Komercní banka, a.s. (KOMB) Earnings Call Transcript & Summary

Good morning, good afternoon, ladies and gentlemen. Let me welcome you at the presentation of -- results of Komercní banka for 9 months and third quarter of 2020. On this occasion, we would like to share with you also the details of the strategy of Komercní banka for the time horizon of 2025. I'm here in the studio with Jan Juchelka, Chairman of the Board and Chief Executive Officer of Komercní banka; and also with Jirí Šperl, Chief Financial Officer of Komercní banka. And we will be joined also by other members of Management Board of KB, namely: Didier Colin, Chief Risk Officer. Jitka Haubová, Chief Operating Officer; Miroslav Hiršl, Head of Retail Banking; David Formánek, Head of Corporate and Investment Banking; and Margus Simson, Chief Digitalization Officer. Throughout the presentation, we will be referring to the slides that will be, of course, shown on the screen, but you can also download it from KB.cz/investors. And let me point out one more thing. You can see we are not wearing face masks at this occasion, but this is because we have been tested recently, yesterday, for COVID, apparently with a negative result. So we are, of course, in full compliance with all applicable regulations. I would like now to ask Jan to start with presentation of the review of the results.

Thank you very much, Jakub. Good morning and good afternoon, ladies and gentlemen, and thank you for sharing with us your time. We appreciate very much that we can bring you to the presentation of Q3 results of Komercní banka, and provide you with our view on our strategic outlook until 2025. Let me start traditionally, with the macroeconomic situation of Czech Republic. The third quarter was very strong in Czech economy. And KB performance delivered very solid outcome of that particular quarter. Obviously, we are in very, very particular year, we are finding ourselves in situations which are new and are affecting our day-to-day routines and operations. Nonetheless, coping with them is part of our jobs. And I need to say I am very thankful to all management team of Komercní banka and the employees of Komercní banka, who are able to provide the highly professional service also during these very particular period of time. GDP in third quarter in Czech Republic was up by 6.2% compared to the previous quarter, which was a stronger rebound of the performance than our macroeconomists expected, nonetheless, still 5.8% lower on year-over-year comparison. As a result of that, our macroeconomist research expect 2020 GDP compression on minus 7.6%, and increase of GDP for next year by 3% after recent revision presented approximately a week ago. One of the indicators which we take as an example, as a benchmark of the performance of Czech economy is the car production. Here, we see that for the first 9 months, there was a 25% drop of production, mainly coming from summer, and Italy autumn, a strong orders from Europe. Unemployment in Czech Republic was always -- for a long time, not always, but for a long time, a very particular discipline, which is still keeping very low levels at 2.8%, knowing that we are somehow under the impact of measures adopted by Czech government in favor of employees, in favor of keeping certain level of employment in place. We see inflation above the toleration band of Czech National Bank was still slightly above 3% in September. Nonetheless, based on the outlook of our macroeconomists it should be slowly but steadily floating down below 3%, closer to the targeted levels by CNB. Speaking about Czech koruna. There is a lot of volatility in it. There was a weakening trend on -- around the levels of CZK 27 per euro, which is let's say, showing the immediate, I would say, reaction of the local currency on the global crisis. As far as market rates are concerned, the 3M PRIBOR ended at 0.34%, whereas the 10 years interest rate swap at 0.8%, which is minus 92 bps compared -- on year-to-date comparison. As I have already mentioned, Czech government has adopted not so short list of supporting measure for employees, for employers, i.e., businesses and companies, and also for public sector. Let me say, all these programs are in accordance with, let's say, the European standards. There is special support for people taking care of that child at home, special support under the name of Antivirus Program managed by Ministry of Social Affairs for people not able to work upon the decision of the government of closing certain businesses. And the -- on the side of companies and entrepreneurs, there are various programs supporting them, either through cancellation of down payments of taxes or prolongation of certain obligations -- or prolongation -- the effective date of certain obligations in the fiscal side. And beside others, which is part of our job, also a state-guaranteed loans program known here in Czech Republic under the name of COVID, COVID I, COVID II, COVID III, COVID Plus, COVID [ hotel ] and others, which are, in fact, based on partially or fully guaranteed loans provided to small and medium-sized companies. Speaking about help of -- in the broader context Czech Republic, obviously, is part of the discussion with the European Commission about creating the EU recovery plan where you may have noticed there is like EUR 750 billion ready to be activated in favor of supporting the European countries. Czech Republic has put together a so-called national recovery plan, which is mainly targeting investments into infrastructure, digital solutions, support of education, support of labor markets, research and development and others. The final version and the final form and content of this paper will be known after it is agreed locally at the level of the government, and confirmed by the European condition up on the -- in accordance with the time schedule given by EU. You may remember, we have put together with 3 other large banks in Czech Republic, so-called National Development Fund. This vehicle is supposed to support infrastructure investments in Czech Republic, mainly in the field of transport, in the field of digitization and in the field of education and health care. Let me say that we expect the licensing process to come to its end by Czech National Bank in the horizon of weeks. So one could expect first investments of that kind reactivated at the end or at the beginning of next year -- end of this year or beginning of next year. The budget deficit of Czech Republic was approved by the Parliament at the level of half -- CZK 500 billion. The additional support of Czech Government in the context of the second wave of COVID-19 pandemic situation is mainly based on prolongation of the existing products. Let me jump on the business performance, and main highlights of Komercní banka for the third quarter. On the left-hand side of the slide, you see recent strategic partnerships concluded between KB and external parties, either in the form of signing a strategic operation agreement or by equity investments of rather lower scale, but still, for us, important into various fintech companies. Let me say, Roger and Lemonero, both being built as platforms for distributing working capital facilities either for small and medium-sized companies or e-shops of middle size. Here, with both, we want to improve and increase the speed and quality of the clients' proposition for companies, mainly from the field of small and medium-sized companies. Our clients love digital solutions. We know it. We are constantly working on improving our Internet banking and mobile banking. You can see in the middle of the slide that on a year-over-year comparison, there is 160,000 new users of KB mobile banking. The overall penetration is exceeding 1/2 of our total retail clientele. Obviously, accordingly to the existing sanitary situation, people like to pay without any contact. So all the solutions of digital wallets are, let's say, increasing their importance, and are increasingly popular amongst Czech citizens and KB clients. Let me say that hand-in-hand with downloading and activating mobile banking solution, people are also used to use so-called KB Key, which is our authentication tool helping them to open Internet banking or mobile banking in a very secured way. KB Key being also reused as so-called KB Signature or digital signature on contracts and other documents between and the respective client. Let me say that we are traditionally showing you also the main dashboard -- on this dashboard, also the picture of of digital sales, where without any large surprise, the consumer loans are leading the pack on -- in that particular field. Speaking about, and still keeping an eye on the digital solutions and digital assets creation, let me say that we have finally concluded after the blessing of European Commission and [ the moratorium ] authorities. Foundation of a company named Bank Identity, which is, for us, and for the entire country, especially for the banking sector, a breakthrough to using the identification created with a bank as identity in front of public or private service. Here, we are working with all other banks, inviting all other banks to come up with their solutions to plug into bank identity, which is a special vehicle company created by -- for the time being by the 3 largest banks here. And we have a unique opportunity to create the widest possible business coalition also outside or beyond the banking sector with companies who might be providing service through this platform. I have already mentioned the KB Key used as a signature. Let me say also that our subsidiary, ESSOX, have concluded few very sympathetic innovations, amongst other, also the voice assistant named Emma. ESSOX is a company dedicated to consumer lending as you perfectly know. KB was awarded as the safest bank in Central Eastern Europe. For us, it's a huge honor being the safest banks recognized by Global Finance magazine in Central and Eastern Europe, by definition also in Czech Republic, makes us and our responsibility towards the society and our clients even stronger. Our private bankers have achieved recognition as the best private bank for digital customer in Central Eastern Europe by Professional Wealth Management magazine. Let me say 1 additional vote about our exposure towards society. You were asked, and we were actively proposing to Czech government part of our capacity of our contact center. What does it mean? Our contact -- part of our contact center, specifically, 50 colleagues are dedicated to help the Health Ministry with tracing the contacts with positively tested people, positively tested on COVID-19, obviously, and helping the entire country to get out a bit faster from the current sanitary and health care problems. Let's move to numbers. As I have already mentioned, third quarter of 2020 was very strong on both sides of the balance sheet. Speaking about lending. Third quarter was stronger than second quarter. Not a big surprise, right? Nonetheless, it was by 6% stronger than the third quarter of 2019, i.e., our front officers were able to sell proactively, and provide Czech economy with new financing across the segments. Let's focus for the second on the corporate segment. The corporate segment grew quite dynamically, almost 5% on a year-over-year comparison and more than compared to the second quarter. Especially the small businesses, where beside others, we were the champions on distributing the state-guaranteed -- partly state-guaranteed loans to companies defined by the program by the Ministry of Finance. Here, we have gained a lot of positioning, a lot of, I would say, market share, if you wish, in that particular product. Speaking about the activity of retail clients. In Czech Republic, there is a huge boom accordingly to what is happening in Europe, probably, of people investing into real estate, partly because of securing their housing, but also partly for, let's say, saving money or investing money in the safe, let's say, solutions. Next page is showing the deposits. Deposits were growing by more than 8% compared to third quarter of 2019. When you look at the dynamism of debt growth, it's mainly based on -- that's our understanding of the situation, creation of the cash reserves and cash cushions for potential future less favorable times. This is why the current accounts are growing by more than 23%. Obviously, it goes, again, across the segments, retail, SMEs, mid-caps, large corporations, 3.6% higher than in second quarter. When we focus on nonbanking assets under management, here, I might say the dynamism is slower. We are still finding ourselves in single-digit. Nonetheless, looking at the KB pension schemes as the most -- as the fastest-growing one. One could say that traditional Czech household is also putting aside money also on -- for the longer-term usage in the future. This is, from my side, for the beginning, everything on the business performance. And I'm handing over to Jirí Šperl, the CFO, for guiding you through the financial performance of KB.

Thank you, Jan. Good afternoon, once again, ladies and gentlemen. So how these good business results transport into the P&L, into financials. So for first 9 months, the bank on a recurring basis, reported net profit after almost CZK 6.2 billion, which is, however, due to mainly COVID impacts, and minus 44% compared to last year's first 9 months. On the waterfall chart, you can see the main contributing factors to this result. So basically, there are 3. First one, of course, NII, down by roughly CZK 1.5 billion. And here, it is very much influenced by the environment. And what I mean is market interest rates, a significant drop. This is first contributor. Second one is about net fees and commissions. I'm going to talk about that a bit more. But basically, there are 2 main reasons regulatory SEPA change. And the second one is missing, the transactions during the COVID time. And the third one, and the biggest one, is related to cost of risk where we are missing compared to previous year, CZK 3.7 billion, maybe 2 figures to that. It is roughly CZK 3.4 billion this year creation. And during the last -- during the 9 months of last year, there was still -- really still CZK 300 million. All in all, this transports also into profitability indicators, which still are relatively sound. So ROE is still 7.5%. Recurring average Tier 1 capital is close to 10%. So still some financial performance. If I move to the balance sheet, it's -- sorry, growing dynamically. So the total assets at the end of September is at the level of CZK 1.3 billion, which is probably the historical record. On liability side, influenced and driven by deposits, Jan was already commenting, growing roughly by 7.4%. And these extra resources, extra new resources have been placed mainly to the loans. So loans growing by 5.7%. And the rest into our investment portfolio. And the same like last quarter, you could see on the left-hand side, kind of switch between placements to ripple loans with CNB, declining year-over-year by almost minus 9%. And at the same time, increase -- relatively huge increase of our investments into securities. If I'm saying securities, I mean, government bonds. Liquidity stays extremely high. So the loan-to-deposit ratio is fluctuating still around 7 point -- 75%. And LCR, on top of my head, it's around 230%, 240%. So that's about the balance sheet. So I was mentioning that the liquidity is strong. It is still the case for the capital. So at the end of September, our capital adequacy is at the level of 21.6%. Just to remind, for the minimum requirement is 16.2%. So still there is, let's say, surplus -- capital surplus around 540 basis points. The left-hand chart is showing the main contributing factors. It is year-to-date. So you see the 2 main ones. First one is consumption of the equity through growth of the stated assets. So here, we are talking roughly about 16 basis points. So that's the left-hand side of the waterfall chart. And it is more than offset by [ HORECA ] and 2019 dividend. Probably all of you know that we didn't pay anything due to regulatory ban. Focusing on a quarterly evolution of the capital adequacy. We went very slightly down. On top of my head, it is roughly 30, 3-0, basis points, and this is fully allocated to organic growth. Focusing now on accounting equity. So that's right-hand side of the chart. So there is an increase by roughly CZK 6 million, CZK 6.5 billion, and it is fully allocated and dedicated to year-to-date profit. Now let me focus briefly on key GOI categories. So let's start with net interest margin. So it's down year-over-year, minus 9%. Now referring to the bottom chart. And you can see here that still both main categories are declining. So deposits are down minus 12%; loans, minus 4%. A bit more positive optimistic view. You can see on quarterly basis quarter-over-quarter, which is right upper chart. You see that NII increased compared to Q2 by 5.1%. And again, it is driven and influenced by both categories, I mean loans and deposits. It was not surprise for us. Even we indicated during the last earnings call that during Q2, it was kind of a bottoming up in terms of net interest income. Basically 2, 3 main reasons. First one, the drop of the market interest rates in Q2, and at the end of Q1 was too significant and too fast. This is one thing. Second thing for quarter-over-quarter evolution is related to the fact that we, let's say, created kind of a NPV adjustment related to the moratorium amounts. At that time, it was around CZK 150 million. In Q3, only CZK 20 million or CZK 30 million. And that also would help in third quarter was a very clear recovery in the margins, I mean front book of our loans. So maybe there will be some questions related to that. So I will wait for these questions. In terms of net interest margins, it went still slightly down. So quarter-over-quarter, minus 4 basis points. But again, from my perspective, more relevant is comparison year-over-year. So here, we could see roughly [ 20, 25 ] basis points decline. And that's basically our guidance by the end of the year as well. So that's a net interest margin. If I focus on net fees and commissions. If net interest margin surprised us a bit in positive terms. Here, it's surprised us partially negatively. Not significantly. Our expectation was at the level of 10%, 11% year-over-year. So it is 13%. And if you have a look on the bottom part of this slide, you see that except the one category, which is fees from cross-selling, which is growing creatively significantly. Or others are declining significantly as well. It is very much both in relative and absolute terms case of transaction fees. And here, it is related to SEPA regulation. So that's roughly 5%, 6% of the decline. And second one is related to missing transactions during the COVID times. From quarter-over-quarter perspective, there is still a very slight decline. It is minus 3%. But from my perspective, it is more related to kind of seasonality because Q3 is historically rather lower compared to Q2. And what you can see behind is, let's say, summer months, July, August, where transactions size or volumes is decreasing. This brings me to offer net income from the financial operations. And here after extraordinary and successful Q2, where we generated more than CZK 900 million, we are getting back in Q3 to the kind of normal. Usually, we are indicating that our run rate is whatever between CZK 700 million and CZK 750 million, which is exactly the case during the Q3. So exactly CZK 711 million. What is positive here to see is increase of volumes of the transactions like clean payments and stuff like that, which delivered some positive net gains on FX from payments, at least from a quarter-over-quarter perspective. From perspective, year-over-year, it is still down. If I have a look on net profit from financial operations, year-over-year, it is still growing roughly by 2 percentage points. And now last slide at this part of the presentation. Is related to OpEx. So OpEx is flattening further. Probably some of you remember that during the Q2, we are reporting year-over-year increase of OpEx by roughly 3%. So now we are at roughly 1.9%, on a reported basis, and if you have a look on a recurring basis, so that's on the left-hand side, of the bottom chart, it is only 1%. If we go a bit deeper into the structure, you see that personnel costs are completely flattish, minus 0.1%. We are reporting a relatively significant drop in administrative costs in GAE, which is related mainly to marketing costs, the cutoff travel costs and so on. And just to categories that are drivers of this growth. So the [ costs ] are resolution fund charge, but this was already the case during the Q1. And also depreciation, reflecting, let's say, increased investments for our transformation. Last 2 points at this slide. First one is related to average number of employees. So that's the top left side. So you see during the third quarter, visible decline by minus 2.1%. Or in absolute terms, it is roughly 130, 140 employees, which is the first part of the output of the measures -- I mean acceleration of our transformation measures delivered during Q2 and Q3. And last point is related to cost income ratio. So on year-to-date basis, we are at the level of 51%. And targeting at the end of this year at the level around 50%. So that's for GOI. And now it's my pleasure to pass forward to Didier. Didier, please, floor is yours.

Thank you, Jirí. Good afternoon, ladies and gentlemen. So now turning to the section dedicated to asset quality and cost of risk. And in fact, as we announced at our last quarterly result presentation, KB asset quality at the end of the third quarter started to show the first impact from the ongoing COVID downturn. But this impact being somewhat contained by the government support programs, and also mitigated by the resilience of our loan book. The predominant impact came from the intensity reviews of our nondefaulted loan portfolios reviews, which we initiated back in the spring, and intensified since then. And as a result of this, as you can see, the Stage 2 classified exposure increased from its historical and stable level of 5% to 7%, essentially pushed by 2 factors. The first one is the in-depth assessment of our loan portfolio, not all loan portfolios, which triggered roughly the transfer of CZK 8 billion of retail and SME exposures from S1 to S2 development, which I will further detail in a minute. And the second driver is the line-by-line review of our large corporate loan portfolio, [ which ] confirmed the stress resistance of this portfolio, the transfer into higher risk classes being limited to 3% of this segment, or slightly above CZK 3 billion of reclassification from S1 to S2. Not shown on this slide, but worth mentioning is the provisioning coverage ratio of this Stage 2 earnings exposure, which doubled from 3%, which was -- its pre-COVID level to a level close to 6%. And this reflecting the higher default rate outlook into the IFRS 9 forward-looking factor as well as some reprovisioning of selected part of our COVID-sensitive portfolios, including the moratorium portfolio. A quick word on Stage 3, or NPL exposures. As you can see, it increased only moderately, with still a low level of migration intensity into this NPL category, reflecting, first -- first off, default of a very limited number of SME clients. And second, some higher level of NPLs recorded with our leasing activities. But these ones specifically concentrated on the transport sectors. Regarding our expectation in terms of the NPL ratio, we forecast today that it could reach around 3% at year-end and peak slightly below next year under the, of course, assumptions of our central macroeconomic scenarios. And this forecast also being very much dependent on investors' appetite for NPS going forward. One last point on the NPL provision coverage ratio, which stabilized at 53%. In fact, here, it's always the same story. The lower provisioning rate at the time of entering to default, has been started to be somewhat a bit compensated by a few reprovisioning done in the third quarter on some earlier 2020 defaults. Our expectation, in fact, in the coming quarters is that this ratio will fluctuate in the range of 50%, in part reflecting, in fact, the clean pre-COVID defaulted portfolio situation with a limited amount of legacy NPL exposures, as I probably mentioned in our previous quarter's presentation. Now turning to probably the most important topics when it comes to asset quality. You have in front of you the key information regarding this review performance of our loan portfolio, moratorium loan portfolio, which, in fact, give us the opportunity to have a high level of interaction with our clients, and which is something very valuable to do. Before I go into a bit more details, just to refresh our memories. This is a CZK 60 billion portfolio as of the end of September. And it's 8.5% or 8.4% of our loan book. This level is slightly below the 12% level recorded at the level of the entire banking sector. And in terms of our market share, it's estimated in the range of 15%, which is again lower than our overall credit market share of around 18%. Two components for this portfolio. The first one is our mortgage on exposure of 45%. And the second one is SME at near 30%. The rest being distributed between large corporate, small business and consumer finance exposure. Now what is important to mention is that this portfolio reached a peak of CZK 75 billion in mid-2020. And this, before entering the phase -- or the second phase in the summer when roughly 1/3 of this exposure reached the end of the first moratorium period, either related to clients who had opted for our private moratorium offer back in March or for short-term period under the public moratorium period. This review gives us 3 very valuable results. The first one is that it demonstrated our capacity to provide adequate support to our clients in crisis time with more than CZK 9 billion in public moratoriums promotions granted in the summer months. All this strictly in compliance with the EBA guidelines on loan moratorium programs and legislation. The second valuable resource is, in fact, a first good test on the resilience of our credit risk profile. And this is illustrated by the so far low level of payment incident rate recorded on what we call the summer exit exposure, concretely the CZK 15 billion I just mentioned. Here, it's worth mentioning that it's not a default rate. It's payment incident rates. And the second point is the level that we see on the corporate segment -- corporate client segment being a little bit higher is explained by what I said earlier regarding our leasing business line and its higher exposure with the transport sector. The third benefit, in fact, from this portfolio reviews, is that it gives us the opportunity to further adapt and really strengthen our credit risk cycle in the field of loan monitoring, in the field of retail loan soft collection and in the field of retained loan restructuring activities. Now quickly on the cost of risk, where you have both a quarter-to-date and year-to-date recap. On a quarter-to-date basis, we reached CZK 1.7 billion, and this is made of 3 million blocks. First, almost CZK 1 billion, CZK 0.9 billion, which is the result of these reviews, I just mentioned of our moratorium loan portfolio. And the SME and the small business client segment, representing roughly 75% of this amount. The remaining 25% being booked on our private individual retail exposures. Then second element was CZK 300 million generated by the line-by-line review of our nondefaulted loss corporate exposures. And third element is roughly CZK 400 million, generated by the reprovisioning of 1 large corporate client situation as well as a couple of new SME defaulted client situation and the default migration in our leasing portfolio, which I just mentioned earlier. If we then go to the year-to-date picture, we reached as of the end of September, 60 basis points -- 68 basis points. And the structure is as follows: the 26 basis points, which was booked on behalf of the update of our IFRS 9 macroeconomic scenarios, the so-called forward-looking factor. Then the transfer of a few corporate clients into default since the beginning of the year, generated 19 basis points of CZK 0.9 billion. And then the 2 other items, which I just mentioned, coming from the moratorium portfolio review or the -- and the line-by-line review of our non defaulted large corporate exposures. All in all, this, at the end of the third quarter means that KB Group is in a strong position having done 3 things. First, performing and initiating line-by-line reviews of a large part of our non-retail exposures. Second, having developed a better default detection and treatment capacity of our retail portfolios. And third, having booked as of the end of the third quarter, a prudent level of results for all our COVID-sensitive loan exposures. Now going and finishing with the cost of risk guidance. There are 3 important consideration to be made on this. The first one is the quarterly statutory update, which we have to do or perform on our IFRS 9 macroeconomic scenario, which is the forward-looking factor. On this first one, our opinion today is that what was booked on the second quarter is prudent enough. And this should not be too much of a driver going forward, and especially vis-à-vis year-end guidance. This opinion is based on the external benchmark as well as regular run, we perform based on macroeconomic scenarios issued by regulators. The second driver could come from any material gap that could emerge between the default rate assumptions, which we embedded into our portfolio reviews, and the actual level of default rates, which will be recorded in the coming months. And last potential driver is coming from the large corporate loan book. Well here, in fact, we have to be quite humble due to the much lower granularity of this portfolio, and therefore, the lower credit [ expiration ] capacity we have. Taking into account these 3 -- 2 of the risk drivers in the context of this second lockdown, and also based on the so far good level of resilience of our portfolio, we've decided to moderately increase our year-end guidance from 70 to 80 bps with a clear expectation, in fact, to stay below this 80 bps level, which is really a cap. As to 2021, here, again, under our some macroeconomic scenario, given all the factors that I briefly touched. Our guidance is for a cost of risk in 2021 in the range between 50 and 60 basis points. And this now opens the way to the next section with Jirí on the outlook. Thank you for your attention.

Thank you, Didier. Outlook for 2020 first. So Jan already mentioned some macroeconomic assumptions. So let me skip them. Didier covered estimate for cost of risk. So that's a slight increase from 70 to 80. And otherwise, I can say that basically, we are confirming what we are guiding during Q2 earnings call. So only briefly, we are expecting that banking market in terms of loans is going to grow in full year 2020, mid-single digits, underpinned by mortgages and COVID programs. Maybe to add to that, we are also confirming that we would like to gain -- and it is already the case in first 9 months, part of the market share. In terms of deposits, it's expected them to grow high single-digit. And basically, KB is going to follow this speed of the market. And in terms of financial outlook, again, we are confirming that the revenues goes down by high single-digit, which is influenced mainly by interest income and fees and commissions, while financial operations are slightly growing. Maybe if I should mention a slight variation compared to our 3 months guidance is that, at that time, we were expecting a bit lower net interest income. But at the same time, a bit higher fees and commissions, but these effects offset each other. OpEx. Again, we are confirming, let's say, discipline -- cost discipline. So at the end of this year, you should expect, let's say, flattish OpEx. And that's basically it. Potential risks to the outlook probably not necessary to mention. That's clearly worsening of the pandemic situation, both locally and globally. So that's on my side. That's on for Q3 results. And now I'm passing forward to Jakub.

Thank you, gentlemen. So this has concluded the review of the results Komercní banka for the 9 months. But please stay with us because management is now going to share with you a bit more details about the strategy for next 5 years -- 4, 5 years. So please stay with us. Jan, please, the floor is yours, about the strategy.

Thank you very much, Jakub. And please let me invite you now to the journey of KB between 2020 and 2025. Obviously, the current situation driven by the sanitary and hygienic crisis in the country has made us extremely busy with daily operations, daily details, daily routines. And again, I'm super proud of our teams to cope with these issues in a very efficient way. I need to say that we haven't -- let's say, we haven't given up on our high-quality service during this period of time. Also -- and it's our obligation as top management. We took certain step back and already, since fourth quarter of 2019, starting to draft a new paper, knowing that the first part of our strategic plan was framed by the time period between 2018 and 2020. And we are going slightly [ accelerate ] to the end of this period. Let me have a look on where we are finding ourselves after these almost 3 years of implementing of the strategic plan, KB Change 2020. We were very ambitious in introducing the agile at scale implementation in Komercní. It was very, I would say, a strategic move of our organization, which is helping us collectively, at the end of the day, to move and to, let's say, modernize the overall corporate culture of our bank. This part of our strategic plan was delivered by 100%, maybe more than 100%. We expected 40% to be affected here at the headquarters. Currently, we are counting for 44% of the headquarter staff working in agile methods, in tribes and squads when inventing and delivering modernized products and services to our clients. The other aspect which flew in our KPIs at that time was the client satisfaction. The Net Promoter Score were far behind our expectations. Here, we have a systematic -- we have been systematically working on what the clients exactly need, how can we help them with their life situations and trying to elevate this feedback through the Net Promoter Score. And I need to say that in corporate, in mid-caps and to a large extent also for retail banking, we have achieved the targeted numbers. The other part of the key stakeholders are our employees. KB is very reliable employer and is recognized as one of the strongest companies in the country. Hence, we need to take care, on a daily basis, of the satisfaction of our employees. Here, we have elevated the index upon which we are measuring the satisfaction of our employees from 70 to 78 points. Speaking about the third important group of stakeholders, which are shareholders, investors and new analysts, we have put in front of us measurable key results on which we wanted to benchmark our financial performance. As you have -- may notice, until the pandemic, we were at the levels which were very satisfactory to you and which were also, let's say, comparable with our targets set back in the beginning of 2018. COVID-19 brought us a lot of mess, right, but also brought us accelerations of existing or new operations and new initiatives. The existing one, I like to use this example of discussions about home offices, yes, no, to which extent, how do we manage people, how do we control people, et cetera. The COVID-19 situation turned the key, and we had to put a majority of our employees into their homes and secure their connection with the bank and let them work, let them deliver, manage them, motivate them, make them happy, having their -- having communication with them, et cetera. I need to praise our IT guys who are able to connect, at the peak, more than 5,000 of our employees through a direct connection on very secured base with the bank and the bank being able to continue working in favor of our clients and in favor of the country. What we have done also is quite a bold decision about further acceleration of our plan to decrease the number of branches. We were supposed to be closing step after step, year after year. We decided back in March to implement one short decrease to the existing 242 branches, which is 100 less than we were operating back in 2019. We have also decreased the cash services in our branch network, replacing the cashiers by intelligent ATM machines, which are able to deposit the clients' cash. Risk strategy implementation. We have stepped into end-to-end digitization of the journey of risk management from end to end. And we have more plans to do in that area, as I will show you also in the next period of time. Smart offices. I have already mentioned by 39 -- sorry, by 35% decrease, the square meters here at headquarters. People using both working from home and working from the office as a permanent solution, as a permanent decision. Here, we are retraining not only the staff but also the managers how do we manage our teams, how do we keep them motivated, how do we keep them engaged because we don't want to give up on our high ambitions also in the field of employee satisfaction. Last but not least, there were accelerated adjustments of our operating setup mainly in the new service model on the side of change the bank, headquarter staff reduction during this period of time, middle office and back office capacity and processes adjustments, reinforced advisory and online capacity of our front offices. We have had a sharp look on our building policy where we are shrinking the number of buildings in Prague at the headquarters, trying to move everyone under one roof; and last but not least, the partnerships with fintechs, which I have already mentioned in my -- in the previous part of the presentation. In between -- or in parallel with that, with all these changes with facing the COVID situation, we are very confident on our ability -- not only confident but we are showing the capacity of Komercní banka to create new capital. We are currently having in our balance sheet 21.6% capital, out of which 20.9% is of Tier 1 quality; the liquidity coverage ratio being at a level of 230%. Loan to deposits are still in a very comfortable situation or very comfortable levels of 73.2%. The financial performance were represented by the revenues of CZK 22.3 billion; OpEx, CZK 11.4 billion; net profit, CZK 6.1 billion; and cost-to-income at the level of 51.2%; ROE at 7.5%; ROA at 0.7%. Here, we can see already the deterioration caused by the existing situation, and I'm sure we will come back to that point during the Q&A part of our session. Market share across the segments is growing, our gross lending by almost 6%, totaling close to CZK 700 billion; market share on loans to business, 16.7%; housing loans, 21.2%. Here, we are, let's say, beating -- in certain weeks, we are beating the entire competition also thanks to the cooperation between Komercní banka and Modrá pyramida building saving company. And as a trustful and reliable partner, we are attracting a lot of new deposits in the pace of 8.2% on a year-over-year basis and totaling to CZK 931 billion. Market share in deposit is at a level of 17.3%. This is the base. These -- those are the foundations. We are also taking into account when thinking and drafting our -- or drafted already about -- when thinking about the strategic move about the environment in which we are delivering our results. The traditional high level of industrialization of Czech Republic is turning into a huge advantage and huge, let's say, cushion and of resilience of Czech economy in front of the running crisis. We do believe that looking to the horizon of 2025, there will be a sharp recovery in 2021, not as sharp as we expected sort of 6 months ago but, let's say, still in the very, I would say, comfortable, more than 3% rebound, somehow, let's say, following the logic of expected growth of German economy. And we believe that the Czech economy would have the capacity to go back to low single-digit growth increases of GDP, let's say, in the future, i.e., normalized years. The short-term interest rates will very probably remain anchored close to 0 until 2021. Nonetheless, we do create a hypothesis that they will start growing from 2022. Obviously, the -- reached 2.25% of the repo rate, which we have experienced until the February 2020 are over and potentially will never come back in that level before 2025. We do expect that the long-term rates should begin the gradual normalization a bit earlier and surpass the 3% mark on also around 2025. The loan market growth is expected decelerating in 2021, as a result -- as a consequence of the existing situation, again, the rebound expected in the context of the GDP growth, as mentioned a few seconds ago. The Czech banking market remains super strong and super healthy. We have already commented our capital position. Nonetheless, being part of Europe, being part of Continental Europe, we somehow believe that there will be opportunities for consolidation also on Czech market in accordance with the logic so loudly discussed currently in other European countries. Let me say that Czech sovereign rating was recently confirmed on a minus level. And despite the growth of the public debt, the overall public finance conditions remain very strong. And Czech Republic will continue belonging to the lowest indebted countries in Europe. Let me move to the next one. We think and we, let's say, are building our future views on various assumptions. The first one is that customer needs will be further moving to the digital space. We want to keep this -- all the strength which are representing today Komercní banka, obviously, in place, which is the reliability, which is the long-term partnership, which is the bank at hand of our clients in, let's say, the situation where they need to solve their life situations, life of the human or life of a company. We see clients in Czech Republic ready to pay if value is being delivered. Nonetheless, people want to have and companies want to have simple and fast and reliable solutions. They want to be treated individually. So a certain level of personalization is very much needed. They want to be in contact with their bank any time from any place from any devices they will choose. And they prefer to go digital-first especially in the field of the basic needs in their financials. Competitive landscape. Obviously, Komercní banka is very well positioned as bank #3 from balance sheet point of view, number of clients point of view, number of employees point of view and others. We want to be #1 in profitability. We want to be #1 in efficiency. And we see that the competition in Czech Republic is super strong on the side of the banking sector. Nonetheless, we are far from believing that only banks are our competitors. The competitors are being refined beyond the traditional business of banks, and we see various technology companies bringing solutions to -- in front of our clients and trying to grab part of our -- flow of our businesses in their favor. This is why we are not closing our eyes in front of cooperation with fintechs, neobanks in front of, let's say, searching for the best available technologies which we want to bring to our way of solving issues because we want to be faster and we want to be more efficient also in cooperation with other companies, as I declared a few minutes ago. Komercní banka will become much more green. This is not a political declaration here. This is a very, I would say, a pragmatic declaration when looking at what is happening in energy sector, where anything between USD 14 trillion to USD 16 trillion as it is expected will be needed to turn the global energy from fossil to nonfossil form. Why -- I'm saying that KB is traditionally strong in serving the corporate segment in Czech Republic. And we are making already the decisions between coal, yes, no; financing, yes, no. And we see and are building our position in financing the energy transition period, helping our clients to go out with environmentally friendly solutions and to follow them with our highly professional, highly innovative and responsible financial solutions. Let me remind Societe Generale being #1 bank globally in financing the renewables. Here, we have a very good example in our parent. Speaking about technology, and Margus will come to much deeper detail, we see technology as the main enabler of our transformation path, and we want to be -- to make our data on which we are literally sitting to be part of our value creation chain and to build around data the appropriate personalized, fast, user-friendly solutions for our clients. Regulation. We are sticking to the strictest standard of regulatory measures coming either from local or from international regulatory bodies. Let me move to next one. What are the main building blocks of our strategic plan? The first one, let me just repeat the purpose why we are here. We are building together with our clients and -- a better and sustainable future through responsible and innovative financial solutions. The vision is we want to be the leader in new era of banking for 2 million active clients. Here, we need to move the needle, and we will come back to it in deeper detail how to gain such a number of clients. Our clients are telling us that they highly appreciate 3 main pillars of our being: it's helpfulness, it's growth, and it's the responsibility. The company objectives, which are derived from the first 3 lines and which will be addressed by my colleagues in a few minutes, is digital bank for people with aspiration, is fully digital sales and services, operational efficiency with the target to be the best-in-class based on various indicators, corporate and social responsibility/environmental-friendly/ESG-oriented company to attract also talent and to attract new talents and new clients. We want to be -- to remain and to build on our strong goodwill, which we have created around agile way of working, which implementation took place back in 2018. We are actively searching for new revenue sources either on our own or in cooperation with third parties. Didier has already mentioned and he will come back to it. It's creating, let's say, a massively digitized experience in risk management based on data analysis, based on, let's say, the logic of how we can make the people's life and the clients' life easier and being still able to make our critical view on the creditworthiness of these clients. Data-driven company, data as a source of revenues and source of value, and my colleagues will comment. In corporate banking, we want to remain #1 in the country. We don't have any reason why -- to target lower because KB was also built since the first days of its existence around the corporate banking services. Last but not least, coming -- and you can see that as from efficiency point of view, cost-saving point of view, value creation, synergies creation, we are putting in place one mortgage factory, which is nothing else, the factory of housing loans being unified for both Komercní banka and Modrá pyramida building saving company. Let me stop myself here. I will hand over to Miroslav Hiršl, who will read you through the next pages. Thank you.

Thank you, Jan. Ladies and gentlemen, once again, good afternoon or potentially good morning to all of you. It is my pleasure to join my colleagues in explaining what we would like to do with Komercní banka in next 5 years. And I would start my comment by speaking about the digital bank. As you heard, we wanted to be a digital bank for people with aspiration. And I think this piece is probably the most sizable element of our effort, one of our major flagships. I would make a few stops here, the first of them being people with aspiration. Who are people with aspiration? In my eyes, these are clients who are active, who have their plans, who have their needs, who need and appreciate a bank that can assist them in their plans. And we believe that this is the right target audience for Komercní banka, and we also believe that we already are and will be even more the right bank for these people. Speaking about digital bank, there's more to that. We believe that banking will go beyond pure banking, and we want to be part of the direction. And we will be opening up to services that will be provided with our partners or by our partners, all supported by clever innovations. I will make another stop speaking about branches. It was mentioned already, but I'd like to highlight that we very much believe in omni-channel approach. So we believe in combination of digital, assisted, remote selling and servicing and pure digital, and we believe that this is the right combination, the right recipe, combining our historical strengths with modern trends and modern attitudes. Another element. What do we expect from the new digital bank? Many things, one of them being flexibility. And when I speak about flexibility, it's about faster time to the market. It's about cheaper development if I'm looking at the topic from bank's point of view. But it's, among other things, also about enhanced operational stability, which is becoming a topic of key importance. Looking at the same topic a bit from customers' point of view, we would like to build, and we will, the new digital bank in a way that it's simple and intuitive. It will be based fully on digital products, digitally designed and digitally borne, to say it like that. And also, we will do our best to build it in a way and design it in a way that it saves time and brings real value to our customers. Being a bit more concrete in our plans, what are the benefits that we believe this will bring to us? First, we very much believe in our capacity of organic growth and our capacity to further extend our portfolio of clients. We believe that this is one of the main elements to be able to further increase Net Promoter Score for our customers in both individuals and small business segments. And as the NPS for corporate clients is already quite high, our ambition is to keep it at this higher level. And last but not least point of this short list is completely paperless communication with client. So this is one of the main building blocks of new digital bank as well. So this is in a nutshell. And now I'll give the floor to Margus Simson to take the other item on the slide.

Thank you very much, Mirek, and good afternoon also from my side. Going through the other 2 main points on the page. Then we understand that for 2025, in order to really build something that is going to be future-proof, then there are few areas where the organization still has to go significantly deeper than it has gone so far and go into the new territories that we haven't touched so deeply yet. The first one, data-driven company. I believe that if we are looking at the banking in 2025, then the banking in 2025 is very much data-driven business as such. It has always been, but it is becoming more and more crucial over the years to come. So as Jan was already mentioning, we want to maximize the business value that we are getting from the data in this digital world. What are those key aspects here? The first one, we are definitely going significantly more real-time than we are today. The real-time is going to be the requirement from the customers more and more. This is already what we are seeing so that if something happens on the customers' account, in their behavior, in something around them, then they want to understand very quickly what they should do next, how they should behave next, how they should adapt their behavior as such. So we are seeing the need to increase the real-time leads in our efforts to serve customer better and also do the digital sales in a higher and more sophisticated way as we can do today. What does it mean? It is the second point on this page. It is also clearly meaning that we need to get better in our time-to-data, meaning that the tools that we are having available inside the organization, they have to be clearly meeting the needs of the big data area as such. We already have several of them in place, but it is clearly the overall need, the investment that we need to continue doing. The speed, the tools, the quality of the data, they are going to stay as the cornerstones of our current landscape. What is good about KB is that we are actually having really, really solid data capability already in-house, the modern technologies behind our activities, but we also realize that it is not going to be sufficient anymore in 2025. And that is also one of those reasons why we have done the organizational change. When we mean data-driven company, then we do not mean that there is just one data team somewhere that is dealing with all of our data needs, but we are really saying that data has to be democratized. It has to be part of everybody's capability. Every tribe that we are having, every department that we are having, they are doing their own data work in 2025. So this is where we already have kicked off. We have started to move also our data competence across the whole organization while maintaining strong central competence, growth and competence development as such. The second part, about the agility, building this adaptive and effective organization. Then from my perspective, it's very simple. In 2025 -- already today as well, but in 2025, it's going to be crucially important that whoever, as an organization, is capable of the -- to adapt to the changing environment around us is going to be a winner. I think in 2020, the COVID has been an excellent example that very rapidly, we have to go from one type of company to another type of company because market changes, customers change, regulation changes. And this is what we are continuing to push here as well. So what we are -- want to push up here is clearly how many product updates we are capable of doing per team per year. And this is where we are clearly aiming that our ability has to be, in 2025, that we are able to push every single day or several times per day the changes, the updates to the live environments to meet the customer needs faster than we are able today. And it also means that in order to -- what is usually called continuous deployment or continuous integration process that how do you develop things and get them live into the production, in order to facilitate or make this kind of capability happen, we have to move towards what we call DevOps implementation. In a natural way, DevOps is just a logical extension of the agile transformation, the Phase 1, what we already did a couple of years ago. Now we just say that the whole thing also has to be expanded to the operations, that the teams are taking the responsibility really end-to-end, from the idea until running the applications that they are building. Jan already mentioned quite lengthily the smart office concept. In that one, we are clearly we are going to be the organization that is running in that kind of hybrid mode, both home, both office. And actually, our employees really do love it, and we are continuing to push the KB employee engagement on that part. That's all on that page. I will now hand it over to the next person.

Which I believe is me for Slide 35, if I'm not mistaken.

That's correct, yes.

And I will continue with another chapter of the same book. KB is going digital, and KB would like to be a champion there and is determined to achieve that. And in hand with building new digital bank, we will keep enhancing our capability to sell service and acquiring digital space. And this is not just about client comfort and attractivity for clients. There's a lot more to that, such as optimization of processes or optimization of staff costs. And I think this is the right moment to mention also another element, and this is simplification because we believe that simplification of processes, product portfolio and product offering -- by the way, it's a crucial prerequisite for our success, and we are paying quite a lot of efforts to this particular point. I think that this is also a good place to mention that apart from, I would say, physical interaction with clients and apart from purely digital interaction with clients, we believe, in a [ software ] that is called [ Assisted ], assisted advisory, remote assisted advisory, selling and servicing. And that is quite nicely combining our historical strengths and our capacity to keep long-term, fruitful relationship with our clients and our capacity to do things on a remote basis without the necessity to physically meet with our clients. Let's look a bit at the benefits, and I can be a bit more precise in terms of quantification here. What is our ambition for 2025? The first one on the list is reaching 50% of all digital sales in retail done in digital. The second one, we believe that we should be able to acquire 40% plus of our clients just digitally. And also, the vast majority, 85% plus of all the servicing in retail will be happening in real-life in online. The last but not least element on this list goes to decrease cost to process and serve. We believe this can be significant contributor to the overall operational efficiency, quantification being calculated, let me say it like that. Moving to another element of our efforts and plans, one mortgage factory, already mentioned. As you may probably know, there are 2 providers of housing loans in the group. This is largely driven by historical reasons and by regulation, of course, because you need to have an SPV for providing building saving loans. That is the second part of our product offering. And what we plan to do now is to create one factory, which means produce all those -- and process all those housing loans under one roof. Technically, still, you need, at the end, to put standard mortgages to books of Komercní banka and building savings loans to books of Modrá pyramida, our subsidiary, but everything else will be unified and identical. And we believe that by that, we can get a lot cheaper development. We can get unified -- and we will get unified risk processes, and we can move faster in digitization and in process simplification. I know that it's not much bankers-like, but I have one more ambition for this project of one mortgage factory, and this is to create not only center of expertise but also center of enthusiasm of everything that is linked to housing and housing needs because, among other things, we believe that it's not just about financing but about the whole ecosystem of services that are linked to this particular need of our clients. Let's look a bit on the benefits and positives that we expect this to bring. The first one is commercial. We believe we have the capacity to significantly further -- significantly increase our market share in mortgage loans, in sales from current 21% to approximately 25% at the end of 2025. Looking at the topic from the other side, we would like to significantly decrease the time-to-yes. And if one day that is indicated here doesn't seem enough ambitious to you, I would like to highlight that this is binding reliably, which is quite important in this aspect. And also, we expect this initiative to help us significantly increase our productivity in processing of mortgage loans and again contribute to the overall operational efficiency. So that much in a nutshell for one mortgage factory and digital sales and servicing. And I'm handing over to David Formánek for corporate.

Thank you, Mirko. So our objective in the area of corporate banking business is relatively simple. It's to basically keep and further expand our market leadership. We already now leverage on our very strong and, I would say, even a unique market position because we are bank #1 in terms of penetration of this segment of business clientele, so roughly 45% of businesses or corporate bank with KB in the Czech Republic, and it's more than 50% of all municipalities which also bank with KB. So this is a very strong presence and foundation on which we want to build. And basically, the way how to achieve this objective is the combination of advanced technology, especially usage of the advanced data, data analysis and expertise and also a combination of the advisory based on the piece of our corporate bankers. How are we going to measure if we are successful with these objectives? So first of all, we want to further increase our market share in business lending area. From currently 16.5%, we want to increase this market share by roughly 15% and to touch the 20% market share level. And I was speaking about the technological advancements. So roughly 1/3 of our lending business -- and I speak now mostly about our lending towards SMEs or smaller companies. So roughly 30% of this business, we plan to be able to do fully digital, so fully online not only regarding the origination and documentation but also regarding the automated scoring functions and risk assessment. And this is maybe a very good point to hand over to Didier to speak about the further objective.

Thank you very much, David. So we are turning to the next picture or slide and with this company objective by the name of risk management 2.0. And this company objective, in fact, has 2 main and quite simple ambitions. The first one is to enable the implementation of our 2025 strategic plan and its digital transformation from a risk perspective. And the second one is to make sure that we keep building a solid capacity to identify all the new risks that will appear along this transformation journey as well as to measure them and contain them. Obviously, the primary scope of this objective targets credit and operational risks, those 2 categories representing more than 90% of our consolidated restricted assets, but market risk will also be covered. Overall, this company objective is about, one, the simplification, automation, digitalization of all critical credit-risk-related processes and solutions, taking an end-to-end view; two is the ambition to cover the entire credit cycle from origination to monitoring collection; and three, also the ambition to cover all client segment but, as David just mentioned, with a stronger focus on retail and SME segments where there's a great potential for automatization and digitalization and, therefore, room for faster progression in the next 4, 5 years. Now this capacity to deliver under this objective is built on 3 cornerstones. The first one was activated 2 years ago with the inclusion of our risk organization into the agile parameter of the bank. And our risk services tribe has already demonstrated its capacity to deliver risk software and data solution under agile mode. The second cornerstone is a very important one, and it's the gradual contraction of a new service-oriented architecture and cloud-based credit risk back-end platform with the ambition, in fact, to cover all entities within KB Group as well as the ambition to simplify and better secure all key interactions with SocGen for all credit-risk-related matters. And the third cornerstone is the development and deployment of advanced risk analytics and modeling capacities feeding on a much larger set of data, whether PSD2 open banking, whether data sourced from all the partnership that Jan described earlier or public data, doing this -- gradually extending our use of the AI components and keeping a high standard when it comes to model risk management. Finally, just a couple of words on the expected benefit. The first one, in fact, has already been delivered with our resilience in the first phase of this COVID situation and with the successful delivery of online loan moratorium solutions, online loan restructuring solutions and these 2 AI-based retail collection solutions that Jan described earlier. This latest and successful resilience is -- in fact for us, is a clear invitation to do much more in the field of new risks that will emerge from this transformation. Going forward, obviously, we will improve our client satisfaction scores with better time-to-yes and time-to-cash in our lending activities with an improved capacity to offer digital financing solutions to prospect, which was a point historically that was a bit lagging behind, all this while keeping our risk losses level under control. And now I'm going to hand over to Jitka, who will present our next-generation CSR company objective. Thank you.

Thank you, Didier. Good afternoon or morning. My name is Jitka Haubová. And in June 2020, I was appointed as a new member of KB Board of Directors responsible for bank's daily operations and its premises. And I would like to highlight our new strategic approach to sustainable finance or CSR. It is a fact that Europe wants to create a climate-neutral economy with zero greenhouse gas emissions and, therefore, will create a new regulatory framework and invest enormous amount of money in order to mobilize finance to a sustainable growth. And the banks play an [ irresistible ] role, and the most significant contribution we can make to tackling climate change is financing the transition to net zero. We intensively studied the new EU regulatory framework and the new EU expected funds. And as you know, Czech Prime Minister has presented to the President of the European Commission, Ursula von der Leyen, a plan under which the Czech Republic will be able to invest up to EUR 24 billion. It could be slightly changed, but 37% or the EUR 8 billion would go to green financing and coal transition, and KB has to be ready to respond and support client business needs. With these convictions -- and with our convictions that this concept actually of the future of economic life and because Societe Generale is a founding member of the United Nations Positive Impact Finance Initiative, it is also a new and very strong impulse for us to take onboard. So what we would like, we would like to be a leader in sustainability on the Czech market to be chosen by -- or because ordered by our clients to be -- [ dilute ] even more by investors and to believe that sustainability is not a sham but it is an attitude. It is strategy. It is also way of life. And our targets are divided into 3 main pillars. Business, we want to build a green, robust business model. Secondly, we, at KB, measure our carbon footprint and have prepared plan in order to decarbonize and to reduce our carbon footprint by 80% in 2025. And I have to say that we were able to manage to provide financial services as payments card, ATMs, withdrawals, cash flow support, processing state programs during the first and current pandemic wave. And without being able to carry out these simple operations like in a lockdown would be [ antiquable ]. And our ability to keep on as a functioning bank has proven our sustainability. So our last target is oriented towards improving our external indexes as FTSE4Good or MSCI. So finally, we believe that future is green, greener and greenest. And I would like to pass the floor to Jirí Šperl, our CFO.

Thank you, Jitka. As we are running out of time, let me be rather brief. So I will cover 2 areas. The first one is related to new revenue sources. So the target of the bank or [ belief set ] of the group is to achieve revenues from new or in untraditional sources. As I mentioned, so the target is quantified at least at the level of CZK 3.7 billion. Let me mention at least 3 areas. There is a lot of in the pipeline but 3 areas. First to mention -- so first one is to create a service ecosystem, and that's both for small businesses and individuals in order to differentiate us on the market. The second one is related to, let's say, monetization of bank ID. Jan was already commenting on that. So you can imagine what was behind. And third one, very important is [ all the better ] cooperation with these start-ups. Jan also was mentioning we established a dedicated subsidiary called KB SmartSolutions, which started to be very active, and this plan is going to continue; so here, the target CZK 3.7 billion extra. Second point is related to operational efficiency. And here, the target is not lower than to reaffirm leading operational efficiency position within the Central and Eastern Europe, which is already the case. And the target is to increase efficiency by 25%. And what you can see behind is, again, a lot of things, but let me mention 2, 3. So first one, further centralization of back and head offices' functions and also premises across KB Group, important, interbank shared services, further optimization of branch networks, in-sourcing and, let's say, implementing of DevOps and so on. So that's for operational efficiency briefly, and I'm passing for -- to Jan back. Thank you.

I think this goes to Margus now.

Oh sorry.

Margus, can you please comment on the technological update?

Sure. I was just waiting for the corporate and retail stop first, but of course, technology side. So on the technology side, what is important is that KB, in order to deliver all of those things that we want to do in -- during 2025, we also clearly understand that we have to gear our core technological components quite an upgrade. So what we are planning here is what we call the new digital bank. New digital bank, the concept that can be explained a little bit longer, but shortly, this is basically building the secondary technological stack in parallel to the existing technological setup that we are already having. Meaning that this way, we can implement the new technologies significantly faster. And when we are also looking at the different consultants who are looking at different digitalization and modernization plans, then we're also seeing that they are estimating that this kind of approach is cheaper to implement than the traditional gradual replacement of the different technological components within already the existing technological landscape. We have already kicked off the activities to start replacing our core banking system that way so that the implementation of the selection and implementation have already been kicked off here. We are looking also for the new card management system being implemented in the upcoming years. We are also talking quite significantly about fully building up the digital sales and servicing capabilities. It's about the upgrades in our digital channels, but it also is the upgrade in what we call as a like middle layer or the digital hub or digital sales tools that are usually sitting somewhere between the front end, I mean, the channels, and the back end, like the traditionally, the core banking system. They are sitting there in the middle, and they are doing most of the data crunching in order to really provide the digital sales capabilities to our customers and improve our technological setup to serve customers both in real-time and the faster delivery to the market. Payment processing has been already -- the new payment hub development has been already ongoing for a few years. And this is where we are just continuing to expand the activities what we have been doing in the past. So all in all, we are saying that the new digital bank as such, by the 2025, together with product portfolio simplification, what Mirek was already talking about, together with the rest of those products that the customers are asking that we want to deliver together with data-driven organization, they form quite a solid and a strong technological foundation behind the scenes in order to enable all of those new business features and the new business possibilities that we are -- we want to pursue here. That's all. I hand over to the others.

Briefly, the loss about the implementation in corporate and investment banking.

Yes. Okay. Thank you, Jakub. So let me briefly comment the main investments and initiatives in the area of corporate and investment banking. So first of all, we are going to build a new universal and comprehensive front end, which we call CIB portal. So this front end will serve as a proxy to all services towards corporate banking clients. Already next year, we are going to start to build a new technological platform for our investment banking services, also then giving us the opportunity to serve and also conclude a lot of, let's say, all the transactions in the area of market operations, hedging with our clients on online basis and which, obviously, will be part of the new technological infrastructure of KB. We are -- we already spoke about the loan granting system and switching to online. So I would like to stress that we are going to build also the technology, but also the expertise to be able to support our bankers with advanced data analysis to support them in advising and in consulting with our corporate clients. We are started to build our expertise in the area of so-called sustainable or green finance as we anticipate that this area will bring tremendous opportunities for our bank in terms of financing various projects. In this area, we focus on areas like energy savings or new sources of energy, new sources for energy storage, water treatment and water retention facilities and also circular economy. We already established a specific subsidiary called KB Advisory which will continuously expand the expertise to also serve as a kind of consultancy point for our clients. And nevertheless, we are also starting or initiating a lot of partnerships, basically to be able to provide our clients also with technical expertise and the ability to consult. Not -- last but not least, there will be also a lot of subsidies and support coming from the various EU programs in the coming years, which will take a lot of investment in this area. Indeed, in the area of investment banking, we are expanding our ability to provide also our SMEs and smaller business clients with the advisory in terms of FX or interest rate hedging and also the ability to trade with us in smaller volumes or with smaller amounts. Also, we -- and it has been mentioned, we start a lot of partnerships with so-called fintech companies to give us also the technical ability to pursue the banking business via different platforms. We call it, for example, invisible financing, which is the ability to be present in various online controlling systems where basically, based on the knowledge of the client, we will be able to provide them appropriate loan offers, or other example to use crowd funding platforms, for example, to finance various municipal investments in the area of green finance, which I already mentioned. And now I pass the word to Mirek to elaborate on retail banking.

Thank you, David. I'd like to draw your attention once again to the area of retail. Many of those items that you see on our to-do list already commented. So I'll focus my comments on those who were not. And I will start by investment portal, which is new tool, a new platform that will help us to structure the conversation with clients in this particularly important area. That should help us to further increase the understanding of clients, giving them more elements for the right decision. And that should also help us to provide the right advice to the clients, implementation of investment portal in retail banking to simplify the client journey as well. And least, but not last, should significantly simplify the administration of all the products and transactions that are linked to the area. Having explained EBITDA investment portal, I would move one level up and speak about new advisory and sales platform that we call financial coaching. And this is sort of an umbrella the investment portal and investment area is part of that. Financial coaching is a lot -- about a lot more than just the investment and saving products. It's a way how to talk to the clients, how to provide the best advice, how to help them to understand, how to even enhance the financial literacy of our clients. And it goes far above the investments, as I said, starting from your daily banking activities, small transactions, what you do in everyday life, moving across to the insurance products or even your lifetime project that require a housing clone one day. Another element that should help us to succeed with our ambitions goes to branch network. I already commented that -- saying that we still believe in a very important role of our physical outlets, but we will definitely redesign the role they play, and we will also further optimize the number. Seeing the world and the environment today, we would like to get to 200 branches in 2025, out of which 40%, which is 80 main branches will be already converted to new branch concept that is now just about to be piloted, a new branch concept that is fully paperless. By the way, an important comment, if you look at 80 branches out of 200, as those are the biggest branches in our network, we will cover approximately 65% of our client portfolio in those 5 years within this concept. With small apology to be saying it over and over, let me once again repeat, simplified products and automated processes because we believe that this is a very powerful element for future success. And the last point on this to-do list and not an easy one. By 2025, we would like to migrate the complete client portfolio to the environment of new digital bank. That's it for now, and I'm passing the floor back to the studio to Jan.

All right. Thank you very much. Knowing that we are running out of time. Just let me swiftly go through the last 2 pages of our presentation. And let's focus on measurable targets between 2019 and 2025. In the field of the Net Promoter Score, we would like to align around the 50 positive points across these segments, starting from individuals and ending with the largest corporates. We want to use the omnichannel experience. We want to leverage on the expertise of KB and SG Group teams and in cooperation with third parties. Bank clients. And I am now speaking about bank-only and organic growth. The number of clients will grow from 1.66 million to 1.85 million through the acquisition via omnichannel experience. Bank branches. Let me just remind, beginning 2018, we were somewhere in the territory of 380-plus. We are targeting in 2025 to 200 highly sophisticated equipped with experienced bankers, bank branches which will be providing the high-class services to our clients. Number of employees shrinking further down alongside digitization from the existing numbers of 7,340 to 5,500, and fighting for the employees' engagement and employees' loyalty and beating the level of 80 positive points, mainly -- or more precisely, 83 positive points. Social responsibility, as already mentioned by Jitka, we are currently part of the FTSE4Good Index at the level of 3.3 score. We want to elevate to 4 points in that particular index. I'm moving the word back to Jiri to close the presentation with the last page.

Thank you. So, last page is just visualizing what will be finance performance once we deliver our activities and targets, I mentioned previously. So this, all in all, leads to a very strong financials at the end of 2025. So they are visualized at the bottom of the page. So Jan already mentioned 2 million of clients, it is 1.85 million organic growth and at least 150,000 nonorganic growth. This is one thing. Cost-to-income ratio have go down to the level or below 40%. Maybe to remind the targets for KB Change 2025 was 45%. So we are, let's say, improving further. And the return on equity to the level of at least 15%. And here, it is fair and first to mention what is the assumption behind, at least, in terms of cost of risk. So it's getting back to normal to the level of 25 basis points. The main drivers are described at the top of the page. So on top line, it's very much driven by rising business volumes, digital sales advisory model supported by data analytics. So maybe to say that in our planning documents, we are talking about average increase of revenues each year, so meaning at [indiscernible] basis at the level of 5% to 6%. This is one thing. OpEx is going to grow slowly as well. So we're definitely below inflation and it is rather between 1 to 2 percentage points. We are going to invest into digital journey. So here, we are talking about roughly CZK 7.6 billion, CZK 7.7 billion. But at the same time, we are able to cover that from 70% by reprioritization, meaning reprioritize investments from old worlds to the new world. Risk-weighted assets are going to grow relatively significantly. It is a growth strategy. So we are guiding, let's say, mid- to high single digit of risk-weighted assets/loans. And at the same time, it is important to mention as well, we will consider enhancing of our performance with nonorganic growth elements, of course, subject to all relevant approvals and validations. So that's it from myself, and now I'm passing the floor back to Jakub.

Thank you, Jiri. So ladies and gentlemen, this was the presentation of KB's strategy until 2025. I'm sure you will have questions related to the results or the strategy. [Operator Instructions] I will be reading the questions as they arrive. And because we have already received some questions. I will start asking them right away now. So the first question actually, a set of questions even arise to revenues. Coming from Simon Nellis from Citibank. He's asking about the front book margins. If you can elaborate on front book versus back book margins by key loan segments, I think, is a question for Jiri.

Yes, sure. Thank you, Simon, for the question. So let's focus on 3, 4 main categories. So if I start with mortgage loans. Here, the back book is fluctuating at the level of 90 basis points. While I'm confirming that the margins on front book, so on new sales didn't decline during the Q2. So here, we are fluctuating at the level of around 130, 1-3-0, basis points. That's mortgage loans. Regarding the consumer loans, it is a similar story. So the back book is roughly 450 basis points. The front book currently is 550. Maybe it's fair to mention that the margins on front book has increased significantly compared to Q1. But at the same time, we are adding that we are expecting a slight, let's say, deterioration in upcoming months as the competition will become more severe than it is the case now. So that's consumer loans. Regarding small businesses, here, we are talking about the margins above 301 basis points. And here, the front book is very comparable to the back book. And last point is related to corporate loans. And you know that we are organized in 2 main segments. So that's SMEs and then large corporates. So on average, we are talking about 100 basis points both back book and front book. And of course, for SMEs, the margins are a bit higher, while for large corporates, a bit lower.

Thank you. Question related to that is, what is the outlook for net-net margin next year and assuming no changes to the environment, which, I think, is quite in line with our baseline assumption.

I confirm that this is in line with our projections or assumptions. So given our hedging policy and given the fact that interest rates will be still at almost historical levels, we are expecting further decline of the net-net interest margin. For this year, we are expecting the level around 205 and 210. And for 2021, the expectation, given the assumption market rates, will not move, it will be insured by another, let's say, 15 to 20 basis points down.

We have questions related to revenues as well. But rather to this strategic outlook, one coming from Mate Nemes from UBS and also from Gabor coming from Autonomous. Basically, what share of the CZK 3.7 billion in, in say, incremental revenues in -- mentioned in the strategy paper is coming from higher interest rates? Or what is the contribution of bolt-on small acquisitions to that CZK 3.7 billion increment?

Okay. So maybe let me answer a bit different. Of course, we do have some simulations, assuming that market interest rates will stay at current level. At the same -- and our assumptions for the growth of market rates have been introduced by Jan. Let me say that this scenario is kind of very much, very much stressed. We don't expect it. And if I should -- if I should illustrate it into the impact into our ROE, we would talk about 2% to 2.5% down for ROE. And for cost income ratio, it would lead to the increase compared to the 40% target between 4% and 5%. So it has a lot of value, at the same time, our baseline scenario is absolutely different. So this is impact of market interest rate environment. In terms of fintechs and start-ups contribution. Here, we are talking roughly about CZK 500 million to CZK 700 million in 2025.

Thank you. The related question is also from Simon. What would be your long-term ROE target if interest rates do not increase from current levels? You've basically answered that. So then let's maybe move on to questions related to risk. So probably for the year it was mentioned that NPLs are expected at 3% at the end of the year. What was the level of write-offs or NPL sales in 9 months of 2020? And what is the outlook for 2021? Also, what is the expectation for NPL growth in 2021?

Thank you, Jakub. Thank you for the question. So regarding NPL sale for the first 9 months of the year, we are slightly below CZK 200 million. So it's a much lower level. You may recall that in the last 5 years, we sold an amount that is close to above CZK 8 billion. So that's for the first part. Then write-offs, traditionally or typically, we are in the range of CZK 750 million per year, which is what we expect for 2020. Regarding the NPL ratio. So we expect the NPL ratio to be around 3% at the end of the year. And I mentioned for next year, 4%. This 4% really being a cap, I would say that, yes, it's probably going to be a bit lower than 4% on the -- again, under our central macro connect scenario, of course. And I think that that's the answer to the questions.

Yes. Thank you, Didier. But we have one more question on asset quality or rather what is the provision coverage on that under moratorium. How do you expect this to change under your baseline and other various macro scenarios? How do you expect cost of risk to develop next year under these scenarios?

I don't -- I gave you the coverage for the S2. I would need to get back to you in a few minutes for the exact figure for the moratorium part. Then the overall answer to this question is that the level of provisioning we applied to the identified part of the portfolio that we consider as more exposed have been based on this client interaction that took place during the summer, taking a little bit conservative approach. So in this sense, we expect this level of reserve to be quite prudent, if I can put it this way. Regarding the guidance, I think, as I said, it all depends on the environment, basically. But under what we call our central scenario, we believe that whatever was provision on this COVID sensitive, nondefaulted portfolio is prudent. And regarding the forward-looking factors, we took the same approach. So it means that the reason for this 10 basis point expansion is probably more coming from any unexpected deterioration of a larger piece of exposure. So that's probably a fair statement at this point.

Thank you. Now we have, let's say, set of questions related to capital targets and development in the next future. The first one is basically returning a little bit to this 15% ROE target by 2025. And basically, Marta is asking what capital assumptions we have? What level of capital is assumed for this ROE target? So whether it is based on our existing 50 to 200 basis points management buffer target above the applicable regulatory minimum.

The briefest possible answer is, yes, it is assuming that our management buffer will stay at the level of 50 to 200 basis points. At the same time, we are expecting and working in our simulations kind of further optimization of our capital strengthening Tier 2 capital part.