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

So good afternoon, ladies and gentlemen. Welcome to the presentation of the results of Komercni Banca for fourth quarter and full year 2021. Let me start with the housekeeping stuff. So this call is being recorded. It's 10th of February 2022, 14 p.m. CT. This session will consist of a presentation part and then we will have the opportunity to ask questions, so please wait with your questions until this later part. The presentation will be held by Chief Executive Officer, Mr. Jan Juchelka, followed by Chief Financial Officer, Jiri Sperl, and Chief Risk Officer, Mr. Didier Colin. We have also with us and you will have opportunity to ask questions also to Miroslav Hirsl for Retail Banking, David Formanek for corporate investment banking, Jitka Haubova for operations and ESG topics, and Margus Simson for digitalization. So thanks again. I'm handing over to Jan Juchelka [indiscernible] start.

All right. Ladies and gentlemen, thank you for giving us time. I will ask you kindly who doesn't speak to mutual microphone. We are ready to share with you the results for 2021 for Komercni Banka. And let me start with a strong conviction that we believe that the presentation will make you happy or even happier than you are today. Komercni Banka was crowding against the sentiment of certain level of skepticism or negative framed still in 2021 by the COVID restrictions here and there and was creating very positive story. We were able to unify our employees around the purpose of the bank and implementation of the strategic plan alongside their strong enthusiastic service for clients. Employees are satisfied and happy to work for Komercni. We see that the engagement index, people's engagement index, which is at the level of 77 positive points. We were able to unify our clients around the bank's proposition and around the constant responsible, reliable, tireless service in both the physical and the digital world. The clients are showing us their feedback through net promotor score, which also landed at high levels, and I will come back to it in a minute. And we were, last but not least, able to unify also investors around the strong responsible, and predictable, and credible business and financial performance of the bank, and strict management of our risks. This is being visible also at the current level of the share price, which is currently oscillating around CZK 1,000, which was last time the reality in 2017, and we are very much thankful for the attention and the sympathies you are paying to the share of KB. The highlights as of 31 December 2021 are framed by full speed implementation of our strategic plan. We have launched the new digital bank in the form of new mobile banking application. I'm one of the proud testers of this new solution and we are convinced that we will bring to the clients -- to our clients a revolutionary digital proposition for their financial and banking needs. The Net Promoter Score displayed by our clients is lending around 40 positive points in individual and small businesses and is higher at 45 positive points in corporate segments. In Slovakia, we are still above 60, and we are far ahead of any other competitor there. The people engagement level is at 77% of satisfaction, which is giving us a good hope that there is a purpose why people are working for Komercni Banka and Komercni Banka is satisfying them with delivering enough space for fulfilling that means. When we turn to business, our loan portfolio expanded by almost 7% and landed at the level of CZK 740 billion mainly driven by a very dynamic development -- a very dynamic performance of housing loans provided by both Komercni Banka and Modra pyramida Building Saving company. Housing loans grew by almost 10% and are representing CZK 340 billion in the loan book. Clients' deposits, and we didn't do much to attract new deposits in 2021, were growing by 6.2% on a year-over-year basis and landed at CZK 950 billion level. The volume of client assets in mutual funds, in pension schemes and life insurance grew by 7%. So even faster than deposits themselves and are representing today CZK 103 billion under the management of KB and KB Group. There was the fourth quarter of last year was very strong for Komercni Banka. There was -- there were mainly 2 reasons. The first one is revenues growing by almost 20% compared to fourth quarter 2020 and excellent asset quality. And Didier Colin, our Chief Risk Officer, will tell you more. We were down by almost 100% of creation of provisions for our cost of risk. Full year 2021 net profit, which is up by 56% year-over-year, was driven by improvement in revenues and disciplined cost management. Let me say that by growth of OpEx by 0.7% including the -- including higher regulatory costs are moving us to probably the most efficient banks in this region. And I have already mentioned the negligible creation of provisions for cost of risk. All of these positive trends are leading to a net profit, which reached CZK 12.7 billion out of CZK 12.7 billion, we will move to a state treasury, CZK 3 billion on income tax alongside or together with the health and social charges for the employees. Our dividend proposal made by Board of Directors of Komercni Banka is at the level of CZK 8.3 billion in total, which represents CZK 43.8 per share. We are proposing that to the General Shareholders' Meeting, which is the one condition of the payment. The other one is the Czech National Bank green light. The further excess of capital, we intend to address in the second half of 2022. Komercni Banka was awarded by various awards from external parties, the banker selected us as the bank of the year for 2021. finparada.cz selected the consumer loan of Komercni Banka as the best financial product for 2021. We were named the sustainable bank for 2021 and the Corporate Bank of the Year 2021 by Fincentrum Banka Roku Award. We can move to next. Macroeconomic environment. Last year, Czech Republic GDP grew by 3.3%. In 2022, our macroeconomists say it might be achieving 4.9%, which this prediction is putting them rather on the positive side of the spectrum of Czech macroeconomic teams. This growth will be driven by exports where the disruptions on the supply chain should be resolved, and they are being resolved more or less as we speak already and also should be driven by fixed investments on public and private side and household consumption. We see that in 2021, also due to this disruption already mentioned in the supply chain and lack of some spare parts, mainly the semiconductors, the Czech [indiscernible] production was down by 4.1%. The labor market remains very shallow. We are -- mathematically, there is no unemployment in Czech Republic. And we have a very, I would say, poor immigration policy in place. So we are not helping ourselves as a country, unfortunately, to solve the problem of lack of labor resources quickly, which is translated in the demand for salary increase as one of the inflation factors. Speaking about inflation, -- this has already shown its piece at the end of last year when there was 6.6% recorded in December, average growth of CPI was at the level of 3.8%. As a result of everything, Czech koruna is strengthening end of last year at the level of 24.9. Czech koruna per euro. This strengthening continues also this year. And here, we see that there is a quite solid probability that we will see the koruna below EUR 24 per euro during 2022. Czech National Bank, as it is very well known to all of you is reacting to the inflation tendency very fast and very strong by increasing the base rate, and Jiri Sperl will provide you with more, I would say, a view on what does it mean for us. Currently, we are having the base rate, the 2-week repo rate at the level of 4.5% after the triple hike made at the beginning of February of this year. We can move to the next one. Maybe it's worth to mention here in the context of macroeconomic environment that we have new government in place. The government is -- has just presented the state budget in recent days, and the government is fully engaged and convicted, and acting upon improvements on state budget deficit and improvements on indebtedness, even though Czech Republic remains as one of the lowest indebted countries in the European context. The pandemic update for those who are not familiar, as everywhere in the world, we have Omicron in the town. The health care system is coping with the situation quite successfully as we speak. We have 64% of population fully vaccinated and 35% with Booster seen with the third -- with the third jab of the vaccine. Containment measures remain rather soft in the current context. This is mainly -- the respirators remain obligatory in public transport in closed spaces in buildings. There are some limits on cultural and sport events as far as the capacity is concerned. And we have still in place obligatory testing of people in office -- into work or kids in schools. We should evaporate this rule of obligatory testing should evaporate, if I'm not mistaken, next week. One of the drivers we expect will be -- will play a significant role starting in 2022 and continuing in following years is named the next-generation EU recovery fund. Czech Republic should receive equivalent of CZK 7 billion -- sorry, EUR 7 billion, mainly in grants for projects protecting climate, for projects supporting digitization. And we see that the prefinancing has already been visible in 2021. And you will see that in our list of tombstones of important transactions, mainly coming from municipalities and regions. The COVID guaranteed lending, under the name of COVID 3, was ended at the end of last year. There are debates whether in some form, this program should continue or not. We are well prepared as we were the majority distributor. So we distributed more than 50% of COVID 3 program towards the clients from small and medium-sized enterprises. We can move to next page, please. The business performance. Let's start with digital and innovation. And I will start from the right-hand side, if you allow me. We have more than 1 million users, active users of our mobile banking application. Even though the client -- even when the group is taking care of approximately 2.3 million, 2.4 million clients, the banking clients on its own are 1.6 million. So the relative -- in relative terms, 1 million of active users makes us -- makes our position quite unique amongst the peer banks. Close to 1 million clients are also using KBK as authentication tool and tool for signing documents. Digital wallet use and tokenized cards through Apple Pay, Google Pay, Garmin Pay, or Fitbit Pay is also growing in a very dynamic way. Mobile banking is initiating payments for CZK 85.3 billion in fourth quarter 2021, which is a very dynamic growth of more than 18%. Speaking about channels, our SSOX production of consumer lending and our credit -- consumer lending or consumer credit production from Komercni Banka are probably the champions of digital sales. Mortgages, credit cards and personal accounts are still waiting for updated and upgraded solutions, which will be either provided by new digital bank or will be provided by other parts of the new digital tech on which we are very intensively working. When we go to BankID. BankID is taking the positive traction, they have -- we are one of the founding partners or funding shareholders. So we are very proud that they are extending -- the company is extending the service for digital signature and is helping the overall country to digitize the client's journey, not only in the private but also in the public services. Komercni Banka, together with Visa, together with Social Responsibility Association and with [indiscernible] are putting together the label for ESG responsible [indiscernible] to put the ESG element into the minds and habits of Czech e-shops. SSOX as one of the very, I would say, positive contributors to the innovative movement of Czech financial sector has presented a deferred payment for the customers of Czech e-shops. So this is the digital and innovation. Can we move to the next one, please? Lending. It's up by 7%, very dynamic growth. Let me compare it with the growth of GDP in Czech Republic. -- very strong last quarter, more than 2% higher than Q3. The engines or power working on full steam. And Modra pyramida building saving company was growing its production by almost 19%. 7% were up in the production of mortgages by Komercni Banka. There was a growth of 2% by consumer loans by KB and approximately 5% growth of business loans. Business loans, when the breakdown on the right-hand side is showing that the most dynamically evolving group of companies were Czech corporates, which were serviced by Komercni Banka wholesale or factoring and other solutions. Speaking about small and medium-sized companies, growth were totaling of 4.3%, and there was a rather moderate growth of leasing solutions [indiscernible] at a level 1.1%. You see at the right-hand side, the bottom part of the page that the production of mortgages by KB and by Modra pyramida building saving company remained strong over the year -- over the entire 4 quarters of 2021, even though at the end of the year, there was a little slowdown, which continues also this year as a combination of strict regulatory measures taken by Czech National Bank and obviously, the increased rates. So the battlefield or the competitive field is moving from production of new businesses in mortgages to risk management of the portfolio where we believe Didier Colin will tell you more in a few minutes that we are well positioned also for the future. Despite this very dynamic growth of loans, the net loan-to-deposit ratio remained at a very safe level of 76.4% and the liquidity coverage ratio at the level of almost 150%. We can go to the next page, please. Those are the tombstones. So I will not describe one deal after the other. Let me just declare on behalf of our teams of corporate bankers that they were busy with all classes of segments, all classes of sectors in Czech economy. So we played well the role of Universal Bank and traditionally one of the strongest corporate banks in the country, supporting either new investments or working capital facilities for our clients as well as in increasing the business with municipalities and regions. I spoke about those regions who are preparing the investments in infrastructure also using the EU recovery fund money. Next page, please. Those are deposits. We didn't do much for attracting new deposits into the bank, nonetheless, being recognized as a trustful partner of our clients. We detected a growth by more than 6% of the deposits. What is interesting here that after check households and check companies piling up their money on the current accounts. Now, they were more in the -- choosing the option of savings accounts than deposits. What is, for us, very important and very, I would say, promising part of the fee business is the fact that the non-bank assets under management grew even faster. So there was like 7% growth on a year-over-year basis. By far the best driver was mutual funds provided by Amundi or SG Private Banking or Caba Private Banking Solutions. The growth was double digit at around 13%. Pension schemes were growing traditionally and in a very stable way by 6.5%, whereas the Komercni pojistovna insurance products were staying at slightly below 0. We can move to the next page. And with the next page, I'm handing over my word to Jiri Sperl, our CFO. Thank you.

Thank you very much, Jan. Good afternoon, everyone. Let's deep dive a bit into financials. The left chart is, I would say, traditionally showing a contribution of individual P&L categories into the growth from a year-on-year perspective. So you can see here that everything is great, which means positive contribution [indiscernible] except taxes from the higher profit, we pay higher taxes. The biggest contribution on a year-on-year basis is coming as indicated by Jan from cost of risk driven by great quality of our assets. But also, I would say, also other components are pretty strong, and I will comment on them a bit later. The right-hand chart is a new one, and it's showing a quarterly evolution of our P&L in 4 key categories. So that revenues costs, cost of risk and others. Behind others, you can see mainly taxes and at the same time, income from other assets and so on. It's very clearly visible that the trends are very promising and proving our resilience in the difficult environment. Probably not necessary to comment on cost evolution. It's basically stable and in fact, we are known by disciplined cost management and operational efficiency. What's even more important for me is evolution of revenues. It is the red part of the chart that are after the drop in second quarter 2020, when COVID times had started growing 6 quarter in a row. And in last quarter, growth even accelerated. And also cost of risk, you can see some cost of risk at the beginning of 2020, but nothing since that time, almost nothing since that time, and Didier will present in detail later on. No surprise that this added also to our profitability indicators, that's bottom part of the slide. Just to select one of them, it's ROTA, return on total assets is almost at 12%. And it's necessary. I was mentioning because last quarter that this is still suppressed by inflated capital due to [indiscernible] on dividends. Without this surplus it would be fairly above 13%. Next slide, please. Balance sheet. Total assets have increased by 6.6% year-on-year. Main drivers are natural deposits growing in absolute terms by CZK 51 billion. And also capital, [indiscernible] on her dividend. So it is growing by roughly CZK 10 billion. So in terms of pricing of these new resources, they have been placed primarily to loans as I would say her clear preference and priority. So it's by CZK 45 billion higher than 1 year ago. And the remaining liquidity surplus has been placed this year, mainly to Czech govis growing strongly by 20%. It is not visible from this slide. So one brief comment. The balance sheet shrank in Q4 significantly, I mean, in fact, quarter-over-quarter by roughly one of the CZK 30 billion or one of the CZK 40 billion, or around 10%, if you wish. As a result of its optimization, due to resolution fund charge, this reasoning and this story. So to conclude this slide, balance sheet is strong, which is, by the way, also the case for the capital. So this can be seen at this slide. We are standing at 21.3% now. Worth to say that this figure doesn't include new generated fresh equity, what I mean is profit of 2021. If we added 100% of this profit, the [indiscernible] would be issued by roughly 250 basis points, 260 basis points, even higher. Year-on-year, it's a bit down. It is down by 100 basis points. And not surprisingly, mainly due to organic growth, I mean, mainly, of course, the loans that deducted around 126 basis points, partially still offset by retained profit from 2020 that was accrued in 2020, but majority of that were not paid due to the mentioned burn. The escalated asset density as an important indicator as well is basically flattish. It is described on the bottom right part of this slide and is still below 40%. As also as mentioned by Jan, a couple of minutes ago, of course, this capital strength is giving us a substantial space for returning it to our shareholders. We are going to do that, and I will talk about that in a minute. Only 2 sentences [indiscernible] chart on the right-hand side, it is showing accounting equity evolution in 2021. It has increased by CZK 9 billion after inclusion of [indiscernible] profit while partially offset by the first tranche of dividend from 2020. So that's 4.5, I was mentioning before at the end of 2021 and also by revaluations. Let's move to revenues and let's start with net interest income. [indiscernible] and finally, increasing also on a year-on-year basis, it's a plus 2% as shown at the bottom right chart. Service negative on a yearly basis, contribution from deposits, but at the same time, very promising contribution from loans. So you can see here that the loans in last year had income from loans increased by roughly 7%. It is attributed mainly to volumes as margins basically more or less remained flattish or if I would like to be more precise, EBIT eroding in retail, mainly in mortgage loans, but at the same time, growing on our CIB business. If I have a look on the quarterly evolution for that right upper chart, the jump by 20%, almost 20% is a combination of exploration of business activities or volumes of loans, if you wish. And at the same time, huge jumps of market interest rates given by CNB policy during both 2 last quarters. As growth here in quarter in perspective, it's more impacting -- positively impacting income from deposits as [indiscernible] liquidity surplus for higher yields, while so far the past [indiscernible] to deposit rates is rather limited. It is also worth to mention at this chart that in Q4, the growth was materially supported by [indiscernible] generated by our IB guys, driven by increase in market interest rates. And you can see here that it doubled from this blue part of the chart -- of the bar. It doubled from CZK 250 million to almost CZK 500 million. NIM, the slide that's left upper chart, it's [indiscernible] quarter-over-quarter by 16 basis, partially also due to technical reasons and stands at 1.93%. Year-over-year, it is still 10 BPS down but obviously a bit better than then we were guiding last quarter. [indiscernible] Thank you. I would say we are delivering a very solid result in Q4. It's more than 12% quarter-over-quarter. That's true that Q4, and you can see that even last year is usually the best quarter of every year. But also on a year-on-year basis, it is growing very strongly by almost 10%. So from the chart below, you can see what are the main drivers. No doubt driver number one in terms -- both in relative and absolute terms or fees from [indiscernible] as a very important part of our strategy to increase [indiscernible] here. Then by increasing volume of assets under management, and at the same time, improving quality of the sales in favor to the equity linked mutual funds. And another positive driver, our specialized financial services that are growing even faster by almost 40%. The majority of this super fast growth has been generated in the first half of this year. And what you can see behind our debt capital markets and advisory services may be more generally value-added services. So also important part of our strategy. So please let's go to financial operations. Despite the correction in Q4, when the results are only CZK 675 million. So on a full year basis, and I can say that probably, it is the best year in the history of the bank. The correction has been reported on capital markets side. But always, we are saying that IB income is by the finishing more [indiscernible] after super excellent 3 previous quarter at the level of CZK 1 billion. I would say that we got closer to normal. And to remind what I was saying that the NII part also here in NII, IB was contributing more than 1 quarter ago by almost CZK 250 million. For the other part of these revenues, meaning the net gains on FX from payments, so that's the blue part of the chart. Although here the results are strong. It is at the level of CZK 400 million, so comparable to Q3 last year. And also the reasons or drivers are the same. So it's basically continuing recovery in traveling, both inbound and outbound. Of course, obviously related to currency conversions. Cost piece, please, Davida. I would say, no surprise, basically flattish. Only categories growing are regulatory costs, which was already announced at the beginning of the year. So that's mainly what the resolution charge and deposit insurance fund charges. Otherwise, it is basically flat as can be seen at the bottom right chart. So personal costs positively influenced by increase of operational efficiency, further increase of operational efficiency, i.e., the decrease of FTEs by roughly 4% in 2021 as shown on left-upper chart. [indiscernible] is a flat issue. Maybe just one comment I would like to add here is that there is a bit of shift in the structure. So lower real estate costs as we centralized head office buildings are offset by higher IT support due to transformation regulatory costs, I was mentioning. So it goes basically together with the market for market. The growth was 15%. For KB, a bit less. Unfortunately, I have to indicate that for 2022, the trend is going to continue and according to announcement of CMB, the charge for the whole sector will be higher. So you will see a [indiscernible] part of KB. And finally, the depreciation and amortization is slightly up, it is plus 3% and that's nothing else than let's say, accelerated enhancements into our transformation as well. Of course, positive [indiscernible] as NBI is growing much faster than cost transport and further improvement of cost income ratio. This trend is going to continue even in 2022. So cost income ratio on a full year basis and that's left bottom chart, is already below 50% to remind that our target for 2025 is 40% or below 40%. To say we do not have results of the Tier 1 Czech banks yet, but -- if I should indicate, I have no doubt that we stay a leader in this area and in this race. So that' [indiscernible] and now I'm passing it over to Didier for asset [indiscernible] and cost of risk.

Thank you, Jiri. Good afternoon, everyone. So turning to the quality of our loan book and its evolution over the fourth quarter. Probably the most important message, which is not really detailed and illustrated on this slide is that the -- our key credit risk indicators in the fourth quarter reconfirm the resilience of our loan book, and this is in fact, seen on our default rate level, which across all client segments and across all retail loan product categories continued to be on a declining trend in the fourth quarter last year. And in fact, more or less returning to their pre-COVID levels. The second element on this slide related to asset quality, which I would like to comment in a little bit more detail is the -- as you can see on the top right chart is the evolution of our exposure classified as 2. So a sensitive part of our loan portfolio, which increased by roughly CZK 15 billion in the fourth quarter of last year. And in fact, this CZK 15 billion increase is made of 3 main elements, which I'm going to detail a little bit for you. The first one, at a level of near CZK 8 billion is coming from a change in our credit reclassification methodology, which was implemented at the request of the European Central Bank. And this methodology change resulted into a limited increase of the priorities of default for our credit exposure with better ratings. Had we performed this methodology adjustment at the end of 2020, the impact would have been at the same level. So in other words, this first element is of technical nature having not much to do with the evolution of the risk profile of our loan portfolio in 2021. So that's for the first element within this CZK 15 billion increase. The second one at the level of CZK 6 billion, in fact, corresponds de facto to the anticipation of some possible risk rating downgrades that could impact our higher risk profile retail exposures in the context of the recent interest rate hikes and higher inflation, another sign of our prudent approach to credit risk monitoring and provisioning. The third element within this CZK 15 billion increase of our risk exposure is at a much lower level of CZK 2 billion and was generated by a rather prudent monitoring of our COVID [indiscernible] loan exposure. This portfolio entering its bullet amortization period, which in fact, started in the fourth quarter last year and is concentrated throughout the entire 2022 year. This low impact of only CZK 2 billion can, in fact, be positively interpreted as the result of our balanced corporate credit policies through the COVID panic period. Keeping in mind that KB's market share for this COVID preloan program reached a level above -- slightly above 40%. So all in all, our S2 ratio moved a bit up from Q3 to Q4 from 5.8% to 7.9%. And mechanically, our provision coverage ratio for this asset class contracted a bit from 5.6% last quarter of Q3 to 4.3% at the end of Q4. I will go quickly for commenting the NPL asset class. As you can see, it further contracted a bit by CZK 1 billion, which took our NPL ratio down from 2.7x at the end of the third quarter to 2.5% at the end of the fourth quarter last year. Behind this further decrease, the main element is the low migration intensity into default territory as well as some positive resolution of some client situations in the default territory again being positively resolved. So all in all, our NPL provision coverage continued to be stable about the level of 50%. And as in the previous quarters, above the EU average, which is fluctuating between 45% and 50%. Now, turning to the overview of our cost of risk on the next slide. And starting with the quarterly view. As mentioned by Jan and Jiri, [indiscernible] we created only CZK 12 million. And this CZK 12 million [indiscernible] in fact, is the result of 3 main components going in different, if not opposite directions. The first one is the net provision release for nearly CZK 200 million, CZK 197 million precisely. And this one was generated by the statutory recalibrations of our provisioning models and methodologies. Not to go into the details of this IFRS 9 complexity. In fact, this release reflected the improved macroeconomic prospects as well as the continued resilience of our recent recovery performance in the last 2 years to be precise. And those 2 drivers were partially offset by the adjustment of our Stage 2 credit classification methodology, which I just mentioned earlier. The second component, as you can see, is a net release for almost PLN 40 million CZK on our defaulted portfolio. And this one being broken down to 2 pieces, CZK 60 million in net creation on our defaulted corporate exposures versus CZK 100 million in net releases coming from our defaulted retail exposures. This level of release reflecting the strong level in our recovery performance, both on our mortgage loan portfolio as well as our NPL small business portfolio. And finally, the third component making up this CZK 12 million integration for the fourth quarter last year is a net creation close to CZK 250 million on our non-defaulted exposure, and this illustrates what Jan said earlier, essentially reflecting our continued effort to well monitor our more sensitive exposure in the post-COVID period, taking a prudent approach. A few words on the full year view. So our cost of risk was recorded at a level of 10 basis points, which is in line with what we issued as a guidance last quarter in November. And not a surprise, these 10 BPS is made of the foreign component, 7 BPS on less than 10 NPL corporate exposures, 9 basis points on our non-defaulted corporate exposures, half of it being booked on portfolio results in line with our present provision policy. Zero cost of base level on our defaulted retail exposure, again, reflecting our strong collection performance, mainly on mortgage loans. And then going in the territory of net releases, minus 2 basis points on our non-defaulted retail exposures, reflecting the quality of our loan portfolio for the retail segment and minus 4 basis points coming from these IFRS 9 recalibration of our provisioning models and methodologies. This level of minus 4 bps is quite an achievement. Keeping in mind that IFRS 9 is a procyclical provisioning standard, and COVID was a rather [indiscernible] environment. So making this, again, a good level reached at the end of last year. Finally, before handing back to ERG, just one word on our guidance for the full year 2022. This guidance will be brief and prudent and will be at the maximum level of 15 basis points. Now handing over back to you, Jiri. Thank you.

Thank you, Didier. Let me elaborate a bit on dividends and management considerations on capital asset management. It's important, let me summarize the context between -- to say due to the ban on dividends of the bank's banks, of course, including KB, have not been allowed to pay dividends since COVID time started. That can be seen on the upper chart, dividends both from 2019 and 2020 profit has to be retained. And that's basically why we are so overcapitalized. But things have started to change in September when CNB has informed the market that it would not longer apply sector-wide restriction for dividend payments. At the same time, they allowed the banks to pay kind of first tranche from [ Marita ] in 2019 and 2020 profit. So that's what we didn't pay roughly CZK 4.5 billion in December last year. A very important message on this slide is that our [indiscernible] KB Board of Directors intends to resume its fund our dividend policy, which stays between 60% to 70% of net profit generated in the preceding year. Having said this, and Jan already has mentioned that KB Board of Directors is suggesting to the General Meeting of Commercial Bank that will be held in April in 2 months, payment of dividends at around CZK 8.3 billion, which represents roughly 65% share on the last year profit. Of course, this proposal is still subject to different validations concerns. One of them is coming from first CNB, another one from a general meeting and so on. And this is not all. After payment of the dividend from 2021, the profit still there will be, well, let's say, non-negligible surplus of capital in our balance sheet. And as you might know, it is not our policy to sit on money of our shareholders. So to say additional steps in releasing the excess equity will come and will be considered in the second half of '22 upon finalization of the annual regulatory stress test exercise. But I mean, as [indiscernible] exactly as CNB stipulated in its letter dated in September of 2021 to all Czech Banks. For 2022, it's easy and obvious from what I said before, Board of Directors has approved or is suggesting a dividend policy of 65% [indiscernible] which is going to be accrued throughout the [indiscernible]. So that's capital dividends and the last slide of this presentation is related to outlook. I think Jan already mentioned some key macroeconomic assumptions like growth of economy inflation. Probably I should add only expectation on interest rates as important into our financials. I would say after all hikes, CNB announced in previous -- I don't know, 9 months. I think that we are at the end of this cycle. Our financial plans assume that 4.5% repo rate as is the case now will stay there for some time. If I'm saying sometime, around 1 year. And then we'll go down to, I would say, more normal levels. Yes, we could be a bit surprised. There could be one more hike in March. And from our perspective, the most important input into these considerations is inflation, which by the way, is going to be presented to the market at the beginning of next week. So I can imagine that if it goes above the 10% probably if the CNB would act, but it is not currently our baseline. Banking market outlook -- our expectation is that it is going to grow mid-single digit, both in lending and deposit [indiscernible]. In lending, there will be 2 offsetting factors compared to 2021. It's related that housing loans are going to deflate compared to previous year, but this should be offset by [indiscernible] consumer lending. What would be our positioning to this growing market is not surprising. We would like to gain a bit of market share in loans as was the case in 2020 and also 2021. So our clear intentional objective is to grow upper mid-single digit base in total, while in deposit area, we are okay with mid-single digit. In other words, to maintain market shares. The reasons are obvious, simply super excellent liquidity is not pushing us to or to be very active in this field as was already by the way, mentioned by Jan. KB financial outlook. Well, revenues are expected to grow at double-digit pace. Maybe I should even be a bit more concrete. So if I'm saying double-digit timing, I mean, high teens digit growth driven mainly by net interest income, so double-digit growing net interest income. [Audio Gap] gross starting income. Financial operations a bit down. Again, reasons is obvious. We don't think that the repetition of 2021 would be realistic. So slightly down. OpEx, we are saying here, is going to grow -- build inflation. I agree with [indiscernible] that this is not a super strong statement because inflation is expected at 8%, 9%. So to be a bit more precise, we are expecting well, below, but at the same time [Audio Gap] --digit. And again, what you can see behind are basically a significant increase of regulatory charges. This is one thing. Another thing. Inflation and related prices, increased prices of energy. But at the same time, also our investments into new digital bank and transformation generally. Didier already covered cost of risk. So I'm skipping and moving to risks. I would say, again, not a big surprise. So probably the biggest risk is prolongation of the pandemic situation. We are here listing also other black swans like military escalation of the conflict in Eastern Europe and so on and so on. But definitely, this is not our baseline scenario at least for the time being. So that's it, and I'm pleased to return the word to Jan Juchelka.

Maybe I will thank you for the presentation part and we will now answer your questions. [Operator Instructions] But let's start with the questions from the application. So our first question is coming from Gabor Kemeny from Autonomous Research.

Thank you for this for this comprehensive presentation. I'd like to ask first about net interest income after this very impressive growth in the fourth quarter. Can you remind us about your interest rate sensitivity or your sensitivity to rising check interest rates? Probably easiest if we start from the Q4 level, which I think was a bit below 3% for IBOR. So it was the incremental upside from current levels of around 4.5%, 4.7% that will be useful. Secondly, just on the guidance, which I understand is high teens revenue growth. Can we confirm that -- I mean, on my numbers, this would imply an NII growth well above 20%, potentially even above 25%. Can you talk a bit about that please? And just on the dividend. Are there any puts and takes we should be aware around the stress test you mentioned? And do we know the time line here? And lastly, on the magnitude of the dividend, did I get you correctly that you would look to pay out anything above the minimum requirement plus 200 basis points, which is roughly 19% capital ratio. Thank you.

That was 4 questions. First one, I liken it to sensitivity, and basically, I understand for the questions, Gabor, why so greater NII for Q4 last year. So maybe to say that that I think I was indicating during Q3 results that the sensitivity for one hike is short-term rates. So sensitivity for 1 hike is around CZK 300 million. At the end of the day, the result is even a bit better of why the sensitivity are presenting to you is assuming also, let's say, righted change adjustments in client pricing. And to say here, we are a bit delayed. If I'm saying delayed, I mean consciously delayed. Basically, I can say that this is the case for all Tier 1 banks in the Czech Republic. That's true that smaller challenging banks already offers a much higher rates to the clients, not us yet. And why we do that, some arguments have been already mentioned, simply super strong liquidity. Second one, deposits are becoming more expensive due to the resolution fund charges. We are very much performance driven. So we wait a bit. And how to collaborate it. Basically, we would like -- and maybe I was touching this point also during the previous quarter. So -- but typically, we would like to return to pre-COVID NIM levels, which probably we will be able to be there [indiscernible] in 2022. So that's first question. Second question was just a confirmation that if revenues are growing high teens, that NI is growing above 20%. The answer is yes. Yes, we are really expecting a huge jump of net interest income, and I can talk about that later on. Dividends, if I understand the question well, the first sub-question was, are there any threats in stress test. Never say never, but I don't see any because we are submitting stress testing, I kept on a semiannual basis. So last one was submitted in November or maybe even December and from these stress tests didn't appear anything, I would say, threatening or appealing, I would say, even perfectly on the control. Timeline, what was the question. So when the dividends are going to be paid. So the first tranche, so meaning dividend from 2021 profit subject to approvals. The last one will be by a general meeting in April. The payment will be in May. The other tranche -- so the release of the remaining surplus of equity, as I was saying, it is subject to ICAP Addition 1 2022, which is going to be, according to timetables by CNB, submitted to them, to CNB, by the end of April. Of course, it takes some time because at the end of the day, this has to be somehow also validated or approved by College of ECB and so on. So usually, we are getting the first indications during the end of summer, beginning of autumn. So that's why we are saying that the potential other tranche is going to be [indiscernible] in the second half, if I should guess, of September, October, but it is just my personal guess. And the last one, minority dividends plus CZK 200 million. Well, okay, if we do what I was indicating, so to pay CZK 65 million from 2021 and CZK 65 million from 2022, and to really -- the surplus. And here, I'm getting back and referring to what I was telling you during Q2 and Q3 presentation. We defined capital surplus at the level of CZK 10.5 billion, which is around CZK 55 per share. And how this figure has been calculated or quantified, if I take 65% of the profit from 2019 and 2020, this would get roughly CZK 15 billion, out of which CZK 4.5 billion have been already paid for December of last year, 2021. The remaining is CZK 10.5 billion. Please take it just and only as a simulation. This is not prospective statement. But if this happens, we are still slightly above the management buffer. And last point, we are not -- or at least for the time being, it is not at our table to increase management buffer from current level, which is 50 basis points to 200 basis points. I believe I answered all your questions, Gabor.

Indeed, you did. Very [indiscernible] and comprehensive. Thanks. One small follow-up. Are you now expecting this CZK 300 million additional NII from one CNB hike? Or is this now a lower number? If you could just talk about Q4 maybe.

It is a bit a lower number because you can see that current accounts or not paid deposits are [indiscernible]. I think, it is natural because simply clients are more and more pushing for some remuneration. And as on current accounts, there is 0, they are switching their deposits into pay deposits, typically savings and time deposits. So as of now, the sensitivity decrease on top of my head, that is around CZK 200 million to CZK 250 million on one potential hike.

The next question is going to be asked by Simon from Citi.

Thanks very much for the call. I was hoping you could elaborate a bit more on risk cost, the risk cost outlook for this year and where you see kind of the normalized cost of risk because I think it has been kind of trending downwards. If you could clarify a bit what you're thinking about for risk cost this year and the normalized cost of risk? That would be my first question. Should I go all the questions or should I go one-by-one? Why don't I go one by one?

So basically what I said is that I put a gap of -- at 15 basis points, 1-5. Basically, going forward, what we see is probably [indiscernible]. One is some potential in terms of net releases coming from the NPL corporate portfolio. The continued resilience of the retail portfolio. And here, as you have heard, we've booked another reserve just to be on the safe side. And the last one, which is still today very much an open question is the nearly CZK 2 billion that we have accumulated as IFRS 9 results being, one, the forward-looking reserves and 2, the overlay reserves, most of them being booked on a specific sector. And this third component, we -- it's probably the one that is the most difficult to predict. Are we going to -- how we will manage it is still a bit an open question. And this is why I said that 1-5, 15, is our guidance, but definitely as a cap.

Understood for this year. And going forward, is that?

That's for 2022 -- so that's going forward or I just said it's for 2022 year-end. So -- and we don't go beyond...

You don't go beyond?

No.

Okay. My second question would actually be on the capital position again. I mean I think it's very clear. So you're basically saying that you're going to try to pay out $10.5 billion of excess capital, if you're allowed. Is that the message in September, October? And the other -- my question actually is on your Pillar 2 requirements. So it went up by 40 basis points. What was the logic of that? And my second question relating to capital is the management buffer. I mean it seems that the Central Bank is putting through a lot of increases to the capital requirements. So why do you think a 200 basis point buffer on top of those increases is necessary? It seems quite excessive.

I will start first one. Simon, I wouldn't say that the way you said it, if it is allowed, simply, it was just kind of simulation to happen. Of course, no commitments at all. I just wanted to show you what would be the space. So this is first. Second part, I don't know exactly what you mean. You mean the recent increase of Pillar 2. I don't [indiscernible]. From 2.6%. Well, we have some indications what's behind from CNB. We do not have details. Details are not being shared. Our reading of that is that due to kind of increased or still remaining uncertainty on the markets, CNB feels safe to add to majority or probably all of Czech Bank. So that's our sort of reading. So the last question was what?

Just the 200 basis point management buffer. Given that your capital requirement is being raised by the Central Bank so much. Why do you feel you need such a high buffer on top of that?

Yes. We all believe that [indiscernible] the capital adequacy will go down due to the release of dividends. So always, we are adding a potential M&A in line with our strategic plan. We don't intend to change it. We have behind some, let's say, stress testing on, let's say, potential increases of risk weight of our assets, also significant changes in market interest versus rates with the impact into our OCI and so on. So currently, I can just repeat that it is not on the table. One day, we could get back to that. Not now.

Okay. And just one last thing, just on the regulation and resolution costs. How far along are you in filling those funds? And when could they start to decline?

The [indiscernible] it is expected that there will be the last 2, 3, 4 -- 3 contributions this year, '23 and '24. Then it will be 4. The charge is going to go only, let's say, on a run basis because now we are still in the face. It is being filled. So 3 years remaining.

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

Good afternoon. Can you hear me, please? Again, my name is [indiscernible]. Can you elaborate a little more on the question why your proposal of first part of the dividend is so low because it is obvious that there is a huge part of capital and that there could be like a bigger distribution of capital to shareholders. Thank you very much.

Should I take it, Jan?

Okay.

Well, I thought that I explained already during her presentation on capital planning. Simply, the management of the bank is getting back to normal levels, which is the case for 2021 profit. So that's why we are announcing 65%. At the same time, for the let's say, retained -- rest of retained dividends from 2019 to 2020, it is subject to stress tests requested by Czech National Bank. There is no other reason than this mentioned right now.

Sorry, but frankly speaking, it is not enough as explanation because there is no such a limit like. There is no limit for now from Czech National Bank. And you could propose -- you could draft higher dividend. And of course, you understand that you are damaging your shareholders that like CZK 50 in May are not the same like CZK 50 in October or November.

Well, CNB clearly said that let's say, dividend payments from retail earnings will be possible once getting stress test and also when the development and now [indiscernible] quota from the letter of CNB. And when the development and impacts of the pandemic in autumn and winter, first months are [indiscernible]. So still we are not there, the same like other banks.

It's not [indiscernible]? Monetize going to pay more than his part of profit from 2021. He intends to. I don't know if it will be approved.

He intends to pay also more than 65% of 2021 profit, but in 2 tranches. First one now, in May and the other one in second half of the year.

Yes, but it creates a loss for your shareholders.

I don't think so. Why? How are you seeing this?

But I don't know if I have to explain you like concept of time value of money. I suppose you understand very well that like, as I said, CZK 50 in May are something else than CZK 50 in October, especially in such an inflationary situation in the Czech Republic.

Okay. So the time value of money. Okay. I'm sorry, but I do not have any similar comment on that.

The next question comes from [indiscernible] so if you can maybe introduce yourself before asking your question. It's line #26, starting with 266. Please go ahead.

Hi. Good afternoon. This is Mate Nemes from UBS. Can you hear me?

Yes, we can.

Perfect. I have a couple of smaller questions, please. Firstly, on NII and specifically the deposit rates. I think you mentioned that we've seen a bit of a delay in terms of the Tier 1 banks due to larger banks adjusting deposit rates. And that certainly has led to the widening -- to the net interest margin in Q4. Could you share your expectation in terms of deposit BDAs from here onwards? Surely in this environment, you'll have to pass on a significantly higher amount. And also, if you could comment on client behavior in terms of shifting from site deposits into term deposits, that would be helpful. Second question is on operating expenses. I think you have mentioned mid-single-digit guidance for 2022. Could you perhaps break it down for us? What should we expect in terms of personal expenses? And what sort of growth could we see in G&A related to investments? And then lastly, a question on fees. Clearly, 2021 was an excellent year in terms of cross-selling, but also you benefited from DCM fees, advisory and other specialized financial services fees. Could you help us understand what is your expectations here for '22, perhaps significantly lower cross-selling fees, maybe 2021 was sort of like a peak? and also weather advisory and DCM fees should normalize from here onwards, maybe we even see a negative development.

I will start first. Jitka, do you want to take this? The first one I can take it. The first question was about more about NII and about expectation in terms of deposit rates, the client deposit rates you are going to pay [indiscernible] clients. So I can say what is the current situation? And basically as I was saying before on current accounts, there is nothing, 0 interest rate for time deposits. We increased rates to a level of between 1.5 or 2 percentage points, but it's mainly for new products. Saving accounts, we went up to 1.5% and discussing further increase. In terms of client behavior, it could be seen already in Q4 last year and this trend is continuing simply, but is a switch from current accounts to time deposit savings. I don't have figures in front of me. Maybe Mirek can complete me. But definitely growth and projected growth of deposits -- of time deposits, such as savings is much, much faster than our current accounts. Current accounts are expected to stay basically flattish or very slow increase. Before coming to overhead expenses, maybe just a question whether Mirek would like to complement or complete?

Thank you, Jiri. Just a few sentences. Clients are definitely moving or considering the move from side deposits to other, I would say, financial product. It's not just because of the rates going up, it's also because of the inflation. So there's sort of public discussion about inflation eating out your deposits. And this is, on the one hand, helping us to convert those [indiscernible] into something different. And you saw it, by the way, on a very impressive performance of our assets under management or the new flow to our under asset management solutions. You asked about the margin rates on deposits. We have never been and we never intended to be a bank fighting over deposits through very high interest rates, and we plan to keep this approach. So our mindset is, we'd like to remunerate our clients in a fair way and staying around the mid of the market. And in general, higher rates creates space for higher margins, and this is something we would like to exploit definitely.

Well, if I may, to continue for the third question was about overhead, overhead expenses. Yes, I'm confirming that it will be mid-single digit, whatever around 5% only if a resolution fund is adding more than CZK 200 million. On top of my head without this impact, that the growth would be at the level of 3, maybe 3-point-something on a like-for-like basis, only the growth the main components that are adding to our cost base is, of course, inflation and price of energy. It is not very much about the staff costs because at the same time, we are coming with another first measures. So maybe to mention that some of them we already decided and are going to implement, and it is kind of public information, further optimization of our branch network. So another 20 to 25 branches are going to be closed. At the same time, all these [indiscernible] and being implemented a further increase of operational efficiency also on ahead of this. So here, we are talking about further cuts of FTEs by another 3 percentage points. And probably it's also worth to say that we are probably getting before implementation -- or finalization of implementation of a new digital bank. We are coming to the edge of this exercise at the bank level. But at the same time, we started to discuss and comment all these, let's say, centralization of the [indiscernible] the bank, also for the subsidiary. Since we believe that this could bring another impulse to our efficiency. And let's not forget that on top of that -- this is what I usually say for or define -- say to investors because we are implementing these but at the same time, savings is being allocated to the transformation. It is a big topic and we need to do that. So that's overhead expenses and fees. What was the question for -- it is going to grow by, let's say, 2% to 3%. We are missing the impulse of DCM, which was the case last year, last year ago. At the same time, even if I combine growth of 2021 and 2022 on a [indiscernible] basis, this will lead to growth, but higher than 6% on top of my 6.2% or 6.3%. What we are guiding during the KB Change 2025 plan, strategic plan, was that the fees are going to go on a [indiscernible] basis, mid-single digit, around 5%. So even here, we are a bit faster. If any my colleagues would like to complete me.

Maybe I would add 1 or 2 sentences related to the last question. We have signed the collective agreement with our trade unions with the expected average increase at the level of 3%, which is unique in the -- on the market. We are still fighting for the best efficiency levels on our cost-to-income ratio part. And you see that we are like north of 40 now, and we would like to turn the bank to the south of 40% in 2025. And we will continue pushing on it. We don't have, in our hands, the regulatory costs. We do have in our hands, to a large extent, the OpEx on operation of the banks -- of the bank. Speaking about specialized financing-related fees, you have may noticed that the beginning of the year was quite busy with a few sustainable linked bonds issued by Czech clients, Societe Generale, together with Komercni Banka, were appointed as senior members of the syndicate active bookrunners. We do believe that a few of the largest companies based and headquartered in Czech Republic will continue their investments either in the country or outside the country, but it's very hard to predict the future. And you are right when saying that 2021, there was a lot of exceptional business coming from this corner. Speaking about the cross-sell, I think that Miroslav has perfectly covered the answer. So let us know whether it was fully answered. Thanks.

Thank you. We have no further questions in the queue. [Operator Instructions] So we don't seem to have any further questions. So I'm handing back to Jan for a concluding remark.

Right -- all right. Thank you very much again for sharing your time with us. As I mentioned already at the beginning, we are super happy that 2021 was a rich year for our bank. We believe that the contribution of Komercni Banka in supporting Czech economy across the segments, households, small companies, medium-sized companies, large corporations, municipalities regions and the government was delivered at an adequate level. I need to say that we are systematically working on modernizing the bank. We are investing money into creating a new digital stack and fully digitized proposition for our clients. And we see that already the existing improvements are paying back through the Net Promoter Score. Speaking about employees, we will be less people working in the bank, and we -- as one of few are continuously pushing down the number of employees. We are optimizing the network of our branches. We are trying to create additional synergies with our subsidiaries, as I mentioned, hunting for highest achievable efficiency. As a result, we are able and we are glad to say that we are back on track with sharing with the shareholders the traditional level of payout between 60% and 70% of the net profit of the previous year. Yes, we know there is the remaining part of undistributed profits from 2019 and 2020. And as mentioned a couple of times, by Jiri today, we will decide on the usage on the second half of the year. In the meantime, we stay at the disposal of any of your further requirements, questions. Don't hesitate to turn on us in case there will be more questions to be asked. For today, we thank you very much. We wish you a pleasant afternoon, and we are looking forward to seeing you and hearing from you at the latest, the occasion of first quarter of 2022 results presentation. Thank you very much.

Thank you all very much. So this has [indiscernible] today's [indiscernible] and have a nice day. Thank you. You can disconnect.