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

Okay. Good afternoon, everyone. Let me welcome you to the presentation of the results of Komercní banka for first 9 months of 2021, this time also with an update on deliveries in the implementation of KB Change 2025 strategic plan. It is 4th of November 2021. Let me remind you that this call is being recorded. We are going to have the full Management Board today with us. So our speakers today will be Jan Juchelka, Chairman of the Board and CEO of Komercní banka. He will be followed by Jirí Šperl, Chief Financial Officer; Didier Colin, Chief Risk Officer; Miroslav Hirsl, Head of Retail Banking; David Formanek, Head of Corporate and Investment Banking; Jitka Haubová, Chief Operating Officer; and Margus Simson, Chief Digitalization Officer. As usually, we will begin with the presentation, which then will be followed by a question-and-answer session. [Operator Instructions] Of course, there will be an opportunity to ask questions later. So now I would like to hand over to the CEO, Jan Juchelka. Thank you.

All right. Thank you, Jakub. Good afternoon, everyone. Thank you very much for being with us. We appreciate your time, your presence with us. And this is my big pleasure, together with my colleagues from the Management Board of Komercní banka and with Jirí Šperl, to provide you with the KB Group results as of September 30, 2021, including, today, the update on the implementation of the strategic plan. So we can move directly to Page #4. Thank you. Here you see the main highlights of events and results as of the end of third quarter. Komercní banka was an active player on the rebounded economic activity of both retail and corporate segments in Czech economy. The third quarter was represented by increased economical activity, increased traveling of people, increased order books of our clients, and we were active in providing our clients with the appropriate services. That being said, our loan book grew by almost 5% on a year-over-year basis. The deposits from both the households and corporate clients was up by 12.1%, and we will come to the detail on the structure. But I can say already now that traditionally, the Czech households were keeping money -- or are keeping money on predominantly the new money, predominantly on the current accounts. Hence, here, there is the question whether in combination with the growing inflation rate, it's now the time for longer-term investments. And it is translated into our numbers by creating the stock of almost CZK 200 billion assets under management on the nonbank part. There was a very dynamic growth by 6.1% across the business lines in charge. So mutual funds provided with -- in partnership with Amundi, insurance products initiated by Komercní pojištovna and our pension corporation of Komercní banka in the field of pension schemes. Revenues grew up by 1.3% to the level of CZK 22.6 billion, whereas the operating expenses were down by 0.7%. And I am very proud of the entire management team who took very seriously the challenge on OpEx management, and we were able to deliver these positive jaws in this field of expenses and revenues. The cost of risk remained low, and Didier Colin will provide you with details in a few minutes, represented by 14 basis points or if you wish, CZK 0.7 billion provisioning, which remains in a very moderate field. That being said, all of that translated into profit, of displaying CZK 8.6 billion of net profit, which is by -- 41% more on year-over-year comparison. We are comparing that with 2020, which was heavily impacted obviously by the pandemic. ROE climbing close to 10%. Return on assets almost 1%. And we believe that these numbers will be appreciated -- or are already appreciated by you guys and by the markets in general. Komercní banka remains a very heavily capitalized bank, so core Tier 1 at the level of 22.5%, capital adequacy at the level of 23%. We are paying -- we will be paying out the dividend already now in 2021 fully franked and in accordance with the paper provided by the Czech National Bank. So it's CZK 4.5 billion, CZK 23.86 per share already approved by the General Shareholders' Meeting. In the field of digitization, in the field of business, let me say that we have recently celebrated 1 million clients of our mobile banking application. The number is growing further. We are very proud of that, and it's a clear confirmation of our hypothesis that the COVID situation and related processes in the society will simply move people closer to Internet banking and mobile banking. And with more than 1 million clients, we are undisputable leader in the mobile banking in Czech Republic amongst the comparable players. In -- during the last quarter, during the previous quarter, we were able to make our homeworks also on the side of creating new potential for revenues by establishing and concluding strategic relationships with important players. Here -- in that particular case, it's worth to mention that we have signed a deal with CEZ Group, CEZ being one of the largest European utility companies and #1 in Czech Republic, where we have put together ourselves and SG Equipment Finance, our subsidiary, in charge of leasing of equipment and CEZ ESCO when launching a new product for small and medium-sized companies in the field of installations of photovoltaic systems, either on the field or on the roofs of SME clients. We can move to the next page, which is providing us with our view on the macroeconomic environment. And you are all aware that we are impatiently waiting for the result of the discussion and the decision of the Board of the Czech National Bank, which should come up in more or less 15 minutes from now, what might be the new hike in rates. I will start with the rates. Czech National Bank has reacted lightly on the situation with the inflation and was very active in hiking the rates. The last decision was the increase by 75 basis points to a level of 1.5%, and the market expects it will continue also after today's meeting. Let's see, during our call, we will be -- we will know more. Speaking of market-driven rates, the longer-term 10 years interest rate swap landed at the level of 2.44%, which is 116 bps up on year-to-date comparison and 10 years govies at the level of 2.09%, which is almost 80 bps up on year-to-date. GDP is continuing the positive growth. Nonetheless, recently, our macroeconomic -- macroeconomists have reviewed their outlook and decreased slightly the level of expected growth of Czech economy. Let's say that the GDP growth is being mainly supported by private consumption and fixed investments from both the public and the private investors side. Carmakers are living an unprecedented situation with the disruption of the supply chain and shortage of semiconductors. Also, the third quarter was accompanied by a rather visible decrease of car production when we compare with the previous quarters. And we will -- we all are -- not only the bankers but everyone is observing that with -- very closely with high interest of when the supply chain might be cured and will be normalized in -- not only but also and mainly for us in the car-making sector. The unemployment remained almost invisible. It's still below 3%. Nominal wages are growing up mainly due to the decisions of the government on the side of increasing wages in public sector. And the inflation, which I have already mentioned, elevated to very close to 5% back in September, growing by 0.8% compared with August. It's mainly housing costs, rise of energy prices and others. So we can go to the next page, pandemic situation and pandemic update. So Czech Republic is experiencing now huge -- massive growth of new cases of COVID-19. We are now breaching the level of 10,000 per day. New measures are being in place. Currently, we don't speak about any like lockdown type of decisions by the government. And everyone is also like closely monitoring what's going on, on the side of potential future decisions of the government and hopefully improving of the situation. We, as an employer, are not experiencing any, I would say, disruptive moments in that respect. Public finance remain stressed, if I may say. You probably know that there were general elections a few weeks ago. We are still waiting on the construction of the new coalition and the construction of the new government. So currently, everyone is aware that public finance and the condition of state budget remains one of the most visible priorities for the future government. Hopefully, the EU recovery fund and the national development program or national development plan, which should bring something like CZK 180 billion, representing almost 3% of the GDP, in place in favor of supporting the investments into infrastructure mainly but also to the modernization of Czech economy, decarbonization of Czech economy and others, will help. Let me say that what we know from the public sources, there will be like dedicated ministry on digitization of the country. So we hope that all these money which are pre dedicated to digital projects will be wisely used in favor of boosting the prosperity of the country. Komercní banka remains very active in providing Czech economy by new financing, including the COVID guaranteed lending, where KB plays an important role, providing the market with more than 1/2 of the existing CZK 74 billion of guaranteed loans, which are already in place. Next page. Next page is dedicated to the multichannel view on our business. As I've already mentioned, 1 million mobile banking clients was achieved. Hand in hand with that, there is close to 1 million clients also who downloaded the KB Key, which is authentication, but in the near future, also a signature feature of -- made by KB. We have also put in place the new -- let's say, first stack of the new digital bank. So we have, you can imagine, sort of minimum viable product type of solution, which is combined with the core banking, the analytic layer and the front end, fully functional, tested by -- currently by 500 users. And we launched that back in October 21, which is part of the story that we are like sticking to the deadlines on the development of the new technological stake. The share of sales by channel and let me just focus on the either end-to-end digital or partially digital. We are doing quite well or very well in the field of consumer lending. As far as more complicated or more complex products such as mortgage, et cetera, it's not so impressive. We believe that with the new technological solution brought by new digital bank, we will be able to fully digitize the journey of the client in almost every aspect of the products and services of Komercní banka. When speaking about digital, let me say that the share of either mobile banking or Internet banking as a processor of payments is representing 98% or more than 98% of the transactions processed by our systems. The remaining 1 to 2 percentage points is dedicated to classical channels, paper orders on the branches. The mobile banking is also a visible enabler for the digital wallet use, where the Apple and Google users are, let's say, growing in very fast pace when using the tokenized cards. In that particular case, it was more than 30,000 on quarter-over-quarter basis and 107,000 on a year-over-year basis in our portfolio. We can move to the next page, which is dedicated to lending operations. I have already mentioned we took an active role in Czech economy when assisting our clients across the segments and providing them with a fast, smooth solution on financing of their needs. One of the most and still most dynamic disciplines in that field was, in third quarter, the loans dedicated to housing, either provided by Modrá pyramida, which is our building saving company, 100% subsidiary, the growth was at 17.4%; or by the production of Komercní banka, 6.8%; or the activity of business loans. When we focus on the business loans, which is the right-hand side, upper part of the page, you see that the main contributors were small and medium-sized companies or small businesses mainly, followed by corporate clients and followed by the dedicated solutions from the kitchen of SG Equipment Finance company. We do believe that the growth of mortgages and the demand on mortgages, even though it's taking like colder shower coming from the increased rates, will continue in the country, highly probable with lower dynamism, with lower rates of growth. Nonetheless, we believe that it will remain until the end of the year one of the main drivers of the construction of the loan book. Having said that, the net loans to deposits remained at very comfortable ratio of 68.1% and the liquidity coverage ratio on more than 200%. So let me conclude that from the capital point of view and from the liquidity point of view, we have huge buffers on the balance sheet. We can go to next page. Here, we are showing you our achievements in helping the clients to realize their projects, realize their plans, realize their investments. One of the most remarkable transactions -- we are proud of each of those which are displayed in front of you. Should I pick up 3 of them, I would probably start with CETIN. Komercní banka, together with Societe Generale, was one of the instrumental banks when helping the clients with -- on the advisory side, on the structuring side, when there were -- there was the disposal of the minority stake in CETIN. The PPF Group was assisted by a group of banks where SG, together with KB, played one of the most senior roles. The other one is U.S. Steel Košice. This is the pioneering sustainability-linked syndicated credit facility, which is mainly helping the company to make other important steps in the field of sustainability, which is always, with the steelmakers, it's not the easiest homework for them. We are very proud that our Slovak team provided the client with the necessary support together with other banks. The third one I will pick up here is the Heluz Group, where Komercní banka was the sole financing arranger, underwriter and escrow agent in an M&A situation for our client -- for our long-term clients, one of the leaders in the construction materials. Let's move to the next page, which is dedicated to deposits. Deposits were growing by double digit, in concrete, to 12.1% on a year-over-year basis. And as I have already mentioned, both segments, the households and the corporates, were super active in putting their money on their bank accounts. The fact is that we need to translate and we need to understand whether these money are buffers for future spendings and investments or whether -- because they are predominantly sitting on current accounts or they might be translated into longer-term investments in other products provided by KB Group. Speaking about the non-bank assets under management, and I have already mentioned at the beginning of the presentation there was a very strong rebound, very strong momentum on the sales of mutual funds, which we are providing to our clients together with Amundi Group, which exceeded 8%; a 1.7% rather moderate sale of new insurance -- KP life insurance products, insurance -- Komercní pojištovna products; and rather stable and very sympathetic growth of 7.1% in the field of the products -- of pension schemes provided by pension company of Komercní banka. We can move to the next page, and this is the page where I'm handing over to Jirí Šperl, our CFO. Thank you.

Thank you, Jan. Good morning, ladies and gentlemen. Let me now reiterate a bit more on Jan's statement. He started the presentation that KB Group delivered very sound financial results in the last quarter. Simply, the positive trends continue. After the bottoming in Q2 and Q3 last year, Q3 this year is the fifth consecutive quarter where we are reporting increasing net profit after tax. We are reporting more than double profit than 1 year ago, plus 10% more than in the biggest quarter. Here, it is driven mainly by strongly recovering net interest income. If I have a look on the results from 9 months perspective, the group reported net profit at the level of CZK 8.6 billion, as mentioned by Jan, plus 41% year-on-year. And from the waterfall chart, it's clear that still the main drivers are, first, cost of risk that added majority of the positive impact into our pretax profit line due to excellent payment discipline of our clients; but also the financial operations, the biggest jumper in our top line, growing by 1/3 year-on-year; and also, not to forget, a very promising evolution in fees and commissions, growing by high single digits. Costs are, not surprisingly, under control. So the only metric where we still are a bit lagging behind last year is net interest income. Naturally, all this transposed also into profitability indicators that are shown at the bottom of this slide. All these further improved, increased on average by 30 to 60 basis points compared to half year result. So for example, return on tangible equity is already touching 11 percentage point level. The other indicators are basically following. Maybe here, it's worth to mention that except ROA, all these indicators are somehow decreased or suppressed by a massive capital surplus. Adjusted by this, it will lead even to higher values. Moving to the balance sheet. So the balance sheet further accelerated given the offensive in the business. Total assets at the level of CZK 1.4 trillion surpassed another historical record. Quarter-over-quarter, there is a growth by roughly CZK 60 billion. Year-over-year growth at the level of 9% was supported mainly by the very dynamically growing client deposits Jan was mentioning. So in absolute terms, we are talking about roughly CZK 130 billion while these new funds have been placed into loans, roughly CZK 30 billion; and rest is a liquidity surplus into repo loans with central bank. Having said this, naturally, liquidity position further improved. Jan already mentioned some liquidity indicators, so to add one more or another one. It's NSFR, net stable funds ratio, which is also safely above the regulatory limits, and it's at the level of 100-and-something percent. The following slide is showing our strong capital base or capitalization, if you wish. Through -- the capital adequacy in third quarter went down very slightly. It was roughly by 15, 1-5, basis points, driven mainly by organic growth, while the interim profit has not -- due to announced dividend payout at the level of 0 to 100%, so it has not increased our regulatory capital base. All in all, capital adequacy stands at the level of 23%, increasing year-to-date by almost 70 bps. Here, this -- especially it's important to mention that CNB announced some changes in the capital requirements recently. The first one valid since October 1 and following a switch from systemic risk buffer to O-SII requirement, which decreased capital requirements of KB by 100 basis points to the level of 15.2%. Anyway, it will increase again by cumulative 100 basis points from October next year due to announced 2 increases in countercyclical buffer to 150 basis points. Having said this, the impact is neutral. That allows me to confirm what I said already during Q1 and Q2 earnings call. Our capital surplus is almost 700 basis points, and even this figure doesn't reflect profit of 2021. Recently, the Extraordinary General Meeting approved the dividend, as also mentioned. That will be paid to shareholders still before the end of the year. For the rest of the surplus, we will start to discuss with CNB in upcoming weeks. Let's go to 2 key categories of our P&L. So let's start with net interest income. So it is strongly recovering, even more than expected 3 months ago. So on a quarter-over-quarter basis, it's jumped by almost 9%. Naturally, on top of the balance sheet growth, it was also supported by CNB hiking. If we go into the structure of NII, on a 9-month basis, we are still down by 4.7%, influenced by a huge drop of market interest rates in the first half of last year that due to our hedging policy transposed partially into the P&L with a delay and thus, hitting first half of this year. The recovery in Q3, and now I'm referring to the upper-right chart, is however enormous. And obviously, it's seen mainly in the revenues, net interest income from deposits as we invested them for higher yields. Income from loans is increasing as well, influenced mainly by volumes, partially offset by lower spreads on retail loans, and it's relevant maybe mainly for mortgage loans. Net interest margin stayed quarter-over-quarter flattish, year-to-date at the level of 170 basis points. And the estimation for the year-end is up by roughly 15 basis points. Please, next slide. The fee income, also here, the trends continue on a year-on-year basis, growing by strong 8%, influenced by extraordinary result in the field of debt capital markets and advisory services but also by strongly growing it from cross-selling. And it's mainly fees from sales of mutual funds and insurance. And altogether, it's plus by 18%. Transaction fees on a 9-month basis, still down, influenced by lockdown in Q1 this year. If we move to quarter-over-quarter basis, that's upper-right chart, there is a slight decline by roughly 3%, mainly influenced by drop in specialized financial services I was commenting before. Financial operations, so it's another excellent quarter, delivering CZK 1 billion -- exactly CZK 1 billion. And already now, it's very clear that the full year 2021 results will be a record year in the history of KB. It's even more valuable if you take into account the fact that both key categories here contributed positively. It's the case for our investment banking corporation that succeeded to fully harvest the opportunity, given the volatility on the markets related to the dynamic environment here. What I mean is expectation of increase of market rates, related appreciation of Czech crowns and of course, supported by increased client hedging demand. But there is also a good result in FX income from the structural book, driven by recovery in traveling. And here, I mean both outbound and inbound and of course, related currency conversions. It's worth to mention that in this [ chapter ], I'm expecting a bit correction in Q4, given the fact that for tourism, the season is mainly Q3 naturally. And also, call it, it's getting some holdback that naturally will limit this type of operations.

Jirí, sorry for interrupting you, but it's maybe worth to mention that we have just received the decision of the Czech National Bank, if you have spotted that. There was an extraordinary hike by 125 basis points.

Okay. So that's a surprise. Okay. Okay. So back to OpEx. I would say as financial operations was kind of a surprise and a positive surprise, it is not the case for OpEx and no surprise, still perfectly under control in 9 months. It's slightly down year-on-year in a similar structure like in previous quarters. So -- but we refer to the bottom-right chart. So it's minus 0.7%. And still, personnel costs are down by minus 4%. The answer you can find in the left-upper chart. It's because of decrease of FTEs in the bank year-over-year by almost 5%. Also, GAE is increasing here. The main impact is -- or are lower telco costs and real estate costs related to head office centralization. So still just 2 [ chapters ] within OpEx line are regulatory costs growing significantly by 11%, and I will mention that later, it's going to even continue in 2022; and also depreciation, which is related to increased investments into our transformation. Last point at this slide is related to cost/income ratio. So it further decreased and on a year-to-date basis, is at a 50% level. And also here, we are expecting trends to continue and not only in Q4 of this year but also for following quarters. Well, that's for now from my side. And I'm passing forward to Didier .

Thank you, Jirí. Good afternoon, everyone. So turning to the asset quality and credit risk profile for the third quarter. As it was the case in the previous quarters, our main indicators continue to confirm the resilience and stability of our risk classification. And this is well illustrated, as you can see by our S2 ratio, which continued to slightly decrease below the level of 6% while the NPL ratio decreased to 2.7%; those levels, in fact, being quite in line with the average level of our peers. We recorded some marginal increase of our default rates, especially focused on our terminated moratorium portfolio but of a completely residual magnitude, so -- which is also a good sign in terms of the resilience of our portfolio. And as you can see on the right-hand side of this slide, our provision coverage for the defaulted exposures slightly increased in the third quarter, and this was the consequence of some -- I would say, positive resolution of a couple of corporate client situations as well as the continued increase of the coverage of our defaulted retail exposures, just reflecting here the time factor. Going to the cost of risk snapshot on the next slide. As Jan mentioned earlier, we recorded a level of net creation at the low level of CZK 50 million. And the structure of this net creation, in fact, is quite similar to the one we've already observed and communicated in the past quarters. On the one hand, we created a bit of provision at the level of CZK 150 million in net creation for corporate exposures and here, again, concentrated on something like 5 client situations going both ways, some creations and some reversals. And this was, to some extent, offset by some continued net reversals on our retail exposures. And this mainly is a result of some continued strong recovery performance for housing portfolios. Obviously, this is in the context of the dynamic residential real estate market. So all in all, year-to-date, we recorded a cost of risk at 14 bps. And we are revising downward our guidance, which was in the range of 10 to 20 basis points at the end of the second quarter, which we will revise down to a level below 10 basis points. And here, there are 2 main elements behind. So the first one is that we anticipate some further net releases both on our retail portfolios and on our corporate defaulted portfolios while the second driver will be the impact from the statutory monitoring of our IFRS 9 models, methodologies and results. And here, the level of this impact will, to some large extent, depend on the evolution of the macroeconomic environment. So there is a bit of uncertainty for the second component. But all in all, we are doing this downward revision, as I said, at a level of below 10 bps. And now I'm handing over back to Jirí, who will complete this 2021 outlook. Thank you.

Thanks, Didier. Jan touched already this macro, so to repeat it. In terms of growth in the area of loans and deposits, there are basically no changes in our guidance. So loans, both market and KB, still mid-single-digit growth. And on this growing market, KB is a bit gaining market share here. Deposits is growing much faster. In terms of financial outlook, the situation is very dynamic, but it is not changing our guidance compared to what is written on the slide. So we are upgrading our guidance in the area of net interest income. We are surprised by the hike by 125, but it's worth to mention that the impact into 2022 is not very significant. So let's talk about CZK 100 million compared to the variance of surprise. So really, we are guiding flattish or at 0 net interest income, if you wish, versus the previous low single-digit decline, which materially leads to revenue slightly up. That's, say, low single digits. And to remind, 3 months ago, we are guiding revenues flat. No changes in the guidance for OpEx, so flattish. And cost of risk was already covered by Didier. So that's for outlook, and I'm returning forward to Jan.

All right. Thank you very much. So we can now continue together with my colleagues on the update of the implementation of the strategic plan. So just a quick reminder, on Page #27, we are building and framing our strategic plan under the purpose claim which says, "We are building together with our clients a better and sustainable future through responsible and innovative financial solutions." Having said that, we see that there is plenty of opportunities of growth around us, and we want to become the leader of the new era of banking for 2 million active banking clients, which is the vision of the company for next 5 years. Our clients are seeing 3 main values and pillars on Komercní banka, based on which we can build our conviction on the strategy, which is growth, which is helpfulness and which is responsibility. Having said that, we have -- and you see that as the very last part of the page, the breakdown of company objectives into 10 strategic initiatives, and my colleagues will provide you with detail of each of them in a second, which is digital bank for people with aspiration, new revenue sources, one mortgage factory, market leadership for corporate clients, agile and adaptive organization, fully digital sales and services, next generation of ESG, data-driven company, risk management 2.0 and operational efficiency. And I am handing over to my colleagues, Miroslav Hirsl and David Formanek, with the next page.

Thank you, Jan, for the floor. Good afternoon to all of you once again. So let's get to the Page 28 that we will share with David Formanek, and I will start the comments by speaking about digital bank -- new digital bank. The good news, and you heard it already, is that it's up and running. The first drop is live. And when I say the first drop, it's basically just a few functionalities. From the client or user's point of view, we are speaking about onboarding. Once you have a KB Klíc, KB Key, you are equipped to either -- you can be onboarded. It's opening of the current account and payments. By the way, it's just Czech crown payments, but both instant and standard payments. But the point is different. The point is that what you see touching the mobile bank application, it's basically just the tip of the iceberg because there's a lot behind. Without much of an exaggeration, I would say, there's a whole new bank running behind that already or the start of the new bank running behind already. We have 500 registered users. These are older people from friends and family, which basically means employees, for the first bar, and a few first accounts already active. And payments are moving. The money are being transferred. So I'm touching the wood, so far so good. Speaking about new digital bank. Just to confirm that -- first that this is quite a major achievement in my eyes. And by the way, it might be good to mention that we started counting people who were directly, one way or the other, involved in building this first drop, and we reached a number of 300. So it's 300 people across the bank on the change path that already worked on this first prototype. Back to our plans. We are on the track, so this is where we wanted to be at this time of the year. And we still plan to keep increasing the number of users testing things, keep adding additional functionalities. And we would like and plan to introduce the solution to the market in more or less 1 year time from today. And then at the beginning of year 2023, we should start migration of current client portfolio into the new stake. So that much about the digital side, of the new digital bank. And even though we call it digital, it's based on 2 pillars. And the second one obviously is physical because we very much believe that combining our traditional strengths of physical presence and physical footprint and all our relationships with the clients with the new digital tools is the best way forward. And when I say physical, just a few months ago, I think it was July this year, we opened a branch reconstructed into the new branch concept that is very much going hand in hand with our new digital bank principles. Things like completely paperless, a lot more focused on advisory are just integral part of that. It is just a first branch. It's sort of a laboratory where we are testing and piloting all those new components and features. And when I say testing and piloting, it's true both for our sales force and people in front line as well as for our clients. Just to remind something that you know, in the next 4 years, we would like to convert 80 out of our total 200 branches into the new branch concept. So this is where we are heading. I would now move to the second topic, fully digital sales and services. It is very much linked to the first one. And let me start by saying that when I would try to summarize where we spend on digital sales and services today, I would say we have an excellent foundation today as we are pretty good at equipping our clients with all kinds of digital tools. And you heard Jan commenting on more than 1 million of users of Mobilní banka, a new record reached just recently. Number of users being equipped with KB Klíc reaching almost 1 million, and I am 100% sure that this threshold will be reached quite soon. Multiple of transactions processed through mobile banking. And all these things just, I would say, confirm that the traffic and client traffic there is quite strong. And this is always, I would say, the first step. You need to create the traffic so that then you can start selling and servicing clients there. Even though we are not yet champions in digital sales and digital servicing and we have, I would say, more ambitious trajectories planned for the time when first deliveries from new digital bank will start coming, there are still some quite successful stories over there. And I think you already heard about the consumer loans end to end, 27%. Basically, if I would simplify, I would say we are selling 1/3 of consumer loans end to end in digital. Another 1/3 is still in digital but digitally originated and processed, somewhere within the process, manually; and 1/3 in the traditional way. Also, the standard package, which at current account already 14% -- sorry, 17% of those accounts are sold in digital way. And also, we moved quite well ahead in mutual fund contracts, selling 14% for the moment. So that much for digital sales and digital services. There might be one more sentence that deserves a few seconds, just to remind our long-term targets and ambition for 2025. We said that we would like our end-to-end digital sales in retail to reach 50% of the total; and then that we would like, and we still believe it's achievable, to acquire 40% of our all new clients through digital. And by the way, there's one trend that we see and that is part of our long-term plans as well. There's quite strong inclination of clients towards mobile, a lot more than toward the Internet banking. When you see the frequency of interaction of our clients with the bank, when you see how many times they log on, how many transactions they do, it like grows by tens of percent every year on mobile and a decline in terms of percent on the Internet side, which, by the way, is another confirmation that our decision to build everything first on the mobile and only after follow with the Internet banking solutions is the right one. And now moving to the last topic on my list, and this is the topic #4, one mortgage factory. And just to say that it is in the phase of a project or initiative for the moment. It's running according to the road map. We still keep our ambition to launch, I would say, the first processing of a housing loan in 1 year time, more or less, from today. It will run first in the regime for family and friends again. And a few months later, at the beginning of 2023, we would like to start processing mortgages and all housing loans there, I would say, normal operational basis. So 1.5 years to get to the point where we will have just one mortgage factory or better to say, one housing loan factory and all housing loans produced in the group under one roof. There's one small -- well, it's not that small thing, important element as well. Our daughter company Modrá pyramida is now just about, these days, moving to the new head office that is close to the airport [indiscernible], one you know. And it will be not just the factory under one roof but the whole company will be sitting with all of us under one roof, which I believe will even further facilitate already quite good, well-running cooperation between all the teams. So I'm touching the wood, but pretty optimistic for this project as well. That's it. And I'm handing over to David Formanek for the other 2 topics.

Thank you, Mirko. Good afternoon to everyone. I would like to give you an update on our company objective, new revenue sources. So to capture new revenues, we are consequently expanding the scope of our activities by either new equity partnerships, which we performed through our company KB SmartSolutions or via business partnerships or by promoting or establishing and then promoting internal start-ups. As an example of a business partnerships, there is the common project which has been published or publicly announced slightly 1 -- more than 1 month ago, and this is the common project with the group CEZ or the subsidiary of CEZ, CEZ ESCO, SG Equipment Finance from our group and KB as such. This alliance has been already commented by Jan earlier during his presentation. I would like just to -- just maybe to add that this is the very unique offer for the corporate clients, giving them the opportunity to use some unused space to build and operate photovoltaic power plants fully financed by SG Equipment Finance and operated by CEZ ESCO and giving these companies the gain on reducing their energy costs. So after 1 month of marketing of this offer, we registered more than 14 serious negotiations with the clients about the installations. Regarding our equity partnerships, so we successfully developed the partnership with the company Roger, which is active in the SME financing and receivables financing, where we together develop especially the area of so-called micro factoring and then a specific offer for supply chain financing when using the digital platform developed by Roger company, which is the, let's say, user-friendly platform enabling a very easy transacting in the supply chain financing. Another equity partnership, the company Upvest. Company Upvest is operating crowd-funding platform dedicated to offer the investment to retail clients to especially housing developer projects. And we are now expanding the scope of the activities and the usage of this crowd-funding platform, either to offer the investments into these projects also specifically and partially exclusively to KB retail clients. We are expanding also the possibility to invest not only into the mezzanine type of financing but also to the senior type of financing and then not only to the retail or real estate projects but also to other type of projects especially aimed at ESG projects. Then, company Lemonero, which is active in the e-commerce financing, providing -- or having a very unique assessment tool and then being able to provide financing to the e-commerce companies. As an example of a successful internal start-up, I would like to mention a company named KB Advisory. KB Advisory is a small consultancy company active in advising the clients of our bank in the area of energy savings projects or investment projects aimed at improvement of the energy consumption and also to advise them how to get specifically support for various types of investment. So during this year, this company was able to provide more than 60 opinion on energy savings projects and is also very active in ESG advisory, specifically in the -- advising the clients about the methodology, how to measure the CO2... [Technical Difficulty] Sorry. Can you hear me?

Yes. We can.

So there was some interruption on the line. Sorry. So another example is then the bank ID services or Bank ID. This is a company owned by the major banks in the Czech Republic and providing a unified standard of verifying the identity and enabling the digital interaction of private individuals with service providers. And KB is one of the banks providing this type of service. So on this platform, we already had more than 600,000 identity verifications which were performed by 120,000 of KB clients. And during this month, there should be additional service, and this is the digital signing inside the bank ID environment. Then I would like to move to the next company objective, which is our ambition to be the market leader in the corporate banking area. One of the key results we measure this market leadership is our market share in lending towards corporate. In this area, the current market share on the lending towards corporate clients is at 17.4% and there was the increase during this year by roughly 60 basis points. So we are on the -- I would say, well on track to fulfill our long-term objective for 2025, which is at 19.2%. And earlier, you had the opportunity to see some examples of large transactions, which we were part of during the last quarter and which is basically also the evidence of successfully fulfilling the ambition to be the market leader in the area of corporate financing. But it's not only about financing. It's also about advisory and where we see a large opportunity for the next period of time, and this is the area of sustainability. We established during this year an Internet site called [ sustainablytogether.cz ]. And this is an advisory portal information portal for our corporate clients for all corporate and also a portal to giving various examples, so giving inspiration and ideas about projects, how to improve the energy efficiency or aim at the circle economy. This Internet portal has been established together with the company called Cira Consultant, which is a consultancy company active in the circular economy. During this year, we also introduced a completely new application for our clients using our services in the area of trade finance, this application called Trade & Finance Online, which replaced a previous application, which become obsolete. And this one significantly improved the user friendliness. And thanks to this easy operation of this platform, we are able to expand our trade finance business also with smaller SMEs. And at the same time, it brought us some productivity gains in the area of processing the trade finance transactions. And now let me hand over the word to Jitka Haubová.

Good afternoon to all of you. I have the privilege to give you an update about KB approach to sustainability as both regulatory and business projects. We are investing money [indiscernible] to take KB on a sustainable journey, which permeates all aspects of our organization. KB reduced its carbon footprint by 35% year-on-year. And the reduction was, of course, driven both by pandemic restrictions but also by significant energy consumption optimization, building operations and digital transformation effort. So it is also about real cost savings. Secondly, KB is progressive rethink its exposure to the coal sector. On the other hand, we are happy to finance by green transition investments as Mirek and David said before. This is also the reason why the sustainable positive impact financing to reach CKZ 3.2 billion over the last 12 months. We have launched a new and/or adjusted retail and corporate sustainable products as financing with professional trades for household sustainable technologies for retail clients, also the donated by state grant schemes leasing for companies as my colleagues mentioned, ESG-oriented [indiscernible] funds without entry fees. With advisory company for EU grant scheme management, which is very important because 42% of the initial development plan under which the Czech Republic will be able to invest will go to green. You can withdraw money in our recyclable ATM with recyclable payment cap and the [indiscernible] paid on full recyclable payment terminal in the shop. Bank identity is online paperless identification card is another example. Regarding regulatory duties both sustainable finance disclosure regulation and also nonfinancial reporting directive. Both reports are available on our web page. And I have to mention that the report has been awarded by association for the sustainable business as the best in the Czech Republic. And finally, Jan Juchelka was awarded as the most sustainable leader by Business for Society day before yesterday. So we are on track achieve our strategic target, and I am handing over to Didier.

Thank you, Jitka. Hello, again. So now going to our risk management 2.0 object -- company objective. Just as a reminder, this objective has 2 main ambitions. One is to enable the implementation of our strategic plan from a risk perspective. And the second one is to keep our capacity to identify new risks along our transformation journey. From a risk typology, we started with the scope covering credit and operational risks, and we are now gradually extending to market risk and compliance risks. When looking at the deliveries and our activities in the last 12 months under this company objective, it can be summarized in 3 main blocks. The first one is what I would call the COVID acceleration. And by that, I mean the modernization of our retail collection capacities, accelerating the usage of voice bot technologies as well as AI technologies in the interaction with our retail clients, mainly at this point, individual client segments. And the second one for this first block is the AI enhancement of our early warning signal capacity, which we apply to the more intelligent monitoring of our retail small business as well as corporate loan portfolios. Here, with benefits, both in terms of operational efficiency as well as financial gains in the way of contain cost of risk. So this is for the first. The second block is in fact an integral part of our digital transformation with a focus on 2 areas. The first one is the extension of our historical strength in the field of retail credit fraud preventions where we extended in 2 new directions. First one is the digital space and the second one is the corporate world. If -- it's still a bit too early to measure the benefits, we have definitely implemented advanced fraud prevention components into our various setups in the last 12 months. And the second development in this area is with the creation of new credit risk models and modules that will definitely support our end-to-end digitalization and automation for loan granting to small business and small SME clients. There is also a third block that is not explicitly mentioned on this slide, but -- which has a critical importance. And this is the continued gradual contraction of our new service-oriented architecture back end platform for both credit risk and for risk management. This platform will cover all the entities of KB Group as well as we'll have the ambition to simplify and better secure the key interfaces, which we need to have with SocGen for all credit risk-related matters. So all in all, the last 12 months have been marked with concrete deliveries and benefits that will definitely permit KB Group to keep its well-recognized risk resilience while progressing on the implementation of this transformation. And now I'm handing over to Margus for our agile to point our company objective. Thank you.

Thank you, Didier. Moving on with the next objective, which is building the higher level of the agile adaptive and the effective organization or, as we call it Agile 2.0. On that one, the key improvements have been mostly on the side of the better system stability and improved the IT flexibility. And we understand that as one big part of the new digital bank is going to be as an end result, the ability to release the new developments into the production continuously. Then this kind of continuous releasing. We have already moved to the 11 releases per annum. And then this is the release cycles that we are saying that they are giving us simpler releases. It's giving us better stability and it also reduces all of this overhead that is always related to the -- getting the developments into production. Considering the state of the IT employee availability all around the world, then it's also affecting quite a bit of the Czech market. So we have been putting a lot of effort in together with -- or within our HR and IT operation into the in-sourcing activities. And this is mostly focused on strengthening the internal know-how and improving the efficiency. We understand that we are going to need a lot of good people throughout our transformation and then we are working heavily in order to secure the necessary resources and necessary competence for the whole transformation cycle. On the overall agile methodology, we have now reached also to the full rollout of the OKR or objectives and key results method across the whole organization. The whole organization and the way how the funding of the different transformation activities is being done is already following very clearly the OKR method, meaning that our ability to dynamically change the priorities and then move forward with those activities that are the most crucial ones. This is going to be -- this is already running on the new level. If we are looking into the [ NDV ] in general, then one very big part of the new digital bank is going to be the ability to run the whole IT technology significantly more cheaply and with less effort required, and this is one of those key cornerstone activities that is happening with -- in parallel with all the functional developments with all the system set up so that we can really move towards keeping the running cost of the organization as low as possible. And when we look into the next one, the data-driven company, then in this one, our -- one of the biggest deliveries during the last 12 months has been the upgrade data analytics and visualization capabilities with using the Power BI platform. It's already quite extensively used. And we are very extensively also educating the employees within the organization to really work with data analytics tools on a higher scale. What is not mentioned on this slide, but this is where we are putting a lot of energy throughout '21, '22 and then also in the later years, we really push hard for the whole organization to be very much data competent. So that the data literacy of being able to understand everywhere on the business technology and everywhere else in the organization how to -- what kind of data is available for us, how can we work with data, how -- what kind of tools we need to use in order to take the maximum out of that. There has been a significant attention on the latter and especially in the years of '22 and '23, with the introduction of the different digital sales capabilities, we are clearly moving towards the direction of making data a key cornerstone of every activity that we do in this organization. And now handing the operational efficiency to [Jirí ].

Thank you, Margus. Operational efficiency, I would say it's a traditional part of our DNA. And in this strategic activity, we are on a good track. I was mentioning this before, so we are able to cut a number of employees during the last 12 months by another 5%, and clearly this trend is going to continue further. Recently, we are also completing with some say, small exceptions, huge one ever in our head office buildings management. It is to have the whole group head offices under one roof in our modern administrative complex in [Stodulky]. Mirek has already mentioned the move of Modrá pyramida here. So I'll just add that it is also the case for another KB subsidiary, what I mean KB[indiscernible] that's KB insurance company. And the last point to mention here, it's, I would say, the logic after optimizing of majority of agenda at the bank level. And having the bank and all subsidiaries under one roof, it's a perfect time to start to search for synergies across the whole of the group. And here, what I mean is, among other centralization of support functions and stuff like that. So that's in a nut shell operational efficiency, and I'm passing word back to Margus.

Thank you, Jiri. Moving to the next slide. This is focusing on the new digital bank. Miroslav was already mentioning quite a bit of the achievements that -- what we had been doing. But just as a reminder. And this new digital bank is mostly built on the greenfield as a greenfield initiative, and this is a complete overhaul of our banking processes, both from the technological and from the business side. So when we are talking about the new digital bank, then we are effectively building a secondary technological stack, where we are going to move the whole customer base and all of our services and processes to have the fully digital products and the fully digital banking process is running on top of that. And it has those kind of 3 major key elements here that we are building the new IT infrastructure. Already mentioned, the new core banking coming from Temenos Transact is already being set up on its core and basics. It has been integrated to the payment hub to the different customer management systems with the data warehouse and all the other already existing systems as well. We are in a very active progress of finalizing the card management system set up. We have developed over the last couple of years, the full new payment hub and also the new customer management processes. The second stage in that one is that we very clearly also understand that we are building the new simple digital products on top of this new IT infrastructure. This is a major difference compared to what we do and how the core banking system replacement usually happens in the banking sector. Typically, the banking sector, when they implement some kind of new system, they set up the new system, more or less exactly as the old one was, and then they essentially copy the whole database over from the old system to the new one. In our case, we are saying that we are going the other way in order to significantly reduce the number of products in order to simplify the processes in order to digitalize all the processes and then get rid of all of this ballast or this kind of like what we have been collecting over the long years that we do not need any more to remain and then to keep the business optimized. We are basically leaving it all behind and moving on with a cleaned up simplified set of products and processes. And then the third component here is the new front end, and the new front end is also, as Miroslav already mentioned, it's clearly moving towards the omnichannel. We have the mobile-first approach. The new mobile bank has been already implemented during this first minimum viable bank development during the last 12 months as well. And this mobile-first approach is now gradually going to expand into the full fledged banking experience in the upcoming couple of years. If you are looking into the -- if you are looking into this, what is our timeline, then we started the whole journey, the development of the new core banking system. We started it in the exactly 12 months ago in October 2020. By now, after the first 12 months exactly as planned, we have been delivering the new core banking system, and we are continuing the full development of the functionality for the -- especially for the retail space until the beginning of -- until the end of 2022. By that time, we already have something that we call a marketable retail bank or basically the moment when we start massive migration -- business migration of the customers from the old technologies to the new technologies. This parallel development of the additional functionalities and migration will last throughout '23 to '25, and we are reserving the latest stages of the development in '25 and '26 to complete migration, cleaning up the old applications and closing down and decommissioning the old technologies that we have here. Essentially, by the end of '25, '26, we are reaching to the point where we go back to having one technological stack only, and that technological stack is only the modern new one with significantly cleaned up processes. If I'm looking into the middle of the section, the main technological features and planned key results, then we are moving towards real-time 24/7 processing, analytics and lead generation, which is effectively significantly going to change our digital sales capabilities and digital service capabilities. We are moving towards continuous deployment, continuous innovations with data releases, if necessary, so that really fully automating the whole process of getting things developed and into production. And we also go into addressing the customer and banking needs of this kind of -- on a significantly higher level. 100% paperless plus communication with customers, share of digital sales to exceed 50% and increase both in number of customers, but also in the customer satisfaction measured by NPS, and the average revenue per user, those are the turnkey results on our side. And clearly, connected to all the rest of the numbers, they improve productivity and how many customers per employee, we can serve. They are also going to go higher. That's all about new digital bank. And now handing back to Jan, I assume.

All right. So we have 2 last pages of dedicated to the strategy ahead of us. So the first one is reminder how do we measure the outcomes of the strategic plan. We are planning to be above 50 positive points on the Net Promoter Score, i.e., to keep our clients happy or even happier than today with Komercní banka. Number of clients should be increased to 2 million active banking clients, which means that we do believe on strong traction created by the clients proposition through the new digital bank as well as we are keeping our eyes open for potential opportunities in the market and a potential acquisition of clients. The bank branches, we are targeting 200 branches. Let me remind that back in 2019, we were managing the network of 341 -- 342. 100 of them was taken out already in 2021. We took the bold decision in the middle of the pandemic situation, and we did it and it was the right decision because you can see that the dynamics on digital are very strong, and our business performance in retail is following the trend. And I do believe that even though it will be the harder part of the job, we will be landing at 200 in 2025. Number of employees should continue decreasing to the levels of 5,500. Again, it is an ambitious target. Nonetheless, you see that the commitments we are making publicly are being also fulfilled, and you can see that already also as part of our third quarter presentation. The employees engagement because we do fight also for the happiness and satisfaction of our employees should exceed 80 positive points. Currently, we are finding ourselves somewhere at the level of 76.5, which is a very strong result already -- and we are convinced that it will continue growing as the modernization of the company, the democratization of the company will continue down the road. Our commitments in the ESG area remains also solid and strong. We are currently based on the methodology linked with FTSE4GoodIndex at 3.3, and we want to elevate that to the -- to 4 points, having a concrete plan of concrete actions ahead of us to be fulfilled. I'm handing back to Jirí Šperl.

Thank you, Jan. Well, those of you who participated at the earnings call of 12 months ago when we were presenting our 2025 ambition probably might remember that it is a very much growing plan. My colleagues just presented the main elements of it. I will focus on the transposition into financials. The key financial group targets are summarized at the bottom of this slide. So cost income ratio of below 40%. In other words, we are going to deliver positive jaws where the top line is growing much faster than costs and ROE more than 15%. But on the figures as of September this year, whatever they are very sound, it's clear that we are not there yet. It's natural because it is a long-term plan. What is, however, important for us is that we are on a very good track. And having said this, we are confirming both ROE targets and at the level of 15%, and cost income ratio below 40%. By the way, this key performance indicator, what I mean is cost/income ratio is even evolving a bit better than the planned naturally on top of delivering our business targets, it's also supported by accelerated normalization of monetary policy by [ CMB ]. From today's decision, it seems that the only sky is the limit. So that's where we are now, and I'm returning finally to Jan.

All right. So thank you for paying the attention to us for so long, but we wanted to share with you the performance together with the development of implementation of strategic plan because we do believe that even though the external environment remains quite live and not always easy and challenging, we need to keep our pace and direction as far as the strategic direction is concerned. So now we are ready to react on any of your questions, please feel free to raise your questions.

Thank you very much. So ladies and gentleman, this is concluding the presentation part of this meeting. And now as Jan indicated, we are happy to answer your questions. Let me remind you that the whole meeting is being recorded. And if you have a question, please use the icon with raised-hand on the upper part of your screen and then please wait to record if you are connected to talon will invite you to ask questions later on. So our first question comes Máté Nemes from UBS, Máté please go ahead.

Yes. I have a couple of questions, please. Firstly, on the development of customer loans or your expectations for development of customer loans going forward, also perhaps beyond the next quarter, you're seeing that perhaps the sales of new housing loans have peaked in Q2. I wonder if we should expect or whether you expect a continued, perhaps slow decline from here onwards? And maybe this trend offset by pickup in consumer loans or perhaps pick up in corporate lending as this maybe supply chain disruptions ease or the RFS that is come online? And then maybe you're seeing a bit more demand for investment type of loans from the corporate sector. So that was the first question. The second one is on NII and interest rate sensitivity. Given the large hike today from the CMB, I'm just wondering if you could comment on your NII sensitivity at current levels, presumably deposit [ betas ] are changes now? And maybe those sensitivities are coming a little bit lower. And lastly, just a question on the long-term return on equity target of 15% plus. Can you maybe clarify what assumptions are you using for CET1 or Tier 1 ratios for the target in 2025.

May I start with the housing loans because I think this is a question that we all have on our table these days. Just to give you the full picture, as of today, the first 9 months of the year-over-year growth is reaching 90%, which is enormous. But it's slowing down already. If I look at September, isolated, the year-over-year is just 40%. So when I do some estimate of the total year 2021, I would say we can end up around 60% of growth compared to the previous year. So just to say where we are today and slowing down already. For the next year, the expectation is more or less, and then it's not an easy thing to estimate it, by the way, minus 30% in the new production compared to the estimate of the year 2021. So we still see that housing loans should be quite strong, but the appetite of clients is definitely going down. And the news from today will even strengthen this trend most probably. For consumer loans, we still believe that this can be an engine of growth. The next year, the estimates we have are around 6%, plus/minus 1%, speaking about the outstanding volume because it gives, I would say, better notion of the development of the market. And we would like to be the market, by the way. And the same is true for housing loans. So just the first part of the answer and now [indiscernible] I guess.

Yes, sure. I will take the other 2 questions. So first one was related to net interest income sensitivity. So let me use 2 usual metrics we are issuing. So first one is parallel to a shift of [indiscernible] By 100 basis points and the impact to our -- into upcoming 12 months is at the level of CZK 1.5 billion. So that's a parallel shift of [indiscernible].Just to simplify that and use the metrics for only short-term interest rates hike, so one hike what I mean is 25 basis points versus like CZK 300 million. It's increased a bit, mainly due to the fact that also our health, let's say, current accounts and deposits increased significantly. So it's mainly about volume effect. And third question was related, what is the assumption used for capital level of our capital connected to our ROE target at level 15%. So of course, there is a lot of assumptions used, but assuming that our -- the minimal requirement will stay at the level of 16.2%, which is currently our baseline scenario. The capital, I think it was at that time will be roughly by 120 basis points higher, meaning in the mid of our management buffer. For that, and again, I'm describing our baseline, we are assuming to issue 1 tranche of subordinated debt. Probably some of you know that we did it already roughly 3 years ago. It was at that time EUR 100 million. So part of this excess is support of our capital adequacy by another [ EUR 100 million ], which will lead to the situation that we will utilize roughly 50 -- sorry, 100 to 120 basis points of the regulatory element, which is at level of 200 basis points.

So the next question comes from Simon Nellis.

Thanks very much for the call. Yes, just following up on the net interest income. I think you mentioned during the call that the 125 basis point hike today would have, I think you said [ CZK 100 million ] incremental impact. Is that for this year or for next year? That's not clear exactly what you were trying to get across. My second question would be do you foresee any impact on risk cost from the quite significant rate hikes that we've had? Do you have any clients that could be vulnerable to the higher rates? And also, do you have any exposure of clients that are vulnerable to other increases in prices, I guess, primarily energy prices, if you could elaborate on that risk. And then just last on depreciation. I was surprised that it hasn't gone up more. We seem to be investing a lot into the new core banking system. Is depreciation expected to rise at a much faster rate going forward.

Thank you, Simon, for the questions. So I will take the first one and the third one. So just to precise the impact of today announced hikes, I was mentioning roughly 1 million out it will be small, CZK 100 million impact still in 2021. The impact in 2022, of course, will be much higher. And if I simplify, it's by 50 basis points more than we were expecting our baseline by the end of the year was 75 basis points. So now it is 1.25. So you wouldn't make a big mistake if you roughly to CZK 600 million. Now passing to Didier for risk question, and I will get back to depreciation.

Thank you. So in fact, if you look at the various segments for [indiscernible] segments in the way we have built our credit policies and the way we more specifically calibrate our limits. We have some -- we have a lot of buffer that really protects us very well against interest rate hikes. Small business is less of a question. First, because the maturity of our loan exposure is shorter; second, because it's more in terms of fixed rate and also the level of client rates or pricing is higher. So we have here a bit of protection. I would say that you asked about vulnerable portfolios. In fact, I would just give the example of the terminated moratorium portfolio, where we've seen a bit of increase of our default rate, but in a magnitude that was half the one we expected a year ago. So I think this is definitely a good sign of resilience. And regarding the -- your question on energy price, in fact, we did a review of our corporate -- on the corporate side and the expected impact that we in mind is surely manageable. Now your question is probably more a question on the retail side. But again, here, as was mentioned by Jan, the level of unemployment, the pressure on wages. All that makes us still believe that it's -- it will be definitely manageable.

So I will complete the third one where depreciation in first 9 months of this year was plus 8%, which is roughly lot. It's very clearly influenced by, I'd say, increased investments. Our transformation is going to, of course, continue, but I see this 8%, 9% rather like exceptionally. And if you ask me for kind of let's call it, a run rate for upcoming years, it will be lower at the level of, let's say, mid-single digits. Again, 5% to 6% would [indiscernible].

So the next question comes from Michal Konarski from mBank.

Okay. I've got actually 2 questions. First one, given this quite surprising move from traditional bank, I was just wondering what is your feeling where the base rate will go from here, what could be the level, ultimate level, for it this year and next year? This is the first question. And actually, I would like to ask about cost of risk, maybe once again, what is your feeling for 2022? Is it possible to achieve cost of risk still below 10 basis points for the full year? Or it should normalize somewhat next year...

Should I take the first one, Jan? You're perfectly correct. It surprised everybody. It's very clear that the decision-taking process what to give the higher priority. What I mean is inflation versus the potential support of the economy can be selected without any doubt. The first one, we are closing close already to do 3%, what CNB was saying all the time that they see kind of [indiscernible] cycle short-term interest rates is, whatever, between 2.5% to 3.5%. So I think -- I personally think and maybe my colleagues will [indiscernible] About the floor kind of floor is -- or GAAP is 3.5%. That's a maximum from my perspective. Did it answer your question?

Yes. Thank you. Thank you. Yes.

And regarding the -- your other question on the cost of risk outlook beyond the end of the year, in fact, I have not found yet a crystal ball to make this kind of forecast on the IFRS 9 standard, but still try to answer your question and looking at our regular ICAP activities. So it's not so much 2022, it's more through the cycle. Under our central scenario, we expect to be in the range of 20 basis points. Under stress scenario, it's more fluctuating between 35 and 45, which are quite good levels in terms of our resilience capacity, I would say.

Thank you. The next question comes from the line of [indiscernible]. Please ask your question.

Good afternoon, ladies and gentlemen. Can you give us some guidance for next year's dividend of KB and also some kind of longer outlook for dividends policy of KB. Thank you very much.

We had similar question from the journalist earlier today. We are not guiding on the dividend for next year. What we can say is that the dividend, which is to be paid in December was approved by the General Shareholders Meeting, and it was part of the Page #4 of the presentation. But let me bring you back to the history of, let's say, normal course of business before the pandemic situation. Komercní banka has always fulfilled 2 roles. Role number one that we were able to share the profits with the shareholders, more or less in the latest -- in the latest years at the level of 65% of the payout ratio, and we were keeping our capital adequacy at the safe -- on the safe side, fulfilling the requirements of the regulator and keeping certain managerial buffer on top of it. If nothing unexpected will be appearing in the future, we would like to bring back Komercní banka to the normal situation also in the field of distribution of profits as we did before the pandemic. I don't know, Jiri, if you want to add a few words on that side.

I can -- probably I can touch our, let's call it dividend sustainability story. The bank is generally or group is generally able to perform or to deliver a return on regulatory equity, whatever, between 15% to 20%, which means that every year, on average, we are generating around 300 basis points of new fresh capital. If you take into account consumption by organic growth, it is consuming, let's say, 1/3, which is 100 basis points. And the rest basically could be paid to the dividend. So this is our dividend sustainability story. It is a rather retrospective statement, but that's how we see that.

Thank you. So now I would like to give opportunity to the participants who are connected through telephone. [Operator Instructions] We have no such questions for the time being. So I'll ask Jovan Sikimic from Raiffeisen International for his question to report for [indiscernible].

I mean just 2 questions. First of all, would you see some, let's say, pressure on fees given the rising interest rate environment? And second question, I mean, would you dare to say that your, let's say, 2025 ROE target of more than 50% could be reached, I don't know, 1, 2 years before given the, let's say, rate hikes above your estimates?

I will start. So first question was about to the potential pressures on fees, given the increasing of market interest rates. Of course, at least theoretically, these pressures could slightly appear because the motivation of people to invest into our nonbanking assets under management could be a bit limited. So on the other hand, I don't think the hit here will be high. Still, the penetration of in, for example, mutual funds and pension policies, insurance policies is relatively low. So I'm not expecting a huge impact. This is one thing. And the other thing is are we able to guide or indicate that ROE could be achieved -- 15% could be achieved before 2025. I don't want to speculate here. Maybe yes, maybe not. It's necessary to take into account that 15% is a really challenging target. So if we achieve it by the end of 2025, we will be perfectly okay. I hope I answered this point.

So we do not seem to have any further questions. So I would like to hand back to Jan for a concluding remark.

All right. So thank you very much, everyone, for being with us. I hope you are sharing our excitement from the third quarter results. I'm proud of the entire team of Komercní banka, not only for the strong business and financial performance, but also for the very stable and very systematic push on the control and strict management of costs. We are very proud of being the -- on top of the [indiscernible] as far as the efficiency of the operations is concerned. I also believe that the markets will appreciate that we are, let's say, after the ban given by the regulators, we are coming back with dividend. And we will hope, together with you, that there will be not strong unexpected bumps on the road ahead of us in order to help us to bring Komercní banka and to continue the story of very stable, very predictable company with 40% of the free float, which is an attractive target for investors. Thank you very much for your attention paid to Komercní banka, and I'm looking forward to seeing you at the occasion of the fourth quarter and 2021 full year results presentation. In between, don't hesitate to connect with us, should you have any questions on the performance of the bank or any other. Thank you. Thanks a lot, and see you soon.

Thank you. Bye-bye.