Moneta Money Bk

Dear 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 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 start key followed by the zero on the telephone from operator assistance. Now, please let me hand over to Moneta team. Please go ahead.

Good afternoon, this is Tomáš Kuník speaking. I will begin today's presentation. Subsequently, we will have Jan Kriček, our CFO, and Karl Norman Fecht, our If you go to the presentation we were referred throughout the conference call to presentation that we published this morning. This is first half 2021 results by Moneta Money Bank and I would ask you to turn to page 4. We report our results today and I would like to comment a little bit on the key trends and shape of things. that are influencing our results. First and foremost, if you look at the reported net profit and outlook for such, we report net profit of 1.4 billion grams. This is 19% better than what we had in comparable period last year. At the same time, we've elected to adjust our outlook for 2021 in terms of net profit. We are now aiming to 4G billion and this is cheaply on the strength of performance that we are observing with respect to our asset quality and related cost of risk where we downgrade the expected or we upgrade the expected cost of risk by 20 to 30 basis points subject to performance that we've observed in the first six months of this year. and in conjunction of this, the cost of rates is also mirrored through stable non-performing loan portfolio which now stands at 2.5%. In the second category, capital, RWAs and excess capital, we currently command 30.4 billion crowns of regulatory capital which translates into more than 19% overall capital equity level. This includes 8.7 billion of excess capital against our capital targets of 14.4% and translates into excess capital of 17,000 per share. So we are well poised to support additional organic growth. We are well poised to finance and distribute dividend for both the previous period and consequently in April of next year subject to regulatory approval and acquiescence of such. On net interest margin and cost of funding, albeit the first half of this year was difficult, we are actually pleased to have accomplished stability in the net interest income. The net interest income in the relative terms The margin stands at 2.7% and we have more than half the cost of funding through tactical repricing and through optimization of the structural funding of the bank, namely through reduction of wholesale deposits in the bank. So if we turn the page, the shape of the results synthesized on page 5 is that we have operating income of $5.4 billion. This is about $200 million below our expectations for the mid-year. Nonetheless, if we adjust for one of items generated last year, the recurrent revenue flow is 4% higher and this we consider to be a fairly good performance all things considered. On operating expenses, we've incurred cost base of 2.9 billion. This is according to our expectations. However, we also do have some inflationary pressures outside of the regulatory charges. Regulatory charges, we cannot avoid, but we observe pressure on administrative expenses, namely through inflation inflation pegging of some cost categories. So we've taken measures in order to ensure meeting the $5.5 billion target and we are reasonably confident that we will actually hit the target of $5.5 billion at year end. On dream payment profit, $2.5 billion, again, if adjusted for one of our items, which is gain from acquisition, and sale of government bonds, we had stability in the pre-impermanent profit. The pre-impermanent profit actually grew by 1.6% if adjusted for the 1.05%. On cost of rates, significantly better than expected performance, and this is due to stability of NPLs, this is due to other performance metrics that Norman will cover in his part of the presentation, so we have to hope, trust, pray that this continues till the end of the year. All in all, exactly at 50% of the guidance, the net profit, 1.4 billion, and updated outlook to 3 billion, chiefly due to cost of risk, performance better than expected. On page 6, let me comment a few developments of balance sheets. We had a positive growth of 3.9%. This was very much impacted by two elements. We had 58% growth in our asset management, so we successfully turned 9 billion of our core deposits into asset management balances, and this is a positive. Secondly, we have reduced wholesale funding of the bank by 5 billion pounds, leading, again, contributing towards overall lower cost of funding. On lending growth, we continue in solid momentum. The momentum comes from 14% growth in retail, and secondly, the momentum is supported by 20% growth in small business from the most profitable lending categories that we have in the bank. On non-performing loans, you will see in the red section that the formation of MPLs is subdued and that we are continuing to manage provisions aligned with model outputs of our provisioning mechanisms in the bank. Strong capital position at 19.2% and strong liquidity position at 156.8%. However, I would comment here that we are beginning to observe the need for additional deposit gathering as the bank has strong demand for mortgages and our loan to deposit ratio has reached 90%. So we are managing the balance sheet Very efficiently, however, we will soon need funding within 12 to 18 months period. Now, let me comment on our strategic objectives when we start on page A. Here we have several positives. The first positive is that we continue to gain ground. on mortgage franchise development both through the brick and mortar and digital distribution as you will see later. We also are continuing to focus the bank on retail. We are currently with retail and small business at nearly 72%. Additionally, we are growing both the deposit and asset management franchise And very importantly, we are continuing to have strong momentum in bank insurance development, namely distribution of life insurance. This is contributing to our key, and when Jan comments the financial performance, you will see it from the Peace Commission overview. We have unsatisfactory performance on the consumer unsecured LBase. We've increased production quite significantly. We face very strong competitive pressure. And additionally, we face the effort of Czech households to deleverage So early pre-payments and terminations are impacting both mortgage book and unsecured book, but it's the most visible on the unsecured book. We have relatively good performance in new client acquisition on small business and the SME lending balance has decreased somewhat. This is due to several significant repayments that we've experienced at the year end and again even though We've increased the production of loans quite substantially against 2020. We suffer lower volumes. Now, if you please turn to page nine, here we have sustainability and profitability targets. What is important in terms of incremental ROEs, this is income minus variable expenditures, we see improved performance in retail, small business and SME lending likewise. Later in the presentation you will see that what we've accomplished is stability in margins in SME and small business. However, the retail book is continually under margin pressure. We have stable customer base with some and growth of 10,000 customers in the period. So, this is also slightly below our expectations and we assign that on the account of the pandemic. On page 10, we provide more granular view of the key performance targets and accomplishments across the three segments and the digital. If you look at the retail franchise, overall growth of 14% driven by strong mortgage production and balance growth, also supported by strong recovery in retail unsecured lending and strong recovery in automobile finance. However, only in the month of June, we managed to stabilize of those portfolios. So we look into the second half of the year with a bit more confidence, hoping that the stabilization efforts will fail and continue and that we will return back to growth. in those categories. On the liability side, what I would highlight is a super strong growth in current account balances in retail. This is at a level of more than 26% and we threw the asset management franchise by nearly 60% conscientiously seeking to convert some of the deposits into our fund offering. On small business, we continue to post growth at 20%. This is on the account of strong distribution capability of state guaranteed loans. So we both expand the book and we effectively reduce the risk by efficiently using the COVID pandemic related guarantees issued on behalf of small businesses and SMEs. On the liability side of small business, this is a franchise of 100,000 customers. We've been able to garner growth of nearly 36% of current account balances, so substantially increasing the volume of money we held in the bank and contributing to stability of the net interest margin through low cost of funding that this product category holds. On SME, I commented the contraction of the portfolio. What is important is that on the SME portfolio, we've been able to distribute 4.4 billion of loans which are covered by state guarantees, effectively improving collateralization of this book to 55% overall. This is satisfactory. And on the liability side, likewise in retail and small business, we've been able to deliver high team growth in current accounts and deposits overall. So this part of the franchise is also developing quite strongly. On digital distribution, I would highlight here that we have significant success with Refinanzo. digital platform which now accounts structurally for more than 15% of our production and contributes to the loan book $7 billion of volume. This is a low-cost distribution platform where we refinance mortgages from competitors and we've been able to revive both the small business lending and consumer lending and we also have solid, stable and improving production on the liability products where the key category that we would like to enhance is asset management together with building savings or in German so called Bauspar category where we started the digital distribution last year in December after six months after acquisition of this platform. On page 11 The other four elements of our strategy, I have covered the key shape of sustainable risk management. What is important here is that we continue to hold one of the best coverages of the portfolio overall amongst the Czech banks. We have a strong capital position, but here We have also reduced the density of capital usage through RWA. This is on the account of successful expansion of both the mortgage portfolio and also successful usage of the government programs enabling us to guarantee parts of the small business and SME portfolios. This contributes to the lower density of RWA. With respect to cost control, this is developing exactly to our expectations, and we have, as I said, taken some measures to reduce certain cost categories in order to ensure delivery of the cost target. And on ESG strategy, we have joined the United Nations Global Compact, so this is important to some of our investors, so we heed that advice. Secondly, we are tremendously proud by presenting a CO2 emission reduction since 2016. This reduction has been actually validated by external parties under ISO. So hopefully this will lead to better rating of the banks on this front, and we are making strides seeking to deepen inclusion and gender diversity. On page 12, the shape of our operating platform. So if you look at this, the platform remains relatively unchanged, but what is visible here is the second line from the top on the side agent network. We have significantly reduced the offices. We are trying to focus the production into our branch network. So this leads to some additional cost savings in the realm of synergies that we've that we've unlocked from that acquisition on ATM. In the first and second quarters, we continued investment, mainly to improve customer experience through deposit ATM capability and also removing some security risks that our network had. On client stable development, on digital channels both, SmartBank and Internet Bank have 100,000 more users year on year. This is in line with our expectations and we consider it a good performance. And unemployment, we actually have 40 FTEs less this time and we are seeking to reduce the number further, probably to a level of 2,900 within a year in order to improve productivity and maintain cost discipline. Now if you allow me commentary on the operating space on the Czech economy and such on page 14, we covered GDP, industrial production and foreign trade. You can see that the numbers are continuing to be negative except for industrial production which is probably one of the most important for our country, one of the most important Indicators and the trend is improving. The trend is supported, the improvement is supported by continued government support into the first half of this year. and the rating of the country is so far stable even though in order to keep the economy in a sustainable or solid shape the government has taken on significant debt in the last 12 months. This takes us to page 15 where you can observe that the unemployment remains subdued at 3.4%. This is in line with and the structural gap between those who seek jobs and vacancies is still tilted towards vacancies, so it's very difficult to find labor in Czech Republic and the shortage of labor leads to wage inflation. This year, The deficit of the budget, the structural deficit, will increase quite significantly. It is estimated at 500 billion, and it is very likely to overrun this number, and the government is structurally taking on more debt. Czech Republic is the second country within the EU, 27th with the highest growth in public debt after Malta, I believe. On page 16 we have inflation and interest rate commentary. On inflation in June, June the inflation was at 2.8% based on the inflationary pressure, the monetary policy change, the Czech National Bank increased the 2.8% from 25 to 50 basis points and this is reflected also in the price board benchmark that you see on the right hand side of this picture and it reflects itself into the 10-year government bonds and currently Czech Republic has judging by interest rate swap market inverted yield curve so this is the shape of things for the imminent future the market if you judge it by the banks which are portrayed here The market expects, everyone expects that the second base hike is imminent, that it should happen in the third quarter, and we expect internally in Moneta that it will happen in the month of August. And we have checked down, appreciating back to a level of the pre-pandemic level, so there is relative stability in that. From our perspective so far, the recovery is happening and it is relatively strong. We see it internally in the bank from the intermediation. I will skip today the banking market growth because we have a lot of content and this presentation is fairly self-explanatory, so if you will have questions on that. We will answer that question. Allow me to go to digital distribution on page number 21. Here we portray for you what we have done in the first half and what we are planning to accomplish in the second half of 2021. The first priority is to strengthen credit distribution. This is both retail and small business. improves the transactional banking competitiveness of the bank and also enhance key product distribution. For those investors or analysts who want to understand in detail what are our immediate targets, please look at the digital distribution strategy which is published on our website.

Moving on to page 22, briefly,