Moneta Money Bk

Dear ladies and gentlemen, welcome to the conference call of Moneta Money Bank regarding the first quarter of 2023 financial results. Please note that this conference call will be recorded. This event will have a live presentation followed by a Q&A session. And as a reminder, all participants will be in listen only mode. May I now hand over to Mr. Thurney, who will lead you through the conference call. Sir, please go ahead.

Good morning, ladies and gentlemen. I have the pleasure of opening today's presentation of our first quarter results for the year. If we turn to page two, we've generated a net profit of 1.2 billion crowns. This is based on the strength of operating income of 2.8 billion. which is 6% down compared to comparable quarter last year. However, if you look at the structure of the operating income, we actually have a quite good performance on the net fees and commissions. On operating expenses, these are stable. At 1.5 billion, the operating expenses increased significantly Nominally by 1.6%, and this is namely due to increase in mandatory charges that we have to contribute to regulatory funds operating profit at 1.3 billion. We had a very good quarter with respect to cost of risk. We released 90 million crowns, and this is based on good performance of the underlying portfolios, and even more importantly, on a very successful disposal of NPLs in the first quarter, which not only supported the cost of risk, but also reduced quite significantly both the absolute amount of NPLs and the relevant ratio. If we turn page to page three, if you look at our balance sheet, the absolute size of balance sheet, exceeded 400 billion crowns. This is on the strength of deposit growth. We had at the end of first quarter, 350 billion, which constitutes a 19% growth year on year. However, if you look at the first quarter, We have raised additional 16 billion in deposits. Hence, we have a very high volume of high quality liquid assets consisting of cash and government bonds, the HQLA increased by nearly 68%. And that in turn transfers itself into highest liquidity coverage ratio ever, 274%. Now, if we take a brief look at the asset side, our gross performing loan portfolio showing an asset growth of 3.4%. This is coming namely from the retail. The loan to deposit ratio declined to 76%. So this is also the lowest loan to deposit ratio ever since we have come to the public markets. and the investment portfolio hold to maturity at 80 billion. If we then look at the relative metrics of the bank, this is on page four, we improved the yield on the loan portfolio overall by 40 basis points. So we expect that by the end of this year, we will come near or at 5%. through repricing of the existing portfolio. Cost of funds increased 2.9% for the first quarter and we expect that with our current strategy this might climb up a little bit. Nonetheless, net interest margin of the bank at 2.1 for the remainder of the year We expect this to be stable at 2%. And we also provide you later on in the presentation our forecast of the net interest income for the following three quarters. Capital position solid on consolidated basis at 18.1%. and we will go through detail of both consolidated and individual capital adequacy later on in the presentation. The result turns into return on tangible equity of 16.8%. And finally, not finally, actually, let's look at the operating platform. We currently operate 140 branches As you can see, year to year, we have closed 9% of the branch network and this adjustment is right sizing of the network to the efficacy of our digital strategy and we will continue in this endeavor for the next two years. If you look at ATM infrastructure, as you know, last year, We have successfully entered into alliance with Commerční banka, subsidiary of Societe General. During the first quarter, we materialized agreements with Unicredit and Airbank, so we have expense-free access now to more than 2,000 ATM machines in the country. and this will enable us later on in the year to consider how to make withdrawals, how to put fees on withdrawals in the second half of the year or fourth quarter rather on the non-alliance network and further improve the net fees and commissions position in the bank. In our fight against inflation, we have decreased the employment in the bank to 2,553 FTEs. This constitutes nearly 13% decrease year on year. The decrease is 50% related to improvements in productivity in the bank and about 50% of the decrease is a result of lower demand namely for our credit products. If you look at the client base, it's developing steadily. Even the growth slowed down compared to last year. Somewhat last year we recorded 5.4%. Now first quarter generated a 4.6% growth in the customer base. And we continue to have solid performance on the digital channels. If you look at our mobile banking platform, within a year, it attracted 333,000 of new users. This is partly a result of our cybersecurity strategy, where we request push notifications through the mobile banking platform to access internet bank, and also We are trying to discontinue SMS messages as they are prone to cybersecurity fraud. On the following page on Tuesday, two days ago, we held a shareholder meeting. The shareholder meeting was successful from our perspective. There were four key decisions made at the shareholder meeting. Number one, we've elected Mrs. the current CFO of PPF Group into our supervisory board. Secondly, we've approved financial statements, both consolidated and individual. Third, We have approved management remuneration report successfully. And fourth point is that we received shareholder support for eight crowns per share dividend distribution, which will be paid on 25th of May, if I remember correctly, the day. With that, I will turn over to Klara. who will give you a brief view on the operating environment from the perspective of our macro in the Czech Republic.

Thank you, so I'm turning to page number eight and let me comment on the macroeconomic environment. From the GDP evolution point of view, the Czech economy is slowing down while the GDP growth for 2022 was two and a half percent. In the fourth quarter, it reached 0.3% and in the first quarter, and the first quarter 2023 will be 0.6% negative. For the full year, the Ministry of Finance is expecting economic stagnation. The forecast stands at 0.3%. However, this does not seem to impact unemployment dramatically. In February, the unemployment rate was 2.5%. The full year expectation is at 2.7%. The economy, therefore, managed to absorb the last year's wave of Ukrainian refugees into the labor market. The country continues to experience significant budgetary deficit since 2020 this year, the budgetary deficit has been framed at 295 billion crowns in March, it has already reached 166.2 billion. The government seeks to consolidate the state budget by a lower spent and increased taxation. However, it seems to have limited ability to influence mandatory expenditures in the short term. So while the government maintains the original target, the 295 billion reaching of it might be a challenge. The government debt as a percentage of GDP has reached 44.1%. which is still way below the Euro area. Now let me comment on page number nine, the inflation and interest rates. The inflation remains high in March. It has reached 15%. The key contributors are food and housing. We can observe some decline in fuel related costs. The expectation of the Czech National Bank for 2023 is 10.8%. Interest rates are reflecting this development and the monetary policy of the Czech National Bank. The Czech National Bank has been keeping the two weeks report rate at 7% since 2022 and we do not expect a decline in the near future. yield curve remains inverted. The short-term one-month driver is at 7.1%, while the long-term is at 4.5%. As a result of the inflation and the interest rate environment, we would expect interest rate decreases only later in 2023. So this is it for the macroeconomic environment, and let me hand over to Andrew for the digital successes.

Thank you, Clara, and good morning, ladies and gentlemen. So going to page 11, we again present an overview of the key aspects of the bank's digitalization strategy over the last five years. I'm not going to dwell on the detail here, but what I would do is just draw a contrast with the things we focused on over the last five years and the focus that we've had in the last couple of quarters, where there's been a meaningful shift towards deposit products and deposit gathering, reflecting the environment that we're now in. And I think this is nicely illustrated on the following page, where you see that the digital distribution platform is now playing a pivotal role in our deposit gathering efforts. On the right hand side of the page, you can see that the digital origination across all of the major deposit product categories is up significantly year over year. And the digital platform is now accounting for the largest share of origination across all of the deposit products. In contrast, on the left-hand side of the page, you can see the development of the digital origination on the lending products, where we are down year over year in all cases. And this broadly reflects slowdown in demand in the market generally, as well as some tightening of risk appetite on our side in the lending products. Going to page 13, we present the development of the mobile and internet banking platforms. As Tomasz highlighted earlier, we've seen significant growth in the number of mobile banking users up 55.4% year over year. And as Tomasz said earlier, Reflective partly of growth in the client base and activity in the client base, but also a concerted effort on our part to migrate clients to the mobile banking application as the primary means of authentication for online transactions and long into internet bunker. And this is in the context of increased fraud activity in the market where we see basically across the entire European market increase in phishing campaigns. And we're much more able to protect our clients if they're onboarded into the mobile banking application. In terms of transactions, we see transaction intensity on the internet and mobile banking applications increasing significantly, up 29.7% year over year, and the growth is primarily driven by mobile, as you can see. Going to page 14, we present some detail on the card portfolio. We see continued growth in the card payment transactions up 23.8% year over year. This reflects, again, overall growth in the client base and increased activity and a move away from cash. And interestingly, on the right hand side, we see the development of tokenized card payments. So these are card payments made via a tokenized card in a mobile phone or a smartwatch typically. And here we see growth of 74.4% year over year as our clients become increasingly digital and adopt this technology. And finally, in the digital section, on page 15, we present the app store ratings of the mobile banking application in the two major app stores, iOS and Android, where we in both cases have a rating of 4.8 out of 5, reflecting the fact that our mobile application continues to be one of the most popular in the market. So that concludes the digital section. And with that, I will hand over to Yuan, who will take you through the profit and loss section.

Thank you, Andrew. Good morning, ladies and gentlemen. I'm now on page 17 and will continue with the profit and loss statement. Let me repeat the key financials. The Moneta Group reported net income of 1.2 billion on revenues of 2.8 billion and delivered return on tangible equity of 16.8%. Lower revenues are driven by net interest income decline by 16.2%, partially offset by net fee and commission income up by 19%, and also more than doubled other income. Cost base of 1.5 billion remains broadly stable and is only marginally up due to higher regulatory charges. On the cost of risk line, we report 116 million net release against 95 million last year. This favorable result was mostly offset by solid loan portfolio performance and NPL reduction. More to that will be provided by Norman in the next section. On page 18, we continue with the detailed analysis of NII. Firstly, lending interest income in the top right corner is up by 368 million, achieved through loan book expansion of 3.4%, accompanied by a loan portfolio yield up by 40 basis points year-on-year. Treasury income went up by a billion, delivered through a combination of more liquidity, expanded portfolio hedging derivatives and also base rate increased by 2.5% year-on-year. Interest income increased by 1.4 billion euro an year was more than offset by cost of customer deposits, which is up by 1.8 billion during the same period. Main drivers of the continuing deposit cost pressure are the 19% deposit base expansion accompanied by persistent need to reprice a significant portion of the deposit base to the current market level. On page 19, we provide you with a projection of net interest income and the net interest margin for the rest of the year. Firstly, net interest income projection shows 9.6% improvement between Q1 and Q4 this year. Predominantly driven by containing growth of highly high-quality liquid assets funded from expanding deposit base at positive margin accompanied by higher income from hedging derivatives. With respect to the net interest margin, we expect stable development at 2% for the rest of the year. where this projection does not assume deposit repricing this year as the market conditions do not allow us to do so. However, we manage closely our deposit strategy and remain flexible to do the repricing immediately when the market situation allows. On the next page, we continue with the development of net fee and commission income. The 19% growth is driven by higher commissions for the third party products distribution, together with the higher transactional activity. At the same time, higher number of transaction drives the fee expense up. The income side is further broken down into categories on the next page. The chart on the left, reports transactional income growth of nearly 14%, accompanied by pickup in servicing fees, while predominantly early termination fees are below the last year due to limited opportunities for refinancing. Third-party commissions on the right side reached 354 million, about 100 million above the year ago. More than 42% growth was achieved due to strong performance of the insurance products distribution, further supported by new commercial conditions. Page 22 provides detail view on the insurance products and asset management distribution. Chart in the top left corner shows quarterly number of pension insurance contracts sold, which increased six fold year on year, and at the same time, life insurance annual premium equivalent increased by nearly 7% year on year. We seek to maintain these production levels achieved in the first quarter for the rest of the year. On the right-hand side, you can see pickup in distributed volume of investment funds in the first quarter. As a result of that, we report increase of the outstanding amount of distributed investment funds by 21% year on year in the chart bill. And now we arrive to the cost section starting on page 23. As mentioned before, the cost base remained broadly stable year on year. and the only increase is visible in regulatory charges which went up by 50 million and we were able to partially offset the impact through lower personal and administrative expenses. Water development is further broken down on the next two pages. Page 24 first. On the right hand side, we report quarterly development of the employment. And during the last four quarters, we reduced the employment by 12.8%. In the second quarter this year, we seek to further reduce the employment down to 2,500 and keep stable at this level. And by this way to mitigate negative impact of the labor cost inflation. And on page 25, we provide detail to the administrative cost and depreciation and amortization. Administrative costs on the left are 7% down year on year, predominantly due to low intensity of marketing activities this year. and on the right moderate growth of depreciation, amortization and amortization is driven by ongoing investments into IT infrastructure and building digital capability while least cost remain broadly stable year on year. Now let me hand over to Jan Novotny who will continue with the balance sheet section. Thank you. Thank you very much, Jana, and good morning, ladies and gentlemen.

Let me now walk you through the balance sheet development section of today's presentation. As you can see on the page 27, our overall balance sheet has reached record level of almost 405 billion check rounds, mainly thanks to the very successful deposit raising in all channels, and especially in the digital realm, as mentioned already by Andrew. We have achieved very strong 19% growth in the key category of core customer deposits, where we have reached 305 billion check round level at the end of Q1 2023. We have still achieved solid growth also in the net customer loan category on the asset side, where we have achieved level of 266 billion check rounds with 3.3% year-on-year growth. This is fully in line with our strategy to focus more on customer deposit growth, and we will continue to follow this strategy going forward. Now moving to the next slide, slide number 28. Here you can see the evolution of our lending base in last five quarters and you can see also the evolution of the segment share on this book with a slight share increase in the high yielding small business loan portfolio ending with 5% share, retail with 69 and 26% share of SME lending. On the next slide, slide number 29, you can see also the evolution of the loan portfolio yield. Left side of the page is depicting the overall portfolio. And on the right side, you can see the split per segment. We have also newly added the impact of the hedges for the portfolio. And you can see that after adding the impact of the hedges, the overall yield has reached 5% for the bank and 4.8% for the resale portfolio. The effect of hedges is rather small and commercial as large portion of the loans are based on float pricing and therefore the hedge density in commercial is rather on the low level with limited impact. Now let's dive a little bit deeper into the product and segment development overview, starting with the retail portfolio. And for that, please let me hand over to my dear colleague, Andrew Gerber, our Chief Product and Marketing Officer.

Thank you, Jan. So moving to page 30, we present the development of the retail loan portfolio, which grew 4.1% year over year, driven mainly by the drawdown of preexisting mortgage commitments. The mortgage portfolio grew 5.6% year over year, And what's important to say is that when we look at the new originations in the mortgage business, these are new deals signed and entering the pipeline. We're seeing very low origination down 90% year over year. This is a trend that's reflected broadly across the market. and this is starting to impact the inflow into the book and you will see the portfolio growth starting to slow over the coming quarters. In consumer lending, the portfolios remained flat year over year and this again reflects lower new volume origination Down 30% year over year, partially offset by lower early termination on the portfolio, which was down 26% year over year. And in auto, we see the portfolio continuing to grow 7.7%. the trend that we saw in the previous quarter. And in the revolving products, the portfolio declined 1.4%. Again, this is continuation of what we saw in the previous quarter. Moving to page 31, we present the yield development on the portfolios where we see improved new volume yields across most of the product areas. In mortgages, the new volume yield has increased to 5.9%. Although I would say that given the very low volume being originated in the in the mortgage business at the moment, this has limited effect on the portfolio yield. And what's really driving the portfolio yield up is to a small degree, the refixations, but most significantly, the impact of the hedging. In consumer lending, the new volume yield has reached 9.3%, and this is helping to stabilize the portfolio yield. But this market remains fairly subdued, so we will see how it develops over the coming quarters. And likewise, in auto and supplementary housing loans, you see the new volume yields continuing to improve. and gradually flowing through to the portfolio yield. So with that, I'll hand over to Jan again, who will take you through the commercial.

Thank you very much, Andrew. Now, please, let's move to the slide number 32, where we have prepared similar split for the portfolio for the commercial part. On the left side of the page, you can see that the commercial portfolio ended up at 82 billion check rounds, which represents 2% theory of growth. There is also a visible drop of the portfolio in Q1 by 1.2 billion check rounds, caused mainly by the repayment of two large exposures in the working capital category. On the right side of the page, you can see the evolution of different products with 0.5% growth on investment loans, already mentioned decrease of 1.2 billion on the working capital, and and there is still very strong growth on the small business loan portfolio where we have reached 18.5% year-on-year growth. This growth, however, is slightly slowed down in the last two quarters, caused mainly by lower demand, tightened risk approval strategy for the segment, and also by the increased pricing. This leads me to the next slide, slide number 33, which is showing the evolution of the portfolio yields as well as the yields on the new volume origination. You can see that we have maintained high profitability requirements on new origination, as well as for the re-fixation where applicable, which is resulting in a quick portfolio yield growth across all the product types. Now let me move to the page number 34, where you can see the detailed analysis of the re-fixation or repayments of the current Moneta book, meaning retail and commercial combined. And as you can see, 67% of our loan book will be repriced or repaid within the next 36 months. You can also see the split into variable rates, fixed to maturity, and fixed to refixation period, including its respective amounts in the next 12, 24, and 36 months. So that was the overview of the evolution of our lending portfolio. And now let's move to the similar overview also for our funding position. And for that, please let me hand over back to Andrew.

Thank you, Jan. So moving to page 35, we present the development of the funding base of the bank, where we've seen significant growth up 17.7% year over year, driven, as we said, through strong deposit gathering activity. And the deposit growth is broadly based across both the retail and the commercial segments. Going to page 36, we present the development of the cost of funds. Overall, the cost of funds growth continued in the first quarter. Year over year, cost of funds has increased 198 bps. And we see similar increase in cost of funds, both in core customer deposits and wholesale funding. And within the core customer deposits, again, we see similar growth across retail and commercial, slightly higher in commercial. slightly higher in retail, slightly lower in commercial. But broadly, cost of funding is growing across all segments. And as Jan said earlier, we're not especially optimistic about market conditions allowing significant repricing later in the year, but we remain ready and very flexible to implement repricing when the conditions allow. On page 37, we present the development of the retail deposit portfolio, which has grown 19.6% year over year, driven by strong growth in savings and term deposits, up 35%. And we see continued decrease in the current account deposits, driven by customers moving excess liquidity out of current accounts and into higher yielding savings accounts. We believe we're beginning to approach the point where the current account portfolio should stabilize. This is partly due to the growth that we have in the portfolio as those clients become active. We hope to see them building balances and partly due to the fact that when we look at the individual accounts, we feel we're close to the point where what we're seeing in the accounts is the monthly float that's required rather than any excess liquidity. continue to monitor that and see how it develops over the coming months. Moving to page 38. We present the development of the commercial deposit portfolio, where again, we see strong growth overall up 17% year over year. And again, it's very similar to retail strong growth in savings and term deposits up 69.7% and continued outflow from accounts. And finally, for the deposit section on page 39, we present the wholesale funding base. The wholesale funding base decreased 9.7% year over year, driven by the growth in deposits, in core customer deposits, enabling us to reduce our reliance on more expensive wholesale funding, particularly in the due to bank segment, which decreased 47.7% year over year. So that concludes the balance sheet section and with that I will hand over to Jan who will take you through the liquidity and interest rate management.

Thank you Andrew. So let me take you through the new section regarding liquidity and interest rate management. We are on page 41. where you can see that at the end of the first quarter, our position in high-quality liquid assets stood at 108 billion. On top of that, we keep between 2.5 to 3 billion cash sitting at branches and ATMs. The high-quality liquid assets position increased by 68% year-on-year, predominantly Customer Deposits Expansion. And if we look on the high quality liquid assets as a share to customer deposits, you can see that we increased the liquidity share from 22% a year ago to 31% at the end of the first quarter. On the next page, we report the split of customer deposits from the insurance point of view. At the end of the first quarter, out of 350 billion of customer deposits, 83% were covered by the insurance. Furthermore, this relatively high share was further increased during the year by 2%. One comment to that, in the Czech Republic, insurance covers retail and commercial deposits at individual client level up to 100,000 euro, which is equivalent of 2.4 million. On page 43, we provide you with a split of assets and liabilities based on variable and fixed interest rate. On the asset side, the balance of variable rate earning assets stood at 151 billion, or 39% of the total, which represents a significant increase from 25% a year ago. These assets consist from free liquidity, then variable rate loans, and also fixed exposures swapped to a variable through hedging derivatives. The increased share of variable assets provides protection against high interest rate environment persisting for longer period. On the liability side, we maintain liabilities bearing variable interest rates of 200 billion. This represents 55% of the total, and it mainly consists of 157 billion of saving accounts, which we can reprice within three months. At the end of the first quarter, our simplified NII sensitivity shows that two week report rate reduction would improve the NII by about 450 million annually. This estimates that the benefit from repricing deposits will more than offset lower net interest income on the asset side. On the next two pages, we show detail of investment portfolio classified as holds to collect. The chart on the left shows breakdown by refixation profile, including hedging derivatives. And as you can see, a slight majority of the portfolio has a refixation data. On the right side we report portfolio yield and interest margin above the cost of funding where the yield doubled during the year and the interest margin improved by 30 basis points to 1.7% in the first quarter this year. And on the last page of this section, page 45, we report duration of the investment portfolio. During the last 12 months, we shortened the duration from 6.7 to 4.1 years or 40% in the relative terms through increased hedging density, which you can see on the right side went up from 26% to 53% this year. So this concludes the section dedicated to our liquidity and interest rate management. And I will now hand over to Norman, who will take you through the risk section.

Thank you. Thank you, Jan. Good morning. We are now on page 47 with an overview of cost of risk for the last five quarters. So in Q1, we recorded a net release of provisions of 116 million Czech crowns or 17 basis points. This is likely better than the cost of risk of the first quarter of 22, but a significant improvement compared to Q4 in 22. Both the commercial as well as the retail book show the net release of provisions, the latter largely driven by sales of non-performing loans. The main drivers of this result are continuing solid core performance, good payment morale of previously downgraded and forborne receivables, and most importantly, non-performing loan sales, which generated significantly better results than initially anticipated. The pre-tax P&L gain on these NPL sales in Q1 amounted to a total of more than 220 million check rounds. On the following page, page 48 here, we show the evolution of the loan portfolio. loan loss allowances and overall coverages for the last five quarters. While gross receivables grew by around 7.7 billion a year, loan loss allowances dropped by more than 13% over the last 12 months, largely driven by a drop in our MPL stock, thanks to upgrades of downgraded receivables to performing status, MPL sales, and so far experienced solid core performance. With regard to the total stock of provisions in the amount of 4.8 billion, here you can see that more than 900 million constitute managerial overlays, which we have built up over the last 12 months. We're also addressing increased risks stemming from high energy prices, inflation, and high interest rates. As for the overall coverage, This dropped from 2.1% a year ago to 1.8%, which is largely a result of the reduction of our NPL stock in the reporting period. Moving to page 49, here we show the development of NPL in and outflow since March 22. The first quarter of this year showed a net MPL reduction of more than 280 million cheque crowns, supported largely by repayments and MPL sales as indicated earlier. And as a consequence, quarter over quarter, the MPL stock decreased by almost 300 million and stood at 3.5 billion at the end of Q1 this year. If we move to page 50, Here we had a more detailed overview of how the MPL stock evolved. Here we had both the retail as well as the commercial MPL stock showed significant drops and stood at 2.7 billion for the retail book and 779 million for the commercial book respectively. And as far as the MPL ratio is concerned, this dropped from 1.8% a year ago to 1.3% at the end of Q1 this year, which is the lowest level recorded ever. And last but not least, in the risk section of this document on page 51 here, we have the evolution of the delinquency rates. So overall and across delinquency buckets, delinquency rates remain on a comparatively low level and are still below pre-COVID levels. And in particular in Q1 this year, we saw a further improvement compared to Q4 in 22. So summarizing the risk section, I would say the main message is that the core performance of our credit portfolio remained solid. And overall, we have not seen any significant changes in key risk performance metrics, despite the adverse implications stemming from increased energy costs, high inflation, and changed interest rate environment. As it is currently widely expected that the full year inflation will remain north of 10% and GDP will be at most likely positive for the full year. And despite the better than expected Q1 performance on cost of risk, we maintain a cautious view on the overall impact on the quality of our credit portfolio. A key unknown obviously is still in which direction the labor market is going to move as the unemployment rate remains still on a fairly low level. In our provisioning approach, we try to address these risks by having accounted for potential deterioration through extensions of the management overlay framework. And as I said before, at the end of March, we had a total overlay of more than 900 million. And this will be subject to reviews going forward. And when necessary, we would even further increase that. And with that, and over to Thomas on capital management. Thank you.

Okay, if you look at page 53, we provide you with an overview of the capital requirements. If you look at the consolidated basis, which is on the left hand side of the page, this year we face an increase of 50 basis points and this is due to counter cyclical buffer going from two to two and a half percent. Then if we move on to the right, We face an increase of 2.6%, and this is composed of two components. One component going up is the counter-cyclical buffer. Second component is the MREL requirement, which increases from 4.7% to 6.1% by the end of the year. And in the midterm, we have to meet 4.7%. on individual level by mid year sorry by April meet 21.1 and end of the year 23.2 now where do we stand on the following page you can see our current position on 50 on page 54 where on top of the chart we have the Consolidated position and you can see that unconsolidated, we are well ahead with 18.1 capital requisite ratio with the CET1 ratio at 15.4, 40 basis point improvement from a year ago. On individual, we are currently at 21.5. So we have 40 basis points over the requirement. and the composition is similar where the overall capital adequacy stands at 19.1 with the CET ratio in excess of 16%. On the following pages, we show you the standalone individual and then the consolidated composition. of evolution in regulatory capital, in risk weighted assets, and in the MREL adequacy ratio. So in a nutshell, going forward by the end of the year, we need minimum of 3.5 billion of MREL eligible instruments. We will begin marketing Subordinated Deposit in the second half of May. We will target our existing customer base and we hope to be done with this by mid of July latest. If we do not raise sufficient amount, we will repeat the process in August and September. And then if that is not sufficient, we will move on to the international debt markets and look for a window to issue it. Now, if we look at the consolidated basis, similar picture. However, what is perhaps of interest here, we ended the last year with 3.3 billion of excess capital If you look at how the position in excess capital changed, it is clear that the regulatory requirements, increasing regulatory requirements are eroding the excess capital. 860 million went in that direction. We have optimized the RWAs, however, we are not able to offset it through the RWA optimization and we also retain 20% of the If you look at the RWA, the optimization is clearly visible from the density bubble, which is under the stack. We are at the end of the first quarter, slightly over 40%, and you can see the two-year development. I think the rest of the page is fairly self-explanatory. Now let me move on to page 58, just to make a couple of comments regarding the minimum target Profitability that we provide you. If you look at this, this is repetition of the guidance that we gave in February 2023. Cumulatively, we seek to achieve minimum profitability in a five-year horizon of 23.6 billion crowns. That would constitute an 18% increase Improvement over the past five years when we delivered 20 billion. This holds for... 23, we stated a minimum target of 4.3 billion. We are currently redoing the operating plan as the conditions are fairly fluid and fairly unpredictable. We will update the minimum target and based on what we see and what we have done, In the fourth quarter of last year and this quarter, there is some likelihood that we will move the minimum target up as we did a lot of work to be able to do that. With this, I thank you for your attention. I thank my team for fantastic presentations and let's move on to Q&A.

Thank you. We will now begin the Q&A session. If you would like to ask a question and have joined the call via Zoom, please use the raised hand button on your screen. Alternatively, you can use the Q&A chat box found on your Zoom toolbar. Before speaking, please ensure that your local device is unmuted. And if you've joined us on the phone, please press star followed by one on your telephone keypad to enter the queue. One moment, please, for the first question. The first question comes from Mehmet Sevim of JP Morgan. Please go ahead.

Good morning. Thanks very much for the presentation. I have a couple of questions on the deposit liquidity increase, please. Your proactive decision was very timely, given the increased focus on bank liquidity right now globally. And I will have three questions here. So first of all, do you expect this growth trend in deposits to continue at a similar pace throughout the year? So with deposits well exceeding maybe 400 billion crowns Or is there a level of liquidity that you wouldn't target to exceed once you reach that level? Secondly, what are your strategic plans with your newly acquired liquidity longer term once the rate environment normalizes? In the short term, I understand you're deploying a portion in government bonds. But longer term, maybe is it fair to see this as a preparation for a higher growth environment? Or is that a structural shift in the balance sheet with LDR to stay transformational? low through the cycle? And finally, how do you assess the flight risk of these newly acquired deposits and customers once rates come down, given arguably the primary motivation of these customers is the premium pricing that Moneta offers at the moment? Thank you very much.

Excellent questions. The internal target is is in the range of 375 to 390 billion in core deposits for this year. This hinges upon our ability to maintain both steady profitability and, at the same time, offer competitive rates to the market. And we will adjust the pricing strategy I would say 75% weight is on ability to deliver the profitability target and 25 is to enhance the absolute value of the deposits that we carry. The third part of the decision-making is to granularize as much as possible the deposit base into insured deposits below 2.4 million insured amount so that we have as granular as possible deposit base and this we work on for the last 12 months. What do we plan to do with the liquidity? Our policy calls that the HTC portfolio should be 25% or lower with respect to the structure of the balance sheet. And then we have various appetite limits across the segments that is commercial and commercial and retail. So number one priority from 18-month perspective is to continue to strengthen support to self-employed and micro or small enterprises where we currently have exposure of 12.5 billion. And if I can be slightly facetious, I would like to double it. because this is the most profitable business line that we've created since the IPO. Secondly, at some point we will come back to the unsecured market with more rigor on the pricing and if the inflation comes down, and situation stabilizes, we will be able to also open somewhat the fairly tight underwriting criteria. We will become very selective in mortgage lending Lending Through Digital, focusing on refinancing of existing mortgages, seeking to have low cost of distribution. Then we have the SME segment, where we've discontinued lending to commercial real estate. and we will focus on our traditional customers which is agriculture and related because we have a strong franchise that in that element hence The deployment will be pretty much proportionately similar across the balance sheet. However, I would like to take the retail and small business ideally to 80% of the balance sheet within next year horizon. a flight risk of the deposits. As a matter of fact, yesterday we had asset liability committee and we have new results for the sensitivity of the deposits and the sensitivity on the savings products, both retail commercial is about 33%. So we will make a concentrated effort to seek to cross sell those customers with current accounts and hope to anchor them in the bank through transactional banking. And this is work for next 24 months where we need to enhance how we spend our marketing budget and how we focus the incentive schemes in the bank. If you look at Andrew, if you look at Jan's KPIs and also head of distribution for the first time in history of the bank, they actually have to deposit efficacy inside of their KPIs and we have totally refocused the sales force from lending to current account distribution and activation. So I hope this answers the question.

That's all very helpful. Thank you very much, Thomas. Just one question, if I may. You mentioned 33% sensitivity in retail deposits, if I got this correct. How do you calculate or define this, please?

Well, you have to ask Jan Frejček because I have no clue how they do it.

Just from a High level point of view, we run models in our asset and liabilities management team, and these models are based on measured behavior of our customers. How do they reacted on changes of the interest rate in the environment, as well as in our deposit pricing proposition. And based on that, we saw during the last 12 months increasing sensitivity of these deposits, hence we incorporated or we updated the assumption in the model going forward.

So it's, I would say, 80% behavior driven and 20% assumption driven.

Great, that's super helpful. Thanks so much.

The next question on the line comes from Simon Nellis of Citigroup. Please go ahead. Your line is open.

Oh, hi. Thanks for the opportunity. Hi, Tamasha. My question is on the net interest income forecasts that you've given us nicely for the next three quarters. I think if you add them all up, you get to NII of around 8.5 billion for the full year. But I think your target for revenue is around 12. How confident are you that you can hit that 3.5 billion?

We are well prepared for your question because we expected it. Jan will cover this one off the bat.

In our guidance, our 12 billion revenue guidance is based on the net interest income of 8.5 billion. On the net fee and commission income, we estimate at minimum $2.5 billion. And on the other income, the rest, which is $1 billion, checked out. The drivers of these, if you compare these estimated balances against 2022 actuals, the increase of net fee and commission income is predominantly driven by higher volumes distributed in life insurance products and also the renegotiated commercial conditions. This is what I mentioned in my previous section. On the other income line, we will benefit from a higher ethics margin this year in both segments, retail and commercial. And at the same time, last year we reported a negative result of ethics swaps of about 300 million in the other income. And this will not repeat this year as we stopped doing the opportunistic report transactions.

So one leg of these swaps was in the other income and the other leg had positive impact on the net interest income. We stopped doing these operations because they are no longer economically viable with the increase of rates in the Eurozone. So the other income will be significantly stronger than last year.

Got it. Thank you. My next question, I guess to the extent possible you can answer it, is you have a number of new core shareholders. I see PPF is now on the board. Can you maybe discuss who these new shareholders are? Do they have any influence on the bank and if there's any change in strategic direction that you see And I think combined, you know, the four new larger shareholders, they have just over 50%. Do you see any potential for them to kind of consolidate that stake one of them consolidating control?

Not currently. On the second part of the question and on the former part of the question, whether they exert influence, I think that we treat them as any other shareholder. So far, they're not trying to project any of, I would say, strategic directions. I meet fairly frequently with all three shareholders and discuss with them what I can discuss with them without without discussing what I am not supposed to discuss with them. So so far, we enjoy constructive, amiable and Excellent relationships across the three shareholders. I mean, it's known that we have PPF. The change in the supervisory board is a function of the 30% they hold in the bank. I know for the last 20 years and she's an excellent CFO for PPF Group. I enjoy a very good relationship with her, but she is also very qualified to ask the questions on the supervisory board. So I think Olin, she's a strong Addition to the Supervisory Board. Second, I am in the second shareholder publicly announced their stake is J&T. It's actually a fund and I have a point of contact there which is very senior and we discuss things that we can discuss and again the relationship I would coin as excellent and very productive from a shareholder point of view. And of course we do have some cooperation and somewhere we compete. So we have to deal with that. And the third shareholder who also publicly disclosed his stake in the bank is Mr. Dikac. And again, I meet with him frequently, discuss things that I can discuss, and the relationship is very good. So it might seem absurd, but I actually find it a lot easier than in the time prior to concentration of the stakes, because I had to travel a lot, if I can be slightly facetious. So now I take a metro. as opposed to jet plane. So I think it's environmentally sound as well.

Absolutely. One last question on the tax. What portion of the tax is the windfall profit tax and how is that? Is it booked quarterly or how does it work? I'm not sure.

Well, the windfall tax, we prepaid the amount based on the 22. This is the estimated tax. And now, as we have higher bond holding, which is exempt from corporate income tax, we shall not pay the windfall tax unless... unless the government changes the rules. So under the existing rules, our working thesis is that with the measures we had taken in the fourth quarter and the first quarter of this year, we will be not liable for the windfall tax. And on this front, I would like to mention that our contribution to state budget in 2022 increased by 60%. And this is not the prepayment, the down payment on the rainfall tax, but that's other taxable items that we contribute to the state budget. So 60% up and the absolute amount we paid is 3.6 billion to the state treasury. So we felt, that enough is enough and we optimize the tax position and we will not pay the windfall tax. It's as simple as that.

And is there any rumblings from the government side that they might change the formula on you?

So far, no. So far, no. But if you look at the large competitors we face, it was Mr. Blazek from CSOB subsidiary of KPC who likewise said that they will pay nothing. And it is also based on state. I face my view on statements of I think CEO of commercial also downplayed the expectations on revenues from this. We've increased, I mean, the taxation of profits that we generate and withholding taxes increased by 60%. It accounts to 3.6 billion. This year, it will be even more, assuming we increase the... deposit base. So we think that the government should consolidate the budget rather than take the money from us because we contribute significantly more to this spending by the government and we optimize the position. No rambling yet.

It will come probably. Thank you very much. That's all from me.

The next question on the line comes from Thomas Unger of Earth Group. Your line is open. Please go ahead.

Unfortunately, we do not have audio.

Thomas, please ensure your line is unmuted locally.

Can you hear me now? Yes. Wonderful. Thank you. Thank you for taking my questions. The first one will be on the guidance 2023. That's where you ended the presentation. I appreciate the comments that you gave us, the further details on the NII and other revenues. But did I get it correctly? You see upside in the profit estimates for 2023? And where do you see the upside in the P&L? That will be my first question. And the second will be on risk costs. The risk indicates very solid in Q1. Um, I, I didn't see any, any deterioration, um, yet. Do you see anything, um, now in, in, in, have you seen anything in March, April, anything visible, anything expected in, in, in the coming quarters? Um, you've, uh, extended the, um, the overlay, which is now, um, at a quite ample, um, uh, ample level. So do you see any potential for narrowing the range for the risk cost guidance of 2023? And then lastly, I would just like to get a feeling of your thinking on a management board level strategy approach. Has anything changed with the banking crisis now in in March. Has that had any impact on your approach? And also, if you could tell us about deposit movements in April, I'd appreciate that. Thank you.

Deposit movements in April are positive. We continue to gather deposits at fairly strong rate. I think on the 14th, of April, we have a peak mid month and we had about 357 billion in deposits. So this evolves during the second quarter positively. With the change, with the crisis in the US, we were amazed that you can agree for government paper quickly in the state of California. So I think we all got very educated on the three facilities that we have with Czech National Bank and we are fairly confident. Other than that, the decision to improve the liquidity of the bank was taken with my colleagues in August 2022 and then I've communicated it. So I think We didn't change anything because we took the decision to beef up liquidity through summer 2022. What has changed, independent of what happened in the US, is that we've taken a different view on the duration of high interest rate environment in the Czech Republic, because we just don't see how the central bank will justify cutting the rates in the near term. However, the bank is now positioned to benefit from cutting the rates and we are well insulated against other increase So we have a very good position sort of both ways. More favorable if they cut the rates, but where we expected this to happen at the beginning of third quarter, we think it will be a lot later. Norman, will answer when he wants to narrow the range or whether he wants to widen it.

So go ahead. As you know from the guidance, we have a cost of risk range of 25 to 45 basis points for this year. This is clearly higher than what we currently have since we had a net release. Now, as I tried to explain during my part of the presentation, this net release was the result of various factors. One, still solid core performance. The upgrades of forborne receivables and most importantly, the MPL sales, which we have the big one, which we announced in Q1. There's also front loaded in Q1. So this helped us very much on the cost of risk line for this year. And we saw a significant appetite on that portfolio, which generated a significantly higher than initially expected profit. Obviously, the environment we are in is unprecedented as it has been for the last three years. So models do not fully capture what we see on the macro front. Most importantly, the high inflation. the energy costs, and also the fairly suddenly increased interest rate environment. GDP subdued at most. I mean, small growth if we are lucky this year. So I think that's a, let me call it like this, an interesting cocktail or mix of macro key indicators, which make it increasingly difficult to predict how both retail customers as well as commercial customers are going to deal with that going forward. Now should we see a continuing positive trend in the second quarter and should we manage to monetize NPL sales which we have in our plan and to be specific we plan to monetize roughly an equally sizable portfolio as we sold in the first quarter for the rest of the year so give or take five to six hundred million face value and should we generate solid results, then we will be looking at our currently provided guidance to which extent it could be changed. Also looking at the parameters on the overlays, but that's something which we're going to look at going forward.

So the answer, Tomáš, the answer is second quarter, earliest, maybe third quarter. We want to be absolutely certain that the time lag between the lower GDP growth and translation into NPLs is six to nine months. We just want to see what happens. So far, the sky is blue and the sunshine is raining upon us, but this can change. Now you asked about the upside or downside. If you look at the revenue operating income view, the 12 billion what not is actually a very aspirational target. The downside on that is 100 and maximum upside on that is in the range of 50. So this is not going to move the needle a lot this year. However, for 24, we do have significant upside because the mortgage portfolio will be repriced partially, and we will also benefit from whatever volume of deposits we are able to manage. On the net, fee income, there is some upside, but the number will come close to what Onza said, which was 2.5 billion, and you can look at 50 million up and down difference, and the upside would have to come from significantly higher transactional Intensity coming in the second half of the year, which comes with some economic recovery, but it's highly unlikely that this will happen. So the revenue or operating income is pretty much spoken for. We have some upside on the cost. We have really worked on the cost side a lot. The first quarter and second quarter will be still a little bit impacted by some one-offs, which tend to be negative and the net result could be seen in the second half of the year. This has to be taken with a caution because we are under huge pressure to adjust wages across the bank. So pretty much everything is on Norman, if you will, as always. But we can't predict what will happen and we are very cautious on the cost of risk.

So that's it.

Thank you very much for your answers.

The next question on the line comes from Karel Nedfed of Fiobankr. Please go ahead, your line is open.

Hello, my question relates to capital management and moral requirements. So how confident are you that you will meet your moral requirements, meaning that you will get those 3.5 billion cheque rounds needed in the first round of offering of these subordinated deposits on May or later or later in the year? And basically, how attractive will you make these subordinated deposits? Can you share with us the details of your offering? And as a related question to capital management, a follow-up question, Do I understand it correctly that if you fully meet the requirements of this year, then we can anticipate the payout ratio to be still 70% of how that payout ratio would vary depending on the success of moral requirements.

This question always sort of amazes me because we have a published dividend policy, which is part of our corporate disclosures and that policy is amongst other on the website of the bank and it has not been changed. So the minimum payout is 70% in that dividend policy. So if we were to change it, we will publish it and Linda Cavanova as the boss of the bosses of the investor relations will send this to the market and we will notify all analysts and the whole world. So that remains unchanged and this is The 70% is minimal because this is the rule under which we operate. So that's number one. Number two, if you're asking me how confident I am to issue it, I am 100% confident we will succeed. If you ask me what will be the attractiveness of this subordinated deposit, we will price it based on a five-year swap and what we think is adequate risk premium for the bank. We discussed this in The shareholder meeting and I had the same question and I said, Okay, if I look at the spot market today on Tuesday. I reckon it will be somewhere between six and a half and seven and a half or five year return given to shareholder. which where the interest will be paid monthly. So we are aiming it at a specific segment of the retail market. And we agreed internally in the bank that the MREL related subordinated deposit will have minimum investment value of 100,000 crowns. So there is no barrier in the amount of deposit. I have confidence in my people. I have a wonderful team of 55 retail bankers who are responsible for distribution of collective investments. And I have a great head of distribution. always ask questions at the management conferences, and I have a great head of distribution of the retail branch network. And I'm 100% confident they will succeed because they will get well paid for succeeding. And if that fails in the mid year, we will have digital platform upon which to realize we will widen the scope of distribution to digital in September 2023. So again, I'm 100% confident we will succeed.

Okay, thank you very much.

As a reminder, to ask a question and if you've joined the call via Zoom, please use the raise hand button on your screen. Alternatively, you can use the Q&A chat box found on your Zoom toolbar. And if you have joined us on the phone, please press star followed by one to join the queue.

Radek Machan, Excellent it seems that we have no additional questions, if you allow me just two seconds. Radek Machan, We delivered profit of 1.2 billion, we are on the way. to meet the minimum profitability target of 4.3. We will adjust the profitability target based on a current forecast of the bank. The forecast will be finished by in May and we will publish its results together with our second quarter results. We have discussed the upsides and the downsides. We are not going to reprice the deposits in the second quarter because we do not believe the market conditions are amiable to that. The first possible date for review of the cost of risk range is mid-year. It might come in the third quarter based on our consensus or lack of that of when we will time it. On windfall tax, Unless the rules change under the existing rules, we have inoculated the income in a way that we will not pay when full tax and I stress Our contribution to state budget had been 60% higher in 22, and it will further increase this year because of the indirect taxes that we finance. With that, we are looking forward to second quarter. We are optimistic, vigorous, good energy in the bank. We will get the morale under control. You will see that. I'm confident that our people will not fail in that endeavor. And we will look forward to present to you our results for the second quarter. Until then, we are grateful for your interest in the bank. Thank you very much and have a good weekend.