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

Okay. Good afternoon, ladies and gentlemen. Welcome to the Presentation of the Results of Komercni banka for the First Quarter of 2022. Today, it's the 5th of May 2022. Please let me remind you that this call is being recorded. Our speakers today will be Mr. Jan Juchelka, Chairman of the Board and CEO of Komercni banka. He will be followed by Jirí Šperl, Chief Financial Officer; and Didier Colin, Chief Risk Officer. Also with us today are Mr. Miroslav Hirsl, Head of Retail Banking; Mr. David Formanek, Head of Corporate and Investment Banking; and Mr. Margus Simson, Chief Digitalization Officer, if in case you will have questions for them later. So as usually, we will start with the presentation part, which will be followed later by a questions-and-answer session. So I have now muted your microphones, and I would like to ask you to keep your mics muted for the presentation part. Of course, then I will ask you to pose your questions later on. So that's it from me for the beginning. And now I would like to hand over to Mr. Juchelka. Jan, please.

Thank you, Jakub. Good afternoon, everyone. Thank you for being with us. It's my pleasure together with my team to be in front of you and present the results of Komercni banka group for the first quarter of 2022. Despite rather murky atmosphere in the society and very tragic war, which is happening in Ukraine, and other headwinds, Komercni banka is delivering strong results, which are based on the external environment in Czech economy, which is based on very strong business activities and which is based on a very well diversified business model of this third largest bank in Czech Republic. Let me say, and I will ask Jakub to move us to Page #4, that all the important parameters are -- it's not moving. All the important parameters are recording strong growth. On the financing side, we were up or we are up by 8.1%. The loan book has a value of CZK 750 billion. Clients deposits went up to CZK 1 trillion, more than 3% on year-over-year comparison. What makes us even happier is non-bank assets under management, which grew in a very dynamic way by 7.6% on a year-over-year basis. And we will go a little bit deeper in all of these categories in a second. The revenues are up by almost 28% and landed at the level of CZK 9.5 billion. OpEx is under control. There is one-off contribution to regulatory fund which will be displayed -- explained, sorry, by the CFO, Mr. Jirí Šperl in a minute. Very high quality of assets brought the cost of risk at the level of 15 bps. As a result of everything, the net profit of Komercni banka for first quarter is represented by the number of CZK 3.5 billion, and it's up by 76% compared on a year-over-year basis. Yes, the first quarter of 2021 was one of those where the economy and the economic activities were frozen by governmental decisions. Nonetheless, even in comparison with other European banks, we see that this -- the net profit contribution grew in a very strong manner. We are showing to you, to investors, to analysts, the ROE at the level of 11.3% and return on assets 1.1%. Komercni banka remains one of the most capitalized -- or the highest capitalized banks in Europe. Core Tier 1 at a level of 19.8%, capital adequacy 20.2%. We have -- we as the Management Board advised the General Shareholders Meeting to pay out a dividend at level of CZK 43.8 per share. General Shareholders Meeting approved that number, so we are coming back. We are bringing [ banka Komercni ] to the payout ratio of 65% payout from the net profit. In parallel with that, we don't slow down the implementation of strategic plan KB 2025. You will see some of those parameters in the next couple of pages, one of them bringing the bank to -- more heavily and more intensively to the digital space is represented here by 2 key numbers, almost identical numbers of active KB Mobile banking users and KB Key authentication tool, which both exceeded 1 million users. We can move to next page, please. Here we will pay attention to our corporate citizenship role. In all of those 3 categories of ESG, the environmental, social or societal and governance categories, we have made significant steps forward. Let me start with the environment. Komercni banka is on the way to achieve carbon neutrality in 2026. As part of it, our decision to purchase 131 electric cars from Skoda Auto is being consumed now. So we have first approximately 60 cars in the fleet already. In parallel with that, we are building and installing the charging systems. And we will have 170 charging stations across the country until 2026. The greenhouse gas emissions went down by 32.5% in 2021. In parallel with that, our contribution into the positive change was supported by financing eligible and compatible with sustainable principles. In totality, it is almost CZK 30 billion on our balance sheet, which is up by 78% on a year-over-year comparison. The newly contracted volume in Q1 landed at CZK 5 billion. We are concluding also strategic partnerships with energy companies, one of them which we announced already last time is the common initiative with CEZ ESCO and our leasing subsidiary named SG Equipment Finance, with the product aiming for installations and the financing of photovoltaic systems on the roofs of buildings of entrepreneurs and small and medium-sized companies or households. In the societal part, in Czech Republic, we are currently hosting more than 300,000 refugees, mainly women with children. 100 of them found the shelter in our premises. We have collected CZK 5 million from the employees. So the employees contributed actively into the total of CZK 20 million donation, which went to Red Cross or directly to the support of those families who found their home here in Czech Republic. The charity activity through Nadace Jistota continues also supporting single parents and other people in need who are facing currently mainly increased costs of housing, including energy prices and others. On the side of governance, Komercni banka has played a role, I would say, on behalf of the Czech banking market when paying out the money from guarantee fund to the former clients of Sberbank Czech Republic and currently or at the end of April, we were at the level of 70,000 depositors already receiving the money out of 121,000 entitled depositors. Also, the General Shareholders Meeting approved all items of the proposed agenda, including financial statements and dividend payment, as I said. And we have further increased the level of quality of our methodology related to AML and KYC, which is of high value in the current world of sanctions and embargoes as well as enhanced cybersecurity protections and fraud prevention measures in parallel with strengthening the rules for lobbying principles and keeping the -- and let's say, supporting the political neutrality of our company. We can move to next page, which is describing the main macroeconomic indicators. The GDP grew by 0.7% in first quarter 2022 and by 4.6% on a year-over-year basis, driven mainly by household consumption and fixed investments. We take it seriously as expression of a rather positive view of corporate clients who are asking for loans for working capital facilities, but also investment loans. The households, obviously, are taking the benefit from using the saved money also for consumption in the first quarter of 2022. The manufacturing and construction remained somehow affected by supply chain disruptions, even though many of those pains were already solved before the 24th of February when Russia invaded Ukraine. And this particular event brought back a high level of uncertainty and volatility. Labor market, though, remains very, very tight in Czech Republic. The unemployment is almost nonexisting. Nominal wages went up by 4% in the fourth quarter. And currently with a peaking inflation, there is a strong push across the sectors and across the segments on increase of salaries. So there might be another, I would say, inflation effect created by that in the future. Speaking about inflation, we hope we are a few weeks after the peak. In March, we read the number of 12.7% from the Statistical Office. We are expecting the numbers coming for April which might be even higher. Nonetheless, hopefully, the peak is behind us. As of March 2022, Czech koruna was stronger by almost 2% and on a year-over-year comparison by 6.7% and found its equilibrium currently around CZK 24.4 per EUR. Czech National Bank continues in the rate hiking cycle. So currently, we are finding ourselves in the environment of 5% of the base rate. Expecting today decision from Czech National Bank potentially with another hike by 50 bps. We will need to wait for the result, and the result might come during our call. We can move to next, please. Business performance, what is happening currently on the digital front. We have more than 1 million clients using the KB Key. We have more than 1 million clients using mobile banking of Komercni banka, which is making us, in relative terms, the largest bank amongst our peers. Digital wallet use and the tokenization of cards remains a trend. Transactions initiated and processed through either mobile banking or other digital channels are still at the level of 98%, and only 1 -- between 1% and 2% is provided through payment orders. Shares -- the share of sales by digital channel is growing on the side of consumer credit. Also, thanks to the launch of our new format of consumer lending through digital channels, either websites or mobile banking, and either from KB or from ESSOX, the consumer lending subsidiary. We can move to next one. I'm skipping a little bit those awards which were collected by Komercni banka during the first quarter. We need to move more to this analytical part of the paper. So the lending went up by 8.1%, as I have already mentioned, driven by retail, and it's mainly mortgages. Mortgages a little bit contra-intuitive, but we are still processing the demand which was initiated and received in last quarter of 2021. Not so bad growth of consumer lending and still very active corporate sector or corporate segment. Speaking about businesses, there was a huge, I would say, dynamism represented by 7.5% growth on a year-over-year basis, mainly driven by corporates, including ESSOX Wholesale and factoring products. When we go to housing loans, one can see that the requests and the demand dropped down rather visibly. When you see the graph on the right-hand side, the bottom part of the page, you see though that we are coming back to the normal level before the mortgage fever, which was the main event of 2021. Despite this very dynamic growth of financing, our net loans to deposit ratio remains in a very solid 72.8%. Liquidity coverage ratio is exceeding 150%. We can move to next page. I'm very proud of showing you the [ tombstones ] of important, remarkable transactions happened either in Czech Republic or outside Czech Republic but where the Czech-rooted or Czech-headquartered companies were expanding to other countries. This is the case of SAZKA Group, where SAZKA as you may know, has won the tender for British National Lottery, which will be operated by them. The future, Komercni banka is part of a group of banks supporting our clients in this achievement. We can speak also about CPI, CPI which is growing to the size of one of the largest real estate players where Komercni banka together with our experts from Paris and London from Societe Generale was providing the service of joint global coordinator and bookrunner for CPI. And I may continue one after the other, but I will not. I will just mention one interesting and very sympathetic element here. We see municipalities, regions and municipal companies asking for investment loans, providing the fact that they are prefinancing the future investments in infrastructure and other relevant areas of their development. So hopefully, the European money will also help here to balance the uncertainty. So next page is dedicated to deposits, up by 3%, assets under management by 7.6%. People and companies are moving money from current accounts more to the return-bringing saving accounts or term deposits. What is very sympathetic for us is the fact that mutual funds are growing by double digit and very close to 20% and pension schemes remain at the pace of very solid 5% growth. We can move to the next one. The next one is already dedicated and taken over by Jirí Šperl, our CFO. Thank you, Jiri.

Thank you very much, Jan. Good afternoon, everybody. Not surprisingly, the very good business results have transposed also to very good financial results. So let me summarize our key figures and the drivers. So the net profit after tax ended at a level of CZK 3.5 billion. It is by CZK 1.5 billion more year-on-year. The drivers are clear from the traditional upper left chart. So the main one is the net interest income, adding almost CZK 1.9 billion year-on-year, supported by the dynamic business growth. But at the same time, also the environment, mainly as market rates contributed, of course, positively. The other components of the top line were net fees and commissions and financial operations contributed positively as well, but obviously a bit less than the main source of revenue, so I mean net interest income. Costs are under control. [indiscernible] growing faster than the previous years. On the other hand, in the high inflationary environment and at the same time, transforming the bank, this should not be a surprise for anybody. And just to remind, it is significantly below the inflation. And this is the case despite another important and -- Jan was touching that -- important and to say unwelcome guests, meaning continuing increase of the regulatory charges. And here, I'm talking mainly about Resolution Fund charge because Deposit Insurance Fund charge hasn't been announced yet. As you can see, in 2022, this -- the regulatory charges added more than CZK 0.25 billion into our cost base year-on-year. All in all, the revenues year-on-year are up by roughly 28%, costs by 10%, even including the regulatory charges. So this is, of course, leading to a very significant positive jaws. Cost of risk is also slightly better year-on-year by roughly CZK 300 million and Didier Colin will comment on that in a minute. How we did in terms of trends is visible in the right-upper chart, using [ 2 words, not bad. ] Key one this year is a 7th quarter in a row when the revenues are growing. That's the red bar in the chart. Costs in this chart are seasonally higher due to the fact that -- and you know that we are obliged to post full-year regulatory charges already in Q1 fully every year. So that's famous IFRIC 2021 standard. Profitability indicators, at the bottom of the slide, naturally follow this evolution. So we are at 11.3% on return on equity. If we linearize regulatory charges, it would be in more 13.7%. Here maybe to remind our strategic target to get above 15% ROE by the end of 2025. So let's move to the balance sheet. Well, some of you might remember that our KB Change '25 program is a growing strategy with capital G. And this is also visible at the balance sheet dynamics of this slide. So total assets are growing by almost 9%. Compared to the previous quarter, the deposits are not the main driver here, as we consciously continue delaying the up-pricing related to the huge growth of the market interest rates. And thus, they are the [ prioritizing ] for the profitability aspect. That's true that currently we are discussing internally some adjustments up in order to stay competitive and stick to our market shares. On asset side, there is a visible growth of loans, plus almost 9% already commented by Jan. The liquidity surplus has been placed mainly to the Czech [ govies ] growing relatively significantly and the rest into the very poor loans with CNB. I'm commenting year-over-year evolution. So next slide, please. Capital, it is still very strong. The capital adequacy at the end of the quarter -- first quarter is at 20.2%. That's true that quarter-over-quarter since the beginning of the year, it dropped relatively significantly by roughly 1.1 percentage points. On the other hand, it is also true that the huge majority of this drop is related to the methodological changes more concretely the changes related to a new regulation on LGD model collaboration. And the impact of these one-off changes into capital was almost 100 basis points in Q1 of this year. It is important to say here and now that these changes have been expected or planned, if you wish, and do not change anything in our capital projections, including dividends management. They remain fully impact. Last comment on this slide. Neither retained earnings nor dividends from 2021 profit are part of the position -- capital position at the end of March this year and will be included in Q2 after formal approval by General Meeting, which happened roughly 2, 3 weeks ago. And as already mentioned by Jan, of course, validated the dividend. So it was CZK 8.3 billion, roughly CZK 45 per share. Naturally this will improve the capital adequacy by exactly 35% of 2021 profit. If I should quantify the impact in absolute terms, we are talking roughly about 90 basis points. Please, next slide, which is, I think, net interest income, yes. So NII, I would say, the strong dynamics continue. So let's start with the year-on-year evolution. That's the bottom right chart. Clearly, the main driver here is an income from the deposits growing by very strong 44%. And the majority of this growth is linked to the fact that the bank can simply reinvest the deposits for much higher rates than was the case last year. And of course, also delaying of deposits [ up-pricing ] I was mentioning before. It is also worth to mention that IB, investment banking, added into NII, grows soundly as well. So that's the blue part of the chart, year-on-year growing by roughly CZK 0.5 billion. In terms of interest income on loans, it is also growing year-on-year by solid 5%. That's true that it is rather flattish the last 3 quarters as visible on the upper right-hand chart, as the spreads here have somehow continue to [ add out ] and it is mainly the case for retail loans, what I mean is both consumer loans and mortgage loans. By the way, this trend is also visible at the left bottom chart where we are showing evolution of average market rates on new Czech-denominated loans, whereas you can see the increased jump of the market rates. Let's use example of 3 months PRIBOR, which is red bold line, growing significantly. So you can see here that the business loans, pink line, is basically following this evolution, while retail loans, and it is the case mainly for consumer loans, that's the upper line in the chart, is also growing and comparably slower than, for example, business loans. The last one, this slide is related to net interest margin, so increasing significantly as well following the evolution, no surprise. So year-on-year, it is growing by roughly 50 basis points and getting to 2.22%. We are expecting that this, let's say, growth of NIM is going to continue even in upcoming quarters. It's a question whether at the end of the year, we will get back to a pre-COVID level, which just to remind, used to be around 2.4%. Definitely, we are getting closer, and the question is whether we will be there fully. Next slide is related to fees and commissions. I would say that the bank is -- or group, better said, it's also generating a positive result here. Year-on-year, it's almost 9%, driven mainly by transaction fees. It is plus 16% year-on-year and also fees from cross-sales, an important part of our fee structure. And these are growing by 13%. And again, we are targeting and expecting that the growth is going to continue in upcoming quarters and years. Also specialized services -- financial services delivered strong results. Couple sentences about these 3 key parts of fee income. So in terms of transaction fees, Jan also touching the point, that is slightly partially also kind of base effect as Q1 last year there was almost full lockdown. So of course, naturally the quantity of transactions increased, number of [ e-transactions ] increased. In terms of fees from cross-selling, also touched, so there is more or less linear correlation with the growing of our assets under management. And here, it was driven by mutual funds. And specialized financial services not growing year-on-year so significantly. We are talking only about 2%. But at the same time, it's -- and we perceive it as a very strong result. In other words, whatever above CZK 300 million per quarter, we consider as above our run rate. Financial operations, again, a very good quarter. Again, above CZK 1 billion and again probably the best quarter at least since the last 3 years. What I like here is very much is also the structure of the growth. So let me refer to the bottom chart. Here you can see that the growth is mainly year-on-year growth, supported by more stable FX income from structural book. So that's the blue color -- the blue part in the chart, growing by half or 51% year-on-year. That's true that this was also influenced by the lockdown in Q1, but not only. So both very positive volume effect due to recovery in traveling. But at the same time, also by increasing of spreads -- FX spreads in this year are -- as the FX volatility in an after Ukraine crisis increased a lot. Capital markets, that's the red part, is also strong, supported by strong hedging activities of our clients, again, in a volatile environment. That's true that year-on-year, it's declining a bit, roughly 9%, but it's also fair to say to add that this decline is also influenced by the fact that our IB a bit reshuffled the structure of their income from financial operations to NII, as I was commenting at NII slides 2 minutes ago. And finally, OpEx. So traditionally under control. But as I was mentioning before, growing faster than we and you got used in past. It's almost by 10% year-on-year. If we, however, put aside the significant increase of the Regulatory Fund's charges, growth would be at the level of 5%. And that, I would say, given the inflationary environment, we perceive it as a rather good result. So now commenting this 5% growth, the main drivers are related to the activities related to our transformation, mainly building NDB or New Digital Bank, if you wish. That transposed into the guide and it's mainly in IT cost area and stuff around. And also the depreciation that is growing by 7%, reflecting activation of first elements of mentioned NDB. The personnel expenses are at roughly 3% year-on-year, influenced by progressive increasing of the base salaries throughout 2021, and also, let's say, paying higher variable part of the remuneration year-on-year given the very good 2021 performance of the bank. At the same time, the FTEs still growing direction south. Having said this, also cost/income ratio improved year-on-year. So that's the bottom-left chart. So there is a visible drop from, let's say, 60s level, 58.5% to 50s level, 50.3%. Of course, this is still somehow distorted by a Resolution Fund charge. If we put it aside, cost/income would be at the level of 37%. So that's [indiscernible] and now Didier will deep dive to asset quality and cost of risk. So Didier, please.

Thank you, Jiri, and good afternoon, everyone. So the asset quality for the first quarter can be captured in probably 3 main messages. The first one is the continued favorable trend of our default rate across all client segments and retail loan product categories and basically returning to their pre-COVID levels. The second important takeaway is that this resilience was further confirmed by the low and also favorable levels of portfolio migration dynamics within the non-defaulted portfolios. And the third is a new development that we saw in the context of the war in Ukraine, and you can see it on the top chart, when looking at the exposure classified S2, so sensitive under IFRS 9. We had a small increase from CZK 53 billion to CZK 60 billion. And this increase is in fact the first impact from the war in Ukraine and it is concentrated on less than 5 client situations. And I will comment that later on in the cost of risk section. Then as a result, and when looking at our usual risk indicators, the S2 ratio remained flat quarter-on-quarter at a level of 8% with a provision coverage ratio Q-on-Q slightly above 4% and stable as well. The NPL exposure remained flat in absolute terms, and in relative terms, the NPL ratio continued to moderately decrease and reached 2.4%, while the provision coverage ratio was maintained above 50%, which is above the regional average, which is in the range of 45%. Now if we look at how this translated into our first quarter cost of risk on the next slide. I'm going to comment this 15 bps of cost of risk level successively for the non-retail portfolios and for the retail portfolios. As you can see, the non-retail portfolios generated a level of 24 basis point or slightly above CZK 200 million. And this is, in fact, made of -- the structure is made of 4 main components. We have 2 in the sense of net creations and 2 in the sense of net release. I will start with the first one going in the sense of net creations and in a month, the largest one, near CZK 0.5 billion, or CZK 475 million precisely, were recorded as a first impact from the war in Ukraine. As I just mentioned, it's very concentrated on less than 5 client situations. But -- and this is what is important -- it is the result from a comprehensive portfolio review, which we initiated in January. And this portfolio review would, in fact, be maintained as a permanent exercise in the coming months and quarters. What is important to keep in mind is, again, that this impact was very concentrated, so we don't see a deterioration on the -- with portfolio [ dimension issue ]. The second component in terms of creation is for CZK 100 million, and we booked in fact, with this amount, new reserve on our automotive portfolio for its nondefaulted part, taking into consideration this persisting level of uncertainty particularly impacting this automotive industry. So now these 2 creation components were partially offset by: first, the continued strong level of our recovery activities on the corporate side where we had a positive impact on to our cost of risk for nearly CZK 200 million; and second, favorable element into our cost of risk is that we reversed the reserve booked in the last quarter in Q4 of last year on our [indiscernible] portfolio exposure. You'll probably remember that back then I explained that this portfolio has started to enter its bullet amortization period. So we initiated a line-by-line review of this portfolio, just to make sure that it would enter this amortization -- bullet amortization period in a resilient way, and this was confirmed and following this review, we recorded a positive impact of more than CZK 100 million into our cost of risk for the first quarter. In addition to these 4 components, we can also say that the credit risk profile of our nondeferred corporate exposure, excluding this Russian-related part I just mentioned, continued to marginally improve in terms of its credit risk profile quality, and this generated another, more or less, CZK 50 million in positive impact into our cost of risk. Now I'm going to the retail portfolios, and it would be an easier story. As you can see, we recorded a level of 7 basis points for the first quarter, and this level was essentially made of CZK 90 million complement to our so-called interest rate hikes and inflation reserve, which we booked in the first quarter of last year. If you exclude these components, in fact, our retail loan exposure continued to generate some residual level of net provision reversal, which again further confirm the resilience of our retail credit risk profile and also the good performance of our loan collection setup. I will finish with one word on our cost of risk guidance for the full year 2022. As you will remember, we issued in February a guidance for 2022, which was stated at a maximum of 15 basis points. And we've decided to revise upward this guidance to 20 basis points. This guidance -- newly revised guidance, in fact, takes into account the following key assumptions. The first one is that we expect some further creations -- provision creations on our Russian sensitive exposures. Second assumption is that our default rate on the other corporate exposures, so excluding this portfolio, was set at the level of 2021, which is a conservative assumption given the trend I just mentioned. On the retail portfolio, we made the assumption -- or we took the assumption that our cost of risk position will be near a net 0 cost of risk. And this position is, in fact, quite strongly supported by this interest rate hikes and inflation reserves, which we booked last year and to some extent at the beginning in the first quarter of this year. And the last point is some partial and possible releases of our results -- IFRS results, which we booked in the last 2 years on our nondefaulted corporate exposures. And now I'm going to hand over back to Jiri. Thank you.

Thanks, Didier. Finally, outlook. Probably let me start with a very fresh information. Right now, CNB informed the markets that they increased the repo key policy rates by 75 basis points, which was not expected by the market at all. It's much more. But prevailing coupon and [indiscernible] was only 50 basis points. So of course, this will have some other impact into performance of KB; I would say, rather positive. Of course, we need to analyze. Now back to other, let's say, outlook adjustments. As already commented by Jan mainly due to dramatic events in Ukraine, the macro-eco outlook has been downgraded compared to 3 months ago. What is, however, important to mention is that the expected impact into our performance seems to be rather limited. So from my perspective, it is another proof of the resilience of the economy on one hand side and also the bank in a difficult environment. Having said this, it is still expected that the market is going to grow more or less comparable speed, as indicated or guided 3 months ago. But true, there are some very slight adjustments down given the circumstances. In terms of our targeted positioning on this market, it is not being changed at all. What I mean is the intention and target the objective is to continue gaining market shares in loans, which was the case for the last 2 years. And at the same time, to maintain market share in deposit area. In terms of financial performance, I would say that with one exception, we are confirming 3 months out guidance, i.e., high teens growth on the top line, driven mainly by net interest income, as was already the case in first quarter, mid-single digit on the cost side, and of course, thus generating material positive jaws. So the only exception where we changed our guidance is cost of risk, as mentioned right now by Didier, i.e., from maximum 15 to 20 bps level. And of course, in terms of risk for the guidance, no surprise. There are 2 points: basically, further escalation of the situation in Ukraine and COVID return. Well, this is the end of the presentation. And it's my pleasure to pass the word to Jan for the concluding remarks. Thank you.

Well, again, we have made a presentation of the results. We are very proud of delivering these results in front of you. It's time now for your questions obviously. Thank you.

Thank you very much, ladies and gentlemen. So we have concluded the presentation part of the meeting. And now if you have questions, it would be great if you could use the raise hand icon on the upper part of your screen. If you are connected through telephone, I will invite you for your questions later. We have actually received the first question already through the chat. It's from Kamil Stolarski from Santander. And I think it's quite nicely maybe sets the context for our further discussions. So Kamil was asking how would you assess the probability or timing of recession in the Czech Republic and whether we observe any material imbalances. If you can maybe, Jan, take this one.

I think it's more for Jiri. Our macroeconomies have picked up from a variety of scenarios, the one which is named mild recession. So over the year, we might drop as a country into recession. If I'm not mistaken, they spoke more about the half year, let's say, somewhere between second and third quarter, balancing back to some mild growth at the end of the year. I don't know, Jiri, if you want to add a few words on this one.

I think you covered the question. Maybe to add only one thing that, that's true that in second half of this year, it is expected the recession -- mild recession. But at the same time, it's expectation and the baseline of our macroeconomics that the economy is going to recover next year and what they are suggesting or believe in is growth by almost 3%. And here, it is supported very much by net export and fixed investments, while inventories will deduct a bit year-on-year in 2023.

Thank you. The next question will be from Gabor Kemeny from Autonomous Research.

Yes. Very well timed with the CNB rate hike. Could you please comment on what impact do you expect from this, yes, I think it's safe to say, bigger-than-expected rate hike on NII? And specifically, if you could comment on your deposit cost, what trends do you see there? It seems that something has started to move. There's a 50% increase, I think, quarter-on-quarter in your term deposits. If you could comment on what evolution you're seeing in deposit costs, that would be interesting, too? And another question is on the deposit insurance costs. I think you mentioned that it has not been announced yet. What impact -- what possible impact do you see from the Sberbank Europe default and what's the likelihood that the insurance payment could be higher than what you estimated?

Okay. Thank you, Gabor, for the question. So let's start with the first one. The repo raise are faster and more than expected. Maybe let me say a couple sentences about our sensitivity. So probably some of you remember that our sensitivity in past was significant. So roughly 3, 6 months ago, we were talking about CZK 1 billion for a parallel shift of our yield curve income or impact for upcoming 12 months. The same for just a short-term move 1 hike around CZK 150 million, CZK 200 million. So the sensitivity decreased relatively significantly during the last 3, 4 months, reflecting a drop in nonstable, which means sensitive because these deposits are sensitive. So on stable deposits at the end of 2021, and this is still continuing. So currently, we are talking about the impact for parallel shift roughly CZK 0.5 billion to CZK 0.7 billion. And for 1 hike by 25 basis points. So it's around [ CZK 125 million ]. So 1 hike [indiscernible] would be around, I don't know, CZK 50 million. It is not since the beginning of the year, so we are talking about CZK 30 million. So this, let's say, surprising extra add-on versus the expectation. So this is one thing. Other point was related to the cost of our deposits. Already from the Q1 presentation, it's very visible that current accounts are -- and it's visible that there is a significant shift. To be frank, it is even a bit faster than we were expecting 3, 6 months ago. Of course, it is related to the fact that since that time, interest rate increased further. So it is motivating clients to, let's say, switch from current accounts to time deposits. We are expecting that this trend is going to continue. At the same time, I don't think the same or comparable speed. So hopefully, we are at the end. And also what will help is -- and I was mentioning during my presentation that currently, we are discussing increase of paid deposits. no way you are going to pay on unpaid deposits because that basically became a standard on the market. But for paid deposits, mainly in retail area, that's what we are going to do now, which normally should slow down the switch. And third point was related to DIF, Deposit Insurance Fund. Maybe I didn't say that fully correct. We didn't get the announcement. At the same time, we accrued for that. That's what we do every year in line with the regulation and accounting standards. We are trying to simulate and to guess the best estimate for that. That's what we did and created, on top of my head, roughly CZK 150 million and the potential variances versus the announcement, which we are expecting during May -- at the end of May, we were post into Q2. Here there is maybe even more important point, which is related to the fact that Sberbank is in the liquidation now, which could speculate the Deposit Insurance Fund or CNB, because CNB is the decision taker, will increase this contribution because the fund is below needed threshold. There are basically 3 scenarios. The first one was that CNB would ask to [ fail ] the fund at one shot, which would be really a huge impact for all banks. The other scenario was that they ask the banks to, let's say, contribute more by 1 over 7 because the fund has to be fulfilled within 7 years, 6 or 7 years, in first year, which for KB would mean the impact -- extra negative impact at the level of CZK 300 million. And third alternative is that they will basically keep it as it is because it's very probable that the net proceeds coming from the liquidation of Sberbank Czech Republic will more than cover these amounts. Of course, we could talk about time, how long it will take. But given the very preferential treatment of Deposit Insurance Fund because there are some liabilities towards the state, so taxes and stuff like that in first stage. But in the second stage, it's already Deposit Insurance Fund then. So I hope I covered all your questions.

Yes, you did. Just to make sure I understand, which scenario did you accrue for the Deposit Insurance?

Good question. The most likely which is current level.

Got it. So if this is scenario 2, would mean an extra CZK 300 million?

Correct.

Okay, got it.

Thank you, Gabor. Thank you, ladies and gentlemen. Again, if you have a question, please use the raise hand functionality. If you would like to ask a question through telephone, please unmute yourself and ask your question now.

Maybe I can use the time, Jakub, there is one question on the chat coming from Peter Priisalm from Avaron, if I may. Do you expect any pressure from the government to increase deposit rates as we have seen in Poland? We are in a very intensive contact with both the Czech National Bank and the government, discussing various topics of the role of banks. I know we speak about the government, obviously. The role of banks in the current situation. Any point related to pressure on increase of deposits was not recorded. So we cannot exclude the politicians might bring some ideas for discussion. So far, it didn't happen, neither in the dialog nor publicly through media.

Thank you. And we have another question. So yes, we're getting questions through chat now. So from [ Mr. Turowski ], when do you expect second part of the dividend to be paid?

Okay. I will take this. I would say, we stay consistent. So after uplifting the problems related to dividends, you covered in the past 3 years, restarted to release the surplus of capital, so that were already 2 steps. First one in December 2021, CZK 1.5 billion, then May 2022 roughly CZK 8.3 billion. Do we still keep a surplus of equity? We define it as roughly CZK 10.5 billion, which means roughly CZK 55 per share. And we'll utilize it once possible, i.e., either returning it to our shareholders or as we are always saying, use it for M&A transaction as it is part of our KB Change 2025 strategy. I'm confirming again that the simulation we were presenting to you roughly 3 months or 6 months ago, if we paid the mentioned CZK 10.5 billion in the second half of this year, we still stay safely within our management buffer. As I said 3 months ago, we already submitted stress test results to our regulator, to CNB. There is a relatively heavy process, including [indiscernible] validation. So we are expecting they will get back to us at the edge summer, or maybe autumn. So if everything would go good, I can imagine that the dividends could be paid at the edge of October and November.

Thank you. The next question is from Michal Konarski from mBank. What is your expectation for base rate in 2023 and '24? What would be the impact on NIM?

Okay. That's probably again for me. Our baseline scenario before today's meeting of CNB was that they would increase to 5.5%. And basically, they will keep this level 10 to 12 months by the Q1 next year, and then go as the inflation is expected to go significantly down in the upcoming year. So then to follow with rates as well. So 2023 would be a year when CNB is expected to decrease repo rates to the level of 3% to 3.25%, and then to keep it in 2024 and beyond through the cycle the level, which is close to 3 percentage points. Of course, this will have an impact into the net interest income. So let's forget a double-digit growth, but we believe that the organic growth of the balance sheet will be able to offset this impact. In other words, we are still expecting that the net interest income is going to grow even beyond record 2022.

Thank you. The next question is from Andrzej Nowaczek from HSBC. And he's asking whether this increase in minimum capital requirements by 2 percentage points in the next 12 months, I think he means the countercyclical buffer requirement increase, and especially the high total capital ratio hurdle, does this cap your payout ratio at 65% plus, maybe CZK 10.5 billion extra from 2019 and 2020?

No. the answer is no. Our capital management is prospective. So of course, we could take into account the current position. But at the same time, all important inputs in that, meaning the growth; second, P&L profit; third, expected requirements on capital; and of course, also all the, let's say, methodological changes. So it seems that we will be able, based on current or recent capital simulation to stick to 65%, as was the case pre-COVID and as we returned to the sustainable dividend payout last year. Again, so take it, please, rather like, let's say, retrospective statement. No, we are not issuing any commitments on future dividend payouts.

Thank you. So ladies and gentlemen, if you would like to ask a question via telephone, please press star and 6 on your keypad and this should unmute or yourself, or of course, use the raise the hand functionality. I think we don't have any further questions in the chat, so I'll wait a few moments for questions through the platform. Okay. It seems all questions have been asked and answered. So I would like to hand back to Jan for the conclusion.

All right. Thank you, Jakub, for organizing this call. To all of you, we are again expressing our thanks for sharing your time with us, and also thanking you for the attention you are paying to the shares of Komercni banka. We obviously remain at your disposal for further questions should they come after this call, and we will keep our transparent communication ongoing, and we are looking forward to seeing you in a quarter from now. And again, thank you very much. We are looking forward. Bye-bye.

Thank you. Bye-bye.

Thank you, all. You can now disconnect. Thanks a lot. Bye.