Moneta Money Bk

Good morning, ladies and gentlemen. Let me begin our conference call today. Our presenters today will be Mr. Jan Fricek, Chief Financial Officer, Mr. Karl Norman Fecht, our Chief Risk Officer, and Andrew Gerber, our Chief Product and Marketing Officer. If I may, I'll ask you to turn to page four of our presentation. presentation, the highlights of 2021. We've accomplished to deliver operating revenues of 11.2 billion crowns. Against that, we've incurred operating expenses of 5.5 billion, resulting in pre-impermanent profit of 5.6 billion. And we had suffered risk charges in the overall amount of 0.7 billion. All of this translates to net profit of 4 billion. So we consider 2021 to be a very good year from perspective from two perspectives. First, we've improved the current profit by nearly by 9 percent. And second, we actually met or exceeded the original guidance that we've provided for the year. 2021 as well as the upgraded guidance. On the following page, a little bit on growth rates and some other metrics, we've been able to increase deposit-taking balance by 10.8% year-on-year. Additional to that, we have excellent performance on distribution of asset management products, but the distributed balance grew nearly 55%. What is important here is that this puts us in the lead of asset management distribution in Czech Republic. In terms of lending growth, our overall loan portfolio grew 12.8% and our results support return on tangible equity, which for the year comes at a level of 15.2%, and we continue to be strongly capitalized with the overall capital adequacy ratio in excess of 17%. And not only have we had a good year in terms of financial and commercial performance, If we look at ESG position of the bank, this is on page number six, we've improved the rating received from the MSCI index to AA quality. We've also quite significantly improved the score from sustained analytics to 17.8. and thirdly, we've improved ranking that we received from Bloomberg Gender Equality Index to a level of 82.6. Additionally, the bank reduced in the last five years the carbon footprint by 70, more than 70%. Aside from These improvements, according to Bloomberg, we achieved total shareholder return for the year at the level of 42.3%. On the next page, on page seven, let me briefly comment a couple of key trends. I have spoken already about overperformance with respect to the guidance. This is chiefly due to significantly better risk charge than initially expected, and we tried to upgrade the guidance throughout the year to reflect our expectations. But nonetheless, our expectation was proven wrong by the better result on that front, and Norman will explain the underlying trends with respect to risk charges. We've also have strong capital position with 28.9 billion of regulatory capital. This in turn translates to 8.1 billion of excess capital, and this does not include the dividend accrual that we've made with respect to current earnings of the year 2021, where we plan to propose the seven crown per share. Aside from that, we successfully approved and paid 1.5 billion of shareholder distribution in December of 2021. And at the closure of last year, starting in September, we've anticipated also the need to improve liquidity of the bank, so we've raised 20 billion crowns in retail deposits at a price of 2.5%, anticipating increase in interest rates. So this puts us in a good position for 2020-22. That action also resulted in improvement of the LCR ratio to nearly 178%. and we've lowered the loan to deposit ratio to a current level of 90% solidifying the overall liquidity posture of Moneta. Now, let's go to the next section where we report on key strategic metrics. This is on page nine. In terms of development of our retail franchise, We've generated retail loan portfolio growth at the level of 15.7%. This was driven by growth of mortgage balances and supported by growth in automobile financing. Even though that we've increased quite significantly lending to consumers, we suffered a small contraction in the consumer loan portfolio due to lower demand and relatively high prepayment or extraordinary repayment levels. On liability side, in deposit taking, overall growth registered by the bank in retail deposits, 13%, with a strong growth in the current account balances, which supports stability or slows down the increase of our overall funding costs. On small business, likewise, we had an excellent year with a very good growth of the loan portfolio registered at a level of more than 22%. The growth here was strongly supported by our ability to harness availability of state guarantees in conjunction with the COVID pandemic. So now after 2021, more than 11% of that portfolio is covered by state guarantees, reducing existing and forward credit risk of that segment. Now on deposit taking in small business, we registered 12.5% growth. But even more importantly, small business contributed significantly to success in distribution of asset management products. On SME, we had a good year as well, expanding the SME lending by 11%. And again, using the COVID related guarantees to mitigate credit risk wherever this was possible. In terms of deposit taking from SMEs, we registered more than 9% overall growth in the balances. And we've also improved the digital distribution and service capabilities of the bank. Here we focus namely on distribution, and I would highlight three metrics. Distribution of consumer loans now constitutes 39% being done through online channels of the bank, which is quite good, and it actually coincides with the initial strategic target that we set forth in 2017. Apart from that, we've had... continued success on the mortgage refinancing front of our platform refinance, which cumulatively throughout 2021 constituted more than 18% of overall new volume origination in mortgages. And the third area that I would like to highlight is asset management, where we where we now distribute more than 10% of our asset management production through the digital channels, namely through a highly user-friendly smart bank application. And we've also, throughout last year, developed the ability to distribute current accounts and building savings products as a result of... our acquisition of Western Road. So we were first to digitalize that proposition. Turning page, going to the other four elements of our strategy on risk, we have a comfortable position with 100% coverage of the NPL portfolio. We've managed to decrease the relative NPL ratio from 2.3 to 2.2%. And as mentioned, the cost of risk or the risk charge translates to 29 basis points overall. So this is better, certainly significantly better than we expected more than a year ago. On capital, I've mentioned this. I would add here that we are continuously working to optimize the product mix. This concerns namely mortgages and small business lending, where we take advantage of lower RWA density. On cost control, overall cost to income ratio is below 50%. However, if you look at the last quarter, due to uplift in operating income of the bank, we are in a neighborhood of 47%. With respect to employment, we have stable employment and we've stabilized the cost base through various actions at the targeted level of 5.5 billion. I've mentioned the ESG, so I'll not go through this again. Perhaps mentioning that we have signed the global compact by UN and the principles for responsible banking. So we try to remain update on these commitments. On page 11, we have the shape of the operating platform. Here you can see, if you look at the first two lines, you can see that we sought to optimize the brick and mortar presence, closing five branch units. This was in the first quarter of 21. And throughout the year, we focused on optimizing premises of our agents, so we closed one third of their offices, co-locating these agents with our branches. This is related to the acquisition of Eastern Road and mining of synergies from that acquisition. On access to cash through ATMs, we've improved the structure of our network, keeping it stable. where the main improvement concerns deposit taking machines. And now we have 29% of the network's capacity is able to perform that service. So we are coming closer to our large domestic incumbent competitors. In terms of customers, we have acquired slightly over 40,000 customers through throughout the year. So this is evolving pretty much in line with our plan and with our targets. And lastly, on digital channels, we see very strong demand for the smart banking mobile application and later in the presentation, you will see that this is becoming the predominant Digital Platform of the Bank. Now, let me walk you through the development of the macroeconomic environment, of the operating environment. Starting on page 13, we comment the economic recovery. You can see that the industrial production of Czech Republic significantly recovered from the 2020 COVID shock. namely in the first and second quarter of past year. The third quarter we again had COVID-related issues. However, the economy seems to be doing relatively well, also based on the fourth quarter GDP figures. In terms of foreign trade, here we show you the The evolution of imports and exports, the balance is still positive. Czech Republic is export-based economy. So now inflation and related measures of Czech National Bank strengthening the Czech crown create a little bit of worry on sustainability of the export. of the export volumes and contribution to GDP and retail sales. We see strong recoveries during last year in the second and fourth quarter. This is related to both COVID and seasonality of the retail trade. On page 14, a little bit about wages, unemployment and savings rate. You can see that the wage has been expanding quite solidly over the past five quarters. This has reached nearly 37,500 crowns. So it's actually creating some challenge for our own cost base. In terms of savings rate, In the second half of 2021, we see a decline in the overall savings rate, and this probably has something to do with postponed expansion and relatively strong domestic demand. Unemployment rate peaked out in the first quarter of 2021 and then decreased as the economy as the economy picked up. So, Czech Republic continues to have very, very low unemployment level. On page 15, GDP evolution. Going clockwise, we show you the development of the quarterly GDP and year-on-year growth. So, 20 annual GDP, sorry. growth rate in 2021 at 3.3%. I personally consider this disappointing, especially in view of the large budget deficit, which we have here estimated at 420 billion Czech crowns. This is the largest budget deficit the Czech Republic has had since ever. We also have acceleration in public debt. The public debt now stands at 2.5 trillion, and this drives the ratio of public indebtedness to a level of nearly 41%. So what is important here is that the newly constituted government of Czech Republic has pledged to cut the budget deficit by at least 100 billion. And right now we are operating in so-called budget provisorium. So this will be hopefully finalized. A new budget will be finalized through the first quarter, before the end of first quarter. On page 16, a little bit on inflation here. On the left side, you can see evolution of the inflation number. In the fourth quarter, it reached 6.1%. Here, 6.6%. Here, I would note that this is not including adjustment for the VAT forgiveness on energies. If that were calculated in the inflation would have been in fourth quarter somewhere north of eight point five percent. So we see alarming rate of inflation. There are three chief causes for that. It's the transportation, energy and food and beverages and the outlook. published yesterday by Czech National Bank is 8.5% full year inflation expectation for the Czech economy. On page 17, how did the Czech National Bank react to the situation? Well, the reaction came namely in the second half of the year, we had five hikes throughout 2021. And by the year end, the two-week repo rate reached 375 basis points. Yesterday, we had another increase. So the current level of the two-week repo rate stands at 4.5%. And we provide you with detail also on a 10-year government bond, PRIBOR, and the shape of the yield curve. Our plan and guidance actually include this expectation, and our plan and guidance actually include the expectation that the rates will start coming down in the second half of this year, which might be optimistic. Nonetheless, we take that assumption directly from the Czech National Bank. Now let's go to the next section, which is a brief overview of market evolution. If you look at page 19, you see the banking market for deposits. The market grew 7% and Moneta overperformed this growth at a level of 10.8%. The key area of overperformance where we grew at double the rate or close to double the rate of the market is on retail deposits where we posted growth of 13% as opposed to market growth of 7% and we've garnered year-end balance of 217 billion crowns. On commercial deposits, we performed slightly below the market, growing the realm of commercial deposits at 4.2% against nearly 7% market growth in the commercial deposits. And we ended the year with 67.7 billion of deposits. Turning page to 20, let me comment briefly on the evolution of the lending market. Moneta outperformed again the growth with growth rate of 12.6% against 8.6% of the market growth. Our overall portfolio at the year end stood at 261.3 billion. Here, please note that this is the gross loan portfolio without netting through provisioning. On the retail, we grew one third faster than the market, delivering 15.4% growth rate and ended the year with a balance of 179.3 billion. And on the commercial front, we matched the market in terms of growth and ended the year with 82.1 billion of absolute value. Now, this had been the... Development of the Banking Market and Monetas Performance and bear with me in terms of digital distribution. On page 22, we show you both absolute volumes, growth rates and proportion. Proportion is in the bubbles of our overall production which is achieved through the digital channels. So here, I have spoken about this. This is a bit more detail on the really strong success in digital distribution of mortgages, focusing on refinancing existing transactions. Very good performance on the small business loans. We would have grown more, but inclusion of government guarantees, we were not able to digitize. It's very difficult to do, but good performance. Excellent growth on the asset management and. We see quarterly dip on the distribution of current accounts, but if you look at the total distribution of current accounts digitally between 20 and 21, the overall growth in units in the past year was at the level of 9% on page 23. We show you more detail on evolution of users of our distribution of our distribution and service digital platforms and transactional intensity. So here in the left bottom left corner left bottom corner of the page you can see that the mobile banking platform transactional intensity is now equal with that of internet banking and we expect that in the ensuing Quarters within two quarters. We will see that the mobile banking platform will overtake importance of the internet bank on the following page. We give you 2021 overview of card transactions overlaying it from 2019. So you see the evolution and we have really respectable growth of nearly 50% in terms of number of transactions. But what is quite important here is that our share of e-commerce transaction is growing at more than 100%. And we also see solid growth of transactions conducted on POS terminals. This is quite important, as we have done two significant investments in the past. One, we changed the core system for management, administration of debit and credit cards. This was in 2020. And in 2021, we sought to optimize the cost base to a transfer of a card portfolio of Moneta from MasterCard to Visa. in order to lower the cost and achieve higher transparency in the relationship and price billing. And we have done that successfully. On page 25, a little bit more on digital platforms of Google and Apple Pay. So first and foremost, nearly half of our card portfolio is tokenized now, enabling our customers to use the payment instruments in the e-commerce realm. And secondly, you can see that these payment platforms are achieving more than double the growth of cards, where we see 109% growth in the payment intensity. And perhaps interesting for some people, Apple Pay, is more successful with respect to Moneta's customers than Google so far. And the last part, let me comment a little bit more the guidance and the results. If you look at page 27, our guidance on operating income published in 2020 October was 11.2 billion, subject to Interest rate environment and difficulties we had in the first half of the year. We lowered the guidance to 11 billion, but unrounded basis. We nearly matched it. We matched the original original guidance cost. We left throughout the past year untouched on cost of risk. We expected the losses from COVID to materialize in 2021. The opposite happened and Norman will show you detail on that and it will also positively impact if the situation continues, it will positively impact 2022. So this is an overview. With respect to forthcoming dividend proposal, we will discuss with the regulator, but the improved profitability of the bank puts us in a better position to hopefully negotiate the dividend distribution with the regulator. And with that, I will turn over to my colleague Jan Freček to walk you through details of the P&L.

Thank you, Tomáš. Good morning, ladies and gentlemen. Let me walk you through the profitability section starting on page 29. Net profit increased by 53%. This is predominantly driven by lower cost of risk. And this result represents return on tangible equity of 15.2%, which is nearly four and a half percentage points above the year before. On the revenue line, we delivered the originally guided income of 11.2 billion with the support of higher interest rate in the second half of the year, together with 8% growth of the net fee and commission income. Despite significant inflationary pressures, We maintain our cost base stable year on year. And lastly, we report favorable cost of risk of 29 basis points. This is primarily due to strong repayment discipline, low level of NPL formation, and also improved macroeconomic outlook. Norman will share more detail on this in the risk section. On page 30, you can focus on recurring profitability on the pre-impermanent profit level. If you follow the chart from the left-hand side, you can see that in 2020, we delivered on the recurring basis pre-impermanent profit of 5.2 billion. We arrived to this number after adjusting the reported result by the two non-recurring gains together in the amount of 1.4 billion. Higher operating income by nearly 500 million accompanied by stable cost base contributed to the pre-impermanent profit growth of 9.2% year-on-year. On page 31, we provide you with a breakdown of net interest income. In the fourth quarter, we recorded year-on-year growth of 9.7%. This has two drivers. Firstly, lending interest income is up by 3.8%, driven by the loan book expansion. And secondly, it was higher interest income from our hedging derivatives portfolio an excess liquidity place in the Czech National Bank. This is visible in the bottom chart on the right-hand side. On the other hand, chart in the middle provides development of our customer deposit costs. While in the first three quarters, we reported the decreasing cost of deposits, in the fourth quarter, this trend has changed. Moneta, as well as the whole market, came up with more attractive pricing offers on saving deposits, and with rising market rates. This trend is likely to persist throughout 2022. More detail will be provided by Andrew in the following section. On the next page, we continue with the development of net fee and commission income. 21% increase is driven by double digit revenue growth, supported by several one-off bonuses from our partners, resulting in a stable fee expense year on year. On the following page, We provide a detailed view on the drivers of the revenue growth. First and foremost, it is higher income from investment funds distribution, which nearly doubled in the fourth quarter year-on-year. Secondly, penalty and early termination fees are up by 50%. And finally, higher transactional activity delivered 19% income growth year-on-year. On page 34, we provide further detail about performance in asset management distribution. As I mentioned before, we achieved increase of the commission income by more than 89%. This excellent growth was chiefly driven by expansion of asset management balance by nearly 55% year on year, accompanied by higher average trailer fee. The average fee was improved from 83 basis basis points in Q420, 202 basis points in Q421, thanks to higher share of equity funds and also negotiation with investment fund providers. And now we can move forward to the cost base overview on page 35. As I mentioned before, despite significant inflationary pressures, we report stable cost base in 2021 against the year before. And moreover, In the last quarter, we recorded a decline of 2.4% year-on-year. Stable cost base was achieved through post-integration cost synergies, continued focus on productivity, and also low marketing expenditures, which offset inflationary pressures, namely in personal and admin cost categories. Increase of the personal expenses in the fourth quarter is driven by the accrual for annual performance bonuses for the management, which we typically account for in the last quarter of the year based on our financial results. And cost to income ratio for the full year stood at 49.6%, which is an improvement against 2020 on comparable basis. So this concludes the P&L section, and I will now hand over to Andrew, who will continue with the balance sheet development.

Thank you, Jan, and good morning, ladies and gentlemen. So moving to page 37, we present the development of Moneta's balance sheet, which continues to remain resilient and highly liquid, supporting lending growth through an increase in customer deposits by $27.7 billion. Net customer loans increased 13.1% year over year, whilst the core customer deposits increased 10.8% year over year. And we'll go into some of the detail behind that on the subsequent pages. On page 38, we present the segment composition of the loan portfolio, with retail and small business moving incrementally towards the objective of 75%. increasing by 25.6 billion year over year, and now representing 72% of the total portfolio. Going on to page 39, we present the yield evolution on the loan portfolio, which was positively impacted by improved interest rate environment in the fourth quarter, especially in the commercial segment. You can see that overall yields decreased to 380 basis points in the third quarter, and then increased in the fourth quarter, especially in the commercial portfolio, where 35% of the portfolio is on floating rates. In retail, on the other hand, the portfolio is almost 100% fixed rate, although you see stabilization coming through there as the increase in new business pricing starts to have an impact on the portfolio yield. Moving to page 40. We present the development of the retail loan portfolio, which increased 15.7% year over year due to strong growth in the mortgage segment, which was up 25.6%. This reflects generally strong market in the Czech Republic across the year, but also very strong performance on our side where we are growing at twice the growth rate of the market and increased market share from 6.9% at the end of 2020 to 7.9% at the end of 21. In consumer loans, on the other hand, you see the portfolio decline 2.7% year over year, and this reflects the continuing intense competition in the market, particularly from smaller players who have been gaining share. The auto loan segment grew 11.5%, reflecting increased demand for cars generally across the market, both new cars and used cars. And in credit cards and overdraft, we saw a decline of 10% year over year in drawn balances, which is broadly in line with the development of the market and reflects the higher liquidity in the market generally, which I think is evidenced by the savings rate peaking at 25.6% in the first quarter of the year. Moving on to page 41, we present some additional detail behind the development of the main retail loan segments. The mortgage new business origination increased 64.3% year over year. Again, as I said, driven by a combination of strong market and particularly strong performance from our distribution channels. However, at the same time, we saw increased early repayments in the first part of the year, which then improved later in the year as the interest rates increased, removing some of the incentive for clients to refinance their mortgages away. Similarly, In the consumer loan business, we saw 18.6% increase in new business volumes, also accompanied by higher early termination on the portfolio. And here, the combination of these two factors led to the 2.7% decline in the portfolio, which you saw on the previous page. Moving on to page 42, we present the yield development on the retail loan portfolio, where you see the increase in the mortgage yields in the second half of the year, which was driven by the decreased early termination on the portfolio. And on the consumer loan portfolio, you see the decline continuing in line with the trend, which, as I said, reflects the intense competition in that market, which we which we don't see letting up despite the series of interest rate hikes, which we've seen in the in the second half of the year. Moving on to page forty three. We look at the commercial loan portfolio with both small business and SME segments generating strong growth. The overall portfolio was up seven point two percent year over year with the small business portfolio growing twenty two point three percent reflecting generally strong underlying performance of the business but also our success our success in distributing state guaranteed loans. which represented 23% of the production. And as Tomasz said earlier, 11.5% of the portfolio is now covered by state guarantees. Moving to page 44, we show the yields on the commercial loan portfolio where we see increasing interest rates positively impacting the yields in the SME segments, particularly in investment loans and working capital. In small business, You see the yields declining, and this, I think, as was mentioned earlier, is driven by the uptake of the guaranteed product, which came with lower yields, as well as a marketing campaign in the fourth quarter, which also attracted more aggressive price positioning. Moving to page 45, we present the development of the funding base, which grew 13.4% overall. And on page 46, we present the yield evolution, sorry, the cost of funds evolution, which began to increase in the fourth quarter, increasing market rates, and was further accelerated by a marketing campaign that we launched on retail savings. And you can see this coming through in the increase in the retail cost of funds in the fourth quarter. Moving to page 47, we present the development of the retail deposit portfolio. Core customer deposits in retail were up 13% year over year, with strong performance in both current accounts up 14% and savings and term deposits up 12.6%. And on page 48, the commercial deposit portfolio. Overall, core customer deposits in the commercial segment were up 4.2% year over year, with current accounts contributing 8.6% growth. and savings and term deposits 16.7%, whilst the financial institutions decreased 37% year over year, reflecting our reduced reliance on this source of funding. And finally, on page 49, we present the development of the wholesale funding base, which grew 84.5% year-over-year, driven by repo operations with the central bank, which are used to manage the operational liquidity needs of the bank. Overall, I think 2021 was a successful year with loan growth of 13.1% and improving yields in the fourth quarter, although the consumer loan segment remains challenging, and obviously the deposit business is becoming more competitive as rates increase. putting upward pressure on the cost of funds, which we will need to manage over the coming quarters. So with that, I will hand over to Norman, who will take you through the risk metrics and asset quality.