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.

Thank you, Andrew. Good morning. We are now on page 51 with an overview of quarterly and full year cost of risk in 21. So in the fourth quarter, we recorded a cost of risk of 242 million or 38 basis points. Whereas the full year cost of risk amounted to almost 700 million or 29 basis points. The 21 result is a significant improvement compared to 2020 and also much better than initially anticipated in early 21. The key drivers of this positive development are a strong core performance, which is also visible in low delinquencies, which we we'll be sharing later with you, and B, the updated macroeconomic outlook in our IFRS 9 reserving models, which we did in the third quarter. Then C, we continued disposing NPLs. And D, we have been seeing a very strong payment morale of our customers on the COVID-related restructured portfolio. On the following page 52, Here we show the development of the loan portfolio, loan loss allowances, and overall coverages over the last five quarters. While gross and net receivables grew by roughly 8 billion in the fourth quarter, loan loss allowances dropped by around 100 million, largely driven by a drop in our NPL stock, thanks to NPL sales and solid repayment behavior. As far as the overall coverage is concerned, this currently stands at a solid 2.2%. Moving to the next page, 53. Here, we show the evolution of MPL in and outflows throughout 21. The fourth quarter development was positively impacted by write-offs, debt sales, and repayments. And as a consequence, the MPL stock dropped by around 400 million between the third and fourth quarter. Going to page 54, Here we have a more granular overview of the MPL stock, how it evolved over the last five quarters. The peak of the MPL stock was reached in the third quarter last year and has been steadily dropping since then, thanks to debt sales, upgrades and repayments. And as a result of that, the MPL ratio has continued to drop and now stands at 2.2%. On the next page 55 here we have a breakdown of the COVID related stock of nonperforming loans. Out of the 5.7 billion close to 2.7 billion are COVID related. And out of this 2.7 billion around 75 percent or 2 billion cheque rounds are being repaid regularly. And assuming a continuing positive payment behavior of these receivables then there's a substantial potential for upgrades in coming periods. On the next page, 56, here we show the evolution of delinquencies, 30, 60, and 90 days past due over the last four years. Overall and across these delinquencies buckets, the so far positive trends observed in the first nine months of last year have also been visible in the fourth quarter. And this positive development is largely driven by solid core performance, and in particular, the better than anticipated payment behavior of COVID-related restructured receivables contributed to this development. So summarizing the risk section, the core message is that the positive risk performance we have seen in the first nine months has been continuing throughout the year, including Q4, and has been much better than initially planned. So despite the Omicron wave, which has not yet reached its peak, we have so far not seen any adverse impact on the credit portfolio performance. At the same time, we continue staying vigilant by monitoring the portfolio as a result of the elevated inflation environment, high interest rates and the public debt consolidation potentially impacting the liquidity situation of both retail and commercial customers. And as regards to COVID-related restructured portfolio here, we see a solid performance where we stand a good chance of upgrades to stage two in the next quarters. And with that, I hand over to Jan. Thank you.

Thank you, Norman. I am now on page 58. And here you can see a detail of our capital position with capital adequacy ratio at 17.1%. and CET1 ratio at 14.4%, which is more than 3 percentage points above the corresponding regulatory requirements. Our accounting equity stood at 29.5 billion, while our regulatory capital reported on the right-hand side reached 28.9 billion. Growth rates of both positions are driven by the retained earnings, while the regulatory capital on top by the issued Tier 2 bonds. RWA density reported in the bottom right corner decreased to 53%, further supporting our capital adequacy ratio. And on page 59, we report in detail our excess capital development measured of the management capital target of 14.4%. At the end of 2021, we reported the excess of 8.1 billion, which constitutes about 16 crowns per share. The chart in the bottom part portrays risk-weighted assets development. While the loan book grew by 13.1%, our RWA position grew only by 9.8%. This ongoing trend is mainly supported by increasing share of mortgages, as well as state guarantees in small business lending with low capital consumption. So this concludes the capital management section, and I will now hand over to Thomas for the guidance and final remarks. Thank you very much.

So if we look at what we expect for 2022, we have that on page 61 for the year 2022. On a standalone basis, we expect to reach minimum level of operating income at $12 billion or more. On the cost base, we would like to put a ceiling of 5.7 billion. This is 200 million more than we've incurred in 21, and it's driven by inflationary pressure across the cost categories. With respect to cost of risk, we provide a range, of 20 to 40 basis points. And the minimum net profit target stands at 4.4 billion or 8.6% 8.6 crowns on per share basis. The year 2022, we would like to achieve a minimum tangible equity return of 16%, and I stress this is a minimum. With respect to the outer years, we have not changed the profit guidance. We changed somewhat the geography of the numbers, the topology of the numbers. And here I would like to stress that the year 22, and to some degree, year 23 are impacted through the assumption that we will have good performance on the cost of risk and that the cost of risk will benefit from the COVID related anticipatory provisioning that we've made throughout 2020. This could prove wrong, as we have been always on the right side of being wrong. This is really an assumption that the economy continues to perform well and that we continue to have fairly benign credit risk environment. On page 62, we provide an overview of the key assumptions underlying the plan, such as GDP growth, unemployment, inflation, and the interest rates. So, on the weekly report rate and on PRIBOR, you can see that for 2022, we have reached the level of the report rate, which is imputed into the plan, and we also envisage strengthening of the Czech crown against euro. However, this does not materially impact the impact our results. On page 63, we show you evolution of the two key categories of the balance sheet, which is the portfolio, loan portfolio on a gross basis, and secondly, core customer deposits. So what is perhaps notable about this plan is that with the higher interest rates, we are and a lot of uncertainty in the economy, how the economy will perform. We try to sober the assumptions on growth, and we envisage that during the period of the plan, the loan portfolio should increase 6.2%. If you look at the last five years, we've actually exceeded the growth rate of 18%, both Organically and through the acquisition of Western Road. So perhaps we will do better than that, hopefully. And on funding side, we envisage minimum growth of 6.5%. We also in the plan make assumptions that the cost of funding will materially increase throughout Namely throughout 2022 as we had observed that trend in the fourth quarter of 2000 2021. Ladies and gentlemen, we thank you. We're grateful for your patience with us and now. We turn back to you. And we are ready to answer your questions.

Thank you so much. We will now begin the Q&A session. If you'd like to ask a question and have joined the call via Zoom or Microsoft Teams, please use the raised hand function on your screen. If you've joined the call over the phone, please press star followed by one on your telephone keypad to enter the queue. Once your question is answered, please cancel the raised hand function and we'll make one moment for questions to be registered. Just as a reminder, if you've joined the call via Zoom or Teams, please use the raised hand function found on your screens. And if you're joining us over the phone, please dial star followed by one to register a question. And our first question is from Unger Thomas. Unger, your line will be open now if you'd like to unmute yourself locally and proceed with your question.

Hi, good afternoon. Can you hear me now? We can hear you as if you were standing next to us. Wonderful. Thank you. Thank you very much for the chance to raise a few questions. First of all, maybe if you could give us an update on where you stand with the air bank acquisition and the timeline. Has that moved? What do you expect? When would you expect the closing of that acquisition? Secondly, on the guidance for midterm, but also maybe more specifically for 2022, can you give us some details on what you expect for net interest income growth? What is the volume effect that you anticipate and how much of a margin effect do you anticipate for this year? And then also you mentioned, of course, the inflationary pressures on operating expenses. If you could just talk about what the main factors are here that made you increase the guidance and what makes you confident that you can hold that level of $5.7 billion as a ceiling, as you mentioned it in the presentation. Thank you.

Okay, so I will take the acquisition, and Jan Fridrich and my colleagues can comment on the NII metrics, volumes, margin, and inflationary pressure. On the acquisition, I actually signed the application to Czech National Bank, to obtain control of AirBank yesterday, and we've engaged in more than a month-long dialogue with the regulator how to structure the application. So I expect that hopefully there will be no surprises from the regulator as we engaged in close, let's say, dialogue with them on that. The application has administrative procedure of 90 days. So we will see how long that takes. But speaking from experience of one, which was Western Road, it really took 90 days for us to receive the formal clearance. At the same time, we are applying to Slovak National Bank as they have to approve it as well. due to home credit Slovakia, and this will be done most likely next week. With respect to the big picture, the plan is that we go through April shareholder meeting that has no bearing on the acquisition, but we finished the year come April, sorry, come May, We should do the first round of the capital increase where we plan to offer the shares that previously communicated 82 crowns. And if there is a need for a second round, then we would proceed through June. We are discussing now the process with a reputable partner as we will need help to conduct the capital increase. And we are close to, I think, reaching an agreement on that. Concerning the closing, there are two potential dates. One, 1st of July, if everything proceeds according to fairly tight schedule. and the second possible date would be 1st of October, depending on technicalities and approval and in the capital, in the capital increase. And as you know, the capital increase is in the second round guaranteed by PPF. So we will see how all of that proceeds. So far, we have no reason to change the schedule in any form or shape, but it's fairly complicated a process where we need regulatory approvals from two jurisdictions. But so far, we are on plan. And I'll turn over to Jan to tackle the NII growth, the expected level of NII. Volumes margins and how we deal with the inflationary pressure.

Okay, so on the on the I started the yield. We expect that with the increasing market rates, we will be able to increase average yield by about 30 basis points from 2021 where they both 3.8. to about 4.1% in 2022, predominantly through higher rates on mortgages and higher rates in commercial loan book. However, this increase on the yield will be pretty much offset by higher cost of funding, where in 2021, the average cost of funding was at the level of 35 basis points, for 22, we expect about 110 basis points. So about 200% increase year-on-year on cost of funding, which will result in a stable year-on-year NII at a level of 2.8%. So this is to the profitability or NII of the loan book. In terms of the volume, In 2021, we originated 80 billion of new volume, out of which 60 billion was originated in retail and 20 billion in commercial. For 2021, we expect a drop of a new production to 66 billion, where the drop will predominantly come from a lower expected new volume in mortgage lending where in 2021 we originated 50 billion. For 2022, we expect slowdown on the market and our production should be around 25 billion, maybe a tick lower than that. So this is for the volume. And I will take the inflationary pressures as well. Obviously, our cost assumptions going forward Assume that we would challenge inflation predominantly in terms of energy prices, rental costs and as well as average salaries. So the personal expenses. However, we expect to or we plan to offset part of these pressures through higher productivity, resulting in a reduction of FTEs. As you saw in the presentation, we ended 2021 with FTEs of nearly or a tick below 3,000. in our plan, we expect that this number will go down by about 100 FTEs throughout the year.

And on this, I would add that if you look at our employment structure, we have the core employment base, and then we have a portion of our colleagues on limited contracts or on part-time basis. So first, We will perhaps not renew some of the limited contracts, which typically are in the back offices, which typically are in the call centers and other areas where we have relatively significant staffing. So we are trying to dynamically adjust the model to the throughput in terms of number of pieces and volume. And we have already began that process in terms of review and making some decisions. So this is one. On energy, hopefully, good, thankfully, last year, we have fixed some of the energy prices forward. And we are benefiting from that. a decrease against the current market prices, sort of in the neighborhood of 15 million. It's not a big number, but still it's actually significant in terms of not increasing the cost base. And on branch network, we are examining what to do or what not to do. We would like to first gear up a bit more the digital distribution before we get confidence in further rationalization of the branch network. So we haven't made any decisions on that, but if we see that we have a cost problem, we will act quite decisively And in terms of other aspects of cost, we have actually reduced the car fleet of the bank by approximately 10% in the fourth quarter of the year. This has partly dimension of cost. It partly has dimension of ESG. So we have done some steps. The bank is seeking to really address it. However, at the same time, we have to have reasonable compensation policy with respect to our core employees as we have been. We typically raise salaries of approximately 55 to 60% of our staff throughout the year. We will watch very closely what we need to do to keep the bank stable in terms of remaining an attractive employer. And that's where we face a lot of pressure in some professions more and in some professions less, but the pressure is quite strong.

Okay, thank you. Did I get it right? When we were talking about the margin development, you expect a stable net interest margin for 2022?

You are really right. 2.8%.

Okay. And can you just maybe on the total income guidance for 2022, the step up from 21 is about around 800, at least 800 million. Can you break that down into NII fees and other income?

Rather not. We have never published these figures. We don't have to comment on that. Okay. If you look at it structurally, the major improvement in the guidance from what we put out in October 2020 to what we are putting out now for the year 2022 is the fact that the cost of risk is assumed to come in the range of what we have, 20 to 30 basis points. 20 to 40 basis points. And this is driven by the anticipation of provisioning release from the portfolio of COVID downgraded exposures, which Norman highlighted in his presentation where we expect that portion of this portfolio will be upgraded through the first six months of the majority of this will be taken, of the benefit will be taken from that portfolio in the first half of 2022. That's the main driver of the improved guidance.

All right. Okay. Thank you very much.

Thank you to Mr. Thomas for his question. And our next question is from Andres Stefan Novacek from HSBC. Andres, your line is open now if you'd like to unmute yourself locally and proceed with your question.

Thank you. My question is on interest rates. It seems that we're in this interesting situation when interest rates may need to be cut soon. And I can see that your forecast as well. But if inflation and interest rates stay high, do you expect this to have eventually a negative impact on asset quality? And also, if they do fall, what do you expect the asset and liability repricing dynamics to be? Thank you.

First part of the question, whether we expect, yes, because if you look at the plan, the guidance, you see gradual increase of the cost of risk in the guidance. And one of the drivers of that is that we take the release of provisions in 22. However, we see the situation normalizing and that normalization expects that the or cost of risk of the bank will be higher in years 23, 24 and beyond. And then it settles in the range of 40 to 60 basis points and 45 to 65 in the last two years of the guidance. However, this does not include a shock to the portfolio which would come from prolonged high interest rates because our plan is based upon assumption that the rates shoot up to 4.5 and then start coming down with the abating inflation. Should the inflation stay high, we will in the next year have to re-evaluate that plan across all metrics.

Does that answer your question, Andres?

Yeah, but as a follow up, you did raise a lot of deposits in in the fourth quarter, 20 billion that you've mentioned, on the expectations that rates will go up.

But if they go down very quickly... Then we are able to reprice it very quickly because we don't have any commitment on repricing or not repricing these deposits. So effectively, the repricing ladder on that is three months.

Okay, thank you, Tomáš.

The only portion of our balance sheet where we are locked into deposit rates is the Bauspar or the building savings, where we typically make a six-year rate commitment. However, that portfolio, Andrew can tell you the exact figure, is around 1% effective cost because it's subsidized by government. through interest rate subsidies. So otherwise we have fairly good ability to reprice the liability side of the balance sheet.

Thank you. And before we take our next question, I'd like to remind our participants that if you would like to ask a question and you have joined the call via Zoom or Microsoft Teams, please use the raised hand function found on your screen. And if you have joined us over the phone, please start dial star followed by one on your telephone keypad to raise a question. And our next question is from Simon Nellis from Citi. Simon, your line will be open now if you'd like to unmute yourself locally and proceed with your question.

Oh, hi, Tomas and team. Thanks. Thanks for the call. Yeah, just just a quick question on the dividend. Can you give us any color on how confident you are that you'll get approval to pay out that seven check crowns per share? That would be my first question. And then secondly, can you just elaborate a bit on the outlook for the unsecured consumer lending portfolio keeps going down, yields keep going down? Do you expect any turnaround there? Thanks.

The second question is easier. That will be taken by Andrew. The first question on the dividend, how confident I am. I am confident that we will do whatever is possible to argue with the regulator to enable us to pay the seven crowns. And the arguments are quite clear. We've made net profit of 3.984 2.9 billion plus 84 million crowns. So the seven crowns per share is in line with the 90% payout. And the 90% payout is in the policy, division policy, which the regulator is aware of the last five years. So that's number one. Number two, from a capital adequacy point of view, we command a good capital base with some excess, plus we've raised yesterday additional 100 million euro in secure, in senior debt. In a very difficult market, we were able to raise monel bond and the monel requirement is satisfied. so the regulator cannot argue that we face MREL. Third argument is that we've never been as provisioned as we are now because we carry more than one year profit in the provisioning and we have 2.2% overall coverage on the book. We cover the NPL at 1.101%. and we are well performing stable bank and we need to pay our shareholders the dividend because for many we compete on the dividend yield. So I hope that the regulator will accept these arguments and we have also actually quite successfully managed the MPL both ratio and the absolute level through proactive management collections and were able to dispose 1.5 billion of NPLs throughout 21. So I would argue it's difficult to point at any metric in the bank on structural basis and say that we shouldn't pay dividend, but I cannot guarantee. I can guarantee that we will do whatever is possible to convince the regulator. And now Andrew will tell us when we stabilize the consumer portfolio.

So first, let me comment on what we've seen in the market. So over the course of the last year, we saw the market rates broadly stable from end to end. However, During the middle of the year, they were down 70 basis points. So on average, rates are continuing to decline. And these are new business rates across the market. And as I said earlier, there continues to be intense competition where the large three, the big three banks in consumer lending, where we're number two, have been losing market share to the smaller banks who are playing very aggressively in this market. So that's the market, I think, probably continuing to see some price pressure on new business rates in the market. But the decline appears to be a little slower in 21 than it was in the prior year. And as I said earlier, we haven't seen any sign of appetite for increasing rates despite 425 basis points of cumulative hype by the National Bank over the course of the last year and a bit. As as to our own the development of our own business. You saw that in the fourth quarter the consumer loan yield reached seven point three percent. And what I would say is that now when the market is is is reasonable and there's reasonable demand in the market we're able to hold the origination rate close to that close to that level. which is some sign of a prospect of stabilization. However, it's also true that when the market goes through tighter periods, we often have to price slightly below that in order to hold on to some volume. So I think it will still be difficult to stabilize, but we're getting close to the point where new business origination is at similar rate to the portfolio yield.

Thanks for that call. Thanks. Thanks very much.

Thank you. And our next question is from Mr. Robert Brezoza. Robert, your line will be open now if you'd like to introduce yourself and your company to the speakers and proceed with your question. Please ensure that your line is unmuted locally.

Yes, hello everyone. I'm from PKVP, Securities Warsaw. Thank you for the presentation. I have a few business related questions. First, on the new deposit gathering, I would be interested to know how many new clients did you manage to get thanks to your marketing campaign in the 4Q, marketing of deposits, of course. Secondly, on fees development, you've had pretty Solid growth in insurance related fees and fund sales. My question is whether that's related more to the existing clients and with the insurance fees to the new volumes of lending or whether that's more independent. And also here, what's your outlook for the cross potential regarding the new clients coming to the bank? Thank you.

Let me start by taking the point on savings accounts. We gained roughly 25,000 new clients on savings accounts and we opened significantly more new savings accounts for customers within the bank. The offer was available to both. and so this is broadly the impact on the customer base. Obviously this provides an interesting opportunity for us now to activate those client relationships, those new client relationships and realize more value from them in the coming year.

The second question was the relevance of cross-sell. I think for 22, Our key target is to achieve higher cross-seller ratio on the mortgage portfolio. Because if you look at our most profitable client relationships on retail, it is coming from those clients where we have a mortgage and additional set of additional set of products. And with respect to the saving account customers that Andrew referred to, we have a target to quite substantially increase the asset management distribution this year. Whilst in 21, we had a 12 billion target and we've met it. This is the gross sales of asset management funds this year. We have a target to sell 15 billion of asset management. So this focuses on both existing and obviously the new the new customers on the fees. I didn't really understand the question, but vast majority 98% pertain to new customers. And I wouldn't be too optimistic about the fees because part of the late and prepayment fees will be under pressure last year. If you look at next year, if you look at 2020-21, we've reintroduced the mortgage repayment fee. In the fourth quarter, we collected 12.8 million crowns on that. and we were forced just a couple of weeks ago to step back from the fee as the regulator has fined subsidiary of Komeční banka 5 million crowns. So we will not be able to collect that fee because the regulator is quite, let's say, how to put it, uncompromising on that front. So I am 98% of our fee income more probably is from the existing customer base of the bank.

Yes, thank you regarding insurance fees. What I had in mind in Poland at some point the fee the insurance part of the fee business growth was very much related to the new volume of lending. And my question was whether that's also the case at Moneta or whether there's different drivers for insurance fee growth.

No, this is not our case. If you look at our fee growth, it's coming from three areas. One is asset management, insurance is the second, and third is the transactional intermediation. and Ford are delayed. The fees and fees for prepayment. But we have relatively we have a relatively small fee income from new lending and typically if there is a fee the fee actually gets recognized as part of interest income because it's accrued over the life of the product. But we are not really charging any fees on lending. upfront to customers anymore. The competition took care of it.

Thank you. Fair enough.

Thank you, Mr. Prezosa. And as a reminder, if you would like to ask a question and you have joined the call via Zoom or Microsoft Teams, please use the raised hand function found on your screen. And if you're joining us over the phone, please dial star followed by one to register a question. We'll just leave a moment for any questions to be registered. It appears we have no further questions registered, so I will hand back to Thomas to make any any final remarks.

OK. We would like to thank you for participating in the conference with respect to 2021. We believe that we have delivered Good performance, not only due to the cost of risk, but I would focus emphasis on the 9% increase of recurrent pre-impermanent profit of the bank. This is quite important. We have also accomplished across the board our growth target and the performance on the consumer loans was pretty much driven by the early prepayments rather than failure on origination. But that's the situation of 2021. Second, on 2022, we plan to expand the loan portfolio at the rate of 6.5%. We hope to be able to accomplish it. We will match the growth through focused attention to deposit taking. And we have significantly lifted the anticipatory cost of funding as we have to pay better interest rates in this high inflationary environment. So it's part of our plan. Those assumptions are part of our plan and the volumes that we plan are quite sober except quite significant increase on the asset management distribution. And lastly, we have a good potential, a high chance of getting a benefit from upgrade of loans that were downgraded in December 2020 and continue to have good performance. So we will see that in the first half of this year. And with that, We look with confidence to be able on standalone basis to deliver this year minimum level of profit of 4.4 billion. With respect to the acquisition, we are proceeding according to the plan. And with respect to seven crown dividend per share, we are committed to seek to convince the regulator to enable us to make this distribution as we see it, not only as a part of 2021 distribution, but catch up for the year 2020. And with that, we wish you a wonderful weekend and we look forward to our next call when we announce the first quarter results of 2022. So thank you very much and have a nice weekend. Bye-bye.