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,

the development of commercial traction on our digital platform. If we go clockwise from refinancel, refinancel now contributes actually more than 15% to our mortgage production and in the approximately 15 months of operation, we have generated volume over 7 billion. So we consider this platform to be actually the most successful endeavor today on digital distribution of credit products, not only for Moneta but also in the Czech Republic overall. In terms of asset management, the asset management now structurally reaches 12% going through the digital distribution. This is mainly centered around our mobile platform where you can purchase funds. Again, available funds on your current account. Speaking of current accounts, we have good performance on digital sales of current accounts. This is actually 16, 17% of our sales. We would like to further improve it. And recent introduction of bank identity should enable this more seamlessly as the process will be simplified and we plan to introduce onboarding to bank digital identity by end of the third quarter and for business lending we have seen revival in the first quarter continuing somewhat into the second second quarter so here we consider the performance satisfactory. On page 23, you can see the overview of growth of users, registered users for both mobile and internet banking platforms. What is key here is that in four years, four and a half years of introducing SmartBanka, in the second quarter we reached 5.8 million transactions on SmartBanka. as opposed to 6.8 million on internet bank. So very soon we will surpass the density of usage on the mobile platform and as you know we've received for several years either number one or number two awards for having the best mobile banking platform in the country. On page 24, payment traffic through digital channels. On top of the page you can see that we've accomplished now 360,000 in excess of 360,000 tokenized cards and we have strong growth, almost 90% growth year-on-year in number of payments. We want to further improve tokenization and currently the bank is undergoing space from what the card to be done so this is from a short term next six months point of view with big complicated on page 25 how are we doing on our web platform this is presentation of the bank on of the web what is critical here is if you look at the dark blue chart you can see that the organic unpaid traffic has increased quite substantially against 2020 but several fold against 2018 and 2017 so we are gradually seeking to optimize the web presence in order to be very attractive for those customers who wish to seek information about Moneta, about its products or Thank you so much. Good afternoon ladies and gentlemen. I am now on page 27 and let me give you a bit more detail about our financial performance.

Net profit increase by 19% is driven by lower cost of risk and diligent cost discipline. This corresponds to 11.2% return on tangible equity. Recorded operating income decreased by 18.3%, which is a function of two non-recurring items with total gain of $1.4 billion realized last year. Adjusting for that, operating income improved by 4%, mainly supported by higher CM commission income Increased FX Transactional Activity and Prevaluation of Hedging Portfolio. Total Gold Base for the first half of the year is up by 6.3%, which is mainly attributable to higher depreciation and amortization, regulatory charges, and administrative expenses. And lastly, the report's cost of risk reduction by more than 70% year-on-year, primarily due to higher pandemic-related provisioning last year, and strong credit risk performance of the loan portfolio this year. This page shows stable development of recurring profitability year-on-year, achieved through improvements in operating income and focused cost management. If you follow the chart on the left hand side, you can see last year reported pre-impermanent profit of $3.9 billion adjusted down from non-recurring items to $2.5 billion. Operating Income on Exhausted Basis increased by $208 million and more than Offset Cost Base increase of $168 million. As a result, Pre-Impairment Profit on Recurring Basis is $40 million above last year. On page 29, we provide you with a decomposition of Net Interest Income. Declined by 1.3% year-on-year is mainly driven by persisting pressure on consumer lending market, accelerated recognition of distribution costs amid increased long portfolio prepayment and worsened interest rate environment. These factors contributed to 7.1% decline of lending interest income visible in the upper chart on the right-hand side. We managed to offset the interest income erosion through repricing of the customer deposit base. On year-on-year basis, we achieved reduction of the interest expense by half. Decline of the interest income from other assets and liabilities is fully attributable to lower income from the hedging position of interest rate slots, partially offset by higher income from the investment portfolio of government bonds. As Tomáš already mentioned, at the end of the second quarter, Czech National Bank increased 2-week repo rate by 25 basis points, which happened one quarter sooner than we expected in our business class. This will give us an upside to NIR by about 30 million this year. With respect to expectations of further hikes, we added a staple showing sensitivity of our balance sheet on 2 week record increase by 25 basis points. You can see that full year upside to NII, we estimate about 130 million CZK. On the next page, we continue with the development of Net CM Commission Income. The income side increased by 17.6% arising from successful distribution of third-party products supported by growth in all other pre-income categories. And on the expense side, we report a 19.8% increase primarily due to a high transactional activity in the second quarter amid relaxation of pandemic restrictions. Now, page 31. provides further detail about the pay income dynamics. Our strategy focused on asset management and insurance product distribution recorded commission income growth by almost 25%. This was accompanied by strong increase in early termination and transaction fees, reporting 13.9% growth which is visible in the bottom chart. Now we move to Phase 32, where we report in detail our performance in asset management. You can see 57% increase of commission income year-on-year, which was delivered on the basis of a proportionate growth of the asset management balance. These excellent growth rates were delivered through our continuous focus, proposition with no opening fee, and also specialized sales force deployed in the first half of last year. Now if you click the page, you can continue with assessment of our cost performance. Reported OPEX in Q2 is 1.3% below the second quarter last year. This was mainly achieved through post-integration cost synergies that absorbed the highest depreciation and amortization and administrative costs, mostly on marketing. Summary of the integration process I show you on the following page. And finally, our cost to income ratio in the second quarter stood at 49.3%, where for the full year we expect cost to income ratio of 6.51%, predominantly due to persisting pressure on the income side. And on page 34, as promised, provides update on cost synergies and evaluation against our trade position targets. In Q2, we successfully accomplished integration of Western Lot, 6 months ahead of plan. Just to remind you, in Q1 last year, we communicated cost synergies target of 300 million to be achieved in 2022. However, current run rate indicates that we should outperform the original target by 25% and on top of that, already this year. Estimated cost synergies of 375 million represents 51% reduction of DSMI report base, while our original target was set at 40%. And at the same time, we kept the integration cost within the budget of 400 million. So this concludes the Profit and Loss section, and I will now hand over to Tomáš, who will continue with the balance sheet development. If you look at the balance sheet development currently, we stand at $316.4 billion.

This shows gross loan book growth of 10%, 3.9% growth on the deposit side, and off balance sheet we have the 59% growth in asset management. So our loan book nominally stood at $239 billion. at middle of the year. Now, if you look at the asset side categories on page 37, we've increased the sovereign bond portfolio to $51 billion. We show you evolution of the yield against the two-week report rate and also the durations of the bonds, the full impact of increasing the bond portfolio will translate itself into the revenue stream in the second half of this year and it will positively impact our ability next year as the target for 2022 is 11.6 billion of operating revenue. On page 38 you can see The load book evolution from a structural point of view where going right to left. Retail now constitutes 68%. A year ago it was 65%. Small business constitutes 4% weight. It was 3% a year ago. And we decreased reliance on SME to 28% from 31%. So we are trying to balance the book towards retail and trying to focus on the key areas of development, which is mortgage banking, small business banking, and consumer unsecured lending. Therefore, in the first half of the year, we were successful in two out of the three categories. you see development of the loan book yield. The loan book now generates 3.8%. This is a significant 60 basis points decrease year on year. In retail, it's even more pronounced. The decrease is 80 basis points, and the majority of that is attributable to change of structure of the loan book. going more towards mortgages from unsecured lending and I would say on the commercial side of things you see a remarkable resilience of the yield of the commercial book and this is due to the fact that we are increasing the small business weight of the book and we are also seeking to maintain to maintain the profitability targets and capital returns on the commercial book. On page 14, we have decomposition of the retail book which stands at $163.4 billion. $111 billion is constituted through mortgages. This is 27% growth year on year. You can see contraction of the consumer loan portfolio to $47.3 billion. The portfolio contracted by 6%. And I would say two-thirds of the contraction are related to prepayment, early prepayment. One-third is related to downgrade into Stage 3, which you can observe from looking at the chart. is part of the presentation so downgrading part of the book contributed to the contraction of the performing receivables that we present here in this section on automobile lending 2.2 billion again contraction of 4% but very strong growth in the second quarter we observed more than 100% growth or nearly 100% growth in volumes So we believe that we will turn this situation around. And on the revolving product, 2.4 billion balance, and this is a long-term issue of Czech banking market that the retail revolving products are suffering lower balances. On page 41, just to comment on production and repayments. Now if you look at from left to right, on top we have the mortgage volume. And you can see that in the first half of the year, we were doing more than $12 billion of production each quarter, significant growth year on year. However, what is happening at the same time, we see significant increase of early repayments. This is two-and-a-half-time increase, and this actually pulls down both the balance and put pressure on the net interest income. Every amortized acquisition costs over eight years, nine years. If the loan is repaid, we have to take the full amortization at that moment. So this pushes against our net interest income on both the retail unsecured and on mortgages. On retail unsecured, the early prepayment rose 175% and therefore the 140% increase in production was not able to accomplish growth in the nominal balances, the performing balances. Nonetheless, as we have put out this morning, we have stabilized the balance of the portfolio in June and we hope, we actually pray, that this trend will continue. On page 42, you can see that under the low interest rate environment, the mortgage yield declined quite substantially by 40 basis points. We also see decline by 50 basis points on the consumer loan yield and similar development It takes those developments are taking place across the key product category. So the low interest rate environment really puts a huge pressure on the banks as it was accompanied by lower interest, lower demand for products except for mortgages where the volumes have increased quite substantially. Moving on to commercial, on page 43, you can see that our commercial bulk is nearly $76 billion. We have very strong performance on small business. This is the 20% growth stability in the investment loan book. And we've increased or have underwritten Strong growth in working capital limits. However, the limits remain fairly unchanged year on year. So this contributes to the flat, slightly decreasing performance in the overall commercial, in the overall commercial performing balance. We dissect for you the portfolio yield into the major categories and you can see that out of the four categories, two are fairly stable and two are decreasing. On the working capital, the yield erosion is pretty much driven by the interest rate decline year on year. similar trend is in the small business where on average this fundraising yields 60 basis points less than a year ago. However, here it is very much impacted by the volume of state guarantees. The loans with state guarantees carry lower interest rates and their weight changes the overall yield profile of the portfolio. I go to the liability side of the balance sheet. On page 45, the deposit position, the structural core deposit position of the bank is $276.7 billion mid of the year with $200 billion or $199 billion in detail and $67 billion in commercial. And you can see that we have substantially reduced the wholesale funding. The wholesale funding is at 10.5 billion. A year ago, it was at 15 billion. So this was one part of the effort to push down the cost of funding, seeking to protect and maintain stability in the net interest margin. On page 46, you can see a 2.3 that shows you the repricing effect on the core deposits placed into retail and commercial and you can see that the impact of the repricing effort as well as the impact of reducing the wholesale funding of the bank, reducing the cost of wholesale funding and all in all this translates into second quarter second quarter cost of funding at $37 which we consider significant success in the first semester of this year and also year-on-year. On page 47, you can see the evolution of the retail funding. What is very important is that structurally the current account balance has significantly higher weight in the total deposits as opposed to a year ago and we consider this again a good development as it contributes to profitability and low cost of funding as such. On page 48, same view of the commercial deposits where the vast majority of this funding sits in current accounts and develops positively at the rate of growth in excess of 20%, so this is also, in our view, a solid, strong performance in cultivating these relationships. And finally, wholesale funding. You can see that we have reduced both the issued bonds to repayments and maturity. And secondly, by $2 billion, more than $2 billion, we've reduced relying on large-term deposits provided by institutional investors, instead relying more on retail and small business deposits. So this is the balance sheet. 49% growth on the loan book overall. Thank you so much. Good afternoon. We are now on page 51 with an overview of cost of risk for the last six quarters.

In the first half of this year, we recorded cost of risk of around $750 million or 65 basis points. This is a significant drop compared to the first half year number in 2020 and also shows an improvement between Q1 and Q2 this year. The retail segment produced a cost of risk of $423 million in the second quarter, which includes an increase of coverages for COVID-related exposures since day three. and the commercial books deliver the net relief of provisions due to improved macro parameters within the models, largely in stage 1 and 2. Moreover, we did not really record any major defaults in the commercial sectors. In addition, in the first half of this year, we have conducted sales of non-performing loans with a positive pre-tax P&L impact of around $116 million, which supported the positive cost of risk results. Moving to page 52, here we show the evolution of the loan portfolio, loan loss provisions and overall coverage over the last five quarters. Provisioning balances grew year-over-year from 5.2 to 6.2 billion. And as for the overall coverage, this grew from 2.4% a year ago to 2.5% at the end of June this year. On the next page, 53, Here we show the evolution of non-performing loans in and out flows over the last five quarters. The second quarter of this year was characterized by a significant slowdown of COVID-related downgrades of receivables, overall improving delinquencies and lower degree of NPL inflows as well as debt sales. As a consequence, the NPL stock topped by more than $300 million between the first quarter and the second quarter this year. Going to page 54, here we have a more granular view of the entire MPL stock. As you can see, the bulk of the MPL increase occurred in the retail segment, which grew by 93% year-over-year, whereas the commercial stock increased by a comparatively moderate 25% in the same period. Due to the slowdown inflow of new MPLs, as well as the debt sales which we conducted in the second quarter, The MPL ratio dropped from 2.8% in March to 2.5% at the end of June. On the next page, page 55, we have a more detailed breakdown of the COVID-related stock of MPLs. So what you can see on the right-hand side, out of the 6.3 billion MPL stock, 2.7 billion are COVID-related. And out of the 2.7 billion, around 500 million are covered by attainment holiday. around $350 million a past due, and almost 70% or roughly $1.9 billion are being repaid, which de facto means are performing. Therefore, should the payment behavior continue to be satisfactory going forward, then in part or all of this $1.9 million of receivables are subject to potential uptrades in the future and subsequent releases of provisions underneath. On the next page, page 56, Here we show the development of the payment moratorium since the beginning of the pandemic. The peak of balances under the moratorium was reached in June last year and amounted to around $34 billion. Thereafter, these balances have been steadily coming down and stood at approximately half a billion only at the end of June this year. While at the peak of the payment holidays, the penetration ratio was around 15%, at the end of June, Only 0.3% of retail and 0.1% of commercial exposures were affected by payment holidays. Going to the next page, page 57, here we have an overview of local soil balances and coverages broken down into stage 1, 2, 3. While at the beginning of the pandemic we saw a significant increase in stage 2 receivables, The last three quarters showed migrations from Stage 2 to Stage 1 or 3, either due to losses crystallizing, reclassification, or improving PGEs. And for Stage 3, here in the second quarter, we have seen a drop of balances due to death sales. Overall, the coverage increased throughout the last three quarters as coverage levels of COVID-related MPLs increased and has been largely aligned to standard NPL coverage in the relevant segments and product categories. And finally, on page 58 here, we show the evolution of the latency, both 30, 60, and 90 days past June in 2018. Overall, and across the latency buckets, we have seen observing improvements. These were driven by payment holidays granted, obviously, to our customers, along with test sales and product call performance. In particular, the better-than-expected payment behavior of COVID-affected receivables contributed to this positive development. So summarizing the risk section, the bottom line message is that over the last three months, the risk performance was clearly positively affected by lower NPR inflows, improved core performance, and debt sales. Needless to say, It remains to be seen as to whether, despite progressing vaccination rates, a fourth wave of the pandemic can be avoided, avoided in late summer or early fall. Also, government support might not be available for the full remainder of the year, which in turn could create a challenge for businesses and private households. So it's still too early to predict how final expected credit losses from the pandemic will evolve over the next quarters. Notwithstanding the year foregoing, Cost of risk is expected to come in better than previously guided and currently is believed to reach a level in the range of 60 to 70 basis points in 2021 as opposed to the 80 to 100 basis points we disclosed during the Q1 planning 3D. And with that, I hand over to Mr. Patrick.

Thank you, Morgan. I will make 60. Residency as Moneta continues to record strong capital position with capital ratio at 19.2%, which is nearly 6% above our regulatory requirement of 13.4%. Our accounting equities stood at 28.5 billion, which is 4 billion above 2019, driven by accumulated retained earnings. Our regulatory capital, provided on the right hand side, reached $38.4 billion and recorded 34% increase since the end of 2019. The increase was further supported on top of retained earnings by issuance of subordinated debt and lower deduction for value of software. The strengthening of the capital adequacy ratio by 1.2% since 2019 was also enabled by a reduction blending RWA density by 10% amid mortgage portfolio growth and diligent collateral management. On the next page, you can see that the excess capital measured over the capital management target, including 100 basis points, grew by 10.2% in the first half of the year and reached $8.7 billion. Enough time was sourced by generated net profits partially consumed by lending loans. Charts in the bottom part document our diligent capital management where our position in risk-weighted assets grew by 3% against performing long book growth of 5.9%. Of course, this ongoing trend is heavily supported by an increasing share of mortgage lending with favorable rise rate. So this was capital management section and I will now hand over to Tomas for the full year outlook and final remarks. Thank you very much.

So we are now on page 63. We provide you an overview of the original guidance for the year 2021 and again our current outlook. So operating income we would like to reach at minimum 10.8 billion. This is Potentially $400 million less than originally anticipated due to the challenges that we've outlined throughout the presentation. On cost-based, we keep this flat. And on pre-impermanent profit, this translates into $5.3 billion on cost of rates. We've elected to revise the outlook to 60 to 70 basis points range subject to qualifications that Norman has made. There is still a lot of uncertainty out there. And last year, when we put out the guidance in October 2020, we had absolutely no clue that we would go through two additional quarters of lockdown which was the fourth quarter and first quarter of this year here in the Czech Republic. So we need to remain cautious and alert to the risks which are lurking. Nonetheless, we do believe that we will deliver at minimum 3 billion crowns profit this year which translates to an estimated earnings per share of 5.9 crowns or better per share and return on tangible equity of 12% or potentially higher. Now, how does this translate into our position for 2022? So far we have done an analysis where we believe that we can still in 2020 to generate operating income at the level of 11.6 billion. We do believe that this is contingent on the additional increase or other increases of interest rates. We will receive the full benefits of investments that we've made into government bonds and we will make Significantly better income from the new lending generated in 2021. And additionally, if that materializes, we could see some balances from stage two, walking back into, from stage three, forgive me, walking back into stage one to upgrade. And this would again improve our net interest income as currently on the stage three we realized so-called unwinding as opposed to recognizing the full amount of revenue that these loans generate. So, so far we have no basis to adjust 2022 and we will provide further commentary on 2022 once we report The third quarter results on the 23rd of October, 29th of October of 2021. On page 66, you can see our planned shareholder interactions, which are in the four boxes here. So we will keep to attend the conferences and on top of that, fourth event will be the conference call, the quarterly conference call. As a last comment, perhaps, we have outstanding with the Czech National Bank application for dividend distribution. Three crowns per share and we expect to receive the answer by end of September. The regulator cautioned us not to comment that, but I suppose it will come in the second, third or fourth week of September and we will communicate to the market the decision of the regulator through an ad hoc statement and call the meeting immediately thereafter if there is a reason to call it to approve the dividend payment. And this relates solely to 3 crowns per share which is the allowable maximum allowable payout from retained earnings includes through the years 2019 and 2020. So this is the catch up dividend for those years. Thank you very much for your patience with us. And now we are ready to answer your questions.

Thank you. We will now begin our question and answer session. If you have a question for all speakers, please dial 0 and 1 on the telephone keypad now to enter the queue.

Once your name has been announced, you can ask a question.

If you find your question is answered before your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for a first question. Language. As a reminder, if you want to ask a question, please press 0 and 1 on your telephone. We have a first question. It's from Simon Nellis, Citibank.

Hi, thanks very much for the call. I just wondered if you could quantify the potential uplift from the reverse unwinding effect and what's the likelihood in your view that you could actually see that?

We estimate, Simon, we estimate on the 1.7 or 1.9 billion, we estimate 30 to 50 million crowns.

30 to 50, okay. That's helpful. On the proposed merger that didn't get passed, I mean, have you had further talks with PPF? Is there any chance they could come back with sweeter terms, or is this kind of whole process now on ice for a while?

I would say, yeah, when there is a belief, there is a hope. we will receive something concrete and hopefully this will get settled before the end as we should resolve the situation. Right now we are focusing really on ensuring that the bank is able to fulfill its organic growth targets, that we are able to instill We are also struggling with the post-COVID syndrome of flex place where many of our people have gotten used to through the 14-month long on and off uh, lockdown to sit home and work from home and this obviously does have effect in many quarters of the bank on productivity and speed of uh, doing things so um, we are trying to remind our people what is the culture of the bank that we have aspirational and can do culture of the bank um, and uh, this this is about as popular as the acquisitions and what else are we doing? We are really focusing also on on IT strategy of the bank because we have to deal with some legacy issues so I expect that come end of fourth quarter when we report the fourth quarter Clara our chief operating officer will provide an update on the foregoing IT strategy and related investments. So we are really absolutely focused on delivering the results as we have committed and we are waiting for our anchor shareholders, if I may put it that way, to come up with a resolution of the impact, if I can call it that.

Understood, understood. And then just maybe last question on the end, is there any sign of hope on competition for margin spreads or for loan spreads? Because it looks like the competition remains pretty fierce, both on the mortgage and the consumer lending side.

I think I would put the answer in two categories. If you look at the new volume on the retail consumer market, the market is now at 7.3-7.4% yields on new production. It's 7.4%. We had in the second quarter performance of 6.5% as we tried to that we tried to provide very competitive offer to our clients because roughly 85% of our lending concerns Moneta clients and it had a disappointing result in the following sense. We increased the volume by 45% of the consumer lending. However, we are not able to move the needle on the volume. So, we have now elected to increase the pricing and we are aiming at about 700 basis points every yield on the consumer lending volume. The competition in this realm is fierce and the situation is not better and we are sandwiched between the Saskatchewan and Curia to see their results and the NEO banks, the small banks which are pushing us really in a very uncomfortable corner. This is the reality. This is the reality. On mortgages, we are aligned with the market where the key preoccupation is that we will implement prepayment fee on mortgages as we had, let's say, yielded to regulatory pressure a trade national bank recommended to all banks not to charge this fee we followed and there are several banks which do charge this fee putting us at competitive disadvantage so we are now contemplating three state yearly prepayments here on mortgages from I think first of September this year in order in order to prevent some of the outflows. But I would say that the situation actually got a lot worse. Low interest rates, low demand leads to a lot of push and the strongest the push is on the unsecured front where the market is flat. The market increased 2% year on year. and the small banks are leading the charge. So AirBank is benefiting, Equibank is benefiting the small banks that are winning the battle.

Understood. Thanks a lot for us. That's all for me.

We have a next question. It's by Michael Schmitter, Hector's Reservoir. The line is now open for you.

Thanks for the very detailed presentation that's had before. I would like to see some kind of a build up of the data between the 2022 number and the revised 2021 number so can you provide this in terms of how much is contributing from net interest income versus fees versus stage 3 releases because at the end this is a 7.5% increase and a bit more fall of the overhead for you.

We can provide that number verbally. If you look at the 10.8 target of the operating revenue now, or the outlook rather, versus the 11.6 next year, it has three or four components, and Jan Fricek will answer what it is, and we can put it in the next quarter's presentation. for people to see the bridge. I think we provide so much detail that we didn't want to have more detail because it's a lot of detail that we provide. I will answer the question for you now because we've calculated it actually.

Okay, so Malta and the other 800 million in case of the income will be sourced from 600 to 650 higher net interest income and 150 to 200 million higher net fee and commission income. There are three prices, basically, of improvement in NII. First, Tomas already mentioned, two-week repo increased by 50 basis points, which will give us approximately 260 million on annual basis. Then both portfolios full upside from the balance at $61 billion to crowns or give us incrementally $100 million. And the third one is the obvious loan book growth by 9% year-on-year will improve NII by approximately $250 million. And on the NETCN commission income, here as you know our strategy is predominantly focused on distribution of investment funds and insurance. And here we assume an increase of the income by approximately 150 million. Where 100 million comes from asset management, the asset management revenue target

for this year is $200 million next year is $300 million and to continue the performance we will hit it and the additional $50 million is from distribution of life insurance where the total buckets of life on all insurance in our fee stack to the target this year is $637 million and next year it will be approximately $60 million higher, reaching $700 million in 2022. So that's the structure of the $150 million plus $100 from asset management and $50 from life insurance. And I'm rounding it up to numbers. Yeah.

Okay. Thank you. Thank you very much. That's very helpful. And then one other question on excess capital and most specifically the distribution of excess capital after the exposition of the PPF assets has collapsed now. We just want to understand how we should think about it because including the expected dividends for 2021, if we just assume 80% payout times the target net income, we get to 19.5% checks run up the share excess capital. and this is on top of the three share dividends for 2019 and 2020 and what is the plan for distributing this excess capital to shareholders and will this include share buy back this oil rather than dividends thank you it's 17.01 now minus 3 that's 14.01 plus 3.08 so this is already assuming the second half of 21 assuming that targets are delivered

So let's call it somewhere between 17 and 19 and that's a great assumption. Hopefully on the basis that CNB will allow us to pay the 3 crown dividends. So it could be as high as 20 to 22 if they don't. So, the plan is our dividend distribution policy which calls for minimum payout of 70% annually. This is institutionalized in the bank. It's actually on the website of the bank in key documents. This was instituted in 2016 and, you know, respected every year since. If conditions allow and there are no acquisition opportunities to be had for that cash, we will obviously try to distribute it back to shareholders because what would we want to do with that? But as things stand today in Czech Republic, you have ECB communicating that it will drop the embargo on dividends and buybacks at the end of September. Czech National Bank so far has not made any comments on this, apart from the fact that in every conversation we have with them they caution us against shareholder distributions or any kind of buyback. So I can't give you a better answer. COVID goes away. If there is no recessionary environment, we will argue with the regulator for maximum distribution. And I think the management of Moneta has a very strong track record in this. In 2017, we had paid, what was it, per share, how much was it, 9 or 8? 2017, 8. We can think of the total capital management target of 14.4%

as kind of the floor for distributions, but that should also be the target, assuming that the regulator plays along. Is that correct?

I don't want to be parochial here, but the 14.4 holds only until June of next year. Starting July of next year, we assume the target at... 50 basis points higher, so it will go to 14.9. We've published it previously, so there needs to be a warning label on the capital. So if you put in your model 15%, you get a very good I think the target will again increase because I'm sure uh... that the central bank will take measures to uh... make robots more robots either PLA2 for us or uh... that in the result our PLA2 was reduced uh... from 3% to what is it now 2.3% 2.4% so we did uh... 60 base points reduction but uh... I think uh... it will be either that or uh... the buffers will go up. Tech National Mind wants to maintain a high capitalization of the industry at any cost until the COVID risks prevail. And I think the outflow of capital will be allowed 18 to 24 months after the COVID risks in their view are finally abated or lowered. So I wouldn't be too optimistic on sudden dividend payment which exceeds given calendar year earnings. I do not believe we will be allowed to do that for the next two or three years. And here, sorry for the long response, but we have parliamentary elections in this country in October and if you look at the lineup of the contenders none of them are exactly how to put it politely low tax environment parties so the equation in the elections is being skewed towards political elements which will want to most likely somehow, I'm looking for the right words, plug up the hole in the ship to Texas because we have this Pirate Party sessions out to Germany. As a reminder, if you want to ask a question, please press 0 and 1 on the telephone. Okay, I suppose we do not have any more questions, so on behalf of my colleagues, I want to thank you for attending the conference call. We look forward to our investor interactions through the three conferences or individual meetings, and we are certainly looking for our ability to report good results on the 29th of October. and we will immediately inform the market as to the decision of Czech National Bank whether it provides us with acquiescence to pay the 2020 and 2019 dividend scheme which we have applied for on the 26th of March 2021. Have a great rest of the week, nice weekend, nice rest of the summer and we look forward

speaking with you again thank you bye bye ladies and gentlemen thank you for your attendance this call has been concluded you may disconnect