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

So hello, and good morning and good afternoon, ladies and gentlemen. Welcome to the presentation of Komercni banka's First Half and Second Quarter 2022 Financial and Business Results. Today, it is 3rd of August 2022. Please note that this call is being recorded. Our speakers today will be Mr. Jan Juchelka, Chairman of the Board and CEO of Komercni banka followed by Mr. Jiri Sperl, Chief Financial Officer; and Mr. Didier Colin, Chief Risk Officer. With us today are we also have Jitka Haubova, Chief Operating Officer; Miroslav Hirsl, Head of Retail Banking with Formanek, Head of Corporate and Investment Banking; and Margus Simson, Chief Digitalization Officer, in case you wish to ask them some questions later on. So as usually, we will begin with the presentation of the results which will be followed by a question and answer session. [Operator Instructions] So thank you. That's it from me for now. And I'd like to hand over to the CEO, Jan Juchelka. Thank you.

Alright. Good afternoon. Good morning, everyone. Thank you very much for being with us at the occasion of presentation of Komercni banka results for first half 2022. It is my pleasure together with my colleagues from the management board to guide you through the prepared presentation. We will do it in the fastest possible time and give you enough space for questions. Thank you also for -- to those of you who have already presented their first view on the results. Well, let me start with the main highlights Komercni banka in the first half of 2022. And let me and just be clear that it was a first half of year presented by strong economic activity of households, as well as, companies, and even though there uncertainty was raising people and corporations were still in the in the mode of spending money and investing money as a result of that Komercni banka grew its own book by 8.7%. The client's deposits went up by 2.7% the non-bank assets under management went up by 4.4 -- 4.8% which is what we like, and the overall revenues are up by 29.5% compared to the previous half year. Let me just remind that 2021 was still under the stress of COVID government measures and partly also with limited activity of some of other market players. Operating expenses went up by [ 7.5% ] combination of those 2 are creating very, very strong positive jaws and cost of risk landed at a very [ mediocre ] level of 14 bps, CZK 0.5 billion in nominal value if you prefer this one. As a result of those aspects, the net profit recorded by Komercni banka for first half is CZK 8.3 billion and it's up by 62.3%, on year-over-year comparison. ROE delivered to the investors is 13.5%, return on assets is 1.2%, Core Tier 1 20% and the overall capital adequacy is slightly above 20 points. Komercni banka has experienced a growth in the clienteles phase and we are up 30,000 new customers which is a result of 3 main flows. The first one is organic growth. The second one is clients opening accounts when coming to our countries for their reimbursements us former [ SpareBank ] public clients were KB was acting as a payment agent of money from the guarantee -- the guarantee fund. And the third flow is the incoming refugees and incoming immigrants from Ukraine. We have signed a contract with Moneta Money Bank on sharing the ATM network which is giving us 2 main benefits. The first one is we will be able to relocate ATMs to places where there is no ATM available for small towns or villages. The second is that some of those machines will be decommissioned will slightly decrease electricity consumption. And we'll be more responsible in front of the ecology of the environmental field. Komercni banka continued its cooperation with fintechs we have taken over a dedicated specialized advisory company named Enviros, which is a group of experts in environmental projects and we want to bring them as close as it gets to our clients proposition for small and medium sized and large companies. So it's mainly for corporate banking, where we believe there will be a lot of work and we can create an annual vis-à-vis our main competitors when using these experts. Lemonero which is just for a quick reminder, an artificial intelligent based sort of virtual CFO for e-shops. We are increasing our share to 25%, our best we went to 96% as we see that the peer-to-peer platform is working very well and it's exponentially growing money invested through this investment portal. Let's move to the next page, which is describing the macroeconomic context. GDP in Q2 went up by 0.2%. So not yet a recession, nonetheless, our macroeconomic team believes that there will be a mild recession flowing in later this year. Nonetheless, the pretty dynamic growth on year-over-year comparison represented by 6% was mainly driven by domestic consumption investments. Even though the manufacturing and construction was somehow still impacted negatively by the disruption of supply chain. Supermarkets remains pretty hot. So here we don't see any [indiscernible] yet. And we somehow expect that the situation will not automatically change in a positive way down the road, so the potential inflation impact from increased salaries might be one of another engine for the peak of inflation, which is still probably ahead of us. Consumer price inflation at 17.2%, our macro-eco team expects it might be peaking at approximately 20% later this year. We will definitely come back to it when speaking about the financial performance. Speaking about rates, Czech National Bank has say verbally through the newly appointed board members signaling that we should not expect any move at the earliest session of the board, which is coming this week. Nonetheless, we are of the opinion that the inflation will be knocking the door in stronger -- in a stronger way. There might be another hike until the end of the year at the level of 50 basis points. Let's move to the next page, please. Here we are showing part of our awards or recognition which we have received either from our business partners or from Independent agencies or from the state. I will start with the state, because I do expect questions might come from this corner. Komercni banka is one of the Top 20 income taxpayers in Czech Republic for 2021 more concretely number 11 and for many consecutive years looking back we are one of the very important and very responsible contributors into the state budget through the income tax payment. Komercni banka signed the deal with Moneta Money Bank on ATM network sharing which I've already commented and Komercni banka initiated together with Visa, together with Czech Social Responsibility Association and together with HORECA which is an comparator of e-shops, pretty positive project of sustainable e-shop initiative. Komercni banka was awarded by Visa as our number one sustainable bank in Czech Republic and one of our colleagues Monika Truchlikova, who is the Tribe Leader for payments was named the number one lady in payment systems. Zlata koruna golden crown dispatch this year, its inaugural award for a sustainable product which was given away to Komercni for its loan for sustainable technologies through so-called green crown or [ Zelena ], koruna if you wish. I have commented Lemonero, Enviros and [ adverse ], so we can skip those and move to next page, please. Think about lending activities, we were up or we are up by 8.7%. On the year-over-year comparison, the main drivers where are the drivers were coming from all the segments. And I'm glad to hear and see the activity also…the activity of the corporate, corporate clients which is just underlying my initial comment of strong activities of market players amongst households and also amongst corporate clients. Speaking or zooming on the corporate clients, we are speaking of, let's say, again, across the sub-segments, small business is growing up by 1.4% on year-over-year, corporates by 11.7% and the leasing financing by 4%. Going down the page to the graphs related -- graph related to housing loans we are back to quarterly production of approximately CZK 10 billion which was bringing us -- which is bringing us back before the hot season of '20 and '21, somewhere to the territory of 1,000, 2019. Despite this active role in lending money to Czech economy, we are at very comfortable level of net loans to deposits 74%, liquidity coverage ratio is at 174%. Probably, we can go to the next page. Here, we are displaying 6 remarkable deals concluded by our corporate bankers. Let me pick up, those of you -- 2 of them, one is [ Dr. Marks' ] a complete refinancing plus increase of financing of this retail chain of drug stores by [ Penta ] owned by [ Penta ] pretty international transaction at the perimeter of Central and Eastern Europe, where Komercni banka played the role of Bookrunner mandated lead arranger and coordinator. The other one is Aqualia, which is EUR 1.1 billion refinancing, an increase of financing where we were mandated as a lead arranger. Our financing went across the sectors in corporate banking, and I'm thanking all my colleagues from corporate banking for these remarkable achievements. Let's move to deposits. Deposits were growing by 2.7%. People are -- and companies are moving money from current accounts to more attractive term deposits and saving accounts. What is probably more important for us is that -- we continue experiencing the trend of money, money inflow, fresh money inflow into the investments. Investments, the so-called non-bank assets under management within our case is mainly the solutions provided together with Amundi or through our -- through our private banking went up by 16.3%, which is a long time not seen dynamism. The insurance schemes are down by 10% -- and our pension company grew by 3.2%. In total, it's almost 5% growth in this nonbank assets under management. And if I'm not mistaken, we are above CZK 200 billion at like CZK 205 billion total amount. We can move to next page, please. And this is the financial performance. And I'm handing over to my friend Jiri Sperl, our CFO. Thank you.

Thank you, Jan. Indeed, the financial results in the first 6 months of the year are very sound. And as mentioned, CZK 8.4 billion the best first half of the year in the history of KB Group. The net profit is supported mainly by net interest income, but also by strong fees and commissions as could be seen on the water flow chart, while financial operations landed at the comparable level as 1 year ago. Costs, both administrative and risk ones are under control, which all-in-all, leads to the mentioned bottom line. It's probably now also just to mention, a positive contribution of the sale of Modra pyramida building completed in May this year, bringing an extraordinary profit something say between CZK 150 million and CZK 60 million. So in the water flow chart, it is part of so-called other -- [ depend ] of growing quarterly net result is continuing practically already 7th quarter in a row, has shown the upper right chart, supported mainly by, I'd say, booming top line, booming revenues, which is the red color bar, while maintaining the cost base relatively low that's the blue part. Regulatory costs are just one exception here where we isolated them in this chart. And I will touch this point of a bit later on. Materially this outstanding increase also have been transposed also to the key profitability indicators as shown at the bottom of the page, Jan was already mentioning ROE. So let me [indiscernible] return on average tangible equity, which already is touching 16% level, rest to say after the linearization of regulatory front charges. Let's move please to the next slide. Also the balance sheet is growing strongly. It's almost plus 13% year-on-year to CZK 1.5 trillion. And to say it's another historically highest price level. On the liability side, that's right, part of the presentation. It's driven by the deposits and also by money market this quarter. While on asset side, the growth basically goes across the board, Jan already was commenting client loans in detail. So not to look about that more. The liquidity surplus has been placed and again, not surprisingly to the [ govies ] and repo loans with CNB. Please, next slide. Yes. Capital. I'd say the capital is a chapter…chapter itself. Despite the year-to-date drop by almost 100 basis points, I was commenting on that 3 months ago. So just to remind, it's mainly a matter of changes related to a new regulation on the LGD recalibration. But in the isolated second quarter for the [ recost ] is slightly increased roughly by 20 basis points, and that's mainly due to the inclusion of the profit of 2021 into the regulatory capital after the General Meeting held in May. Having said this, and at the same time, knowing that the fully loaded capital requirements are at the level of 17.6%, roughly in mid of next year. This is still giving a sufficient space for either to pay the retail earnings from 2019 and 2020 in Q4 of this year, as indicated to you or for some time, of course, after a discussion with -- proper discussion with Central Bank or to use it for M&A, in line with KB 25 transformation plan. Last comment on this slide is related to density ratio, which is described at the right bottom column. So it is basically kept flattish fluctuating year-on-year between 35 and 36 percentage points. Please next slide, revenue. So let's start with net interest income. So it's a very strong delivery, more than 40% year-on-year, and [indiscernible] wise still growing as visible on the upper right chart. Jan also already mentioned a very strong business performance. So this is no doubt first reason for this excellent results. Another one is related to the environment and interest rates -- market interest rates increased more specifically. Having said this, nobody should be surprised that the main driver of NII is income from the deposits as we are placing liquidity into the higher interest rates. The income from loans is growing as well. And it's both year-on-year and quarter-over-quarter. On the other hand, much lower, year-on-year, it is by 4%, which is naturally suggesting that the erosion of the margins continue further. And the same like 1 quarter ago, it's mainly the case for retail loans, while corporate loans are able -- corporates are able to maintain the margins sufficiently high. I think I will show you the picture, which is at the bottom left part of the chart. So that's the visualization of what I said right now. So here, you can see a very strong collection of interest rates of corporate client loans with the market rates. So again, market it's just 2 lines -- 2 bold lines, the red one is the 3 months [indiscernible] and the blue one 5 years interest rate swaps. So corporates are the pink ones. So you see the correlation is pretty strong, which is not the case for neither consumer loans, that's the upper part, but the highest interest rates and neither for mortgage loans. This is the [ black ] figure. A couple of sentences about the net interest margin. So year-on-year, it's roughly by plus 50 basis points. So lending this quarter at 2.22 year-to-date. For the rest of the year, we are still expecting the increase of this important indicator. There's a question whether we will be able to achieve the pre-COVID level, which was at the level of 2.4%. Last one here at this slide, please notice a very strong increase of net interest income delivered by investment banking, and it's both the case quarter-over-quarter and year-over-year. IB delivered roughly 5x higher net interest income year-over-year. And later, I will touch this point in -- or when discussing financial operations income. Please, next slide. fees and commissions also promising results, so growing upper mid-single digits, exactly 6.3%. Here, there are 2 main drivers of transaction fees by a strong 14%. At the same time, it is fair to say that, it's partially base effect, because first half of last year was significantly affected by pandemic restrictions. So this is first one. And second one -- the other one, is our fees from cross selling growing also double-digit by 11%. And that's what was mentioned by Jan strong increases in sale of mutual funds by KB. Let me move to financial operations. Year-over-year, flattish, minus 0.5%. It is interesting to see the change of the structure. I'm referring to bottom right chart. So very promising and very positive output is in the area of net gains on FX from payments. So does the blue part, which is, again, a structural FX income. And so, behind are a very strong recovery in traveling and related currency conversions, both inbound and unbound. So it is very nice plus 50% year-on-year. While the capital markets are declining by roughly 23%, and that's exactly what I was mentioning before, simply the structure of our investment banking guys change relatively significant and the big part of IB income is under accounting wise, under NII, and not as a part of the financial and financial operations. Please, next slide, our last slide on my side for [ GOIs ] which is cost management. I also was touching the point at the beginning of my presentation. So we believe that the growth by 7.5% in the environment of inflation at the level of 16% or even more 1% is still a very good result. So this is the first reason inflationary pressures, and the other ones are regulatory funds -- nothing new for you. It was already the case the previous quarter. So they have increased by 24% in absolute terms, CZK 250 million. So just to refer similar comment I did before without this impact, the growth of the costs would be exactly 5%. If you go into structure personal costs plus 3%. So this is basically following increase our basic [indiscernible] from the beginning of the year, maybe here, as far as to say and to mention that mainly due to the inflationary and also wage inflation pressures, we agree to several trade unions to go for another step of increase of the base is still before end of this year. So it will be related since the October 1. And the increase -- average increase is going to be at the level of 5%. Administrative costs are growing by plus 7%. And what you can see behind is mainly accelerated transformation. So that's very much above the investment into digitization investments into IT et cetera. Newly we've added the new chart, now I'm referring to the very left bottom chart, where we are showing as newly cost/income ratio after the linearization. So from the chart, you can see that the last 2 quarters, we are already almost at the targeted -- 2025 targeted cost/income ratio, which is whatever below 40%, which is giving us a good comfort that we will deliver the target or even better by 2025. That's it and I am passing over to Didier.

Thank you, Jiri. Good afternoon, ladies and gentlemen. I will start with a brief and reassuring introduction on some of our early warning indicators and clear risk indicators, which are not presented on this slide, but closely monitored in the current environment. Starting with the default rate across products and segments. We continue to see a stable picture with all being posted at a lower level, except for the SME segment, which started to show some sign of increase going back to the COVID level and related to our Russia related portfolio. And in this area of corporate segment, we have seen some minor formation of our credit risk, creating distribution towards higher risk profiles and at the same time, a growing number of risk consequence request from our clients. As to the retail area, so far, no signs of deterioration for our mortgage loan and small business loan exposures -- and in the area of the consumer finance businesses, we have seen a bit of deterioration in the early [ correction ] client migration rate, and also some very moderate increase in the number of loan restructuring requests. But overall, nothing that should or trigger some concern. And in fact, our setup is providing adequate responses to all our clients needing support in an more turbulent time. This coming as a result of the COVID period where we spent effort to strengthen this capacity to answer our client request. So this early warning indicator resilience of stability translating to the stable indicators presented on your screen. Starting with the -- as to our sensitive exposure, we have seen or we've recorded a slight contraction quarter-on-quarter from 8% to 6.7%. This is more a technical IFRS 9 related decrease. And overall, we expect this S2 ratio to continue to fluctuate between 5% and 10%, which is quite what range, but were explained by the volatility of the current macroeconomic environment, as well as, the unavoidable procyclicality of IFRS 9 standard. And this level is in line with levels recorded by our peers. Last point on this non-defaulted part of our loan portfolio, as in the previous quarters, the S1, so-called S1, S2 exposure migration continue to be of low intensity, which is also a positive sign. Now turning to our NPL portfolio. So far, we've recorded a very limited level of inflow into this defaulted area, again, concentrated on our Russia-related portfolio and primarily on the -- as I just mentioned before, SME segment, which was offset by some positive resolution for some of our clients in turnaround situations. All is supporting a stable NPL ratio at 2.4% at the end of Q2 and a stable provision coverage ratio for this exposure class at a level of 50%. Going to the next slide, which gives you the overview of our cost of risk development for the second quarter. This picture, I will first comment for the entire semester. And the picture we present is very much in line with the one that was presented in the previous quarter. For the retail portfolios, we continue to be in negative territories at a level of minus 5 basis points. And this with the 2 same underlying drivers as in the previous quarters, the first one being some strong recovery performance supported by the situation of the residential real estate market. And the second driver being a continued resilient payment discipline of our client. Going now to the non-retail portfolios, and going the opposite way, we recorded for the first semester a level of 40 basis points. And again, here, 2 drivers and 2 identical drivers as in the previous quarters. One being these isolated defaults, mainly recorded on our Russia-related portfolio. And the second driver being a continued reserve buildup in anticipation of some potential impacts from inflation pressure on our corporate segment portfolio. So if you transpose this into the structure of cost of risk for the second quarter, which was posted slightly below CZK 300 million. We created near CZK 200 million on our corporate NPL exposures, we released CZK 50 million on defaulted retail exposures. We created near CZK 300 million on non-defaulted corporate exposure, again with the intention to continue to build up our reserves. And we had a technical release on the non-defaulted retail exposures due to IFRS 9 standards in the range of slightly above CZK 100 million. Now if I go to the guidance, the guidance we issued a quarter ago was at a level of 20 basis points. And we are going to simply renew this guidance, maybe giving it a bit of interval between, say, 15 bps and 20 bps under our central macroeconomic scenario. And just to give you a bit of a flavor of what this means, this would translate into a level of provision creations for the second semester, anywhere between CZK 0.5 billion and CZK 1 billion compared to a bit over CZK 0.5 billion for the first semester. I will finish with one very brief comment regarding this guidance as it is slightly below our -- through the cycle cost of risk at 30 basis points. And this -- the reason for this gap is simply reflecting on the significant COVID and post-COVID reserves that we built up in the last 2 years with some possible partial releases. And the second driver is a continued strong level of recovery performance coming from our corporate NPL portfolio, which is despite the adversity of the current environment, very good news. And on those words, I'm going to hand over back to you, Jiri. Thank you.

Thanks, Didier. So let's spend a couple of minutes on the outlook. I'd say, if I compare to the previous guidance's there are rather more changes in the outlook versus 3 months ago presentation, that's mainly in macro-eco. And I will touch them, so let me probably focus mainly on banking market and KB outlook. Let's start with banking market outlook. So mainly increased rates have naturally an impact into the growth. So for banking market, we slightly downgraded the expected full year growth from upper mid single-digit to mid single-digit. I would say both housing and corporate loans will grow a bit slower. And again, the main reason are increased level of market interest rates. Regarding the bank deposits, here, basically, you are sticking to the previous one, so mid single-digit. Let's move to KB business outlook. Here, we upgraded our guidance from mid single-digit to upper mid single-digit. The reason is obvious, simply 3 months ago, we didn't expect so high dynamics of the growth -- of Q2 growth, mainly supported by corporates, which, by the way, will be also the case in the second half of this year, retail -- exercise is rather a difficult one given the context and given the environment. So here, we would like to continue in gaining the market share. So it is not the case for KB deposits, where we are guiding low single-digits given our, let's say, liquidity position. The trend of switching to term deposits is expected to be continued, but probably is a bit slower than was the case during the previous quarters. And we see very visible signs of this slowdown the last 1 or 2 months. Regarding revenue, P&L for general we'll start with revenues. So we are upgrading the growth from the high-teens level to the level of 20% plus, from the previous slide, it's very clear that what is the many reasons. So it will be supported mainly by NII, where we are expecting growth by more than 30%, by 1/3rd. And again, supported by rates environment and also continuing volumes. Regarding fees and commissions, again, the trend is going to continue. So here, we are also upgrading beta. On top of my head, we are guiding low to mid single-digits, so currently its closer to mid single-digit. And regarding financial operations, no change on the guidance. Here still, we are expecting a bit lower. So income compared to last year due to extraordinary successful year '21. Regarding OpEx, also slightly adjusted. So just to remind, last quarter, we were guiding mid single-digits, so due to inflation and also unexpected increase of base studies of KB employees. We are increasing the guidance. So what we are seeing is upper mid single-digit, but don't take it as kind of a drama the impact will not be higher than 1%. So if guess is around 6%, you would be more or less right. Cost of risk, as mentioned by the Didier, so what are the potential risks to the outlook. Basically, we see 4 main ones that are listed there, but let me reiterate sort of further escalation of the war in Ukraine first. Second shortages of fuels and that's mainly gas materials. Fair to potential return of pandemic currently in the Czech Republic, there is almost nothing for last 28 days. It was at level of 50,000 people infected. So I think, but no doubt it will come during the autumn. And the last one is changes to relevant either interest or FX rates or to fiscal policy. So in a nutshell compared to 3 months ago, we are expecting higher inflation, higher interest rates due to the lower growth of mainly loans, better revenues and slightly [ adverse ] costs. Anyway, it's still delivering very extraordinary positive jaws. So that's it, and I'm returning towards studio.

Excellent. Thank you very much. So this has concluded the presentation part of this meeting. Now, we will be happy to answer your questions. Let me remind you that this meeting is being recorded. [Operator Instructions] So the first question is coming from the line of Gabor Kemeny from Autonomous.

A clarification first on the NII guidance, if I may, please. You are saying it will grow by a third, I think, this year, which I think would imply something like flattish NII in the second half relative to Q2. I think you were talking about some possible margin upside from here, and loan growth is still positive, might be slowing, but still positive. So why would your NII flatten? And the other question I have would be, maybe for Didier. How do you think about the impact of the potential gas -- Russian gas disruption, Russian gas cut-off scenario, it would be useful to hear your thoughts on the implications for asset quality and provisioning.

To be frank, I do not share your opinion versus 1/3rd growth doesn't mean that the net interest income is going to be flourished. This is still on growing trajectory. That's true that it's going to is going to slow down so far, except benefiting from, I would say, structural position and our sensitivity for market interest rates. So this effect is going to be decreasing or slowing down. This is one thing. And the other thing is that we haven't been as is our, let's say, kind of pricing strategy reader and pricing of client deposits. And we are starting to have become uncompetitive. So we [ tenth ] that in front of us to pay to the clients a bit more sooner basically 2 main reasons.

Can I just quickly follow up on your rate sensitivity from here to changes in the CMB rates upwards or downwards?

Sensitivity decreased very significantly -- I think 3 months ago, we were talking about CZK 500 million to CZK 600 million for the usual parallel shift by 100 basis points of the yield curve for upcoming 12 months. So currently, we are talking rather about CZK 200 million to CKZ 300 million. Why it's very much related to the change of the structure of our deposits and current accounts are declining this is the output. Regarding the sensitivity to increase of short-term rates or in other words, 2 weeks repo rates the impact, again, just on top of my head, but the last quarter or 3 months ago, it was around CZK 100 million. So now we are talking rather about low tens of millions CZK 13 million. So your question was, what will happen to our cost of risk in the scenario where the Russian gas would be interrupted for an extended period of time, if I understood well. So in fact, your question is precisely the reason why we identified the so-called Russian portfolio at the beginning of 2022, which is a portfolio for slightly below CZK 30 billion. And this portfolio, we've booked in the first half, roughly CZK 700 million. And under our central scenario, we expect to book another CZK 1 billion in the second semester. So under this degraded scenario where the Russian gas will stop to flow, we would create a bit more on this portfolio. That's a first piece of answer. We will probably not release on our IFRS 9 results for the non-defaulted part of our portfolio, but we would continue to build some reserves. We marginally recover a little bit less on our corporate NPLs, but here only marginally, because the recovery potential we have is a little bit nicely ring-fenced from the impact of such a scenario. And we'll probably provide a bit more on the non-Russia related corporate portfolio. So all in all, we've probably would be somewhere between 30 bps and 40 bps, but certainly not at the level of 60 bps, which would really -- I cannot imagine that. So this is a brief answer to your question.

Just a final one from me. Can you comment on the -- how you think about the likelihood of Czech Bank tax being introduced, please.

I will take this one, and thank you for this question. We are trying as Trade Banking Association to keep dialogue ongoing with the government. We are still of the opinion that there are better ways how to put at work the excess of capital of Czech banking sector in favor of infrastructure investments mainly. The dialogue is ongoing and no outcome -- no tangible outcome of it. And we have like zero evidence of any paper, which might be called like draft of a new law or draft of the law over the taxation of banks. So our approach to that is to be proactive towards the policymakers and make them aware that on one side, we don't think that this -- what we see in the media is curing the public finance problem, which is rather of structural thing. And if we speak about putting more investments into a combination of public and private capital, we are very much open to keep the dialogue ongoing and to act upon this logic. As I said, there is no outcome. Taxes are being set by the government and by the parliament, we have nothing to decide here. For the time being, we don't have the evidence that the law is being drafted. And that's probably the maximum we can comment on it.

The next question comes from Mate Nemes from UBS.

I had 2 questions, please. Firstly, on NII or more precisely on asset spreads and asset margins, it seems like the depositary pricing is really kicking in earnest. And as you mentioned, you need to reprice upwards in order to preserve your competitiveness. At the same time, retail spreads specifically remain under pressure. I'm just wondering what is your outlook? What is your expectation in the next couple of quarters in terms of retail spreads and margins? Do you see scope for further repricing upwards that actually could mitigate from disappearing effect of deposit spread widening. That's the first question. And the second question is really on excess capital. I think you were quite clear earlier that you intend to either compensate shareholders for forgone 2019/'20 dividends or perhaps put that excess capital to value-accretive M&A. Could you share any updates on that front? Are we still looking at a September time line on a potential decision on that? And also better you see anything viable and interesting on the acquisition front at the moment.

Let's start with the margins on loans, as I was mentioning before, it seems there is not a big issue in corporate for retails it is a bit different. And simply, the many reasons for that is that the rate -- market rates are growing so fast that simply the banks are not able to up-rise the speed. Having said this I strongly believe that the margins even on individual products, and it's valid mainly for the mortgage loans were current margins are in low 10's of -- below 10 basis points, that after some delay and after kind of stabilization of the market interest rate. So the prices will stabilize, an increase as well. Currently the margins, and I'm talking on, I would say, back book for individuals are at roughly 1 percentage point at the end of second quarter, out of which mortgages are already only at 18 basis points, the way of consumer loans are still relatively effective. But I remember much more attractive. So that's at a level of 3.6%. So I strongly believe that we will be able to reverse this trend in upcoming quarters, and we are doing our best to that via kind of inviting of the competitors with increase of our client rates to do that and to do that as well. So not sure this -- yes, this was the first question NII on assets. And the other one was related to the excess of capital and dividends. Generally, I would say we stay say consistent, the business grows more or less as expected, probably a bit faster, but your ratios are not significant. The capital remains very strong. Just a reminder, we defined the capital surplus at a level of CZK 10.5 billion, which means CZK 55 per share. And again, we will utilize it as soon as possible. Of course, we need to discuss with Central Bank. We expect that these discussions will start at the end of summer, beginning of autumn. And still, I'm confirming that even paying of this amount to the shareholders would keep us very safely within the management buffer. And as always, we are seeing or adding either its utilization dividends or utilization of a potential M&A as is part of our strategic plan. So in a nutshell, no changes.

The next question from [indiscernible].

Actually, if I may, 2 out of my questions have been answered already. Just one last one, you had releases in retail segments, and you've been discussing this in detail early in the call. Can we get a bit more flavor of what was like underlying without releases, without model changes, cost of risk of the segment in the second quarter?

To give you a simplistic answer. In the second quarter, we were definitely in negative territory. As I said, there is one component, which continued to come from our recovery collection performance. And there was also a bit of noise around these IFRS 9 reserves that contributed to this release evolution. But overall, we -- in the second quarter, we definitely were in negative territory. And also supported by a level of payment discipline coming from our client that is much better than what we expected in the recent quarters. Also supported by the interest rate re-fixation season for 2022, where, in fact, the flow of requests from our clients for some restructuring is also much, much lower than what we initially expected. So all these indicators will continue to be very closely monitored but that's the context we are in. And in fact, this has to be understood in what Jan mentioned at the beginning of the presentation when talking about the labor market and the level of unemployment, which is really the key variable to consider. I don't know if I answered your question that really set right.