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

Welcome to the audio conferencing center. [Operator Instructions] Thank you for your patience. So good afternoon, ladies and gentlemen. Let me welcome you to the presentation of the results of Komercni banka for full year and fourth quarter of 2022. It's the 8th of February 2023 today. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board and CEO of Komercni banka; Jiri Sperl, Chief Financial Officer; and Didier Colin, Chief Risk Officer. Together with us today, we have also Jitka Haubova, Chief Operating Officer; Miroslav Hirsl, Head of Retail Banking; and Margus Simson, Chief Digitalization Officer. You will have working questions to them as well, of course. So as usually, we begin with the presentation of the results, which will be followed by a question-and-answer session. [Operator Instructions] Now I would like to hand over to the CEO, Jan Juchelka. Thank you.

All right. Good afternoon, everyone. Thank you for being with us. I will kindly ask all people who don't speak, please, if you can keep your mic muted. [Operator Instructions] Altogether with the management team to present to you the KB Group results for 2022 and for the fourth quarter of 2022. The year was somehow abnormal in its composition of bumps on the road and challenges, coming mainly from the beginning of the war in Ukraine in the first quarter which was followed by uncertainty about deliveries of energy to European countries into the citizens of European countries, which was followed by heavily increased prices of those energies. And finally, a little bit of skepticism and here and potential anxiety slowly but steadily stepping in the public narrative. In contradiction with that, we witnessed very strong and, I would say, a renewed economic activity of households as well as corporate after 2 years of COVID limitations and COVID restrictions, which created a bit of paradox of pretty strong fundamentals combined with pretty pessimistic forward-looking views and very actual crisis situations in place. So how all these -- so how it was reflected on the results of Komercni banka. Komercni banka dates it's job as usual and properly in providing the financing to Czech economy. Our loans were growing by 6.2% on a year-over-year basis, with slight slowdown in the fourth quarter. The client deposits were migrating from current accounts to savings accounts and term deposits and partly to Investment Solutions. No, we are... But mainly the solutions provided by Amundi Group. The nonbank asset management, which covers also the insurance solutions and pension schemes grew up by 6.4%. Revenues went up by 23.2% on a year-over-year basis and totaled of CZK 38.6 billion. The operating expenses were accounting for CZK 16 billion and went up by 6.1%, which created a very nice positive jaws on that front and where the OpEx growth was much, much lower compared to the average inflation in last year. Cost of risk remains at very low levels. We accounted for 15 basis points which is CZK 1.2 billion new creation of new provisions and slightly negative or 0 cost of risk in the fourth quarter. In all of these, as we will invite you to a deeper detail in a few minutes. This all resulted into the net profit of CZK 17.6 billion, which is up by almost 38% on year-over-year comparison and is the highest ever profit of Komercni banka in its history. We are delivering to our investors or 14.4% on ROE and 1.4% of return assets which brings us to the family of the most efficient banks in Europe, especially when combined with the cost-to-income ratio, which remains in a very low levels at 42%. Cost of risk, I already mentioned. Capital equipment of our balance sheet remains very strong, 19.5% total, 18.9% is fully core Tier 1 capital. As a result, we will, as a management board, we are proposing to our Supervisory Board and to the shareholders' meeting to pay CZK 60.42 per share in the form of dividends, and we are also announcing that we want to keep the payout ratio at 65% of net profit also for the year 2023. Komercni banka alongside a very strong and very intensive work in favor of its clients, we're continuing implementing our strategic plan. We are already in the stage where first tangible outcomes are visible at one moment in autumn last year, we migrated all our cards, all our card transactions from the old system into the new system, which is provided by TSYS. The system is named Prime and is bringing a, more operability; b, a more stable environment; c, 24/7 online operations; d, much better security standards; and e, higher space or a larger space for innovation and ability to bring those innovations quicker to the market. Our achievements were also recognized by broader community. As a result, we were named the Bank of the Year 2022 by Mastercard Bank of the Year competition. We were under the same umbrella, we were awarded a Corporate Bank of the Year and Bank without Barriers. In other competition, which is the Best Bank, we were named as a Banking Innovator for 2022 by [ Komercni banka ] 2022. We can go to next page, please. The next page is bringing us to the macroeconomic environment. I will fly to it very quickly. GDP in 2022 in Czech Republic, went up by 2.5%. This by the fact that the fourth quarter was a bit weaker compared to third quarter and also compared -- at the levels of fourth quarter of 2021. And let me remind that 2021 was still the year of COVID restrictions. Nonetheless, based on the assumptions of our macroeconomies, the mild recession is already behind us in Czechia. -- there is a small positive development of GDP expected in 2023. So remains long term. The issue of this economy is very stretched to labor market. The unemployment rate was at the level of 2.3% in December, which creates higher pressure on expected wages growth. In nominal value, it grew up by 6.1% based on the measurement in Q3 2022 partly or predominantly discounted obviously by the inflation. The inflation went up by 15.8% and it became one of the most, I would say, debated and focused elements of Czech economy in 2022. And it seems that in lower levels will remain with us also for 2023. Czech Koruna strengthens Czech National Bank keeps for already a few consecutive quarters, the level of the base rate at 7%. -- we will see how those parameters will be evolving down the road in 2023. In this environment, Commercial Bank, and I will ask Jakub to bring us to next page. Continued providing the financing to Czech economy with 6.2% growth and, let's say, took the appropriate part of the market share in this discipline. Having said that, the composition of our financing is impacted by how frozen mortgage market. You can see on the right-hand side of the page, the lower graph showing that we are far, far from the record high numbers from third and fourth quarter of 2021. And this stairway is not definitely going to have rather the opposite direction. We don't expect or we don't believe in strong recovery in this trend. And we are, let's say, adequately reacting on it on the side of optimizing and synergizing our production of mortgage loans between the bank and between the building savings company Modrá pyramida [indiscernible]. The main driver of financing here was corporations of all sizes, so small caps, mid-caps, large cap and international transactions where the growth was double digit. The fastest-growing part of our loan book is given to euro-denominated loans. The Euroization of the flows in Czech economy is taking another, I would say, breadth. And all of those companies, which are naturally hedged, IT, they find themselves in the supply chain of someone who invoice them in euro, and they are able to invoice their partners in euro and keep only part of their cost base in Czech Koruna are currently preferring euro-denominated loans. The -- despite the fact that we are very active in the financing market, Komercni banka is keeping its main indicators of liquidity at very comfortable levels. Net loans to deposit ratio is at 85.2% and liquidity coverage ratio at 160%. We can move to next page, please. And dedicate a few seconds to the overview of remarkable transactions, which have one light motive despite the fact that they go throughout the sectors throughout the segments, we are always affecting our clients and following our clients as their investments or expansion to abroad. You can see that there is few transactions, few expansions to approach, which make a few of our clients like global players such as a company, all win and a few more. We can go to next page. This is dedicated to deposits. There were a few trends in the deposits. The first one, very obvious, money were being transferred from current accounts to savings accounts and our term deposits inside the composition of accounts of a client, then massively going to investments. So we see 18.5% of increase of sales of investment funds and investment solutions, among the or private banking of Komercni banka pretty mediocre but still stable growth of pension schemes sale through our pension company and decreased pace or slowdown in the sales of insurance schemes. Partly, we were losing our deposits during -- between the second and -- sorry, third and fourth quarter of last year as we were dedicating our interest more on creating the value instead of being the champion in repricing the deposits and we paid for that by losing part of the deposits. Part of the deposit was of very small portion, providing that substantial part was moving to investments from KB. We can move to next point, which is financial performance here, I have the opportunity to hand over the word to Jiri Sperl, the CFO, Jiri Sperl it’s yours.

Thank you very much, Jan. Good afternoon, ladies and gentlemen. Indeed, it's the best result in our store is at some point is CZK 17.6 billion, higher by almost 40% year-on-year. Traditionally, the waterfall chart is visualizing the main drivers of the full year profit, which basically is NII growing by almost CZK 7 billion. But let's not take also other categories on a top line and completely very dynamic growth of fees and commission is growing by more than 7% year-on-year. The costs, as mentioned by Jan, are under control, and it's the case both of operational costs, OpEx and also cost of risk [indiscernible]. So Didier will comment in detail later on. The right-hand chart are showing the dynamics on a quarterly basis. Probably you remember, I was touching this point already during the third quarter presentation. What I mean is kind of a slowdown on the revenue side and mainly on the NII. I would say after -- and it's on top of my head, but like 10 consecutive quarters in a row when the revenues were always growing on a quarterly-quarterly basis, Q4 2022 is the first quarter when there is a slight correction, and that's the bottom chart at part. It is declining slightly by 2.1% quarter-over-quarter. One of the reasons behind, and I will get back to that once again, but is that we do not benefit from the structural position, i.e., growing market interest rates anymore. In 2023, even the opposite is going to be prone in the second half or more appropriately Q4 next year, we are even expecting progressive normalization of the rate with somehow a negative impact into our net interest income. The only reason for the fact that the total net profit after tax that the upper right chart is still better than the previous quarter is a very positive evolution in [indiscernible] asset quality, as shown in this chart. And also at the very beginning mentioning some profitability indicators, all of them are summarized in the left bottom part of this slide. They improved significantly both year-on-year and quarter-over-quarter not only due to the super full year profit, but also due to the catch-up dividend paid in December that [indiscernible] decreased the capital base and had a positive impact on this indicator. Let's move please to the balance sheet. The auto assets are up by 4.8% year-on-year. It's a bit slower than it was the case during the previous quarters. And the main reason for that was that KB succeeded to shrink the balance sheet at the end of the year in December, even more than 1 year ago. And you know why is the optimization of the base for resolution fund charge calculation. So it will bring, let's say, positive for its in 2024 in OpEx. Having said this, and now we're turning to the right-hand side liabilities. The deposits were not the main driver of the growth anymore. It's basically sales. The main drivers were a senior non preferred plus loans. I mean the eligible instruments that increased by EUR 1.5 billion, and it's dark gray color in the chart. On the asset side, the new funds have been clear placed or invested into loans, the priority #1 and the remaining liquidity surplus preferentially into the Czech game. So you can -- that's the dark red color. So they were growing relatively significantly by almost 20%, offsetting a kind of decrease in very broad replacements with Central Bank. So that's P&L, balance sheet and plus now focus on the main categories of revenues and other OpEx. NII as mentioned before, your super strong result year-on-year, 31%, very clearly influenced by strong business activities first. But of course, also by the dynamically growing interest space, which help us strongly as well. And this can be seen mainly in the bottom right-hand chart of the slide made aero result any deposits, income from the deposits growing by almost 40%, but not only also by NII from investment banking, so that's here dark blue part. So it added year-on-year plus CZK 1.4 billion and also so-called others under the lightest – the rest part, and that's mainly income on the capital. The upper right chart is traditionally showing the dynamics on a quarterly basis. So the main change of the trends is visible on the deposit side. And as also already mentioned, the main reason here is the increasing of cost of funds. We prioritize profitability in first half of the year. But since that time, cost of funds started to increase. And unfortunately, it is expected that this plant is going to continue also in 2023. Net interest margin, left the upper chart still increased until is the case both for quarter-over-quarter and year-on-year. Quarter-over-quarter, there are some partially some technical reasons, but a like-for-like basis or fully like-for-like basis is year-on-year growth. So on this basis, it went up by a strong almost 50 basis points from 193 to 42 as was basically expected already last quarter. Even here, it was kind of a front-loading of the positive impact for 2023. We are expecting a bit normalization down, let's say, whatever between 25 to 30 basis points on a full year basis. Fees and commissions very successful study and broadly the best news of Q4 results presentation. It's the best quarter since 2015. And basically, it goes across categories without the exceptions. And all of them are better than 1 quarter ago. And that could be seen very nice on the upper of the right-hand chart. But from our perspective, the most valuable success is coming from each of fees from cross-selling, reflecting a very strong business activity in this and very strategic here and of course, of course, this was supported by very strong, let's say, business activities. So in data office under management. But at the same time, although that actions went up significantly. And year-on-year, it is plus 12%. Usually reminding that the actually influenced by the base effect in 2021 due to a COVID restrictions. All in all, this slide on a full year basis, fees and commissions were growing by strong 7.2%, i.e., more than expected and even more of a dynamic than our KB Change 2025 approaches is projected. Moving to our financial operations. I would say no surprise for you that is by definition that it is more volatile category going or frequently up and down -- so Q4, referring to the upper chart is a bit weaker than full year average, delivering roughly CZK 3 billion revenue. And the main reason here is the negative impact of DVA or regulation of deposit situation. You are was referring to that during the Q3 results. At that time, it helped us -- it is described at the left-hand bottom chart. -- it helped or support this profit line by CZK 3 million. And now it went back so if you adjust by DVA Q3 and Q4 results also, this would be in both quarters to the income at the level of CZK 850 million as again visible in the upper right chart -- what's behind this good result still client FX flows and in activity continues. And this quarter very specifically, let's say, to hedging strategies for SME clients, particularly those based on FX options. So this added significantly. But at the same time, we repeated the great result in net gains on FX from repayments. That's the blue part of the of the chart, whereas during the last 4 quarters, we are delivering results almost every time above CZK 500 million. Again comment is that a bit influenced by base effect in 2021, but not significantly. And finally, OpEx. OpEx is traditional is under the control and isn't key confirmed our ability to adjust ourselves to the high -- very high inflation environment whereas is mentioning the figure. So it was about 15% in 2022. And in this environment, we were able to manage the OpEx line at 6.1% of the level. And even without negative impact on resolution fund charge it would be below for, I think, something around 4.7%. So if you go category by category, referring to a full year basis of bottom-ish chart. So OpEx growing personnel costs growing by plus 3%. Of course, one of the reasons was that the extraordinary increase of the base sales came relatively later during the year. So it started to be valid in October 1. So for limited impact in 2022, but it will bring some impact into 2023. Again, we have mined that these costs are growing by plus 7%. And here, basically, it goes across the all categories and mainly inflation linked. I was only commenting resolution on charge. So just to remind, CZK 250 million extra for 2023. So we are expecting rather improvements, meaning based on the statement of Head of Resolution and Charter that the collective amount from the total bank sector will be a bit lower. So we logically expect also for cost it is subject to, let's say, risk profile of all banks and is thinking. And last, but not least, is depreciation growing by 8%, driven by software, let's say, delivered for the digital transformation mainly. All in all, this led to cost income ratio, the left-hand bottom chart to the level of 41.5% for full year basis. We do not know what is and will be the results of other Tier 1 banks. I mean, KBG and Czech [indiscernible]. But it's very likely that we will confirm once again a leadership position in this on leadership, I mean the best. So that's the [ GOI ] and now Didier please for reserves.

Thank you, Jiri. Good afternoon, everyone. So turning to asset quality in the fourth quarter of last year. The situation remained very stable compared to the previous quarters. And I will start with a few comments on the non-deal– non defaulted part of our loan book. Basically, the S2 category remained at a stable level, and we continue to record a low-end content with past migration dynamic between S1 and S2. So as you can see, the S2 exposure marginally contracted by CZK 2 billion loan to CZK 103 billion, and this point of risk lifetime I just mentioned, in fact, we had a quite balanced intensity of flows between S1 and S2 for a low level of roughly a bit less than CZK 15 billion on both ways, meaning from S1 to S2 and vice versa, which compares to a total exposure a bit about CZK [ 115 ] billion. The resulting S2 ratio was, as I just said, posted at a fairly stable level of around 13%. And what is probably the main point, which I already highlighted in previous quarters is that our provision coverage ratio for this part of our loan S1 plus S2 more than or less doubled in the last 3 years from 2019 to 2023, from 3% to 6%, reflecting the successive overlays and results we booked during the COVID period and more recently, reflecting the high inflation environment. So that's for the non-defaulted part of our loan book. Now looking at the default part. In fact, here, we started to see a bit revolution of our default rate in the recent months. And I will start with the resilient portfolios where we continue to see a very low level of default rate for more groan exposure and our small business loan exposure at levels, which continue to be below pre-COVID. Now on the other portfolios, mainly the consumer loan and the corporate portfolio, we started to see some early deterioration signs. And when looking at the consumer loan portfolio, in fact, probably the main risk driver we've seen so far, but of a very low intensity is the growing intensity client applications for restructured credit. And regarding the corporate segment, in fact, with the situation we've started to see first is concentrated on a very low number of client situations, not really related to the higher energy cost, but more situations where the consumer demand for these 2 clients quite quickly contracted to see so far the main default driver that we have detected. So as a result of this, and as you can see, the defaulted exposure increased marginally by CZK 0.3 billion to CZK 18.4 billion. And in fact, this is a result of going into default CZK 1.8 billion, resulting from what I just explained and partially offset by CZK 1.3 billion of outflow, reflecting the continued resilience of our recovery corporate defaulted corporate recovery capacities. So all in all, NPL ratio was contained at a level of around 1.3%, while the [ protum ] coverage ratio continued to be stable around the level of 50%, stable in the last 2, 3 years and in line with the levels observed at the EU region level. So this is for the Q4 asset quality. And now turning to the cost of risk overview. As Jan mentioned and Jiri mentioned earlier, in the first quarter, we recorded a small amount of net reversal for CZK 50 million. And in fact, this can be summarized or broken down into 2 component per segment. So using the segment view, what we did in the first quarter last year is that we recorded a net release on corporate segment for CZK 200 million. And in fact, this net release has itself 2 components: one for around CZK 0.5 billion in favorable impact into our cost of risk coming from the final release of COVID-related reserves. And this was partially offset by some net creations for level near CZK 300 million, reflecting this minor increase in corporate default rate. And so giving us this net figure of CZK 200 million release. Now going to the individual segment. We created a small amount for CZK 100 million more or less. And this has, in fact, 2 underlying factors. The first one is that we upgraded a little bit one of our provision model PD model for the individual segments, having a better reflection of the better integration or incorporation of the inflation re-driver, which generated something like near CZK 150 million. And this was a little bit offset by some release of our inflation reserve for the simple reason is that the sensitive inflation scientific portfolio decreased in size through some repayment. So that's for the individuals, operating individuals, non-deposit exposure. And on the defaulted exposure side, we booked some residual level of additional cost of risk for an amount CZK 55 million. So again, confirming the good level of resilience of our retail loan book. So if I take a quick look at not the -- just the fourth quarter, but the full year due is quite telling an interesting view. We booked CZK 1.2 billion, which is for an equivalent of 15 basis points. By the way, in line with our Q3 guidance. And the structure of it is quite interesting. We have a little bit something like 1 basis point coming from net creation of provision on defaulted portfolio, which is, again, as said, the confirmation of a good level of resilience from our loan book and most of our protection effort came or was generated by this reserve pit effort in the context of high inflation and high energy cost for 14 bps not telling and finishing with the guidance for 2023. In fact, we are issuing it in the range of 20 to 25 basis points. And just to give you a bit of understanding behind this figure. We see 3 or 4 main drivers. The first one is the upcoming default rate intensity for our corporate exposure. So depending of intensity, of course, the cost service will fluctuate. The second component is the level of provision reversal that we expect coming from our legacy NPL corporate portfolio. Here, we continue to see some good evolution, several operations. So this will go in the other direction, then the inflation of role or increasing reserves, but we might adjust going through the year. And the last point, which is a terrible point, the expected continued resilience of our retail exposure. So this is what is behind this guidance in the range of 20 to 25 basis points. It's relatively safe or conservative guidance on the macro credit scenario, which was summarized to you at the beginning of this presentation. And now I'm going to hand over back to you, Jiri. Thank you.

Thank you, Didier. Let's focus a couple of minutes on dividends and capital management. Well, the capital and 19.45% at the end of 2020, so significantly above the minimal requirements -- just to remind, as of now, it is -- the minimum requirement is 17.4%, so expecting that starting from the beginning of April, it will increase by another 50 basis points already announced by CNB 1 year ago it to come to a cyclical buffer. Good piece of the information is that 2.5%, which will be the level at the beginning of April is the maximum power. So it can only increase anymore. There was a drop in capital adequacy during Q4 by roughly 170 basis points, and it was mainly influenced by the catch-up dividend paid in December was CZK 10.5 billion and the impact of this payment was something above 200 basis points, 15 to 16 basis points. This slide, it is also worth to mention that the bank -- I was touching the point already during the balance sheet of chart that the bank issued another SMP flows, I mean, eligible. So at the end of the year, it was EUR 1.5 billion. Just to remind, at the end of Q3, it was a -- it was EUR 75 million. And the needs to continue in this process even in 2023. And based on current calculations, it is expected that we are going to issue another roughly EUR 1.4 billion as we are running on the SPEA is intragroup transactions, which we benefit for the time being, relatively significantly because if you compare cost of these instruments for other banks issuing comparable instruments on capital markets is very uncomparable, I would say. So that's capital position, the next type of equities. Yes. And Escrow such a strong capital position is allowing Board of Directors to suggest to the general meeting dividend payout expected and accrete level, 65% of the profit of 2022, which means slightly above CZK 60 per share. And for the 2020 23 years, the same, i.e., also 65% day out. In terms of the impact of a dividend payout from 2022 profit gave the flex expected payout in capital adequate reporting already during 2022, and we are doing that all the time. Payout of dividends and the proposed amount will not affect the capital ratio at all. The upper right-hand chart is showing kind of the consistency of the capital policy management and is showing dividends paid during the last 6 years together with this adjusted dividend in 2023. And there are basically 2 lines. The red one is describing the reported payout. And you can see here and you remember that very much influenced by dividend bands by regulators. The blue one is somehow normalizing and this payout ratio adjusted by the catch-up dividend. So the message of this slide is that the bank has paid consistently 65% of the profits since 2018. And it is also being suggested for '22 profits and 2020 pre-profit Escrow subject to validation by general first meeting. So that's capital and dividends, and this is bringing me to the last slide of this presentation, which is outlook -- let's start very briefly with the kind of back fast of the guidance we gave you 3 months ago for 2020 – still for 2022. It's relatively easy because almost all of the guidances have been delivered confront with just one exception, and that's deposits some of you might remember that 3 months ago, we guided you that the deposits will be on a full year basis the flattish. At the end of the day, it's even a bit less. So it is roughly minus 3%. Back to [indiscernible] guidance and macro equal. It is expected that Czech economy will grow marginally in 2023. So I think it is expected for the other of 0.3% last 3 months ago, it was on top of 0.5%, so it's very comparable. Inflation is going to offset peaker in January. And then to first start to directions down, but still 2023 will be very much influenced by high inflation, and it will still stay double digit. In terms of monetary policy, we are expecting that same year report will stay at current level, meaning 7 percentage points until Q3 and then it should start declining gradually. It's expected that at the end of the year should be at 5%. From my perspective, it is -- that is other, let's say, upside risk, meaning that I still think that it will be a bit higher, but is not going to go down so quick. Banking market outlook, both lending and deposits are expected to grow mid-single digits for lending. It's stated below, if I should mention a figure, I would say probably 4%, slightly below 5%. In terms of bank deposits, the same, but here we are at size. On this growing market, we would like -- and our ambition clear ambition is to gain market shares both in lending and deposits. In lending, we would like to continue in deposits we started like 3 years ago and since the time we are able to gain market shares. In structures, it is expected that housing loans should increase rather than slightly compared to 2022. But one of the, let's say, drivers should be consenting that should grow around high single digit and corporate lending as a mid-single digit in the BT. And in terms of deposits, as I also indicating also we are targeting the gaining of the market shares, different reason compared to the lending. Here, simply, we would like to regain what we bit lost in 2022. So here, we are guiding upper-single digit, and it is expected that the deposit of corporations will grow a bit faster. And Escrow, let's say, an organic part of the business outlook, [indiscernible] remains implementation of KB295 strategy interruption of the new digital bank to the market, et cetera, et cetera. In terms of financial outlook. So revenues, the top line is expected to stay more or less flattish. In a structural NII will favorably retreat somewhat. And also the main reasons here, as mentioned, so that's mainly due to higher cost of deposits. Fees and commissions, the success story is going to continue. So we are guiding mid-single digits and again and again, driven by volumes in mutual funds. And financial operations should grow relatively meaningful after, let's say, flattish evolution in 2021. OpEx, we strongly believe that we will be able to manage in a very disciplined and efficient way. So the expectation is to grow by upper mid-single digit. We're probably a bit more than in 2022 when it was 6%. So again, if I should be a bit more precise, I would say, whatever, around 7%. And cost of risk already mentioned by the year. So that's all. So potentially remain the same as well. So potential further escalation of the word in Ukraine in general, were standing of the external economic environment -- so I think that's end of the presentation. And it's my pleasure to return the word to this studio.

Thank you, Jiri. So we [indiscernible] conclude the presentation part of this meeting. Now we will be very happy to answer your questions. But we remind you first that this meeting is being recorded. [Operator Instructions] So the first question is coming from the line of [ Andrei ].

I have a couple of general questions. One is on the new bank. How do you gauge the progress other than things like whether or not the rollout is the plan. But for example, are you seeing any clients that are not Komercni banka clients signing up? And then also on the digital bank, how would you compare the offer -- your offer to what's in the market, especially when it comes to pricing.

All right. I will start and then I will ask Margus and Miroslav to continue. Thank you for this question, Andre. In fact, we will launch the proposition if I remember well, 18th of April. So for us, it's impossible to bring up any of the details of the proposition because it should go directly to the market. We are confident of the quality and attractiveness of the client proposition, which will be brought to retail clients first and which will be presented massively in the media, which will be also attractive enough for bringing us completely new clients. Without going to any details, let me just say that we were during the preparation of the client proposition, we are sticking to maximization of simplified or simplification of our composition of products, seamless accessibility of what client needs might be mainly through mobile, but also through Internet or through our brick-and-mortar branch network. So simplification is the word. And we believe that we have enough data to set up the pricing and the card proposition in the adequate way to keep it attractive or more attractive than we have today. I will probably ask Margus to add a few words on the technological side and Miroslav on the client proposition side. And sorry, guys, if I ask you in parallel, don't go to too many details you might open the company, which is in preparation. Sorry for that.

If I go from the technological perspective, then you actually pointed out very relevant topic here. But it's not so much only from the business perspective, how attractive we are to the customers, but it's also the kind of question, what will be the bank 3 or 5 years from now that we are going to run -- and when we are looking at the product portfolio, let's say, the products that are described in the system, if we are looking at the process complexity and if we are looking at the overall simplification of what kind of machine it takes behind the seeds to run the passes, I think, then that one will be significantly simplified. This is where I would say that the true impact of that kind of simplification is rather coming at that moment when already a lot of customers have been migrated also from the current existing systems to the new ones and they are part of the new proposition. But that one is definitely helping to speed up to our development capabilities, but it's also helping to drive down the costs that we take to run the customer medical proposition. But responding to the business side and the customer offering, [indiscernible] is definitely the correct on…

Okay. Thank you. So let me start by saying that everything an and Margus said is true. And there's not so much left, but I'll add a few details just to illustrate the simplification topic that is quite crucial for us. Imagine that we reduce the number of products by 100x of 10,000 equal to 100. We reduced the number of price items on the price is 15x. So this is the job we did. We are moving for 4 to 5 processes for every single thing you need to do to one process, what the channel whatever the device. So this is the exercise how we are reshaping the bank as my colleague said, we are starting 18th of April, and now we are in the middle of preparation on retail distribution side. I'm speaking about all those branches, contact centers and everybody going through training, learning how to migrate, how to propose how to cross out the of the migration. So I think we will tell you more, but will be next quarter once we see other again.

And maybe one to it on ESG. What is the biggest challenge when it comes to well, ESG, in general, but perhaps scope 3 emissions disclosure, if that can be answered as well.

Yes, you are right that the main challenge is to continue be fully in line with a question, especially European regulation and also to have enough nice and welcome for our clients.

Next question comes from the line of Robert Brzoza of PKO BP.

Yes. I have 2 questions, first on the sensitivity to the tightening cycle in the Eurozone because we have quite a sizable book of FX lending. Can you perhaps share and give some figures regarding the potential tailwinds from this part of your loan book? And second, regarding the cost of risk outlook that you presented. Can you remind whether that -- the figure 20 to 25 bps includes potential provisioning releases like general provisioning overlays, et cetera.

All right. I can start with the second question. Definitely, it does, in fact, I mentioned the 4 drivers. One was new default or [indiscernible] trade for corporate segment. The second one was the release potential we have within our corporate product portfolio. And so this is included. And then overall is, of course, how they will be adjusted and the retail cost of excretion that is expected to remain at relatively low levels. And again, under the central scenario, our central microphonic scenario 20 to 25 is, I would say, is more on the high-end side -- so a ones answers your questions succeedly.

My understanding of the -- correct me if I'm wrong, but the question was whether we can see some risks coming from explorated granting of euro-denominated loans. This is room in for Czech Republic because the old say, economy utilizing. On the other hand, we are not expecting any significant impact because as a matter of principle, we are granting really a huge majority of the loans to the companies who have income in, let's say, euro currency. So this is one thing. And other thing is that we do not take any strategic FX position. So even from this perspective, the impact should be limited. I'm not sure if this was answered to your question. If not, please, please precise.

Actually, what I meant was that we already should see the average rate on the euro corporate loans doubling, right, from 1.6 to 3.3%, 3.4% level. And I was wondering that this should actually provide you with some uplift to the NII going forward. So I was just wondering what the size of a potential impact on the NII in '23. Since you've mentioned, I understand that you don't hedge this book.

The impact is rather minor impact is the minor as the margins on euro-denominated loans and check around the mates loans is very comparable.

So our next question comes from the line of Máté Nemes from UBS.

I have a couple of questions, please. Firstly, just a follow-up from us. Can you just confirm that you mentioned a 25, 30 basis point down movement in the NIM in 2023. And if so, is that mainly coming from rising funding costs, as you mentioned, perhaps some competitive pressure on corporate lending?