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.

Thank you Jan, and good morning to everybody. I have the pleasure to walk you together with my colleague Andrew Gabriels through the next part of today's presentation, the balance sheet development section. On the page 36, you can see the development of both parts of the balance sheet for the past five quarters. You can also see more detailed split of each category, including the key components for the year-on-year growth rate. According to our strategy, we are focusing on growing organically the net customer loan book, with a growing growth of more than 12%, while still keeping a good growth rate of some customer deposits to keep our very strong liquidity position. As you will see on the next slide, the loan growth is driven across segments with significant success, especially on strategic mortgage book expansion activities. You can also see that year on year we have significantly increased investment in securities and more details about this category you can find on the next slide, slide number 37. The overall volume of investment securities has reached almost 50.5 billion pounds but as you can see the main increase happened during the end of 2020 and in the first half of 2021. During Q3 2021 we have rather maintained the low. On the right side of the slide, you can see the development of the yield compared to the QV3 parade and the portfolio duration evolution. Now, let's move back to the key category for the bank, the cross-performing loan portfolio. On the page 38, you can see the evolution for past five quarters with a very solid growth of 11%. You can also see that according to our long-term strategy, we continue to increase the share of retail loan portfolio which in the year of 2003 reached more than 170 billion CZK and is almost a 70% share on the overall loan book. We are successfully growing also the small business franchise which ended up about 9 billion CZK of GPR and we are also back on track with profitable growth of our SME portfolios. Now, moving to slide number 39, you can see the trends regarding the loan portfolio yield. As you can see, the yield level has stabilized across the segment overall bank yield has reached 3.8% and as you can see on the right side of the page, the yield level is almost equal for both segments with retail on 3.8% and commercial at 3.7%. Now, let's dive a little deeper on both segments' long book development trends, starting first with the retail long book portfolio review, presented by my colleague Andrew Devon.

Thank you, Jan. So, if you reach the page 40, We show the detail of the retail loan portfolio. Overall, the retail portfolio grew 16.8% year-over-year, reaching 170.3 billion, where the mortgage portfolio was the primary driver of the growth, up 30.7% year-over-year. While the consumer loan portfolio decreased 5.7%, we see some stabilization in the latter quarters, but this market remains extremely competitive, so we will have to continue to work hard to turn that portfolio back to growth. In the auto loan portfolio, we were able to grow 4.6%. amid strong demand for cars across both new and used cars. However, supply issues in both segments cast a shadow over that market, so we will be watching this business very carefully as we go forward. And in the revolving products, we continue to decline more or less in the market in line with the liquidity situation that we see amongst our customers. The growing current account balance is reducing the need for or the usage of revolving facilities. We go on to page 41. We present some additional detail behind the growth of the mortgage and consumer loan portfolios. In mortgages, the new business volumes increased 132.7% year over year, reflecting very strong demand for mortgages, both new mortgages and refinancing. With the investments that we've made into our mortgage business in the last few years, positioning us extremely well to capitalize on that demand and increase our share of the market. At the same time we saw an increase in early repayment on mortgages. This was driven primarily by lower rates available in the market creating incentives for people to refinance. That started to reverse a little bit in the third quarter as rates moved up and also as we took a series of actions to try and mitigate the outflow and there were a series of actions we took in November and October this year which are not yet fully reflected in this number so I hope that Overcoming quarters will help further improve the repayment performance on the mortgage portfolio. In consumer lending, it's a similar pattern. New distance volumes up 27.3% year-over-year as consumer spending started to recover after a very difficult winter and spring. But at the same time, we saw a higher share of outflows in the portfolio, again driven partly by the opportunity to achieve lower rates available in the market. But also, in this segment, we saw a reasonably significant proportion of repayments from owned resources, which again reflects the liquidity situation that you see amongst our customers. Moving on to page 42, we look at the yield development on the key portfolios. In mortgages, the portfolio yield decreased 30 basis points year over year. However, you see that it started to reverse in the third quarter. This is primarily the effect of the lower early termination on the mortgage with the effect of higher interest rates. It has to be visible in the portfolio yield. This we will start to see in the coming quarters. In consumer loans, the yield dropped 60 basis points year over year. Amid continued pricing pressure in this market and a great year, we still see no last up, although we will be trying to hold a stronger pricing position going forward. The market remains extremely competitive. In auto, the yields are broadly stable, and in credit cards, we see small decline, which is driven more by the changing mix of the portfolios from Revolver to Transactors as the portfolio continues to decline. And with that I will hand over to Jan who will take you through the commercial portfolio.

Thank you very much Andrew. Now let me walk you through a similar overview for the commercial segment. As you can see on the page 43 we successfully continue our strategy in commercial to steer the portfolio towards more profitable and better localized products and categories. Overall portfolio remains on the same level compared with the Q3 last year. We are back on the growth trajectory as the primary impact of COVID crisis was slowly fading away during last few quarters. From a product category perspective, we grew up mainly in high-earning small business products by almost 16%, as well as in working capital in SME realm, where thanks to the wide usage of state-guaranteed programs behind the new origination, we were successful in growing by almost 10% year-on-year. We can also see a very good trend in investment loans in last three quarters, and we remain rather cautiously optimistic about the investment loan portfolio growth going forward, given the recent negative development of COVID pandemic in the Czech Republic. Now, let's move to page 43, where you can see the evolution of yields across the product lines. You can see the yield stabilization across the products, the first sign of significant improvement, especially in working capital category. As the vast majority of pricing of the loan book debt is fractured and floated based on the private. And now let's move back to the other side of our balance sheet and for that I will hand over again to Andrew.

Thank you, Jan. So going to page 45, you look at the development of the funding base of the bank. Overall, the funding base grew 6.7% year-over-year, reaching $285.4 billion, where the retail deposit portfolio represents roughly 70% of the total, and wholesale share increased to 7% as a result of repo operations, which helped manage the liquidity of the bank and also to improve the cost of funding, which you can see on the following page The cost of funds is decreasing driven by deposit repricing across both retail and commercial segments as well as an increasing share of current accounts in the overall deposit mix. The overall cost of funds was down 22 basis points year-over-year, with core customer deposits decreasing 21 basis points, driven by retail down 24 basis points and commercial down 12. At the same time, the wholesale cost of funds decreased 60 basis points. Going on to page 47, we look at the development of the retail deposit portfolio. The retail portfolio grew 4.7%, reaching 199.9 billion. And again here, strong development in current accounts, up 25.9%. with the primary driver, whereas the savings term and other deposits decreased 4.1%, primarily as a result of our strategy to migrate part of that volume into the asset management business, as Tomas alluded to earlier. On page 48, we present the development of the commercial deposit portfolio. which grew 2.6% year over year reaching 66.7 million and again current accounts being the primary driver up 17.3% year over year. And finally on page 49 you see the development of the wholesale funding base which was up 61.3% year over year driven primarily by the repo operations I referred to earlier which are visible in due to banks and other which is up 307% So overall, I think we delivered a strong performance in the loan portfolio development, up 11% year-over-year, driven primarily by mortgages and small business. We've also seen significant growth in the investment portfolio, up 86% year-over-year, and we've shown solid development in the funding rate, up 6.7% year-over-year. with continued growth in the current accounts being the primary driver, which has also contributed to a 22 basis points improvement in the cost of funds. That concludes the balance sheet section, and I will now hand over to Norman, who will take you through the risk metrics and asset qualities. Thank you, Andrew.

Good morning. We are now in the age of 51, where we have an overview of the quarterly cost of risk for the last seven quarters. So in the first nine months of this year, we recorded cost of risk of $453 million, check crowns, or 26 basis points. This is a significant improvement compared to the same period in 2020, but also shows a positive evolution throughout the first three quarters of this year. If we just look at the third quarter 21 here, cost of risk goes with a natural increase of $299 million. This is largely driven by strong core performance Debt tailgain and the release of loan loss provisions due to the update of macroeconomics scenarios in our IPv9 models. Most importantly, because of improved outlook on GDP as disclosed by the Czech National Bank in the third quarter of this year. If we move to page 52 here, we show the evolution of the loan portfolio, loan loss provisions and overall averages over the last five quarters. The reading balance is true year-over-year from $5.6 billion to $5.8 billion. However, if you look at the second and the third quarter, here we have seen a drop by around $360 million, driven by debt sales and the aforementioned release traded by the macroeconomic object. As far as the overall coverage is concerned, this bill stands at a solid 2.3%. Moving to page 63 here, we show the evolution of non-performing loans in and out flows over the last four quarters. The third quarter development of this year was positively impacted by a slowdown of MPLA flows, overall improving the licences, repayments of coverage-related downgrades, receivables, as well as debt sales. As a consequence, the MPL stock dropped by around $200 million, between Q2 and Q3. Now going to page 54. Here we have a more detailed overview of the entire NPL stock, how it evolved over the last five quarters. The peak of the NPL stock was reached in the first quarter this year and has been steadily dropping since then thanks to debt sales, upgrades of receivables and regular repayments. And as a result of that, The MPL ratio has been dropping from 2.8% in Q1 to 2.4% at the end of September. Going to page 55 here, we have a breakdown of COVID-related MPLs. So out of the total MPLs, close to 6.1 billion. Around 2.7 billion are COVID-related. Out of the 2.7, around $300 million are covered by in-holidays, around $400 million are past due, and almost three-quarters, or roughly $2 billion, of their crowns are being repaid regularly. Hence, should payment behavior continue to be satisfactory, then part or all of this $2 billion of receivables are subject to potential upgrades and subsequent releases. On the next page, 56, here we show the evolution of delinquency, 30, 60, and 90 days past few over the last four years. Overall and across the delinquency practice, we have been observing an improved performance. This positive development is largely driven by a solid co-performance, and in particular, the expected pain behavior of COVID-related or COVID-infected people contributed to this development. So, summarizing the risk section, the core message is that the positive risk performance observed in the second quarter this year has been continuing in Q3, visible in comparison with low delinquencies and good cold performance. On the technical development and based on the updated GDP outlook provided by the Czech National Bank, published in August, This made us decide to update our high-prescribing scenarios in our reserving models, which led to a release of provisions of close to 500 million cheque rounds. And at the back of this, we expect Julian's cost of risk for 2021 to come in better than initially assumed and should be somewhere in the range of 30 to 40 business points. There has been quite limited progress in new vaccinations in recent history, whilst the infection rate has been increasing quite a bit in the last days and weeks, which makes it more difficult to predict how this will impact the economy this fall and winter. Supply chain interruptions, shortages in key carbon raw materials, increase in energy prices, triggering inflation, constitute additional uncertainties in the months to come. And there it is in mind, we remain cautious and vigilant and we continue monitoring both our portfolio and the overall environment while maintaining a prudent approach to provisioning rentals. And with that, I hand over to Dan Fischer. Thank you, Roman.

I am now on page 58. You can see that Moleta continues to record strong capital position with capital reclass ratio at 18.7%, which is more than 5% response above our regulatory requirement. Our accounting equities stood at 29.9 billion, while our regulatory capital visible on the right hand side reached 30.6 billion. The growth of both is driven by the retained profits and the regulatory capital position on top by the issued tier 2 bonds. Charts in the bottom right hand side corner report continuing reduction of RWA density which supports our capital air classic position. And on page 59, we show in detail development of our excess capital position measured over the capital management target of 14.4%. At the end of the third quarter, we record the excess of 9.4 billion, which constitutes about 18 count per share. As you can see, this position includes accrued dividend of $2.3 billion from the net profit of 2021, as well as $1.5 billion from the net profits of 2019 and 2020 in line with our dividend strategy. Autumn chart documents development of risk-related assets during the year. While we recorded RWA's growth of 6%, the performing clone book grew by 9.5%. Of course, This ongoing trend is suffered by increasing share of mortgage lending with low capital consumption. So this concludes the Capital Management section and I will now hand over to Thomas for the full year outlook and final remarks. Thank you.

On page 61 we have revised the expectation of management for this year. Before I go, before I delve into that, we will update our five year outlook in February 2022. This is quite important as we see some upside to the net interest income. We also see some upside through The balance sheet side, nonetheless, what we have against that is a huge uncertainty, how the COVID pandemic and inflationary environment and the supply chain shocks that we are seeing around us. will impact the cost of risk line. So we would like to simply understand better the dynamics of the credit portfolio when all these factors are combined into one. So we feel that we face a number of quite significant uncertainties and historically, pre-COVID, we were always publishing the plan in February last year. We did it in order to support Rebound of the value, how the value of Moneta is perceived by shareholders as we were very unhappy with the value of the bank as expressed in market capitalization. Now, on page 61 for this year, we actually upgrade the operating income by $200 million, so we would like to reach at minimum $11 billion. This is a combination of interest rate increase and slightly better balances than we've expected. On operating expenses, we confirmed The cost base level of $5.5 billion. As I said, this is being impacted by slightly more people. We have about 50 more people than we were expecting in the employment due to extraordinary demand for mortgages. We also face higher regulatory charges and we have pressure on on the cost base of the bank with respect to those contracts which have inflation-related revaluation of our obligations. On cost of risk, we spoke about that. Effective tax rate should be at 20%. This translates into estimated net profit at minimum 3.6 billion. materializes, this is 7 crowns per share minimum, return on tangible equity, estimated return on tangible equity of 14%. So, ladies and gentlemen, this concludes our presentation and we will be happy to answer your questions.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question for our speakers, please dial 0-1 on your 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 the chair turns to speak, you can dial 0-2 to answer your question. If you are using speaker equipment today, please lift the handset before making a selection. Remembering please for the first question. and we have received the first question. It is from Robert Bosa, a CTPoT security client now open.

Good morning everyone. I have a question on your prospective deposit pricing policy. I've noticed that you started offering quite attractively priced 12-month deposit. How does it fit into your strategy given that also in the third queue you have substantially increased the wholesale funding in other words how much of funding do you think you need going forward what's the potential for increases of the deposit funding and what's your strategy in this regard and also maybe when I'm talking about cost of funding in an interview given to press this morning I spotted that you expect the targeted net profit in the future that strategy that you referred to to be revised by say 6 in the range of 6-5% right and that strikes me as rather conservative so if you could please comment on your longer term outlook whether this relates to the competition in the for example consumer lending or whether that rather relates to the higher expected cost of funding going forward. Thank you.

Okay, Robert. I will try to tackle the question further. If you look at the banks, actually, we have LTI ratio of 137%. So, against the regulatory requirements, we have about $13 billion available liquidity currently. So that's the first part of the question. Second part of the question is offered attractive rate to our primary customers. The attractive rate is at 1.5% and we try to be amongst the top three offers in the market and we will continue that policy going forward probably the bank's ideal target is to have the LCR north of 150 and to have the loan to deposit ratio south of 90 so this is where we would like to get and if you look at the business plan of the bank which is actually published in the appendix next year uh on uh on a revised basis we are facing um they're facing me to fund um to fund uh what is it 25 billion in the in the uh in the it's actually it's actually 30 billion sorry 20 billion 20 billion increase in the in the loan book so you can quite easily calculate how much you need in order to maintain LCR of 150 where we would like to take the deposit position that being said The 20 billion funding of Colombo also has to take into account our market share target on asset management distribution, which is double the market share. So we need about 10 to 15 billion of deposit inflows in order to be able to continue with the expansion with the expansion of asset management franchise and its policy of trying to reduce the wholesale funding. So all in all, we need between 35 to 40 billion in the next 12 to 18 month period. This is basically the target of our pricing and product offering strategy, and we would like to at the same time broadly maintain the split between current accounts and savings products across the segment. So this is the first part of the question. This morning, speaking to Bloomberg, I said that I see the potential upside 4% to 5%, if I make sense to correct you, And this is a combination, broadly speaking, of three factors. First factor is we will garner slightly better net interest income than expected. But if you look at the interest rate increases, they were built pretty much into our plans, just a little bit ahead of the curve. We are about three months ahead of the curve. So one is better revenue generation position. Second is that we are under tremendous cost pressure both on the payroll, on the real estate, on energy and on other cost categories such as services, cash handling. and other because whatever has a labor input or energy input in Czech Republic is increasing quite strongly. So I do expect that we will have to re-evaluate the cost based robustness next year because we simply did not expect the inflation to reach and the pressure to reach this level. We have to really examine the anticipated cost of risk because it would be fairly naive to think that the rapidly rising cost of energy inputs is not going to translate into higher defaults on the commercial front. links to the fairly rapidly increasing cost of funding for our commercial customers and it's also linked to potential disturbance if and when and hopefully this doesn't happen if and when we have further restrictions related to COVID pandemic which coincidentally is at the level of last February, March in the Czech Republic and unfortunately the vaccination level is that of a developing country. We have vaccination at 56% compared to, for instance, Denmark being nearly at 80%. So we have to be very, very careful. So the upside 45% I provided this morning is a conservative back of the envelope. all the factors taken into the account. It could be better.

Alright, thank you very much.

The next question is from Simon Melison. Thank you, Simon Melison.

Hi, it's the Martian team. Thanks for the call. First question would just be, how do you expect your conversation with the Czech National Bank to go when you had a dividend out of 21 earnings. That would be the first question. The second one is I'm hoping you could elaborate a bit more on the outlook for consumer lending growth. It still seems to be do you expect a rebound anytime soon? Jim is on high fee expense. It should be driving lower quarter on quarter. If you could just elaborate on what's driving back. Last question. on how much provisions do you have for forward-looking kind of ECL and who would need to shoulder that capacity?

Okay. So I'll take the dividend. Consumer lending will be taken by Andrew Devere together with the fee expense. and Andrew is running the migration to Visa and provisions. I'm not sure I understood the question. Actually, if you could repeat the question for a moment.

How much is the forward-looking ECL for macro variables? And I get both of the precautionary provisions for restructured credit run through. It needs to happen to be further bypassed.

Yeah, so let's take it piece by piece. Dividends International Bank. If you look at our accounts, we have accrued 2.3 billion into anticipated dividends and this is excluded from our capital recognition applications that we submit to Chernobyl. So Chernobyl is well aware of the fact that we intend to pay 80% dividend. And we haven't had any discussion on the topic with them so far. We've had different discussions as we have undergone two very deep inspections this year. We've discussed the quality of our payment services, asset management distribution. This is closed. and we are completing now the inspection on credit, retail credit underwriting and management of our portfolio and this is anticipated to be finished in mid-November. On consumer lending, when do we come back to growth and fee expenses, I would ask Andrew to provide a comment.

So, regarding the consumer lending, what we see in the market is we see an uptick in the new volume. The market overall, if I look year over year, is up about 16% in terms of new business volume over this time last year. I think there is some sign that consumer spending is returning and that's driving demand for consumer lending. However, we still see, and you can see it in the current account, strong liquidity position on our clients, which is partly mitigating the need for higher consumer lending. So I think overall, in this market environment, it was hard work and I think a reasonable achievement to stabilize the portfolio where we are now. And I think we will have to continue to work hard over the coming quarters to maintain that stability and return it to growth. Mid-year next year, probably. Of course, if the pandemic situation deteriorates further, this will have an impact on demand for sure, so it's a relatively uncertain outlook. Regarding the fee income development, As someone referred to earlier, we're in the process of migrating to Visa, where we were able to achieve lower cost per transaction going forward. So in the numbers right now, you see two impacts. One is overall higher transaction volume leading to increased costs. Also, we're in a process now in the second half of this year where we're dual running Visa and MasterCard, and this is leading to increased costs in the short term. will be completed at the end of this year and going forward we will have optimized... In the second quarter you will start to see it in the numbers as we reach the optimized position and this will help us to achieve a cost saving in the short term but also to mitigate higher cost increases as the portfolio growth and transaction volume decreases over the coming years.

On the cost of risk, I understand your question correctly. What is the magnitude of the forward-looking provisions which we have on the books? It's a bit difficult to answer that. We haven't disclosed this in the past, but just to mention the following few comments. You have two areas where you have the provision sitting. One is the NPL. Here we have very transparently disclosed that 2.7 billion check-arounds are affected by COVID, out of which 2 billion are paying readily. Now, as you can only change the classification for as long as customers pay over a period of 12 months, Upgrade can only happen thereafter. Now, should this materialize, then here is a potential for upgrade in the first half of 2022. I'm assuming an average coverage of anywhere between, depending on the product, between 20% and 50%. We would have to go into the details, which we don't know. This is the potential for to anticipate what is the magnitude of such releases because we are going into a period of utmost uncertainty for the reasons which we have outlined before. And as far as the second point is concerned, the macro, we have made the change in our macro input in our IFRS 9 models which led to this 500 million release, but if you look backwards, at the macro forecast provided by the Czech National Bank, the one in May this year and the one in August. The difference was significant. So also here, I wouldn't dare now to tell you what is the impact if the macro moves to XYZ going forward, both on the GDP and the unemployment rate, because it's simply premature to come up with a meaningful number. But needless to say, should the macro continue to be positive, even going through the winter and the fall period, and obviously there might be some upsides. Is this clear?

Also, just the... So you're saying there's 500 million released from macro variable change and stuff. That was the impact in the third quarter, yeah?

This was the impact in the third quarter, correct, by using the GDP forecast as published by the Czech National Bank back in August this year.

And then just one follow-up on the dividend. So it's clear. I mean, you're accruing 80% of profits, which you intend to pay. Is there... We will discuss that with the supervisory board. I think it's too premature.

We have first juncture is November 9th. We have a supervisory board on November 9th and this will hopefully Leads to agreement to call the shareholder meeting in order to pay dividend for 2019-20. This is three crowns per share that the Czech National Bank acquiesced and we would like to pay this year. So that's the first milestone. The second milestone will come in when the audited results of the bank, well, when the preliminary results of the bank is ready and we will have a discussion in early March with the supervisory board and consequently We will take the proposal to Czech National Bank and here I would like to underline that Moneta and its management always behaves transparently in this respect. We try to pay good dividend schemes and at the same time retaining capital which is necessary for development of the bank. So we will conduct ourselves in exactly the same manner from the first quarter of 2022. And if I can add just one sentence, you know, it's actually, I think, slightly absurd situation because in 2020, October, when we published the guidance, we were told from many quarters that the and the target for 2021 are unattainable and now we are discussing what is the depth of the upside and I would like to remind everyone that if you examine our business plan where we disclose the assumptions, again, nothing has really changed from our assumptions. We have been very fortunate. in having our assumptions materialize into facts, except for inflation, which is running wild. It's actually perhaps speculation. We will find out fairly soon. That's number one. Number two, we did not predict the doubling of the energy price. and number key, we did not predict that 44% of Czech population wouldn't vaccinate itself. And we would have, we did not predict that again, we have infection levels, which are similar to the height of the lockdown of last year. So we did not predict any of that. So I would actually argue, that apart from the interest rate there is fairly little which is positive and I would like to remind that if the newly formed government cuts the fiscal deficit by 100 billion as they are promising to do so this is probably not going to have a positive effect on default quite the contrary so you know on the upside I would be fairly careful right now.

Thank you.

The next question from our transmitter pitch was if I could lend an open.

Thank you. Thanks for the presentation. Just a few questions from my end. Firstly, on MREL, can you please provide an indication of what the timeline is here for bond issuances and what we can expect in terms of cost of funding? And also in terms of capital targets, we should see it's at 14.4% for excess capital circulation. But shouldn't we consider, or at least start considering the 15.4% target given the expected increase in the counter cyclical buffer?

So the first part of the question is we will have to maintain capital instruments at the level where the 20.6% by end of 2023. With respect to our plan, we will submit it to Seneva next week or in two weeks time. This is the Merrill Fulfillment Plan and we plan to do an international Merrill bond issue in January or February 2022. We are actually working on that and on the price I would not dare to comment now because it is slightly difficult to predict. The bond issue will be conducted in Euro as we wish to place it with international investors and this involves a lot of work. The size of the issue is 200 million Euro anticipated or perhaps more. This depends on the appetite for Moneta. And yes, you are right. When we calculate the excess capital, we should take into account the forward-looking target, which goes up by September. We are not doing that for transparency purposes. We simply say whatever is the target now or whatever is the requirement now to provide The policy of Czech National Bank is very clear. It wishes to retain capital in the banking sector in order to mitigate any and all risks coming from the current economic and pandemic situations in the Czech Republic.

Okay, thanks. That's very helpful. Maybe just two quick follow-up questions on capital. One is, are you considering a fair buyback as an alternative to dividend payments going forward? And then secondly, the European Banking Authority has published these guidelines on criteria for the use of data inputs into the risk measurement models. And this will become effective from January 2022 onwards. Will there be any impact on your business? And what do you expect the impact to be on the consumer finance peers in the sector?

Yeah, let's start with the second question. The impact on the consumer finance book, I would put a ballpark figure of 300 to 500 million grams. Once the model inputs are changed, this could be the total impact on the loan book. And this is from previous experience. that we could have that, but it should be if and when we have in the second, third, and fourth quarter of next year upgrade due to continued disciplinary payment by those clients who obtained moratorium, this would be probably mute or a wash. So this is the first part of the question on the, what was the capital question? Share buyback. Share buyback. On the share buyback, we had approval in 2019. Currently there is no plan on share buyback. As we have social responsibility to contribute to the state budget, we prefer dividends because dividends do yield some withholding tax for the Czech Republic and as you know Czech Republic is deeply in debt and we would like to behave responsibly because we feel that potential buyback will create a very difficult situation that we do not wish to pay taxes in the country and this could lead ultimately to introduction of sector tax So we will be very careful with that because it's being criticized by many of the leading personalities in the to be informed government. So probably not is the answer.

Okay.

Thank you for the answer.

So far we have no further questions. So I would like to come back to the speakers for some closing remarks.

Well, so far third quarter has been successful. It has been successful from profitability perspective. It has been successful from our ability to develop the business which is substantiated by the strong growth observed on small business, mortgage lending. and the volumes being generated to stabilize the consumer portfolio. The biggest challenge of Moneta going forward is to secure adequate funding at low cost as we have consumed the funding that the bank requires through expansion of the balance sheet. So this is one challenge. Second challenge which we do not quite control is the competitiveness in terms of the consumer loan market and of its pricing. And third challenge is to mitigate potential negative factors related to inflationary pressure on our customers and again potential impact of the COVID pandemic. Nonetheless, all of that being taken into account, we disclose our view for this year 3.6 billion net profits or better. We've also said that the upside is 4-5% on the business plan and we will update the business plan where we have a little bit more firmer footing on some of the variables from February 2020 so we thank you very much for your participation and interest in Moneta and we wish you all the best for the upcoming weekend bye bye ladies and gentlemen thank you for your attendance this conference has been concluded you may disconnect