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

Welcome from Komercni banka, and thank you for sharing your time with us today. It is the 6th of February 2025, and we are going to discuss the results of Komercni banka Group for the full year and the fourth quarter of 2024. 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. Standing by in case of your questions are Jitka Haubova, Chief Operating Officer; Margus Simson, Chief Digital Officer; Miroslav Hirsl, Head of Retail Banking; and David Formanek, Head of Corporate and Investment Banking. As usual, we will begin with the presentation of results, which will be later followed by a questions-and-answers session. [Operator Instructions] And now let me ask the CEO, Jan Juchelka, to begin the presentation. Thank you.

Welcome, everyone. Thank you for giving us the opportunity to stay in front of you together with the leadership team of Komercni banka and read you through the presentation of Q4 2024 results and the entire year 2024 results. Before we jump into the pages, just let me say that we highly appreciate your work when covering KB shares and also having the opportunity to see the reaction of the market on today's presentation. We are very glad for this level of trust. Speaking about Komercni banka in 2024. We were more or less all over the place. We were still, at the beginning of the year, in the first quarter, in charge of paying secured receivables for the clients of Sberbank on behalf of the guarantee fund of the financial markets here. We started, beginning of the year, a huge migration wave of our retail clients from the old world to the new world. And I'm glad to say that we achieved more than 1 million users in the application KB+. We continued our intensive investment into technologies and innovations. And in parallel with that, we were able to grow the NPS also on the new application. In September 2024, there were huge floods in the country. We were at hand to our clients, either retail or corporate, in postponing the repayments in taking care of the insurance claims together with our sister company, Komercni pojistovna, and we donated almost CZK 15 million through our foundation of Komercni banka. In 2024, we remained one of the largest taxpayers in the country. And in 2024, we have also made significant steps forward in the transformation of retail banking from organizational and operational point of view as well as in the transformation of Modra pyramida building savings company, which, in fact, became the only center of expertise for housing loans in our group and took over the entire responsibility for the customer journey related to housing. So let me invite you to the kickoff page. I will be very brief. All the hard work, which I have just described, was translated into growth of deposits of our clients by 2.3% on a year-over-year basis, client loans by 2.5%, inside which the new sales of housing loan sales totaled at 34.1%, which means that the clients are back to ask for housing loans, mortgages, and the clients are back reacting also on the decreasing prices. Other assets under management grew by 11% in total inside this category, the mutual funds by more than 20%. So continuous dynamic growth of the assets under management outside the balance sheet of the bank. Insurance premium written, the life insurance grew by 2.9%, out of which risk life insurance by 13% and the non-life insurance by 18% on a year-over-year comparison. Like this double-digit growth, and it just confirms strong position of Komercni pojistovna at the Czech market. Komercni banka remained one of the best-capitalized companies and banks in the economy. The total capital ratio remained at 18.77%; core Tier 1, 17.64%. From a liquidity perspective, again, a confirmation of the strong position of LCR, 166%; NSFR, respectively, 131%. All of this inside, let's say, very comfortable territory of the loan-to-deposit ratio of 82.9%. It was translated into very strong income statement. The group's net income is at a level of CZK 17.2 billion. We contributed in the fourth quarter, which was the biggest or, let's say, the strongest quarter ever in the history of the bank from a revenue perspective and one of the strongest for net profit contribution point of view. So the contribution to the total net income was CZK 4.7 billion last year, Q4 2024. Earnings per share, 91.3% -- sorry, CZK 91.30, which we proposed as a Board of Directors of Komercni banka to be entirely distributed in the form of dividends. Cost of risk remained extremely low. The high quality of our assets brought us to 11 basis points at the end of the year of 2024. Cost-to-income ratio was compressed below 50% at the level of 48.2%, whereas in the fourth quarter, it was at the level of 43.6%. ROE on a stand-alone basis delivered by KB to the market is 13.7% and [indiscernible] [ 0.1% ]. Komercni banka, as part of its decision -- please, can you confirm you can hear me? Because it is changing how the picture -- I don't see the presentation now. So let me just use...

We cannot see the presentation and we can hear you.

I don't see the presentation, sorry. I need to open another -- yes, I can see it now. So you can still remain in the highlights. Okay. So here, just last sentence, as part of our decision-making process, we finalized the disposal of headquarter building in the center of Prague, the Vaclavske namesti 42. The buyer was city of Prague. So we are confident the house will be serving the Prague citizens down the road. Obviously, whatever you see as a reported number versus recurring number, the difference between those 2 goes to the account of the net profit realized through this disposal. Komercni banka grew -- its number of clients migrated from the old to the new world above 1 million users. Komercni banka was also awarded as a Responsible Bank of the Year in 2024. The Supervisory Board of our bank reelected my person for the next term starting August 5 of 2025. And as I mentioned already, we are giving back to the market the entire profit -- the entire net profit, subject to the approval of the Supervisory Board and the Board and the general assembly of the shareholders. We can move to the next page, please. Macroeconomic environment, I would say, was framed by pretty well-known indicators, i.e., rather mediocre growth but still growth of Czech GDP accompanied by a continuously tight labor market with very low levels of unemployment below 3%. Inflation seems to be under control, if I may say, back to the corridor where the Central Bank wants to see it and is further compressing and being followed by the reaction of Czech National Bank to the levels of 4%, which is minus 300 bps on year-over-year comparison. Czech koruna remained vis-a-vis euro at more or less flat at CZK 25.20 per euro and CZK 24.20 per USD. So on that front, no big drama has been happening. And let's say this level of Czech crown is somehow at least helping the traditional exporters amongst our corporate clients. We can probably move to the next page, which is related to loans. The gross loans book grew by 2.5%, mainly driven by already mentioned good dynamics of financing for retail, i.e., mortgages and consumer lending, respectively, and rather mediocre growth of corporate financing. Inside the corporate financing, what is probably remarkable here is still almost 7% growth of the financing through SGEF leasing. Let me remind that based on our SPA, which we signed with GEF international, Komercni should become 100% owner of this company more or less in weeks. What is probably worth to mention and combine a little bit of macro with a picture of the performance of financing for retail by Komercni banka is the 34.1% year-over-year new sales of mortgages and building savings loans combined with a strong demand of people; and second, let's say, favorable evolution of pricing of mortgages during 2024, which we believe will be continuing also during 2025. Maybe we can go to the next page. Here, we are showing the transactions which we have achieved in Q4. You can see that Komercni was all over the place, accompanying its corporate clients in the fulfillment of their projects. We were also at hand to very important and transformative transactions such as Czechoslovak Group and its acquisition and expansion of their businesses into the United States. We are also mentioning Slovenske elektrarne. There was a total refinancing of the company after putting at work so-called Mochovce 3, which is the newly built and finalized nuclear capacity in Slovakia. Let me also say that Slovakia became an emission-free energy producer and a large exporter of energy after completion of this construction. We are very, very proud of being close to Slovenske in their construction part, and we are remaining their partner when they started to operate the new power plant. Let's move to next page, which is dedicated to deposits. The deposits were up by 2.3%. What is probably important to say, that we very much like the distribution of this growth between current accounts and remunerated savings. So we see that after a few quarters when it was completely different this time, the current accounts are growing by 5%, whereas we see a slight decrease in the field of term deposits and saving accounts. Having said that, Czech retail client has found certain habits to get remunerations from its deposits. Hence, they are searching for more or higher, let's say, returns in the field of investment products. I'm proud to say that the assets under management and mutual funds, which we are selling either through our private banking or together with Amundi, grew by 21%. And there was a very, I would say, mediocre growth on the KP life insurance reserves and the pension fund company. But in total, it totaled at a double-digit growth of 11%. So that's it from my side. I'm handing over to Jiri, our CFO. Thank you.

Thank you very much, Jan. Good afternoon, everyone. Indeed, KB Group delivered extraordinary results in Q4 last year. It is, by the way, the third quarter in a row when net income after tax is growing, as is visible from the right upper chart. Of course, I'm talking about the underlying profitability, right? So without the impact of the sale of Vaclavske namesti. The waterfall chart is visualizing the main drivers of the profitability on a full year basis, right? It is, from the chart, clearly visible that mainly fees and commissions are contributing positively, growing by almost CZK 900 million year-over-year. Regulatory charges decrease also contributed positively by almost CZK 0.5 billion, which, by the way, was expected. On the other hand, still NII is, on a full year perspective, still in a bit negative territory but with a very good trend, as I will show you in a minute. Naturally, OpEx, and now referring to OpEx without regulatory charges, increased not too much. It's around 2.3%, again, details later. But definitely, it is below the inflation. And on top of that, in this situation, we are transforming the bank full steam. And also, cost of risk is higher than in 2023. But here, it's clearly the base effect. The absolute provisions creations was not high in 2024. The point is that in 2023, the cost of risk was around 0. And of course, Didier will comment. So all in all, this leads to the underlying profit at the level of CZK 14.8 billion, i.e., slightly below the last year. But if you add the profit from the sale of the Vaclavske namesti, net income after tax is jumping to CZK 17.2 billion, so growing year-on-year by more than 10%. And this, of course, transports also to the profitability indicators, as already Jan was commenting. So let's move to the balance sheet. The total assets went up by 1.3%. It's no surprise that -- on the liability side supported mainly by deposits on asset side placed to the loans. There's one structural change that is worth to comment. Maybe I was touching already 3 months ago, but it's a bit of a reshuffle of the investments of the liquidity surpluses, right? In 2024, as it's visible from the chart, we're preferring to invest into the [ geographies ], growing roughly by CZK 20 billion, while the volumes of repo with the Central Bank went slightly down. Jan was mentioning some liquidity indicators. Maybe to add LTD, loan-to-deposit ratio. So it is still in a very safe territory at the level of 18.3%. Net interest income -- well, so if I see -- or I would like to convey 2 key messages. On a full year basis, as I was mentioning before, still there is a bit of negative. And basically, it is still partially negatively influenced by weaker NII from investment banking and also by an increase in the regulatory interest costs, right? What I mean are the instruments for MREL obligations. Currently, we have completed it. By the way, we are planning none for 2025, maybe in 2026, while income from the loans was growing again, on 12 monthly basis, at a very solid pace. And here, we can see an indicator that both volumes and price effects was positive. On top of my head, the average spread on loans increased by 3 basis points, which is not kind of magic. But it is to say a bit of recovery of the trend because in the years before 2024, the spread was going down. And still, on a full year basis comparison, income from deposits is basically flattish. The positive quarterly dynamics I was referring to before is shown at the bottom right chart. And it's my kind of pleasure to say that Q4 is another quarter. And here, it is, in this case, the third one in a row of growing. And what is, from my perspective, even more positive is that so-called core NII, core net interest income, i.e., income from the loans and deposits, are already fully contributing positively quarter-over-quarter, et cetera, et cetera. And mainly the income from the deposits is growing dynamically. Of course, what helped was a kind of improvement of the structure and basically the lower cost of funds in the environment of declining of the market interest rates. All in all, this transports into NIM slightly growing quarter-over-quarter. It is by 10 basis points to the level of 174%. Still, year-over-year, it is slightly negative. But now I can indicate that in 2025, we are expecting and are going to guide the slight increase of NIM by a comparable 10 basis points, like was the case between Q4 and Q3. Fees and commissions, without any doubt, the best quarter in the history of the bank of the group. It's CZK 2.4 billion on a quarterly basis. This led to the full year growth of double digits, more completely 13.7%, with 2 main drivers and probably not surprising: first, fees from cross-selling up by 23% due to the very dynamic growth of the non-bank assets under management, as is one of the strategic priorities of the bank; and second, a very successful specialized financial services fees generated in Q4 due to the kind of services with a high value to our corporate clients. And Jan was mentioning some of these transactions already before. In terms of financial operations, it is also adding good increment. So it's another quarter above CZK 1 billion. I remember that I was commenting 3 months ago that Q3 results in this category was historically the highest. So we are not so far from this very good result. And what is also positive is that both components were contributing still at a quarterly perspective. On a full year basis, the income is -- and it is by chance, right? Absolutely the same like 1 year ago, i.e., CZK 3.832 million (sic) [ CZK 3.832 billion ]. And what is, again, worth mentioning is that the structure has changed. I can say that in a very positive direction because the growth on a yearly basis, it is very much driven -- influenced by net gains on FX from payments, i.e., FX transactions on the structural book while capital market is going a bit down. And last, before passing over to Didier, is the cost side. As mentioned before, the costs were growing by 2.3% year-on-year, i.e., below inflation. Personnel costs are growing a bit faster by 5% as an implication of the annual salary increase, I think, as of April 1 last year, offset partially by the decrease of the employees in 2024. In terms of GAE, and again, excluding resolution and other similar funds, it's under very prudent control, so growing only by 2%. What supported the cost side was resolution and similar funds as commented before. And again, no surprise on depreciation and amortization growing low teens, double digit as a mirror of activation of the new assets like transformation, mainly new digital bank. All in all, this led to cost-income ratio at 48.2%. Again, already now I can indicate that cost-income targets for 2025 are going to continue this positive trend, i.e., south. So that's from me now, and I'm passing forward to Didier. Didier, please go ahead.

Thank you, Jiri. Good afternoon, everyone. Turning to the asset quality in the fourth quarter. There's probably one main takeaway, which is the improving trend in the default rate for the 3 portfolios, which were a little bit under pressure in the recent quarters, namely the consumer lending, the small business lending and the SME lending portfolios. So in the fourth quarter, we have started to see the favorable reversal of this default rate. And second point without any change from the previous quarters is the continued resilience of both the large corporate and the mortgage loan portfolio, large corporate being near 0 default level and the mortgage loan portfolio being very close to the historically low point, which we reached in 2022. So translating this default rate input or drivers into the IFRS 9 classification of the loan book. In fact, as you can see on the slide, the keyword is stability. The exposure classified in Stage 2 grew very moderately. And what is very important to keep in mind and hasn't changed in the recent quarters is that the intensity of migration between those asset classes, S1 and S2, continued to be very low in the fourth quarter, further confirming the stability and the resilience of our non-defaulted portfolio. The exposure or part of our loan book classified in default in Stage 3 remained very stable quarter-on-quarter. So this, in fact, is clearly illustrated by a very stable Stage 2 ratio fluctuating within the 14% to 15% range, slightly contracting NPL ratio [ or asset ] ratio going under the level of 2% in the first quarter. And the provision coverage for this defaulted portfolio, that was very stable in the fourth quarter due to the limited provisioning activity in the fourth quarter. So turning to the cost of risk overview for the fourth quarter on the next slide and starting with the quarterly view. We, in fact, reached a lower level than we expected and a low level of CZK 40 million. And behind this low level, in fact, you have 3 main supporting favorable risk drivers. The first one is the one I just mentioned, which is the default rate contraction for the recently more sensitive portfolio, consumer loan, small business and SME. The second one is in the fourth quarter, we started to record a better rating distribution for the non-defaulted small business portfolio, which produced some favorable effect into our quarterly cost of risk. And finally, the better outlook for residential real estate prices generated some technical IFRS 9 release last quarter. So in terms of structure, we booked CZK 150 million for the corporate segment. And in fact, this quarterly creation was concentrated on one single non-defaulted client situation. So again, a good sign in terms of the overall resilience of our loan book. The creation for -- coming from the retail portfolios was way below the quarterly average at CZK 90 million. And we also booked in provision release almost CZK 200 million coming from those technical IFRS 9 recalibration coming from this better outlook in the area of residential real estate prices. One word on our so-called inflation or post-inflation overlays. We kept them stable through the fourth quarter, as it was announced to you last November. And this stability approach will -- or is being reassessed in the context I just mentioned, which is the context of resilience and stability of our default rate, which will generate some potential release in the next 3 years under our central macroeconomic scenario. One word on the table, which is at the bottom of the slide on the right-hand side, showing to you the structure of the full year cost of risk for 2024 at 11 bps. In fact, you see that the defaulted portfolio contributed for only 1 basis point, which is the best illustration of our strong loan recovery performance last year, both for the corporate and for the retail portfolio. And the 10 bps on the non-defaulted is a good illustration of our prudent approach regarding the provisioning of the non-defaulted part of the loan book. And one short final word for this cost of risk section on the guidance for 2025. In fact, we will guide you at the levels of cost of risk, which are going or are expected to be well below the cycle level, which is anywhere between 20 and 30 bps. And this has 3 underlying elements, one which is a situation that we had mentioned to you last November, which is the favorable evolution of one of our core corporate client situation, which will generate a material amount of provision release most likely in the first quarter. And then 2 important assumptions. One is that under the central scenario, and as I just mentioned, we plan on gradually reversing our inflation or cost inflation overlays currently scheduled over the next 3 years. And the second important and reasonable assumption is in terms of the further stability of our default rate across all portfolios, whether products or client segments. And that concludes this cost of risk section. And now I'm handing over back to you. Thank you.

Thanks, Didier. Could we move to the next slide, please? Well, the capital remains very strong. As of the year-end, the capital adequacy is at the level of 18.8%, i.e., as for now by roughly 210 basis points above the minimum requirement by CNB and even above the management buffer. Just to remind you, the management buffer of KB is between 50 and 200 basis points. The bottom chart is describing the capital generation and consumption. So it's clear that the bank created a bit more than 300 basis points of new fresh capital and at the same time, created a dividend provision at the same size as consumption of capital via risk-weighted assets is marginal. All in all, the capital adequacy is basically flattish. In terms of other capital instruments in 2024, we didn't need to go and we didn't go neither for sub-debt Tier 2 capital nor for the senior non-preferred loans. And now it seems that it is likely that due to the really strong capitalization, this will not be the case neither for 2025. And this is bringing me to the capital management dividends chapter. Can we move, please? Yes. Jan was already touching the point. So given the very strong capital, as I mentioned before, KB Board of Directors proposes to the Annual General Meeting a payment of dividends worth CZK 17.2 billion, which represents 100% of the consolidated 2024 net profit. This is also the case for the guidance for the 2025 to say, based on our simulations, the capital adequacy will remain very strong even in 2025, even this year, even if we return the profit to our shareholders. That's why for 2025, BoD has decided to maintain the dividend payout policy at an exceptional level of 100% of the attributable net profit generated in 2025. Of course, ready during the Q&A session to answer your dedicated questions. And last slide of the presentation is about the outlook for 2025. Again, Jan was already touching on macro. So let me move directly to the banking market assumptions. It is expected that both loans and deposits are going to grow by mid-single digit. And in both categories, retail is a bit faster than corporate. In this market, KB would like to grow even a bit faster. And again, it's mainly the case of retail as we are around the end of its transformation. So we need now to monetize given investments more. In terms of financials, the ambition is high. So we are guiding that revenue should grow by high single-digit rate on a year-on-year basis. And really, the main driver here is going to be net interest income. But also, other categories, i.e., fees and commissions and net profit on the financial operations will contribute positively. OpEx is expected. And I think here, it is a bit of variation versus what we were guiding 3 months ago for 2025, expected to fall a bit low single digit. I think last time, we were guiding more or less flattish. And what you can see behind is continuing overall simplification and optimization of the branch network. The number of the branches is going to go down further and also related decrease in number of the employees. And in 2025, we are talking about roughly 500 employees and thus to deliver one of the strategic targets in terms of FTEs. What will also help is, again, the resolution of fund charges, as was the case in 2024. And here, based on the announcement of the resolution authority, we are expecting it to go down, on top of my head, roughly by CZK 300 million. So of course, this will help as well. Didier was covering credit risk. In terms of the potential risk of this prognosis or outlook, it's very much about the geopolitical risks. So that's it. I'm stopping now and passing word back to the studio. Thank you for your attention.

Thanks to all the presenters. In the next part of today's meeting, we will be happy to answer your questions. Let me remind you that this meeting is being recorded. [Operator Instructions] Let's wait a second for the first question, and it will be coming from Robert Brzoza from PKO BB.

Congratulations on the excellent results. I have a question on fees, on those cross-selling fees, namely how sustainable do you think is that jump in the new level of cross-selling fees? How much of that higher level in business is coming from the changes in the distributed funds? I saw that you distributed a much larger amount of equity and other funds compared to previous quarters. I'm curious to know whether that money is flowing into, I would presume, global funds or maybe some part of that also reaching local equity funds. So that would be another question about the sustainability and the outlook for capital market products in general going forward.

Okay. Thank you for your question. I will start and probably Mirek will continue. The growth in the area of cross-link fees is very much driven by strong sales of wealth management solutions across retail market subsegments. And it is relevant for all subsegments or I mean mass market to private banking, including mutual funds, insurance solutions, et cetera, et cetera. The assets under management, just to remind what Jan was commenting on before, were growing year-on-year by 11% and the cross-sell fees by roughly, on top of my head, 13.7%. So there is a clear correlation. As you are correctly mentioning, there is one structural change, and that's the clients started to listen more to the investments into more dynamic solutions. Before, it was more about the investments into money market funds. And of course, these more dynamic solutions are generating also more attractive fees for the bank. Specifically in Q4, the growth was boosted by reaching the threshold for the performance fees in pension fund of KB. And to say that openly, this is not sustainable, right? So this level of gross fees, this is not a new normal, and you should rather expect a correction in Q1 next year. Thank you. And Mirko, do you want to complete me or...

Yes, just a few sentences. Looking at the fees generated by retail, a few comments there. We do show quite solid growth of premium insurance, insurance premium, double digit both in life and non-life for a few years already, and we still believe that we can keep moving forward there. This is not true to the one that is linked to sort of investment/saving part of the insurance. It is flat. It was already commented. But I'm speaking about products that are really like insurance/protection, and they are quite promising. And second, not only volume of investment funds but also the structure, as you may have seen it on one of our slides, where we started the year with approximately 25% of products or investments going to equity, and we ended up by 50%. So if you would ask me for a consolidated compounded view of the whole year, it is probably 40%, and it helps us a lot on fees generation. On the other hand, fees for payment transactions in retail and Czech Republic are almost nonexistent. And if there are still some, they will disappear soon. And we need to play smart with pricing for packages for day-to-day banking solutions. So this is like a very short summary of what I see happening around.

If I may add maybe 2 more questions about the insights here. Could you share -- I mean I'm sorry if I had missed that. How much of the quarter-to-quarter growth in fees from cross-selling? They jumped from 570 million to more than 960 million. What's coming from that performance-based fee at pension fund? That's one. And second, you mentioned a successful transition of customers and onboarding the new platform. I'm wondering, what's the share of fee business being generated by the new platform? And how do you see the prospects of this digital distribution different or improving perhaps the overall business performance in the aspects of the digital distribution of various products across the bank?

Well, I will start with the first part of the question. The performance fees are basically coming from all, let's say, companies we are talking about was at the level of CZK 250 million, CZK 300 million. So this part can be attributed as nonrecurring. I believe this was behind your question. And the second part, I'm leaving to Mirek, please.

Well, there's no fee generated by the new platform per se, by the way. It's still clients that we migrate or clients that we acquired. And the value proposition and the pricing on the market is changing, and we do follow the change. As I commented, transactions, 0; packages, a bit. It is a practice on the market that we have to provide an account free of charge, quite solidly equipped, which is 50% of our production at the moment, be it through acquisition or be it through migration. On the other hand, what we wanted to see at the very beginning is that once we migrate the clients from the old bank to the new one, we keep at least the same revenues and we do keep at least the same revenues which is giving us a solid base for further cross-selling and increasing EBIT. On the other hand, I don't believe we will achieve a lot more by increasing the price per unit. We will have to achieve a lot more by having more units, with clients, with products, in whatever of this kind.

[Operator Instructions] We may have one more from Robert. Rob, would you like to ask one more?

Yes. So I would use this opportunity maybe to ask about your capital distribution plans for the future. As I understand, this higher payout, which you forecast out of 2025 earnings, is a sort of a sign of an increased confidence in the profitability of the bank, I believe. And I think -- I mean if you could maybe, if you may comment on more strategic goals regarding the payout in the coming years, provided that the new online platform delivers and that the competition for be it deposit or loans doesn't materially hit up in the Czech banking system. So in other words, the current ROE trends prevail. In such circumstances, would you consider maintaining somewhat higher payout ratios in the subsequent years post '25 than were the average, so to say, norm before COVID struck?

Yes. Should I start? Or you will? Okay. Well, I would say the fact that we are able to increase on extraordinary basis the payout ratio in 2025 is saying very much about the very strong discipline in the capital asset management, very much supported by the fact that for the time being, and I was commenting on that before, that the main driver of the growth is going to be retail, of course, with naturally much lower risk weights while the corporate is going to grow only with the market. In terms of beyond 2025, just what I can say is that if we are in the similar situation like now, of course, we are not going to sit on shareholders' funds. But at the same time, it is a policy of the bank not to guide dividend payout beyond the next 12 months. So that's everything I can comment on now.

Right. I appreciate the answer. Maybe one more on tax rate because I believe the '24 effective tax rate was only slightly above 15%, whereas the headline corporate tax rate in the Czech Republic, it's much higher these days. And the average effective tax rate for the bank for the past several years was at the level of 18%. So my question is, with the headline 21% corporate income tax rate, where do you see yourselves over the coming few years? Are there ways for the bank to maintain this relatively low tax rate going forward? Or where do you think you can find yourself with what level of average taxation over the coming year or later on also?

Okay. Thank you for the interesting question. The answer in one word is no. 15% is not kind of a new normal. But why? Because from this perspective, 2024 was kind of extraordinary because the income from the sale of Vaclavske namesti was net of tax, right? We were not selling the building itself, but we were selling the company. And based on the local legislation, tax legislation, this is after some time free of tax. So for the years to come, you can expect, let's say, similar effective taxation like was before 2024, i.e., around 18%. Maybe with a slight potential to even improve, but 18% is a good guidance.

So the next question is coming from the line of Shane Mathews.

Shane from WhiteOak Capital. Just one question. I think the improvement in the debt structure has been quite impressive. And I think you've been guiding for the past couple of quarters. But I just want to understand the sharp, let's say, improvement, let's say, the current accounts improving quite rapidly quarter-on-quarter. I just want to understand how -- let's say, just get a better insight of what exactly drove this, let's say, improvement over the past quarter. And I think you mentioned in the guidance as where you expect the share of current accounts to be more or less stable going forward. So I wanted to get your thoughts around this current account mix, the sharp move quarter-on-quarter and how you're thinking about this going forward in 2025..

I can start to answer the question. Well, that's true that the shift between paid deposits and unpaid deposits in Q4 quarter-over-quarter was tremendous. Here, just I would like to remind one thing, i.e., that end of the year is kind of extraordinary months, and it is a quarter, if you wish. And it is very much related still to the resolution fund charges. And this leads first to slight decline on the deposit base. Simply, the banks -- all banks are a bit demotivating clients to place money within the bank because it is costly, and it was the case also 1 year ago. And at the same time, there is a shift between paid and unpaid. So I would make some conclusions on that once it is confirmed in Q1. Definitely, what I'm expecting during the Q1 that there will be at least partial shift back to the paid deposits.

[Operator Instructions]

It seems the presentation has been very clear, maybe even clearer than we -- sorry, Mate Nemes from UBS is going to ask his question.

Two questions, please. Firstly, would be on today's comments regarding the release of inflation reserves over, I think you said, 3 years. Should we think of this as a gradual release over that time period or not necessarily? And so what would be the profile? And the second question would be on capital and capital trajectory. Should we expect any meaningful sort of non-organic or regulatory effects in RWA consumption or RWA growth over 2025? Or this should be roughly developing in line with loan growth?

So I will start with your first question regarding this IFRS 9 overlay reserves. And as you correctly mentioned, the release under our central scenario will be gradual over the period '25 to '27. That's currently our plan.

Do you want Didier also to comment on risk-weighted assets? I can do this.

Go ahead.

Well, of course, as of 2025, there is a new regulatory frame, the Basel IV. Here, we are just confirming what we are saying, I think, 3 or 6 months ago that the impact of Basel IV into the capital will be rather minor. In terms of credit risk, on top of my head, we are talking about low tens of basis points. On the other hand, there will be even positive impact coming mainly in the area of the market risk. And here, our current expectation is, let's say, high tens of basis points positive, right? So that's the second important expectation we are working with. And the third one, which is not very much about the regulatory changes but about improvements in our capital management, and that's on one of our subsidiaries, which is, as Jan was mentioning, becoming soon fully owned by KB [indiscernible]. And here, we are expecting that in probably -- not probably, in 2026, this will, of course, further make capital consumption more efficient. So that's probably 3 main aspects we are expecting in the years to come.

And there is going to be another question from Shane Mathews from WhiteOak Capital.

Just one more question. On the NII, let's say, recovery in 2025, I think last year, last 2 years, there's been some negative impact from the hedging income, hedging expenses. And in the last 2, 3 quarters, this -- let's say, the impact has been less negative over time. So this 2025, should we expect this to also, let's say, gradually recover and this negative impact to also normalize over time so that NII growth would be driven by 2 main factors, the hedging losses, let's say, reducing over time and also, let's say, the improvement in spreads with improvement in the mix of the losses?

Yes. I probably would not make some conclusions on the hedging. You call it hedging losses. Of course, the picture is more colorful, right? Hedging operations are hedging, let's say, the overall structural position of the bank, right? So what is going to be really the main driver of NII mainly in 2025 are volumes, right, first; and second, continuing decline of the cost of funds. Maybe to say that in March 2024, the cost of funds was the highest through the cycle. It was at the level of 2.4%. And since that time, cost of funds is declining relatively significantly. So for the time being, and I'm talking about the whole bank, right, it is different for retail versus CIB. But currently, the cost of funds of KB is around 1.5%, and we are expecting that this trend is going to continue. In terms of loans, I was touching the past during my presentation. So measured by spreads on stock in 2024, it increased a bit. Simply, the banks didn't go down with the loans prices the same speed like the market rates. And we are expecting for 2025 the trends to continue. So last year, we are talking about 3 basis points. So we believe that in 2025, it could continue and to add another around 4, 5 basis points. It is also consistent with a bit change of the structure of the production because the highest growth is expected in consumer financing, consumer loans where the margins are still relatively the highest.

So the next question is coming from the line of Mr. [ Josef Karasik ].

I'm just an independent investor. So I have a question. What's your assumption behind return on equity for 2025 and beyond?

We were touching the point last time. So for 2025, it is -- we were guiding between 13% and 14%. At the same time, the original target for 2025 was at the level of 15%. And what we are saying is that delivery of this target is expected by 1 year later, i.e., in 2026. So in 2026, at least 15%.

Congratulation for the Q4.

Thank you. We don't seem to have any further questions at the moment. So I would like to ask the CEO for the concluding remark.

Thank you very much. Once again, thank you all for being with us not only today but also through your investments or when covering and analyzing KB shares. We very much appreciate that. Our ambition for 2025, obviously, is to continue with the migration of retail clients from the old world to the new world, capitalize on the new technologies and the organization, which became lighter over time, orchestrating the sales channels in retail amongst digital, brick-and-mortar branches, tight agents, network and contact centers, which we have at hand combined with the third parties in order to deliver strong commercial and business performance. On the side of macroeconomic outlook, we do believe that Czech Republic will remain a stable country with increased -- slightly increased growth compared to 2024. Hence, if we play our role responsibly in the economy of Czech Republic, we should be able to continue this story of KB as you see it. Thank you very much again. I'm wishing you all a nice day, and I'm looking forward together with the management team to see you at latest at the occasion of the next quarter presentation. Thank you very much.

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

Thank you. Bye-bye.

Thank you. Bye.