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

Hello and good afternoon, ladies and gentlemen. Let me welcome you to the presentation of the results of Komercní banka for the full year and fourth quarter 2023. It is 8th of February 2024. Our speakers today will be Jan Juchelka, Chairman of the Board and CEO of Komercní banka; followed by Jirí Šperl, Chief Financial Officer; and Didier Colin, Chief Risk Officer. We also have with us standing by for questions, Miroslav Hirsl, Head of Retail Banking; David Formanek, Head of Corporate and Investment Banking; and Margus Simson, Chief Digitization Officer. As usually, we will begin with the presentation of results, which will be then followed by a questions-and-answer session.[Operator Instructions] That's it for me for now, and I would like to hand over to the CEO, Jan Juchelka. Thank you.

All right. Thank you very much, everyone, for being with us. It's our special occasion to share with you the special moment of presentation of fourth quarter of 2023 and the entire year of 2023. We appreciate very much the number of you decided to share your time with us. Let me [indiscernible] snapshot of the overall performance. KB remained very resilient and very strong. In fact, in the as [indiscernible] inflationary economy, as it was framed in Czech Republic for 2023. We achieved stronger-than-expected fourth quarter, and we will come back to it in more detail with Jirí Šperl and Didier Colin for -- mainly for the financial operations and our market activities. The full year has totaled the net income at the level of CZK 15.6 billion, which is down by 11.4% on a year-over-year basis, that represents CZK 82.66 per share. The ROE on a stand-alone basis is close to [ 13% ] and cost-to-income ratio at, pretty sympathetic, 47.8% when we take into account the level of accumulated inflation in 2023. The fourth quarter overshot the ROE above 10% and cost-to-income was at the level of 46.8%. Why was it so? Or what were the main engines here? The first one, financing. Komercní was all over the place with supporting Czech economy on the side of corporate clients as well as the retail clients. In total, we grew our loan book by 5.5%, and I will come to the composition between the retail and corporate. Deposits went up by 9.7%. Again, money moving more from current accounts into savings accounts and term deposits, but also pretty solid -- or not pretty solid, more than solid results for the assets under management outside the bank. Speaking about that, in average, it was plus 16% on a year-over-year comparison. When we take only the mutual funds, it went up by 34%. Loan-to-deposits ratio in that context remained at very high 82.8%. The bank remains very strong on its liquidity equipment by almost 150% with the liquidity coverage ratio. The total capital ratio was close to 19%, core Tier 1, 17.7%. In 2023, we ended at 0 basis points on cost of risk. Based on that, the Management Board, the Board of Directors is advising the shareholders to pay the entire net profit in the form of dividends to the shareholders, which represents the entire net profit and CZK 82.66 per share. At the current state, we believe that for 2024 we will be able also to distribute 100% of net profit for the ongoing year. I'm sure we will come back to it either in the presentation or during Q&A. Let's move to the next -- the macroeconomic environment was pretty challenging here in Czech Republic, very mediocre step up for fourth quarter by 0.2% on GDP growth. Year-over-year, that was minus 0.2%. Economic activity was supported by foreign demand and by the household consumption. We believe that for 2024, the household consumption will be one of the main drivers of growth in this year. The labor market remained very dried up, unemployment rate at 2.4% in November 2023 is self-explanatory. Wages in Q3, 2023 went up by 7.1% on nominal, which represented when taking into context the inflation rate, the real drop in wages by 0.8%. Consumer price inflation, almost 7% in December, mainly due to housing, water, electricity, gas and other fuels. As of 29th of December, Czech koruna was at the level of 24.7 per EUR 1. And over time, it's further weakening. Czech National Bank's main policy rate was cut from 7% to 6.75%. We have been waiting now for the result of today's session of the Board of the Czech National Bank. Next slide, please. How did we do in this context? The loans grew up by 5.5%. We saw the demand for mortgages and housing loans bouncing back. Compared with very, very weak fourth quarter of 2022, we went up by 120.5%. I like more, in this context, the short-term increases Q3 versus Q4 or -- Q4 versus Q3 was plus 19.7%. Group lending at the level of the main segments, business loans grew up by 6.4%, 6.9% was for consumer loans, and I have already commented these housing loans in total. They go to the market, either from KB or from Modra Pyramida building saving company. The business loans went up mainly for the larger corporates by almost 7%. We have recorded very nice commercial results and business results for SGEF, the leasing solutions by almost 9%, whereas for the small companies and small businesses, it was a mediocre growth of 1.6%. We can maybe go to the next page and showing you that KB, for fourth quarter and second half of 2023, was all over the place with supporting the economy wherever it was needed and necessary with [ pretty ] landmark solutions and landmark financing for the corporate clientele. Here we are listing both the public sector as well as the private sector across the segments and a combination of Czech koruna financing with Euro financing, either local investments or companies or clients expanded -- expanding to foreign countries. Next -- next page, please. So the clients deposits, almost 10% growth. Inside this growth, what is happening is there is a pretty large shift from the current account -- accounts and saving -- term deposits to saving accounts that's visible from the right-hand side, the lower graph. When we speak about -- about, let's say, strong growth of deposits, we speak also about businesses. Here for businesses, obviously, we are asking the question whether there are not some investments postponed to the era of lower rates, and probably yes. Nonetheless, it creates another, let's say, positive income for future potential growth of the country. What we like a lot is the category for assets under management outside the bank, almost 34% of growth of Amundi solutions and solutions of private banking combined to its 1% growth of the life insurance reserves and amended by 1.5% of the pension schemes gives us a 16% growth in this category of assets, which is also another source of fees and commissions growth for the group. Next page. Next page goes already to Jirí Šperl, the CFO. Thank you.

Thank you, Jan Juchelka. Good afternoon, everyone. It's my pleasure to shed some light on the financial performance of KB in 2023. On upper the left chart, you can see the main drivers year-on-year, it's basically negatively contributed to only NII -- by NII and OpEx, NII is mainly due to the increased cost of funds, OpEx due to still high inflation. On the other hand, other revenue categories, cost of risk and tax contributed positively. I will comment on that a bit later. The right upper chart is describing a total evolution. It's visible that Q4 last year, net profit declined relatively significantly by roughly CZK 1 billion. And the main reason behind is the cost of risk influenced by one isolated case in corporate segment. No doubt Didier is going to comment on that in deeper details. Still, the bank is delivering a very strong indicators. As shown on the left bottom part, Jan was mentioning before ROE, so here to mention at least ROTE, which is at a level of 14.2%. Let's move to the balance sheet, please. It was growing very dynamically last year, so up 16.2%. On the liability side, the main driver naturally are our deposits growing by 18.6%. The different figure is here due to the fact that it does include [ repo ] operations. But also growing there was kind of a capital instruments, which is -- which are shown in the brown color in the charts, are growing by strong CZK 26 billion, driven mainly by MREL instruments. These new fresh resources have been placed mainly to the loans and the remaining [indiscernible] surplus preferably to the repo loans with CNB. As shown on the chart, it is red color. Let's move to the next page, please. Interest income, year-on-year went significantly down, as shown on the right hand upper part, by 10.6%. And the main reason here is basically the same I was commenting already towards last quarter. So only briefly in 2022, we are still benefiting from the rising interest rates cycle and delaying of our up-pricing of deposits. Of course, we don't benefit from that anymore, the rates are basically stable and even CNB started cycle of the declining of cutting of the interest rates. And at the same time, we are fully competitive in terms of pricing of deposits, at least compared to the Tier 1 on for banka. Having said this, this, on the one hand side, stopped the trend of declining, and it's confirmed by the dynamic growth. At the same time, of course, naturally it increased our cost of funds. In terms of NIM, the left upper part, there is a slight decline quarter-over-quarter by 2 basis points, which is a bit worse than we were expecting. On a year-on-year basis, there is a decline, around 48 basis points, so relatively significant. So that was a year-on-year perspective. From a quarter-over-quarter perspective, that's right bottom chart, there is a slight decline, roughly CZK 230 million, that is very clearly influenced by the cancellation of the obligatory [ reserves ], as already indicated 3 months ago. The impact, just to remind you, was around CZK 350 million. So if you put this aside, the trend of the growing of net interest income will continue. Trend in net interest income from the loans remains the same, i.e., slightly down, that's blue part of the chart. And the main reasons here is also the same. So it's continuing in a kind of slight erosion on spreads. And I can say that with the exception of mortgage loans because currently, we are selling mortgage loans much more expensive than before. So let's move to the fees and commissions, please. There is a solid growth at the level of 5% year-on-year, so i.e., in line with the guidance and the strategy. The biggest driver of the growth are cross-selling fees, growing by double digits, 11%, following strong sales of assets under management, as was commented by Jan before. Other fees categories are growing, let's say, low to mid-single digit and I can say that also in line with the expectation. One comment, more a bit methodological, is that the significant quarterly growth and that's right bottom part of the slide, is kind of a seasonal nature. Q4 is always stronger, as could also be seen at the end of 2022 in the same chart, which is bringing me to the income from the financial operations. The bank reported another, I would say, super strong quarter, almost CZK 1 billion, positively influenced mainly by the capital markets activities. And this was basically influenced very much by the increased volatility on the markets during [ Q4 ] and also accelerated demand of the clients for the hedging solutions in Q4, mainly on FX side. In terms of net gains on FX from payments, I would say it was a kind of average quarter, reflecting kind of seasonality of traveling and transaction activity. Costs, OpEx growing at 8.2%. So we were guiding high single digits. So also, I would say, in line with the expectations. It's a relatively high figure. On the other hand, still very below the inflation. Just to remind, average inflation in the Czech Republic for 2023 was double digit, it was 10.7%. And of course, it was influenced mainly by personnel costs, plus 8%, reflecting the increase of the [ lease ] rates and also [ gas ] and depreciation, reflecting the high inflation. And of course, let's not forget transformation had costs. Cost-income ratio, left bottom chart, landed at 47.8% on a year-to-date basis. That's, for the time being, all from my side and passing words to Didier, please.

Thank you, Jirí. Good afternoon to all of you. I will briefly comment on the asset quality for the fourth quarter of last year. Starting as usual with a brief info on the evolution of our default rate, not disclosed on the slide but always interesting to keep in mind. In the fourth quarter, we continued to witness level of default rate for mortgage and the corporate loan portfolios at or near historical lows. While on the other hand, for the much smaller consumer loans and small business loan portfolios, we continued to record some mild increase in the level of those default rates. For those 2 portfolios, levels now slightly above the ones recorded in the pre-COVID period, i.e. 2019. That's for the default rate. Now looking at the portfolio classification using the S1, S2, S3 asset classes, there are basically 3 interesting comments to make. The first one is in continuation with the recent past. And in terms of continued very low migration dynamics for both the retail and non-retail segments between the S1 and S2, so basically, what we've seen in the fourth quarter is this migration from S1 to S2 and vice versa from S2 to S1 in a low range of slightly below CZK 15 billion, same magnitude in both ways, so netting down to a zero impact on the portfolio structure. So this is a good element that we've managed to keep. The second one is that we had to perform some technical adjustments on the IFRS 9 classification methodology as required by the Czech National Bank, and this explains why you see 50 -- more or less CZK [ 15 ] billion increase from Q3 to Q4. Again, this is a technical adjustment that has no connection with any evolution of our credit risk profile. And we also performed some mandatory annual recalibration of our provisioning model, which also explains a little bit this increase, but again, of a technical nature and as requested by the Czech regulator. And last point regarding our classification, which is hardly visible on the slide, but worth to be mentioned is that at the end of last year we performed a write-off campaign for our corporate exposure fully or near fully provisioned. And this is the reason why you see the NPL section going down from Q3 to Q4. So those elements explain the evolution of the S2 ratio, which went up by 2 percentage points from Q3 to Q4, Q4 being posted near 15%. It also explains the evolution of the S3 or NPL ratio, which went below 2% for the first time ever. And the provision coverage ratio for the defaulted exposure as a result of this write-off campaigns went a little bit below the level of 50% that we had recorded for the past 5 or 6 quarters. Now going to the next slide that gives you the overview on our cost of risk, as you heard, we recorded a level of net cost of risk for the fourth quarter slightly above CZK 1 billion. And the underlying of this fourth quarter cost of risk has 3 components: one, which is a material provision to cover one isolated corporate line situation as the first and the most material element. The second one is the residual impact coming from the higher default rate in the retail segment, but as I said, of a residual intensity and related to the consumer loan and the small business loan portfolios. And the third one is a zero impact which was generated by -- what I mentioned earlier, which are the technical and regulatory adjustments in the area of IFRS 9 models and methodology. In fact, we had, for the corporate segments, a reversal in the range of slightly above CZK 100 million and for the retail segment, small creation of slightly above CZK 100 million. So the 2 netting down to a level of 0. One last point, which is related to the inflation result that we had booked a couple of years ago. We've decided, in fact, to keep those reserves untouched. This decision being, in fact, to be understood as a prudent one in our current macroeconomic environment. So this explains why taking the view of the full year for the cost of risk, we net down to a level of 0, which is in fact very much in line with our previous guidance, as communicated to you in November last year. This 0 basis point cost of risk level for the full year, in fact, has a rather contrasted structure, but nothing that should be surprising as this structure developed in this way through the recent quarters. And so these 0 bps is made of net reversal impact of 17 bps generated by the excellent level of our recovery performance on the defaulted corporate exposure. Going the other way, we generated 4 basis points from our defaulted retail exposures, whose default rate and recovery performance level are now a little bit under pressure after the 3 or 4 last years of turbulence being COVID and inflation. We booked 9 bps on outperforming corporate exposure, and this is the point I just mentioned earlier, very much concentrated on very few corporate client situations. And the last element is 4 bps, which we booked on our retail performing exposure, again, reflecting the impact of those 3, 4 past years of market conditions, putting our retail segment a little bit under higher pressure, as well as this IFRS 9 technical adjustments that, in fact, were a little bit taking a more prudent approach. So this is for the full year view of our zero cost of risk and its structure. And the last comment I would like to make before handing over to Jirí is the first guidance we issued for cost of risk in 2024. And so we issued it slightly below the level of 20 basis points. So this level is, as you have seen, below our through-the-cycle cost of risk level, which is in the range of 20 to 30 basis points. And the reason why this -- we have this gap between our through-the-cycle and the 2024 guidance is essentially driven by 2 factors. The first one is that we've taken a 12-month default rate assumption across all portfolios at a higher level in 2024 compared to the level we recorded in 2023. And the second element is that we expect in 2024 to witness a much lower level of net recoveries from our corporate NPL portfolio, as I probably mentioned to you in the recent quarters. And this gives you the 2 main reasons why we have this gap between our through-the-cycle cost of risk forecast and the guidance for 2024. And now I'm going to hand over back to you, Jiri.

Thank you, Didier. Well, finally, the capital management and the outlook. So let's start with the dividend. So KB Board of Directors proposes payments of dividends in the volume of CZK 15.7 billion, which represents 100% share on 2023 profit. From our perspective, the proposal is in line with the long-term capital management and provides shareholders with a share of the profit. Just to remind, as of January, the first -- the minimal requirement for KB interest stands [ 17.1% ] while the capital [ adequacy ], even after adjusting by 100% of the dividend payout, is at the level of 18.8%, i.e. interest is still in the upper part of the capital management buffer, just to remind, 50 to 200 basis points. That's for 2023. For 2024 the BOD set dividend policy also at 100%. So during 2024, we are not going to incorporate any part of the profit generated in 2024. Let's move please to the next slide, which is kind of standard focusing on the capital position and the evolution throughout the year. Once again, all these figures do include already the assumed increased dividends. The year-on-year evolution is visualized at the right bottom chart. So capital adequacy went down by 67 bps, but again, still safely in the upper part of the management buffer. So the biggest impact is, of course, coming from the proposed dividend, which is offsetting fully the profit generated during the last year. Two last comments on this slide. First one related to Tier 2. So probably you noticed during the Q4, we issued another tranche of subordinated debt worth roughly EUR 100 million. So as of now, sub-debt Tier 2 is covering roughly 1.1 percentage of risk-weighted assets, while the space allowed by the regulation is up to 2.7%. So there is still a very good space for whatever surprises or just optimizations. And last point is related to the MREL. So we completed the issuance program related to the 2024. And in the whole year, issued EUR 2.4 billion of senior nonpreferred, of course, that intragroup transaction as KB is running on the SPE. For 2024, we also are planning to continue as the balance sheet/risk-weighted assets are going, but it should be only one tranche on top of my head, where roughly EUR 100 million. And outlook, please. Yes. In terms of macro eco, Jan was partially touching that. So it is expected that macro -- the GDP is going to revert the trend. Last year, it was still a bit declining for 2024. We are expecting slight growth at the level of 0.8%. At the same time, we are expecting rapid disinflation to continue, but the average inflation will be still above 2 percentage points target. And in terms of monetary policy, our macro economists are suggesting that at the end of the year 2024, the repo key policy rate will be at the level of 4%. In terms of the banking market outlook, just briefly, the overall expectation is that it's going to grow both loans and deposits mid-single digit. And in terms of our, KB's position on that market, we are expecting, let's say, comparable growth, i.e., mid-single digit, both loans and deposits. But at the same time, we would like to add [ EBIT, ] at least [ EBIT ] on top of the market growth, i.e., to gain a market share. So this should come mainly from retail, both on the loans area and deposit area and thus to somehow monetize the investments, heavy investments into the retail transformation, which is basically over. Currently, we are in the phase of the migration of the clients from the old world to the new one. And finally, KB financial outlook. So revenues, we are guiding low to mid-single digit compared to 2023. And basically, it is expected that all categories or key categories of revenues should contribute positively. And also, it's going to be supported more by volumes than spreads. OpEx should grow slowly -- more slow than the revenues. So we are guiding low single digits. So the ambition is to generate positive [ jaws ]. And the reasons basically are continuing optimization of operations and what will contribute also positively and we are guiding that already 3 months ago a [ slower ] contribution of resolution and deposit insurance fund. I can skip a risk -- cost of risk or risk profile and finalize -- conclude with the potential risks to the outlook. But again, there are -- none of them are new. So it's very much about the further escalation of the war in Ukraine. And again, this year, there's some other, let's say, global aspects potentially related to several elections which are in front of us, and [ ECO ] could hit economies like Czech Republic. So I think that's all on the presentation, and I'm returning to the studio.

Thank you very much, ladies and gentlemen. So this has concluded the presentation part of this meeting. And now we will be happy to answer your questions. Let me remind you that the meeting is being recorded. [Operator Instructions] So first question is coming from the line of Robert Brzoza from [ Biuro Maklerskie ].

Good afternoon, everyone. Congratulations on the results and then the dividend hike. I have one question on the part of the presentation, which actually you did show a quarter ago. This was about financial targets for 2025, namely the cost-to-income ratio of 40% that you did envisage for the year 2025. So as we are approaching, well, the year 2025, and we are still above that target. And I believe, so far, it doesn't look like a huge acceleration on the revenue side. I'm curious if you can give us more clarity on the OpEx performance because 2024 is, of course, helped by the decreasing regulatory costs, but which categories of costs may help you to achieve your 40% cost-to-income ratio in '25?

I will take the question. Thank you for it. Well, first to say that we are briefly commenting already during Q3 results presentation. What we said was that we are sticking to the target, i.e., to be at a cost/income ratio around 40%, first. Second, what we said was that in terms of OpEx, it will be at the level of OpEx of 2023. And the improvement of cost to income should come from both, so let's say, parts of this ratio. Revenues here, we are expecting strong acceleration of these revenues in 2025, given the fact that in 2024, we are going to acquire a lot of new clients. And of course, these new clients are generating new profitability. So that's the main driver on the revenue side. On the cost side, I was already guiding the level at the end of 2025. And there are basically 2 main reasons why we believe it will be so low. And first one is the fact that we are targeting a decline of the number of the FTEs in line with our strategy. So by the end of 2025, the number of the FTEs should decline by 25% compared to the end of 2019. So i.e., to land at 5,500 at KB [ solo ] level. This is first reason. And the other reason is that Resolution Fund will be completely full in 2024. So it will also help us to cut the cost. And last point related to the cost is that at that time, we will be able already to decommission some part of the old world, which normally should contribute to the cost side positively as well. So that was about the main drivers towards 2025.

Sorry, can I add 1 or 2 points here? In no scenario, we were like we are trying to optimize the capital structure in order to achieve this cost-to-income ratio. Let me remind that we have put this 40% cost-to-income as one of the main indicators of our success back in 2020 before the COVID times, before the war in Ukraine, and we have not had any magic tools for provisioning all these structural elements. What we see today or what we have seen over the 2023 is that our ability to create new capital combined with very strong and very conservative capital management, our very conservative approach to liquidity management and in the frame of keeping the bank in the upper part of the management buffer above the minimum capital requirements set by Central Bank will allow us to go for this 100% distribution. In no discussion, we had some optimizing debates or optimizing considerations in mind, let's make it clear. And I wanted to think easy to make sort of exhaustive technical explanation. I would like to amend just these few words. Thank you.

[Operator Instructions] I will be surprised if there are no further questions at the moment. So let me wait a minute, I hope there are no technical difficulties. So Rob is asking another one.

Hello again, I'll use this [indiscernible] if there are no further questions to dwell a bit more on the capital distribution strategy. Basically, wondering do you think that post 2024, you could maintain 100% payout policy? And if so, on what conditions would the delivery of -- I mean -- but I mean, the 40% cost-to-income ratio, I find it still a bit ambitious. And if you sort of fall short of that target, would it imply some reversal to the 75%, 80% payout range? Or would you rather be willing to keep up 100% payout?

Let me repeat again, we are not in the position to give you more than 1 year guidance. So 2024 is the only year we are able to comment. Second, we are not distributing the capital just for the sake of achieving 40% of the cost to income. That's probably the last, if any, of the motivations. You should take it as an exceptional distribution of dividends for 2023, subject to shareholders' meeting approval. For 2024, we are obviously accruing for 100%. We are not saying we will pay out 100% because we will have plenty -- we might have plenty of challenges over the year. One never knows with all these challenges from macro eco and from geopolitical situation, but we do advise to keep the pace for 100% for 2024. Going beyond 2024 and speaking now under the control of Jirí Šperl, I would rather say that we will strongly consider to go back to our traditional projects of -- or projections of going back to 65% of net profit. But it's subject to our internal scrutiny of the market and scrutiny of the performance of the bank.

So our next question comes from the line of Mehmet Sevim from JPMorgan.

I had just one question on the deposit base, which tends to be usually quite weak in the fourth quarter, but that wasn't really the case this quarter. And there was a big jump in the current accounts particularly. Would you be able to comment on this? Are you seeing actually -- haven't you done the classic optimization this quarter or are you seeing actually some significant inflows again, particularly into the current accounts after what we've seen in recent quarters?

Yes, I can answer. Just to remind that the Resolution Fund started to be filled roughly 5 years ago, if I'm not wrong. And at that time, it was fully empty, and the banks were obliged to fill it progressively each year 20% to get to the targeted amount. And the last 1/5 of this charge is going to be paid in 2024, based on the balance sheet as of end of 2022. So the end of 2023, from this perspective, was not so important and so material. And that's why Czech banks generally, let's say, slowed down optimization, i.e., strengthening of the balance sheet because the leverage is much, much lower and is only influenced and driven by, let's say, run rate growth of the resolution fund charge. Sorry for being a bit technical, but this was needed to answer your question.

No, that's absolutely clear. And can I also ask on the NIM progression from here? I do know that your sensitivity is basically very limited to interest rates. But should we assume if there are more rate cuts, we've just seen, I think, the CNB cutting 50 basis points today; that this stays the same? Or would you see any additional pressure or any other color you would have on that point?

We are benefiting from the increase of the market interest rates roughly 2 years ago when CNB started to increase policy rates. For the time being, we are positioned in a way that we are basically neutral to whatever moves of the market interest rates. So whatever cuts, whatever speed is not hitting our net interest income.

Okay. Thank you very much for confirming.

The next question is coming from the chat. So do you expect any material impact on capital ratios coming from new [ CRD, CRR ] rules? If yes, could you roughly comment the scale of such impact?

Okay. Okay. Good. Yes, we are expecting a lot of changes. The impact should not be super high and usually even positive. And why? Because majority of these methodological changes are already in our methodologies and regulatory reporting. So for 2024, we are expecting even positive change coming from the new regulation on LGD's [ Mogas. ] There are more methodological changes, but LGD and PD [ Mogas ], which should bring a saving on risk-weighted assets worth CZK 7 billion, which transpose into the capital [indiscernible] is 24 basis points. And similarly, in 2025, when the methodological changes should bring further relief of capital at the level of 100 basis points. So that's in a nutshell. The key message is that majority of these changes are already in as of end of 2023.

The next question is from Lukas [indiscernible]. What is your exposure to commercial real estate loans? And do you see some risks from this sector?

I guess, I will take this one. I don't have the exact figures in mind right now, but the general answer to your question is that we regularly stress test our exposure to real estate professionals. And that the results of the stress test in the last, as much as I can remember, 5 years regularly confirm the resilience of our portfolio. So there is no real concern that's regarding our portfolio and its specifics. And the forecast we have from our experts regarding real estate prices in the Czech Republic are also not as adverse as you can see in other markets, so the context is also helping us in this respect. If you need something a little bit more quantitative, I will get it to you through Jakub.

Thank you. So let's get back to regular questions for a moment. The next one is coming from Máté Nemes from UBS.

I have two questions, please. The first one would be on the new digital bank. I see that now you have more than 120,000 clients onboarded to the bank. I was wondering if you could comment a little bit about what you see on the platform, especially in terms of activity levels and how that compares to your larger banking platform, legacy banking platform? That's the first question. The second question would be on risk for Didier. And I'm sorry if you mentioned that I had some technical difficulties. Could you clarify what is your stance with regards to the inflation reserves and overlays when it comes to 2024 cost of risk? Are you expecting some of that to be released? And if so, what is the condition or the driver of that?

So I will start and in fact, going back very quickly to the previous question because I got the access to more quantitative elements. So our exposure to the real estate professional segment is in the range of slightly below CZK 60 billion, which is more or less 10% of our corporate loan book. The cost of risk average generated by this portfolio in the pre-COVID period was in the range of 20 bps in terms of net reversal. And going through the COVID period, we peaked at plus 20 bps. So basically, it gives you the level of resilience of our portfolio and exposure towards the real estate professionals. So that's -- that was for the previous question to give you a bit more quantitative element. Regarding the inflation overlay or inflation reserve, in fact, those results were, as you remember, constituted back in 2021 and 2022, if I remember well. And with the exception of the first quarter of last year, we have decided to freeze them. And today, they are in the range of CZK 2.3 billion. And the reason why we've decided to do that all the way to 2024 is just by just a simple prudential reasoning. And so we, in fact, push this question -- we decided to push this question to the 2025 horizon. So no impact in the guidance that we just provided for 2024, it's under the assumption that those inflation results would stay more or less at their current level. I'm saying more or less because sometimes going from Q3 to Q4 last year, we adjusted them marginally. It was a small increase, but the general assumption is that it is expected to stay flat in 2024.

If I may take the first question that was asked first basically about the NDB and the level of activity, I will start by saying that most likely tomorrow, we will reach the threshold of 200,000 users of the new platform, which is pretty decent. Looking at the activity, it's quite comparable to the activity of clients in the old bank, meaning the number of log-ins and everything else, which I consider to be quite good news because we would normally expect some learning curve on this new solution. And the third thing I would say, we see quite impressive proportion of end-to-end digital sales in the new solution, ranging around 70% for most of the products, which is multiple of what we have been experiencing in the old bank. So this part looks quite promising at this moment. Is anything specific you would like to know? I'm basically able to talk about it for hours. So it is probably not a point for the moment.

Actually, just a clarification, the 70% end-to-end digital sales, does that pertain to personal loans, consumer loans, credit cards or what is included in that number?

Well, for those features that are already available, 70% is the figure for saving [ loans ], 70% or even 80% is the figure for -- sorry, for current accounts. For consumer loans, as we still need to develop end-to-end process for the new solution, we have a small element of assisted part inside. So I can't give you the figure. But normally, we've been able to reach 60% plus in the old bank even. So I expect once we finalize the technical development for this small part in the middle, it will be 60% to 70% immediately after just because of the nature of the product. What we observed as well is almost 50% of digital acquisition, which was, by the way, our target for 2025; was 40%, and we are already above that compared to the old bank where it was just a few percent, somewhere between 5% and 7% usually. And we see a quite high proportion of non-assisted migration from the old bank to the new bank as well, close to 50%, which means that those digital solutions seem to be working pretty well at the moment. On the sample of 200,000 clients, I think it's already -- it has a value. So we can already observe something that's really happening in the new platform.

That's great. I appreciate the details. Thank you.

I will read the next question again probably for Jiri. Can you comment on the target effective tax rate in 2024?

Yes, sure. So let's start with 2023. And last year, the effective tax was at the level of 17%. For next year, we are expecting a bit increase plus/minus -- plus 2 percentage points to the level of 19%. Why? Mainly due to the increase of the corporate income tax.

[Operator Instructions] So Robert Brzoza, please.

Yes. I have a follow-up question on the capital relief, which I believe you've mentioned. And unfortunately, I had on my side, some technical difficulties then. I'd like to confirm that you're expecting about 100 bps of capital released by the end of '25. Is that correct? And second, if we are talking about risk-weighted assets, specifically the market risk, I'm curious what was behind the more than CZK 10 billion increase in this risk category, which you reduced during 2025 -- 2023, of course. It was even more than that. I mean, it was more than CZK 10 billion since the mid of the year, right?

I can take this last question on the market risk, RWAs. In fact, this increase was generated by some market-making transaction in the area of CZK rate through some [ FRAs ] and swaps. This market-making activity, in fact, in terms of market risk consumption because of the access to netting, was 0. So that's more or less the underlying activity. And it will probably be unwound in the course of 2024. So I would say in one sentence, although a bit unusual in the sense that we had never had this kind of situation in the past, it still remains business as usual in the sense that we are a market maker for these instruments and this was a market-driven or client driven. So staying in the area of our [indiscernible] mandate, which is agency business. And I'll leave the -- sorry, go ahead.

So by end '25, approximately, one way or another via the market-related risks, you should see up to 100 bps of capital relief on your capital ratio, correct?

Everything else being equal, it's not even '25, it's in the course of '24. So everything else, sorry, being equal, the answer is yes. And I will be answer to your other question to probably [ Jiri ].

I think the Didier, you almost fully covered, so maybe too precise. Based on our expectations, there are 2 main positive impacts mainly in 2025 and both are related to Basel IV methodology. And first one is relevant for the market risk. And the qualification has been done on kind of experts estimate of new methods impact based on historical simulation. And the other one is related to the operational risk, and again, this should be a positive impact of a new SMA [ method ] impact. So I'm confirming roughly 100 basis points on cumulative basis.

I don't see any further questions. So if this is the case, let me hand back to Jan for a concluding remark.

All right. Thank you very much for being with us. We hope we have delivered the message today, KB being one of the most important players in the Czech banking market with strong resilience in the stagflationary environment of the Czech economy back in 2023, with strong capability to create new capital by its commercial activities, hence leading us to the considerations and advice and decision of the Board of Directors to propose to the shareholders meeting the payout for 100% for 2023 net results. Having said that, we will keep our activities dedicated to building the new digital bank. 2024 will be the year of delivery and very much tested -- we will be very much tested on our part of capabilities to deliver both the retail, where we are speaking mainly about migrations of clients and onboarding new clients, and building the first, I would say, current shell building or construction of the corporate new digital bank. In the meantime, we thank you very much for the attention you pay to the shares of Komercní banka and to what we do, and we are looking forward to the next quarter's presentation of our results. In the meantime, thank you very much, and we stay at your disposal for any questions you would like to raise on bilateral basis. Thank you.

Thank you very much. This has concluded the meeting, you can now disconnect.