Moneta Money Bk

Ladies and gentlemen, welcome to the conference call of Monita Money Bank. As our customers request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty seeing the conference, please press start and follow the zero on your telephone to operate the system. May I now move you over to my screen? Chairman of the Board of Directors, Ruho Lisi, for Wisconsin. Please go ahead.

Good morning, ladies and gentlemen. I welcome you on our regular quarterly call. I will refer throughout the presentation to material that is published this morning on our website, which is titled Third Quarter 2021 Results. And if I may ask you to turn to page number four to provide you with highlights. of our performance here today. Moneta delivered here today net profit of 2.9 billion. This is the result of generating operating income at the level of 8.2 billion crowns. We have incurred operating expenses of 4.1 billion. That translates into pre-implement profit of 4.1 billion. and we have incurred cost of risk at the level of half a billion crowns. Based on trends that we will describe throughout the presentation, we take the liberty of increasing the net profit expectation for 2021 to the level of 3.6 billion crowns. If we turn a page and go through slide, Briefly, our balance sheet development. If you look at our deposit growth, it came in here today at 4.2%. We have had very strong growth, nearly 60% on asset management distribution due to Conscience's effort to transfer part of the deposit balances into your balance sheet asset management. In terms of expansion of the credit book of the bank, the bank generated, Moneta generated 11% overall growth in the performing lending balance. In terms of non-performing assets, we've been successful to alleviate the impact of the COVID pandemic and the NPL remain at 2.4%. and in terms of capital, we remain solidly capitalized with a capital adequacy ratio standing at 18.7%. Now, if I may, key trends of of the third quarter. We improved the net profit outlook based on a combination of several factors. Number one, we have better than expected net interest income. This is a result of robustness in generating additional balance to the credit portfolio and also in rapidly Inflationary pressure impacting our overall cost base and due to excellent repayment performance, negative formation of NPLs and successful disposal of legacy NPL assets, we maintain low cost of risk. The low cost of risk is also impacted by IFRS 9 modeling. where we have translated the latest forecast by Czech National Bank into the model and that is also in a provisioning release during the third quarter. We also command strong capital base where the excess capital available for future growth as well as shareholder distribution stands at 9.4 billion slightly above 18 pounds per share. Regulatory equity of the bank stands at 30.6 billion and we have maintained like to decrease the density of our risk-weighted assets. And if you look at margin evolution and cost of funds, For example, we have decreased the cost of funding by 22 basis points to a level of 37 basis points. If you examine the quarterly results in the third quarter, the core cost of funds came in at 29 basis points. So we have done a lot of work. on optimizing the cost of funding and that contributed to net interest margin stabilization at 2.7% level. This is slight improvement compared to comparable quarter last year. Now, if we turn to page seven, we are also proud of being able to achieve WRA thing by ESG MSCI that puts us in a leadership group within 190 banks that are globally rated by this agency and actually if you examine the scores that we have received we have come in at I believe 8.4 which is just a shade below the threshold for a triple A rating so this is a significant success of the bank and coincidentally today we also published ESG strategy updated ESG strategy of the bank which contains updated KPIs for the senior management of the bank on the following page on page 8 we would like to communicate that we have doused to have won all three categories of one of the major local competitions in the Czech Republic, conducted by the leading economic daily, Oskunas Crinovili, I sometimes jokingly refer to it as our local Wall Street Journal. So this is the first time since IPO that we have received this accolade. as the best bank. It is the fourth year in a row that we have been voted the best banking innovator in the country based on digitization of the bank. And now, if I can turn to a report on fulfillment of our medium-term strategy. We start on ten full blocks of our strategy related to segments and digitization. If you examine our performance in retail segments on the asset side, we have garnered fairly strong growth. of lending at 16.8%. This is driven by mortgages. And on the liabilities side, the main success lies on two fronts. Number one, we have increased the current account balances of our retail customers by nearly 26%. And we have phenomenal success in the ability to distribute asset management products to our customer base as well at 59%. The success of retail is mirrored by steady performance on the small businesses. If you look at the lending expansion of the small business portfolio, it came in at 15.7% supported by Moneta's Success in Distributing Loans which are covered by COVID-related guarantees issued by the National Development Bank We are actually in this segment the market leader in utilizing the government programs. On the liability side of small business, I would again say that we register phenomenal success in increasing the overall deposit volume and that is mirrored by nearly 29% increase in current account balances. Now let me cover SME. We have stable portfolio in SME. In SME, we've had some fairly significant repayments throughout this year. However, the lending volume increased by nearly 18%. So we've been able to keep the portfolio stable. And as of end of third quarter, more than 5% of the overall portfolio is covered by state COVID guarantees so we have always also alleviated the RWAs and mitigated some of the risks related to the portfolio and on the SME we also registered success in increasing the overall deposit position increases of the current account strategy. If you then look at the digital distribution progress where we focus on Distribution of credits and fee earning products. We have significantly increased this year the weight of distribution channels in the overall in the overall distribution capacity of the bank on both assets and liability side and we will examine that a couple of minutes later. The other four blocks of our strategy which relate to risk, capital, efficiency, and Social Responsibility. If you look at the risk management, we continue to maintain a robust, strong overall coverage of the loan book through loan loss provisions at the level of 2.3%. And aside from that, we work on stabilizing, decreasing the non-performing book this year based on IFR balances we have sold 1.1 billion of non-performing assets. If you look at the capital strategy, I've covered capital, but what is important to say, not only that we command strong capitalization overall, but the CET1 ratio is super solid at the level of 15.9%, 15.9%. On cost, on cost base, We have generated cost-to-income ratio of 50.3%. This is year-to-date. If you then examine our quarterly results during the third quarter, the cost-to-income ratio came down to 45%. We keep steady flat employment level at 3,025 FTEs. which was mainly driven by super strong demand on mortgages which impacted our risk management and our back offices and we have so far successfully mitigated the inflation pressure into the remainder of our cost base and Jan Fritschek will give you more detail on that. on the environmental, social and governance front. We have not only received the AA rating, but we've also worked in the last six months on updating our strategy inclusive of targets for the senior management, which consists of the management board plus four people and for the entire organization to our strategy actually, which is available on our website stipulates very clearly what are the granular targets that we would like to hit over next three to four years. Now let me turn to page 12, the operating platform of the bank. If you look at the branch and side agent network, you see that we have worked towards further optimization of the side agent network that we have inherited the the the the the the the the the is relatively subdued as I would say the COVID pandemic and our pricing policy on deposits negatively impacted those figures. If you look at, however, the digital platform usage, we have a very solid growth on the mobile banking platform and continuous growth in registered users concerning our internet banks. And I've commented already that the employment base is nearly flat. Now I would like to turn into Operating Environment in the Republic, and he goes to page 14. If you look at the key macroeconomic indicators, the forecast for GDP is that consensually somewhere between 3.4-3.5%. The economy has certainly rebounded, and we have seen not only better demand for our products, but also higher levels of banking intermediation expressed in payments, in card transactions, and such. There are going forward some clouds on the horizon as the automotive industry has become idle due to supply chain shocks. And the question is how GDP will behave in the fourth quarter. So far, the going has been very good. We have seen strong rebound of the industrial production and also of foreign trade. Czech Republic's rating remains strong and solid with a stable outlook, even though the country is generating higher levels of indebtedness compared to GDP, which puts us to page 15. If you look at the state finance deficit, During those third quarters yesterday, the country incurred deficit of 326 billion with the projection this year to 500 billion. Next year, gap between receipts and expenditures is estimated at 370 billion. with the newly formed government, which is in the making, pledging that it will try to reduce state spending by $100 billion. So this translates into estimated budget deficit to GDP at the level of 8.2%, which is quite high. Unemployment so far increased to 3%, however, The situation in the job market is fairly difficult for employers as the number of vacancies significantly exceeds the number of applicants and there is a very strong pressure on the wages. If you look at the latest wage numbers, the year-on-year increase is in excess of 11% and the banks and many other employers experience increasing difficulties in recruitment and strong pressure on the existing payroll. If we go to page 16 and look at the interest rate environment, we have dramatic change. First and foremost, inflation in September reached 4.9%. The estimate is that the inflation will keep on creeping up. End of the year, we could be looking at even higher number. On this basis, Czech National Bank elected to increase rates by 75 basis points, which is quite a significant rise and in the chart you see how the three-month price board has been developing. I would say that what is the most important for us now is next week's meeting of the Czech National Bank Board of Governors the market expects two thirds of the market expects 50 basis points increase one third expects 75 basis points increase so the rate environment is changing very very rapidly. Now, how does Moneta perform compared to the banking market? This takes us to page number 18. If we start with the deposit market, the deposit market now holds volume of 5.8 trillion and the market grew by nearly 11%. Against that, we have posted growth of 4.2%. This is due to, I would say, two main factors that impacted our growth. Number one is our pricing policy on longer-term products, namely on savings and term accounts. And secondly, the conscientious effort to convert deposit balances into asset management, namely across retail and small business. segment. However, liquidity, LCR and close deported ratio become priority for us for next two quarters going ahead. Now on page 19, the lending market. If you look at the lending market, it now stands at nearly 3.5 trillion. The market grew 6% with a fairly strong rate of growth on the resale due to extraordinary demand for mortgages during the first nine months of 2000-2021. Moneta performed growth faster than the market and rate of growth is nearly double that of the market. During the third quarter we have lower volumes on mortgages but this is really a function of the increasing rate environment and also seasonality in demand. The third quarter is typically a lower demand quarter than the others during the year because of the holiday season. Now on digital distribution, a couple of words on that. If you could please turn to page 21. If you look at our online production in the bubble, we have the total share of the digital channel on volumes that the bank generates per quarter. So we have 2.5 times the digital channel participation on mortgage origination. We originate digital mortgages on our e-financial platform and the volume growth is in excess of 460%. Secondly, our asset management in the third quarter. The digital proportion of asset management sales increased to 15% as we have more customers signing contracts with us and subsequently they buy and sell digitally through either smart bank or through internet bank. We have experience growth in volume of 165% on the digital channel. We are also fairly successful in distributing retail current accounts. Nearly half of the current accounts are going through digital origination. And here I would like to say that we are one of the pioneers and early users of so-called digital identity. We are building this utility into our digital channels throughout next three months so the competitive edge of the bank will be reinforced because you will not have to go through stealthy document scans. You simply go through the digital identity and it's very simple. So we believe this will help us to further leverage the digital capabilities of the bank. On the small business, nearly 30% is now done on our digital channel, 30% of lending. So I would say that we are actually very close to the original objectives that we published in 2017 in distribution, structural distribution targets. On page 22, you can see growth of usage of our distribution and service platforms of SmartBanca and internet banking. What is important on this page, if you look at the left bottom corner, you will see that the transactional intensity on the mobile banking platform is nearly identical to that of Internet Banking, growing quite rapidly. So within the next 12 months, it will most certainly supersede the previously important platforms. So our Smart Banka is one of the best-rated, is actually one of the best-rated applications in the country, and that investment certainly came to fruition. On page 23 we are also having a very good progress on tokenization of our debit card portfolio where nearly 40% is now tokenized and this reflects into e-commerce transactions on a Google and Apple Pay and again I would like to remind that we were among the first banks to introduce these platforms. And lastly, on the digital front, on page 24, you can see evolution of our web platform traffic in terms of both organic and artistic, and we have significantly increased the traffic on our website, and we are all believe that our updated pricing policy on deposits will lead to success in the distribution of more deposit products. With that in mind, we have received AA rating ESG. We are very proud of that. We have received an important accolade, substantiating quality of Moneta's franchise and we are at 2.9% profit each year, increasing the outflow to 3.8% and I'll turn over to Jan Frejker who will walk you through the P&L.

Thank you, Kalon. Good morning, ladies and gentlemen. I'm now on page 26 and let me give you a bit more detail about our financial performance. Net profit increase by 51% is predominantly driven by the low of cost of trade. This corresponds to 14.4% return on tangible equity. Reported operating total is lower by 12.7% year-on-year. However, as you know, this is due to the two non-recurring items with total gain of 1.4 billion last year. Adjusting for that, you would see a 3% growth driven by better interest and fee and commission income. Cost base for the 9 months is covered by 1.2%, which is mainly attributable to higher DNA, marketing expenditures and regulatory charges driven by our funding base expansion. And lastly, we report cost of risk reduction by more than 85% year-on-year. This is primarily due to COVID-19 related provisioning last year. An improved macroeconomic outlook this year, which led to a significant release in the third quarter. Norman will provide more detail on this in the risk section. The next page shows improvement of recurring profitability here on here achieved through higher operating income and our strong cost discipline. If you follow the chart from the left hand side, you can see that last year we delivered on the recurring basis pre-impermanent profit of 3.9 billion. We arrived to this number after adjusting the reported results for the two non-recurring gains I just mentioned. The investment profit on recurring basis of 4.1 billion is more than 180 million or nearly 5% above last year. On page 28 we provide you with the decomposition of net interest income. The 5.8% increase year-on-year is driven by a combination of lower cost of deposits and higher interest income generated by our investment portfolio, hedging derivatives and free liquidity placed with the Czech National Bank supported by increasing 2D track rate. Lending interest income remains under pressure mainly on the consumer and mortgage lending market. During the first half of the year, we commented on the elevated early prepayments negatively impacting mortgage yields through accelerated recognition of the distribution costs. Since August, we finally see change of this trend and the customer's motivation to refinance is diminishing amid increasing market interest rates. And on the funding front, we managed to offset interest income erosion through the repricing. We reduced the cost of custom debt holders by almost half year on year. However, in the rising interest rate environment that Tomáš commented in his section, it is obvious that going forward, this will inevitably result in increasing cost of funding. Many banks, including Moneta, came up with more attractive propositions on customer deposits already in September. On the next page, we continue with the development of net fee and commission income. The income side increase of 1.8% is primarily driven by higher early termination fees. On the expense side, we report a 34% increase, mainly due to higher cost of card payments, elevated during the process of migration from MasterCard to Visa. With respect to this change, we are getting much better conditions from Visa. However, the benefits will be visible next year after the migration is completed. Page 30 provides further detail about the same income dynamics. The income from distribution of third party products is low by 6.1% year on year. From the upper chart, you can see that while asset management increased by more than 40% to 55 million, we have seen slowdown in insurance distribution namely light insurance and PPI. In the bottom chart on the right hand side, you can see a strong increase in early termination fees with nearly 35.39% year-on-year growth, while the servicing and transactional fees increased just marginally. On page 31, we report in detail our performance in asset management. As I mentioned, we achieved increase of the commission income by nearly 41%. However, since we stopped charging the opening fee last year, Our income is generated solely by the travel fee which increased year-on-year by 79%. This superior growth was achieved through a combination of asset management balance growth by 60% and higher average travel fee which increased to 93 basis points in the third quarter this year and with higher share of equity funds. Now we can move forward to the cost section starting on page 32. Recorded OPEC in the third quarter is at the lowest level out of the last five quarters. We recorded year-on-year reduction by 8.7%. This has several drivers. First and foremost, since completion of the integration process, we achieved synergies and have no more integration costs. Secondly, earlier this year we implemented several measures aimed at productivity improvement and savings, mainly in the areas of workforce management and marketing. And lastly, our development efforts during the summer months was at lower intensity comparing to previous month's average. Lower cost base together with increased operating income resulted in cost-to-income ratio at 45.4%, which is very low previous quarters. The following two pages were added to provide more detail about our cost management. Firstly, page 33 shows development of number of FTEs since the IPO. You can see that we achieved a significant productivity improvement through reduction of the FTEs by 6.5%, while the consolidated balance sheet more than doubled and customer base expanded by one third in the meantime. This is a result of successful integration of acquired mortgage and building savings banks, process automations in back office, as well as our investments into the digital platform, enabling optimization of our branch network. And now on the second credit board. At the end of the second quarter this year, we decided to mitigate risk of further increase of electricity market price through the hedging. While the electricity price on the market increased during the third quarter to the level which is 183% higher than in 2019, we negotiated fixation of our price for the next three years. And together with expectation of lower consumption, we estimate that our electricity budget will increase only by 19%. So this concludes the P&L section, and I will now hand over to Jan Novotin, who will continue with the balance sheet development.