. Quarter on quarter, we have 3,032 FTEs for APNs of March. Now, let me make a couple of comments on the overall operating environment to start the section on page 13. We face challenging environment with possibility of economic recovery in the second half of 2021. As you know, Czech Republic is now contemplating easing COVID-related restrictions and the easing should come hopefully in the next three months. On the GDP outlook, it's too early to say we show you here what are the forecast by state institutions and by set of analysts pooled in the blue bag. We also experienced a very significant drop in industrial production. which is very important to the country and that reflects negatively into the foreign trade and you can see that the state budget is the only positive contributor to the country's GDP currently the country holds the rating is stable with a stable outlook now on the following page we show you Unemployment, vacancies, state budget and economic activity rate. What is interesting is that the unemployment used to be increasing but only marginally and is expected to decrease in actually second and third quarters as seasonal work will will begin. In terms of unemployment versus vacancies the country still has a positive position having more vacancies than job seekers so what needs to be said here is that if you look at the development in the first quarter both the unemployment number marginally increased but the vacancies actually increased quite faster than the unemployment. So the situation is not altogether that terrible. State budget. This is the same as being reported during the last quarter. The deficit estimated for 2020 is $367 billion check down. The issue deficit is expected to come in at a higher number of $500 billion and the government stimulus into the economy remains on a fairly massive, massive basis. I'm basically seeing We show you the slight decrease in inflation. We also portray the forecasted trends, I mean the expectations of higher interest rates. On the interest rates, what is important is that there is strong consensus that the rates will increase. The X will increase during the fourth quarter. This is 5 out of 6 analysts are forecasting that and the 3 out of 6 are forecasting that that will be followed by another hike in the first quarter of 2022. We observed that in the government bond yields and we also observed that in interest rate swaps. Currency relatively stable, recently strengthening overall trend. Now if you allow me to just quickly catch where Moneta stands against the banking market. We continue to outperform strongly in the deposit market and that goes across the retail and commercial segments. If you look at this chart, we grew approximately six times faster than the market last year. overall growth of 47.8%. We have outpaced the retail market development five times and the commercial deposit market two times. So, Moneta strengthens both volume and market position in terms of compared to comparable period of last year. On page 18, we have the same analysis for the lending market. We have substantially outperformed in lending growth and as I previously commented, this is both due to the acquisition and our organic growth. So the market expanded last year on both on basis of 1.5%. close to 44% and the growth is the most pronounced in the retail market where our rate of growth is 10.5 times and we currently carry portfolio 159.4 billion in commercial we have again outgrown the market and as we are focused on the small business and SME, as I said, this is chiefly due to a factor of the acquisition and our ability to continue in the growth of the small business. On page 19, we show you the pricing situation. We are facing, in the unsecured market, going clockwise, lower demand and a very strong competitive pressure. and we have almost changed our pricing policy and it performs actually below the market in order to keep the unsecured loan books stable. In terms of retail deposits, you can see the effect of repricing and we are coming down to The pricing level of the market on the mortgages, we are pretty much aligned with market pricing, which is around 2%, and on the commercial deposits, we are keeping the position steadily throughout the quarters that we show you here. So this is an update on Moneta's performance against the banking market. And now let me make a few comments about digital distribution. If you look at page 21, We continue to have focus on development of the three dimensions of our digital strategy. First is the credit distribution, second, transactional banking, and third, digital distribution of fee-based products. What is important here? that we are seeking to make improvements to Afinanto, which is a digital mortgage platform, and we are also digitizing actually a consolidation of consumer loans. This has already been put to the market test in recent weeks. and you will continue with providing some other elements of digital capability, namely unbridging loans, which are purpose unsecured loans for for reconstruction and upgrade of residential dwellings. On transactional banking, we are seeking to further digitize the service capability of the bank and amongst other of products because the regulator request that we also focus on this service element. and on fee product distribution we are seeking to improve asset management distribution capability where the results of the first quarter if I remember correctly is seven and a half times bigger than what we were able to deliver in the first quarter of 2020 so we have fairly good commercial traction on asset management and more perspective rate that we see here and we would like to be able to offer also like insurance online as competitive terms. On page 22, we show you how our digital platform continues to develop in importance to the bank's production. So if we go clockwise, You can see a refinancer has a fairly geometric growth in terms of new volume, and it now constitutes 13.7% of the bank's overall mortgage production, while 12 months ago it was barely 4%, so it's more than 3%. in its importance. On small business, we have continually, I would say, steady production, and we have focused on this. This is the most covered by COVID guarantee. This is not a big size, so let's rely on people, you know, front line. In terms of number of current accounts, You can see that the production of current accounts in relative terms increases and also the digital distribution is actually double that of first quarter of the previous year. And here you can see also on asset management the growth of digital distribution where in relative terms it now stands at 12%. On the following page, on page 23, we've experienced Chrome growth in mobile payments and provide you with a portrayal of that. What is interesting on this side of things is that the mobile platform SmartBanka continues to grow at 25% rate. from external evaluation we have one of the best platforms in the Czech Republic on internet banking we do have increasing penetration however from number of number of transactions mobile platform SmartBank is growing in importance and will soon probably in few quarters actually overtake the importance of internet banking, mainly for our customers. On the following page, on page 24, we show you evolution of digital payments from perspective of tokenized cards and from perspective of Apple and Google Pay transactions. This is again linked to our smart bank application and you can see that about one third of our debit card portfolio is actually tokenized into the mobile banking platform and we consider this to be one of the highest rates of penetration in the Czech market and you can also see evolution of payments on the two platforms where the Apple platform is performing very very strongly as it attracts probably more mobile or more digitally savvy customers and on the first slide page in this section page 25 we portray evolution of our organic traffic as we seek to continue to improve Continuously our web presence this supports our commercial results becoming more and more important and I welcome you to look at our website as it changed again in a month of April actually when we seem to optimize the structure of our presentation on the web. Thank you very much. We've made $598 million overall, as my colleagues teach. We face fairly difficult and challenging operating environment, mainly on revenue generation, with a slight improvement and hope, a ray of hope, on the cost of risk, and I will Thank you so much.

Good afternoon ladies and gentlemen. I'm now on page 27. Let me give you a bit more detail about our financial performance. Recurrent profit average of Morata improved in the first quarter by 1.3% through lending growth. However, the reported trend was impacted by one-off gain on bond selling in amount of $277 million realized last year. This gain is reported in line income from financial operations. In the first quarter of 2021, as was mentioned, we delivered a considerable net profit of $598 million, which corresponds to 9.7% of our return on tangible equity. Total cost base is up by almost 14%, predominantly attributable to the acquired entities and costs of their integration, and also regulatory charges. And on the cost of risk line, we recorded improvement by nearly 39%, primarily due to higher anticipatory provisioning accounted for in the first quarter last year following the pandemic outbreak. If you look at page 108, you can see a decomposition of net interest income up by 1.5%. It is attributable to the loan book expansion by 45% and deposit repricing. Both trends are documented in the chart on the right-hand side. Strengthening of the interest income from the launch portfolio growth was partially offset by the yield erosion and its changing product mix towards secure, competitive environment and reduced market interest rates. Further detail will be provided by my hosts Andrew and Jan in the balance sheet section. And the drop in the first category, which combines interest income from address, other assets and liabilities, reflects the monetary policy decisions taken by the central bank in the first and second quarter last year. Now if you click the page, you can continue with the breakdown of net QM commission income. The income size increased by 5.9%, driven by asset management, insurance and building selling products. Main drivers of the expense side increase by nearly 29% are commissions paid to the site agent's network of building savings banks for distribution of its products. And on page 30, we can analyze continued growth of the income side in more detail. The third-party commission income stream expanded by 5.2% amid continuing solid results in distribution of insurance and investment funds. In the first quarter, we expanded balance of asset management by 68% year-on-year, which was enabled by specialized sales force and further amplified by our highly competitive proposition with zero opening fees. The 6.4% growth of the pre-income category was greatly supported by the service in fees, up by nearly 30%, enabled by consolidation of building savings products, generating monthly fees. And on the negative side, the transactional activity slowdown due to pandemic-related restrictions continues and is reflected in the transaction fee income erosion by 23%. And on page 31, by the way, this page concludes this section with the overall consolidated cost-based evolution. The increase by nearly 14% is attributable to consolidation of the acquired entities and 207 million of regulatory charges that went up in line with the expansion of our Bk. However, and this is important, the productivity improvement stemming from successful completion of the integration process already becomes visible. If you compare quarterly costs without regularity charges since Q2 last year, you can see the lowest number reported for the first quarter this year, actually $1310 million. Our cost-income ratio for the first quarter is 256.6%, or 48.8% excluding regulatory charges that are always paid in the first quarter for the whole year. In the rest of the year, we will manage this metric down towards 48%, 49% in line with our guidance for this year. So this concludes the P&L section and I will now hand over to my colleague, Piyang Novotny, who will continue with the balance sheet development.

Thank you very much, Jan. Good afternoon, ladies and gentlemen. I would like to walk you, together with my colleague Jan Krugerbe, through the ValueSheets development part of today's presentation. You can see now on the page 33 where you can see that we have achieved over the last year a strong expansion in lending and investment portfolios, fully funded by Call Deposit Group. You can see that we have ended up at the end of Q1 2021 at 317.4 billion check rounds. And you can also see the composition of the book on both sides of the balance sheet and its respective catering for the last four quarters. As mentioned, we have achieved fantastic growth rates both in net customer loans, like more than 44% year-on-year, as well as on core customer deposits, with even higher growth performance, 50%. You can also see that we are expanding our investment securities portfolio by 84%. More details about this category are shown on the next slide, slide 34. Here we can see that we are using our very strong excess liquidity position in our favour through additional purchases of the Czech sovereign bonds as the market is offering favourable yields as shown in more detail on the right side of the page. Now moving to the next slide, slide number 35. The retail and small business lending portfolio now constitutes 72% of overall loan book following our strategic objective of having 75% share. which represents a substantial increase from a year ago. You can see the detailed composition and its development for the last five quarters. We were successful not only in retail segment nominal growth, being used through both organic growth and acquisition, but at the same time, we have also continued in a very successful organic growth of our high yielding small business portfolio and also improved materially our position in SME lending. Now on the next slide, slide number 36, You can see the evolution of the loan portfolio yield, and you can see that the yield is derogating. This is caused by several factors. First, and most important, is our very successful and rapid growth of our retail mortgage book, and you will see more details on the next pages. Second important factor was the decrease of the tribal level in Q1 and Q2 last year, which has directly influenced not only the pricing of the new home production, but also influenced heavily part of the commercial portfolio, which is priced at the lowest bid ice from especially one month prior. 4 Market Pricing Pressure on Unsecured Retail Loan Production

Thank you, Jan. So going to page 37, we present the retail loan portfolio. Growth has been driven by high demand for mortgages, while consumer lending is eroding as a consequence of low demand during the COVID pandemic. The overall growth on the retail loan portfolio was 69.4%, including the impact of last year's acquisition. However, the organic growth remained strong at 21.2%. Obviously, this is substantially driven by mortgages, which were up 124.2% over the year. But I think what's especially promising here is that we were able to accelerate the organic growth, which came in at 51.2% on the back of very strong new business origination. The picture is rather less positive on consumer lending. Although the headline growth was 17.5%, you can see that in the recent quarters, the portfolio has been shrinking. and year-over-year, the organic shrinkage was 8.3%. And this is driven by generally lower demand for unsecured consumer credit in the market right now. And this is also impacting our alpha loans and credit and overdraft portfolios, both of which are shrinking broadly in line with their respective markets. So going on to page 38, we present some additional detail on new business volume development and early termination on the key product portfolios. The mortgage new business origination was up 191.6% year-over-year. This is driven by only two factors. First, we see very strong demand for housing in the country generally, both primary residents in the main cities and also secondary properties outside of the main cities, holiday cottages, et cetera. And the second factor is refinancing. With rates close to historic lows, we've seen huge demand for refinancing in the markets. which plays very well with our strategy where we try to focus on this segment generally and specifically through our refinance or online refinancing proposition. In the first quarter, 53% of our new origination was driven by refinancing where we see lower LTVs and better borrower quality. And put that in perspective, it's roughly double the proportion that we see in the market generally. Of course, being in a market with strong demand for refinancing has its downside in the sense that we also see an increase in early termination on our portfolio as some clients are tempted away from us. The overall early termination in the mortgage portfolio increased 263% in absolute terms year over year. And when we look at the detail here, we see that roughly 60% of the early termination is driven by refinancing. But we're also seeing a large increase in pre-payments from own sources, suggesting the clients are using the low interest rates, the environment, and the lack of anything else to spend money on during the lockdown to pay down debt. Overall, I think the refinancing, the growth in refinancing in the market has really played to our strategy. And if I compare it The outflow from the bank to the inflow that we've taken through refinancing. We've refinanced seven times more volume from the market than we've lost to the market. So overall, this is working for us, even if dealing with the early termination is challenging. So looking at new business volumes for consumer lending, volumes are down 3.5%. year-over-year, as I said, based on generally weak demand for consumer loans in the market. And we've also seen an uptick in the early attrition on the consumer loan portfolio. And again, this is driven by a combination of refinancing and a reasonable amount of repayment from own sources. So going on to page 39, we look at the yields on the Q retail product lines. Yields are stable, with the exception of consumer, which continues to be under significant competitive pressures. The yield on the mortgage portfolio is continuing to decline gradually in line with the trend. I think we've seen some move up in the market in terms of new business pricing, but I would expect the trend, the downward trend, to continue for another couple of quarters as we still have a large pipeline to pull through. But should the rate pipes come through in the latter part of the year, we might start to see some stabilization. On consumer lending, I think we would expect to see some acceleration of the downward trend. As you saw earlier in the presentation, the February new business rate was already at 7.1%, and given the competitive intensity in this market, I don't see any serious improvements on the horizon, so we should expect some acceleration in this downward trend. So going on to page 40, I will hand back to Jan who will take me through the commercial portfolio.

Thank you very much, Andrew. Now, on the page 40, you can see some of the commercial portfolio growth supported by the Guaranteed COVID-19 Program. You can see that we have achieved, especially given the economic situation, a very good result of 9.4% overall year-end growth. The growth was and was influenced by acquisition of smaller commercial portfolios in distant or perimeters consisting of housing cooperatives and building societies. Now, despite the very low level of investment demand on the market, we are still more than successful in maintaining the investment loans portfolio while at the same time focusing on further saving of the allocated equity behind the product line and therefore further improvement of its profitability. In the working capital category, we have increased significantly our position by almost 20% in total limits, mainly thanks to the newly introduced secured working capital loans, collateralized by a variety of state-guaranteed schemes. Again, it has not only helped us to grow, but also helped us to significantly improve our typical allocation position and improve the profitability of the product, similarly to the investment loans. On the bottom of the middle chart, you can see that we also continue to expand the high-yielding small business portfolio with a large portion of the new production, again covered by the state guarantee scheme. Now, let's go to the page 41, where you can see the evolution of the yields for each category, and as you can see, except the impact of the private change in Q2020, namely on the working capital facilities, there are no major changes on the yields. On small business, the intricate state guarantees allow us to reflect some of the benefits to our customers, and allow us to optimize better the price volume equation and achieve the desired growth. On auto loan yield, we are focusing on keeping or slightly improving our position as well. However, we believe that we are on the right pricing spot at the moment. This is all from my side, so thank you very much for your attention, and I will hand over again to Andrew to walk you through the rest of this chapter of today's presentation. Thank you very much.

Thank you. So going to page 42, we look at the funding base of the bank. Deposit price driven by retail segment is substantially increasing the share of retail deposits in the portfolio. The overall growth was 32.2% year-over-year, and you can see the retail share increasing to 69% of the total portfolio. And at the same time, we've significantly reduced the reliance on wholesale funding down to 7% of the overall portfolio. We present the development of the cost of funds, which is declining, driven by deposit re-pricing, which is scheduled to complete in the second quarter of 2021. Overall, the cost of funds has decreased 30 basis points year over year, driven by a series of re-pricing actions that we implemented across both segments. These are all now implemented and notified, but due to some of the contract conditions, the last of it will not roll in until around May this year. So we should see some continued improvement in the cost of funds during the second quarter, and then stabilization, barring any changes in NICs going forward. Going to page 44, we look at the retail deposit portfolio development, where growth in the retail current account balances and the acquisition has driven expansion overall. The portfolio grew 66.2% including the impact of the acquisition but the organic growth was still extremely healthy at 24.8% and as you can see it's driven predominantly by the current accounts which were up 25.7% year over year as we see a tendency amongst our clients to hold onto more cash generally. During Phase 45 we present the Commercial Portfolio which is a similar story to retail where growth is also driven by current account balances. The overall growth is 15.9% and current account balances were up 27.8%. And finally on Phase 46 we present the Wholesale Funding Development. which is characterized by lower intensity of repo operations and stable funding across the other two categories in combination. Overall, wholesale funding rates have decreased 49.5% year over year, reflecting our focus on core customer deposits, which has been achieved at lower cost overall. So that concludes the balance sheet section of the presentation, and I will now hand over to Norman, who will take you through the risk section. All right. Thank you, Andrew. Good afternoon. We are now at page 48 with an overview of quarterly costs of risk. In the first quarter of this year, we reported costs of risk of 418 million cheque rounds, or 73 basis points. This is a significant drop compared to the full year 2020 number, but also an improvement compared to Q4 of last year. The retail segment showed a cost of risk of 67 basis points, where the commercial book produced a cost of risk of 85 basis points. Overall, the impact stemming from COVID-related book-ups accounted for 34 basis points, where the core cost of risk top year-over-year from 53.6 in the first quarter of 2020 to 39.8 in the first quarter of this year. On the following page, 49, here we show the evolution of the loan portfolio for reading balances and overall coverages over the last five quarters. For reading balances for year-over-year by almost 2.6 billion. As for the overall coverage, this grew from 2.2% a year ago to 2.6% at the end of Q1 this year. Moving to page 50, here we show the evolution of MPL in and outflows over the last four quarters. After the end of the State Concentration Moratorium in October last year, we saw an increase of around 2 billion of MPLs in Q4 last year, when the first quarter this year, the net increase of MPLs slowed down to around $1.1 billion, out of which close to $900 million are COVID-related downgrades. The fairly high amount of $1 billion of so-called cures received in the first quarter clearly shows and indicates that many customers made repayments and started to perform again after we had granted concessions by means of restructuring for payment holidays in the previous quarter. Going to page 51, here we have a more granular overview of the NPL stock. As you can see, the bulk of the NPL increase occurred in the retail segment, most notably retail unsecured and stood at $5.1 billion. The commercial NPL stock increased by a comparatively moderate $330 million year-over-year and stood at $1.4 billion. The total NPL stock reached close to $6.6 billion and the corresponding MPL ratio is 2.8%. On the next page, 52, here we have a more detailed breakdown of the COVID-related stock of MPLs. Out of the 6.6 billion, 2.6 billion are COVID-related, and out of the 2.6 billion, close to 800 million are covered by a payment holiday, around 360 million are RQ, and almost 60%, or roughly 1.5 billion, are being repaid, which is actually performing. Should the payment behaviour continue to be satisfactory going forward, then plans for all of this $1.5 billion of receivables are subject to potential upgrades in the future and subsequent release of provisions underneath. Looking at the two segments, the vast majority of COVID-related MTLs is in the retail segment and within retail it is largely retail unsecured. Within the commercial MPLs, it's predominantly small business receivables and to a fairly small extent SMEs. The latter has so far been performing remarkably well. Going to page 53, here we show the development of the payment moratorium since the beginning of the pandemic. The peak of balances under the payment moratorium was reached in the middle of last year and at that time amounted to around 34 billion. Thereafter, these balances have been steadily coming down and stood at approximately $800 million at the end of Q1 this year. The vast majority of payment holidays were granted to retail customers. The corresponding penetration ratio amounted to 0.4% and the commercial segment showed a penetration ratio of 0.2% only. Going through Pitch Here we have an overview of the loan portfolio balances and coverages broken down into stage 1 to 3. Overall, during the last 12 months, almost $7 billion of receivables were downgraded and altogether additional $2.6 billion of provisions were allocated between stage 1 to stage 3. In the course of the first quarter this year, part of Stage 2 receivables migrated either back to Stage 1 or Stage 3, accompanied by a shift of provisions between these two stages. And assuming a similar development going forward, the overall stock of Stage 2 receivables is expected to come down, part of which migrating back to Stage 1 and part of that, obviously, of these losses will crystallize and lead to an increase of Stage 3 balances, and subsequently an increase of the MPR ratio. On the next page, page 55, here we show the evolution of delinquencies 30, 60, and 90 days past due since the beginning of 2018. The 90 days past due delinquency was significantly influenced by fairly big death sales, in particular back in 2018 and 19, as is clearly visible on the chart. The continued further improvement Over the last quarters were influenced by team holidays and to some extent also by a fairly solid core performance and also some test sales which were conducted over the last five quarters. But also the 30 and 60 day class user inclinations showed a positive development. and are currently still below pre-COVID levels and still benefiting from payment holidays, but also supported by a very good payment morale of customers having come out from previous payment moratoriums. So summarizing the risk section, I think the bottom line message is that over the last 12 months, we have still got significant coverage for COVID-related credit risk. The net NPL formation has come down in the first quarter alongside a shift of classification of exposures from stage 2 to stage 1 and 3. Migrations to stage 3 are expected to lead to a higher NPL rate for short-term. Core performance of the credit portfolio so far has shown satisfactory development. In particular, the SMB portfolio has been holding well. and the development, obviously, of the performance of the credit portfolio going forward, which really depends on the overall development of the pandemic and key macroeconomic indicators, most notably the unemployment rate, GDP, and the length and magnitude of state supports to companies and private households. And needless to say, we therefore will continue carefully monitoring the portfolio going forward to really detect trends of the underlying performance. And with that, I hand over back to Thomas.

Excellent.

So if you could please turn to page 57, we continue to show robust capital position. The accounting equity is standard 27.6 billion. If you look at our regulatory capital, we have at our disposal 28.8 billion, and this is a significant increase mainly due to capital issues that were consummated in 2019 and 2020. On the overall capital equity ratio we stand at 8.5 with a very healthy level of CC1 capital at 15.5 and we continue to accomplish Reduction in the RWA in the RWA density. On the following page we show you the calculation of the of the excess capital so at the end of the first quarter we have three capital of 3.6 billion this is after deduction of mail requirement and the The MREL requirement is we have to fulfill this by the end of this year. Obviously, we could elect to issue more securities to cover the MREL at the expense of our financial results and we haven't made final decision on how to how to deal with that. Quarter on quarter, RWAs increased by 1.2%, while the loan portfolio grew at 2.8%. So it shows you also that we are deploying capital into fairly advantageous product lines, namely retail and small business, which have low RWA densities. On page 69, this is a recap of the application that we have submitted to Czech National Bank. We've applied for a distribution of 1.5 billion and this was on the basis of four limits communicated to us by the lowest calculated result is the allowable one to apply for central bank recreations to distribute the funds through here. We show you in the simplified format the calculations. We've applied therefore for the 1.5 billion. However, the limits show fairly divergent results where the most liberal limit would be the leverage. the leverage ratio related limit but we were instructed by the central bank to use the lowest one and we were also cautioned by the receipt letter from them that we should not make any commitment whatsoever on the dividend payment so it is in the process and in both this correspondence and verbal discussions with the regulator they have told us this would be answered to by the end of September so I'm afraid that earlier dates will not be available. Now in the next part on page 61 we recalculate the guidance which we have out in the market Our guidance for 2021 sets our targets at 2.8 billion net profit of the tax or higher, which would be 5.5 per share. If you look at the structure of the targets, I think it is important to say that we do face pressure on the revenues generating capacity of the bank currently we are running a gap of about 50 million in revenue on the top line and we still hope that we can catch up and close the gap nonetheless the situation is difficult and as I said It is a position in terms of demand for financing, mainly on the unsecured lending category side. However, what we also see on the SME side is incredibly intense competition and fluid refinancing position, refinancing situation where our competitors tend to refinance us sometimes at half the yield or if you use the margin at half the margin than we were charging before, so it's very difficult for us to respond to it because we would not be able to make sufficient capital return. On the cost of risk, we came in the first quarter at 73 basis points. at Norman Walsh uses the NPL portfolio in the COVID downgrade we have 125 billion of quarterly service loans which we have downgraded into stage 3 so there is some chance that some of this could come back and we could really need some provisions but I would reckon this would happen in the second Second half of the year, we need to see that these customers have predictable financial positions. And on the effective tax rate, last year we had the benefit of non-taxable nature of the gain that we've made on the list of road acquisition. We do not have this benefit this year, but the effective tax rate is expected at 20% nonetheless. Our target in terms of return on tangible equity is 12% and we hope to be able to accomplish this but the second quarter will be decisive on the revenue line. Our benchmark 2022, he summarized the new market expectations and consensus as we collected for 2021. This is the whole year and on page 63 We do likewise on the quarterly predictions that we receive from the analysts. This is just for your reference for you to see where the bank stands. And on investor relations events, we have a page. the next quarterly call is planned for 29th of July and in between now and then we should be on the virtual conferences organized by Goldman Sachs and HSBC so we will attend these events and hence you will be able to interact with us Thank you very much for your attention and now we open the forum for questions and answers.

0 and 2 to answer your question. If you are using the speaker equipment today please lift your hands up before making your selection. One moment please for the first question. And the first question we've received is from Anna Marshall of Goldman Sachs. Your line is open please go ahead.

Good afternoon. Thank you for the presentation. Two questions for me, please. In terms of strategic matters, so to say, now that you have a new anchor shareholder, I just wanted to understand if there is any kind of progress update and the next steps in terms of the potential air bank acquisition and also if there will be or if they're thinking about any other kind of changes in this strategic approach. My second question is on the consumer segment. When would you expect the demand situation to improve, especially as the current pressures are driven not just by the pandemic, but also competition? And where would you expect the yield to stabilize? And when? Thank you.

Let's start with the second question and then I'll take the first part of it, the anchor shareholder. I would ask Andrew to comment on the demand situation and we can give you some glimpse into what we're experiencing in April. Yeah, it's obviously very difficult to predict when the situation will improve. Obviously, the extended lockdown that we've been in has contributed to the situation because it's really been very difficult for people to do as they spend money on. And I think this has materially impacted consumption and demand. to see some improvement in demand. However, I think the market will remain intensely competitive, which will maintain significant pressure on yields. And as I said before, if you look at neighboring countries, consumers We expect that there's reasonable scope for rates to continue down as long as there's competitive interest in these products. so hopefully as the summer comes and lockdown in the east we'll see a return to some kind of normality and some demand coming back but I I'm not sure that will immediately translate into stabilisation in the race because as I say there's still a huge chance of competition for whatever volume is available in the market Right and we've also made a decision which is fairly 7 material in terms of pricing we used to operate the unsecured retail franchise at an incremental return on equity before fixed cost of the bank in the range of 40 to 45% which is the growth return before accounting for cost taxes and all of that so now We have reduced that quite substantially actually in April as we are really under significant pressure and the pressure It's coming mainly from the competitors who target client refinancing so the market has moved to a lot more consolidation driven business which we were tending to stay away from if we didn't want to take on too much risk but the situation is difficult. I expect that the third quarter and fourth quarter could become marginally better in terms of demand as you will have the traditional back to school and what they're gearing up for the winter season and for the winter holiday in Czech Republic, but I am skeptical. with respect to the remainder of the third quarter because we have not seen evidence of any change. On the first part of the question, on the strategic front, as you've coined it, the anchor shareholder, so far, I do not believe that there will be any change in the strategic direction of the bank as the DPS group is well aware and abreast of the development that we were taking in the last five years being one of the fastest growing banks in the Czech market. With respect to the transaction, we are in the final stages of the discussions and I do not wish to sound cagey, for lack of a better word. But before we finalize it, I really don't have anything to say on that. Neither does the management. We simply have to try to finish it and decide how to proceed. And the moment this will become clear, We will, as always, inform the market properly and be available to answer questions, to have debates. But right now, we are still not at that point.

Thank you.

Thank you. At the moment, there are no further questions. So, as a reminder, to ask a question, you have to press 0 and 1 on your telephonic pad. The next question is from Robert Prosta of TKO Securities. Janica, open, please, go ahead.

Hello, everyone. Thank you for your presentation. Could you repeat what is the range regarding the tax rate that you expect for this year? It was mentioned as 15, 1.5%, if I'm correct. 1.5%.

The effective tax rate, which is published in our guidance, if you open up the document from the website, is 20% last year. What I have said in my presentation is that last year we had suffered a tax rate of 13.6%. That's the effective rate of the land due to the fact that the gain on Western Road is not taxable. So that actually lowers the tax rate that effect lowers the tax rate incurred by the bank in 20 this year we expect 20% effective tax rate unless somebody changes the taxes alright regarding the net interest income especially the other income there is the component of

hedging derivatives, which went from a positive sign a year ago to a negative of around, if I'm not mistaken, 60 or so, over 70 million check crowns. And the question is, is that something to be expected to continue over the coming quarters?

No, the answer is no, because prior to COVID, the bank was effectively selling fixed and buying variable, namely to hedge the mortgage and government bond portfolio. So when the COVID came and the central bank reduced the rate from 225 to 25 basis points, this became negative and I suppose it will not change. When the rates go up, the bank will benefit quite significantly. Even when the rates go up, the bank will benefit.

Okay. And lastly, if I may, you mentioned impact of lockdowns on the Interchange fee and commissioning income stream. I want to ask whether the rising share of mobile payments is it also to account for some perhaps competitive pressure in the fee income from transactions? Was it also behind the decrease in this fee income line?

No, not really.

We just completed, before this call, Business Review Committee, and if you look at our ATL fee income, the significant portion of the change in the fee income is related to our ATM network. As you know, we are running 500 to 60 ATMs, and that's it. We have lost about $15 million of the income coming from the ATM network, and this is a combination of lack of tourism in the Czech Republic, so borrowers will come back. and part of it is related to lower intensity of withdrawal, less transactions, and people tend to take now more money out of the ATM, which is projecting itself into how many keys you collect. If you look at our interchange income, our interchange income grows at 10% year-on-year basis. However, the growth is not able to offset the losses that we have on the ATM. And we have moderate, with the impact of the mobile payment, I would say, fairly moderate into the fee structure.

Thank you very much. That's all from my side.

Thank you. There are no further questions. To ask a question, please press 0 and 1. The next question is from Thomas Unger of Earth Group. The line is now open. Please go ahead.

Hi. Thank you very much. I was just interested in your expectations for the NPL ratio and the Stage 3 volumes in the coming quarter. You mentioned that in the short term you would expect the NCL ratio to go up. How far do you anticipate the increase to go? And then also looking at the coverage ratio of stages two and three, they were slightly lower now in the past quarter in Q1 than they were in the previous quarter. Do you anticipate the coverage ratios for those two stages to go up again? Thank you very much.

Okay, the first question on the MPL ratio. Now we have a long-term guidance to say what the MPL ratio should stay below 5%. It's currently 2.8% as I indicated during my part of the presentation. I expect it to grow. I think it will grow certainly above 3%. Everything depends now on the next couple of months when the Titanic will expire, so to say. and having more customers will ask for support via restructuring of payment holidays because this will obviously trigger additional inflows into NPL since the bank has adopted an approach that every new restructuring of payment holidays automatically triggers a downgrade into Stage 3. This is to the first question. As far as the coverage is concerned, it is the same. As we move into the second quarter and into the third quarter, we will see a natural migration between stage one and stage two. So many customers who have been reclassified because of portfolio monitoring, for instance, to give you an example, where we see an improvement where customers, in effect, in the shop will move back to stage one and will, by definition, reduce the coverage within stage two, number one. And number two, it also depends on the product underneath. If you have a mortgage loan which by definition has lower coverage because you have the collateral and you see significant migration back to stage 1 and stage 2, this will influence the underlying coverage. So we will not change the underlying policy of coverages. We have dedicated coverages per product, and the coverage itself is a function also of the models and the macro input. We have not changed the macro input since the middle of last year, so we are very much on track with what happened in the real economy versus what was predicted. So this will not trigger any further changes in the overall coverage setup as a result of the macroeconomic model. If I may ask, it all depends what happens with the 125 billion of performing loans that we carry, loans that are being repaid, that we have downgraded right here into Stage 3. If they keep paying, we have decent chance to keep the NPR ratio below 4%. If, however, We face difficulty on that. We could go up to five. So it's very difficult to predict this, how it will behave. And your second part of the question, we are set on maintaining a conservative cover. If you look at Norman's KPIs, which was published incidentally yesterday for 2021. From Norman's KPIs, you can get the answer actually. So we are keeping the cover, we will keep the cover over 90 because we want the bank to be safe. and this is effectively the policy that we have been following for a very long time and in the coverage of the stage 3 we have the effect that we have recent downgrades so these loans are not due hence we carry lower coverage so if the loans deteriorate we will increase the coverage if not we will upgrade them very difficult to predict how this will behave, as it is dependent on exogenous factors, and this is mainly to what degree Czech Republic will improve, and to what degree the course of advice in Czech Republic is supported by the state, and it seems that this is solid for the rest of the year. So, we just have to wait and see.

Thank you very much.

Excellent. So, ladies and gentlemen, we thank you for excellent questions. As I said, on the corporate event, if we have one, we will inform the market very timely and precisely as to what is the final outcome of that negotiation. In conclusion, we also had I hope you enjoyed the meeting yesterday. All items that were on the agenda proposed by the management were approved and they are looking forward to next investor interaction and we wish you excellent rest of the day and thank you for participation. Goodbye.

Thank you for your attendance. This call has been concluded. You may disconnect.