MONETA Money Bank, a.s. (MONET) Earnings Call Transcript & Summary

Dear ladies and gentlemen, we apologize for the technical difficulties and the delay in starting today's call. Welcome to the conference call of MONETA Money Bank regarding the first half of 2022 results. Please note that this conference call will be recorded. [Operator Instructions] May I now hand over to Mr. Spurny, who will lead you through the conference call. Sir, please go ahead.

Good morning, ladies and gentlemen. I have the pleasure of presenting first half results of 2022. If I may ask your attention to Slide #2. We have delivered in the first half of the year, net profit of CZK 2.9 billion. This constitutes an increase of more than 100%. Net profit was delivered on the basis of operating income, which reached CZK 6.1 billion. We have improvement against comparable period of previous year of 13.1%. In terms of operating expenses, the bank incurred CZK 2.8 billion of costs. This constitutes a decrease of 1.9%, namely due to certain one-off that we had in recovering expenses from an M&A project. Altogether, operating profit before impairment came in at CZK 3.3 billion. This constitutes an increase of nearly 30% compared to previous year. On cost of risk, net provisioning, we have a release of provisions of CZK 250 million due to upgrade of certain exposures that were impacted by COVID-related repayment moratoria and these exposures have proven to be resilient. Hence, we have the provisioning release, which we anticipated at the end of last year. On Page 3, we move on to the shape of the balance sheet and its development. In terms of balance sheet, MONETA has CZK 367 billion of assets. This constitutes an increase of 16% year-on-year. With respect to lending portfolio, we have a lending portfolio of CZK 267 billion. The performing portfolio grew by 11.7% matched by 11.4% deposit growth. And deposits, we've ended up in the first half of the year with CZK 290.5 billion and we also have bonds issued in the amount of CZK 9.4 billion. The volume of this funding increased year-on-year by slightly more than 27%. Equity of the bank is stable at CZK 28.8 billion due to inclusion of current earnings and payment of dividends. So this takes us to Page #4. If you look at the key metrics of the bank net interest margin at 2.8%. This is a slight improvement compared to first half of previous year. Cost-to-income ratio at 46%. This is 7 percentage points better than last year where we were well over 50% return on tangible equity likewise has nearly doubled and came in at 22.6%. This is annualized first half. In terms of capital adequacy ratio, the bank has a ratio of 16.8%. This is a slight decrease due to growth of the lending book and a different method of calculating operational risk. And lastly, liquidity coverage ratio at nearly 150% decreasing as the deposit gathering activity had slowed down in the -- throughout the second quarter of the first half of this year. On Page 5, we try to outline the key events impacting the bank. First and foremost, we have delivered a lower new business volumes. This is the most visible in the realm of mortgage lending, where the bank generated new volume of CZK 35.4 billion. This is 20 -- nearly 21% lower than comparable period of the last year due to higher interest rates and therefore, lower and decreasing demand for mortgages. We also see pressure on cost of funding. Cost of funding increased from 38 basis points to 110 basis points in the first half of the year, and we expect that this trend will continue in the second half of the year. We experienced fairly significant pressure on the cost base due to inflationary pressures. This comes across the cost categories from wages through cost of rents, purchased commodities, services and energy that the bank consumes in order to sustain operations of its business model. We are also face increasing capital requirements. The capital requirement in the next 9 months will consume CZK 2.7 billion of excess capital in earnings that we will generate throughout the 3 quarters of the year. This is solely due to rising countercyclical buffer as mandated by the Czech National Bank, and we also had been impacted by increase of Pillar II requirement where Czech National Bank took action across the market. On Page 6, we provide you with a brief view of the bank's operating platform. Branch network remains unchanged. We have 154 branches, we operate 154 branches. We have extensively increased ATM coverage, ATM network through a partnership with our competitor, Komercni banka, where we provide each other's customer base with free access to respective ATM network. Hence, we count to have now 1,421 ATMs on a combined basis. Our client base grew 5.8% per annum. This is one of the highest growth that we've experienced in the last 3 to 5 years, and we have reached 1.5 million customers. We likewise experienced continued growth in the usage of our mobile banking platform. By midyear, we've registered 632,000 downloads of our mobile banking application. And as you see, the level of employment in the bank decreased by 5.5%. We employed 2,880 full-time equivalent employees. On Page 7, we provide you with a view of recognitions and accolades that the bank received in the first half of this year. Most importantly, we have become the most rewarded bank through a local competition called Golden Crown in ZLATÁ KORUNA, where the bank has received 14 awards, and this puts us at the vanguard of the local banking industry where this was awarded to us by an independent jury of 350 professionals working in the industry. So this is highly coveted reward, which actually recognizes our efforts and endeavors to innovate both product, services of the bank. Now let me move to macroeconomic environment and the operating space of the bank. On Page 9, we provide you with a summary, key data on the Czech economy, the GDP of Czech Republic is expected to slow down this year to 1.2% growth from previous year of 3.5%. As you can see, the indebtedness of the country is increasing both in relative and obviously, absolute terms, this is due to the fact that we have strong inflation, combined with high-budget deficit. The budget deficit reached CZK 183 billion midyear. It is expected to come in this year at CZK 330 billion, which is CZK 50 billion higher than the initial estimate of the new government that is managing the country since end of last year. Unemployment remains very low at 2.5%. So so far, we haven't seen the inflation impacting -- or the economy or the lower level of growth impacting the number of job seekers. On Page 10, we provide a little bit more insight on the inflation. The inflation year-to-date at 9.4%, the latest figure at 17.2% in June 2020 to the high inflation level reflect itself in the monetary policy of Czech National Bank, which increased the rate, the key rate to 7%. And we currently have an inverted yield curve, you can see that the high point on the yield curve is at 6 months, gradually decreasing from -- to relative native stability between 5 and 10 years. And the inflation is driven by food and beverage prices, energy, housing, transportation, these are the highest contributors to the inflationary level. And unfortunately, we also have public debate regarding potential so called windfall tax, where the government aims to collect higher taxes from the energy and most likely banking industry as well. This is in light of the very high budget deficit, the windfall tax on incremental or marginal basis could be 40% to 60% of additional pretax profit to us. We do not have visibility how that additional pretax profit of windfall would be calculated. But we expect that the public discussion and the policymakers' discussions will continue by -- in the fall of this year, and we see a real risk that the tax would come into place before the end of this year. So this is not certainly a positive news. In the following section, let me move into a brief update on the banking market and how MONETA performs against the backdrop of the market overall. Here, we provide the last point on the chart in May as the June numbers were not available at time of preparation for this conference call. On Page 13, we seek to illustrate the development in the deposit market, the deposit market on a 12-month basis grew slightly more than 8%. MONETA outperformed the market, growing at 11.6% and by May, end of May, we reached core customer deposit base, CZK 297.2 billion. You can see that we outperformed the market almost 3.5x in retail deposits. We increased retail deposit base to CZK 223.7 billion in May. Nonetheless, what is visible from the second quarter data compared to first quarter data is that the growth had slowed down and have been arrested by the market competition. In commercial deposits, we grew at 9.4% against market growth of 13.3%. And here, as you know, we do not benefit from having a corporate banking market franchises. We are focused on the self-employed and small businesses and SMEs. Therefore, our market growth is lower, and we reached CZK 73.5 billion deposit base as of end of May. Now let's look at the lending market, the relevant lending market in Czech Republic, the market reached nearly CZK 3.6 trillion. It registered overall growth of 6.6%. MONETA overperformed its growth by nearly 50%, growing at 9.2%, and we have reached CZK 268.1 billion at the end of first half. The key area of growth came in retail, where we grew nearly 10%, and we commanded a portfolio of CZK 185 billion in -- at the end of May. Likewise, commercial loans grew at 7.6% outperforming the market growth of 5.1% and the ending balance of this portfolio has been at CZK 83 billion. Now a little bit on our digital distribution. If I may have your attention to Page 16, what we have seen is a shift in distribution from credit products to retail, transactional and wealth management products. You can see that we have significantly improved distribution of our retail current accounts. We distributed in the first half of the year, 15,800 units digitally, which equals to growth of more than 30% compared to the previous year. On savings accounts, we saw an exponential growth likewise on term deposits as the higher rates attract account switching and new account purchases. This is true namely on term deposits where we have sold more than 11.4x the number of units. Compared to that, you can see a dramatic decline on the digital distribution of mortgages, where we focused mainly on refinancing here the change in terms of underwritten amount is nearly 56%. However, we maintained a fairly good growth on the consumer lending and business lending where both categories have grown by the double-digit figures. And we have phenomenal success in digitally distributing small business evolving products as our digital offer is very robust. On the following page, we also show you progress on digital payments. You can see that the mobile banking platform customer usage is expanding at nearly 26%, and we have 12% growth in Internet banking registered users. In terms of transactional numbers, mobile banking grew by more than 50%, and we have 6.7% growth on the Internet banking platform, which we should address as this is a little bit below our expectations. On the following Page 18, continuing with transactional banking. You can also see on this page that we have very good growth in terms of debit card transactions or card payment transactions at nearly 27%, and we have phenomenal success in tokenized payment growth. These are tokenized cards producing fully digital payments. This is 100%, more than 100% growth in the 12-month period. And on the following page, on Page 19, we seek to summarize innovations that we have delivered in the first half of the year. We have now available on our digital platform, supplementary pension savings, distribution of the product is available there. We have also digitized a number of service operations related to our mortgage portfolio. We have added the ability of our customers to procure term deposit products through both Internet banking and mobile banking platform. And we have put out an innovative current account proposition, which is called family account. In the second half of the year, we plan to address account closure through digital channels. Also, we will be able to enable our customers to perform mortgage interest rate, re-fixation for mortgages, digital subscription management so that through the mobile banking platform, you can manage the various prepaid or postpaid services like Netflix, Apple TV, et cetera, from one place. And we would also like to enable commercial deposit taking an account signature through the digital channels for small business for small business customers. Here, I will hand over to my colleague, Jan Fricek, who will give you more detail on the P&L development of the bank. So please take it away.

Thank you. Good afternoon, ladies and gentlemen. I'm now on Page 21, and I'll continue with the profit and loss statement. Let me repeat, delivered consolidated net profit of nearly CZK 2.9 billion represents growth of 101% and return on tangible equity of 22.6% is also more than doubled against the year before. MONETA generated revenue of nearly CZK 6.1 billion, which is 13% up year-on-year. The growth is driven by 18% higher net interest income accompanied by net fee and commission income, up by 6.7%. We maintained our cost base broadly stable despite facing double-digit inflationary pressure. And on the cost of risk line, we report a net release of CZK 250 million, which is primarily attributable to a material reduction of the NPLs through a combination of upgrades and disposals as well as solid payment discipline. Gain on NPL disposals in the first half reached CZK 160 million. On Page 22, we provide underlying dynamics of nearly 20% NII growth year-on-year. Firstly, lending interest income in the top right-hand side corner is up by 21%, which is primarily a function of the loan book expansion by nearly 12%, accompanied by improved portfolio yield by 9% in relative terms. Secondly, during the last 3 quarters, we faced considerable pressure from the cost of funding going up by CZK 670 million against the second quarter last year. Partial repricing of the deposit base was inevitable reaction due to higher market trades. On the other hand, higher market rates resulted in a significantly better treasury income, which went up by CZK 610 million and offset 90% of the incremental cost of deposits year-on-year. On a quarterly basis, net interest income in Q2 was broadly stable or only 1% above Q1 as the upside of the interest income was largely offset by incremental cost of funding. This is a trend which we expect to continue in the rest of the year. Net interest margin stood at 2.8% in the first half, same as in 2021. Going forward, we expect slight oscillation around this level. On the next page, we continue with the development of net fee and commission income. The 10.1% growth is driven by higher commissions from the third-party products distribution together with higher transactional activity of our customers. The income side is further analyzed on the next page. The commission income from the third parties is up by 15.8% driven by asset management as well as distribution of insurance products. Bottom chart provides detail of other fee income categories where increased transactional activity resulted in overall 4.3% growth year-on-year. On Page 25, we provide further detail about investment funds distribution. In the second quarter, we reported commission income grew by nearly 37% year-on-year. And at the same time, the portfolio underneath increased by 12.2% despite the slowdown in the first half due to corrections on the financial markets and elevated withdrawals. Since the July 1, we resumed charging opening fee to further support this revenue stream going forward. Now we can move forward to the cost section starting on Page 26. Cost base in the second quarter was about CZK 60 million or 4.4% in relative terms to the comparable quarter last year. This is basically a function of reimbursement of incurred M&A costs, partially offset by additional contribution to the deposit insurance fund relating to the failure of Smart Banka and inflationary pressure across the board. Improved revenue line, together with lower cost base resulted in a cost-to-income ratio of 41.6%, nearly 8 percentage points below the year before. On Page 27, we explain in detailed personnel expenses development. In the first half, we reported personnel costs stable against the comparable period last year despite continued inflationary pressure. This was achieved through the diligent focus on productivity and efficiency across the bank, which is demonstrated by 5.5% FTE's reduction. Going forward, we seek to keep personnel costs broadly stable through the further headcount reduction and increasing productivity of deployed personnel capacity. Apart from that in the second quarter, management decided to increase salaries of the most vulnerable employees to the significantly elevated inflation. And on the last page of this section, we provided the composition of other 2 cost categories. In the chart on the left-hand side, we report admin costs adjusted for reimbursed M&A expenditures incurred in 2021 and 2022. More than 4% growth year-on-year is attributable to higher intangibles together with other facilities-related costs and also cost of transport of cash as we tightened management of available cash at branches and ATMs. Depreciation and amortization charge provided on the right-hand side is up by 3.7% due to ongoing investments into the digital capability and IT infrastructure. Before I hand over to Jan Novotny, who will present the balance sheet section, let me summarize highlights of the P&L. Net profit of CZK 2.9 billion is up 101% year-on-year, driven by 13% operating income growth, stable cost base and net release on the cost of risk part. Thank you.

Thank you, Jan. Good afternoon, ladies and gentlemen. I have the project to walk you through the balance development section of today's presentation. So let me jump straight into the first slide. As you can see on the page there, MONETA has maintained strong balance sheet at the level of CZK 367.1 billion for the end of Q2, with continuous growth in the key categories on both sides of the balance sheet being a 11.1% year-on-year growth in net customer loans or 11.4% year-on-year growth in net customer deposits. On the next page, Page 31, you can see the spread of the total gross performing loan portfolio per customer segment, where we continue to focus to increase our retail and small business portfolio according to our strategy. And as of the end of the second quarter, we have increased the share of those portfolio to 73%. Now let's move to the portfolio development overview per segment. As you can see on the Page 32, the overall loan portfolio improved to 4.1% due to favorable interest rate environment. On the right side of the page, you can see the respective split per segment with stabilization and starting improvement on the retail loan portfolio and improvement on commercial loans. These changes are driven by significantly higher pricing on new origination as well as thanks to the significant share of floating rates based on floating rate based loans in the commercial segment. But now please let me move to the Slide #33, showing more detailed view on growth on our loan own portfolio on retail side. You can see the very solid growth of overall portfolio that have reached CZK 184.2 billion at the end of Q2, with 12.7% growth year-on-year. This still consists of further growth of the mortgage portfolio by 17.2% despite the decrease in new origination as we are disbursing loans approved within the Q1 and Q4 last year, but it's also driven by reestablished growth on consumer loan portfolio by 2.9% and increasing size of the retail auto portfolio by more than 9%. The only decreasing portfolio is the credit card and overdraft portfolio. However, this is in line with the decreasing balances of those products across the market. On the next page, Page 34, you can see the comparison of the portfolio yield compared to the new volume yield. And as you can see, we grow significantly in all major categories. However, the full impact will be visible even more going forward as we have increased the pricing throughout the second quarter as we were gradually absorbing the growing rates. Now let me walk you through the similar split of the commercial portfolio on the Page 35. You can see here a very solid growth of more than 9% year-on-year and reaching CZK 83 billion at the end of Q2. On the right side of the page, you can again see more detailed split per product category. I would like to highlight mainly the continued growth on high-yielding small business portfolio, where we have reached CZK 11.5 billion, and we have achieved overall 32.7% year-on-year growth. On the next slide, Slide #36, you can again see the comparison of the yields between current portfolio and the new origination for commercial segment. And similarly to the retail segment, we can see significant increase of the new origination yield across all the product lines. What is also visible is a steep increase of the yield on working capital product, which is driven a part of the increase on the yield on origination, mainly by the fact that the vast majority of working capital lines are priced at a floating rate based either on PRIBOR or on Euribor. Now let me walk you through 2 new slides compared to our previous quarter presentations. We have an information about the new production of the key categories of products. You can see that we are executing on our strategy to shift the new production of the bank more towards the high-margin products. And that is the reason for decreasing volumes and mortgages as we have decided to increase significantly the pricing of the new origination and focus mainly on internal production, especially through the digital channels. At the same time, we are focusing more on consumer lending, small business lending and also some selective SME products where we can achieve sufficient return on capital and higher margins. Now on the next slide, Slide #38, you can see the answer for a question that many of you are raising during our discussions, the split of the current bank loan portfolio per time of contractual re-fixation of repayment schedule. On the total level, around 65% of the bank current portfolio will be repriced or repaid in the next 36 months. In the chart, you can see more detailed split. We have almost CZK 26 billion of the portfolio in flow that is repriced along with a PRIBOR or a Euribor. The CZK 85.7 billion in fixed portfolio due to be fully repaid in the next 36 months and CZK 155.7 billion in fixed portfolio, out of which CZK 86.3 billion will be repriced in the next 36 months. Then on the right side of the page, you can see more detailed split by time to repay or refix and also the respective customer segment. Now let me move to the second part of the balance sheet section, starting on the Page 39, where you can see that we are more than successful in gathering new deposits with year-on-year growth of more than 12.6%. You can also see that we are successful across all segments, and then in line with our strategy, we ended the second quarter with a share of the retail deposits at the level of 72%. However, it needs to be mentioned that our tactic implemented at the end of the last year to raise the deposits through saving accounts and term deposit was not as sufficient to raise the deposits throughout Q2 as it was previously. And that the deposit raising effort is becoming more and more difficult and competitive. Now let me move to the next slide, Slide #40. You can see the development of the cost of funds and the split by the customer segment. Overall cost of funds for the bank was at the end of Q2 at the level of 1.23%. Core customer deposits reached 1.18%. And then on the right side of the page, you can see also the split between the retail and commercial deposits ending at 1.27% and 0.89%. Now moving back to customer deposit balances starting with retail customer deposits with 12.5% year-on-year growth and overall balance of CZK 224 billion. On the right side of the page, you can see the respective growth in product categories where you can see that the growth is mainly in saving accounts, where we were able not only to grow on new customers, but also to stabilize some of the balances that were indenture to leave from the current accounts in MONETA to another bank. On the next page, Page 42, you can see similar split for commercial deposits, and you can also see similar dynamics. However, with one small difference, as more of the new customers or stabilized deposits of current accounts balances grows rather to term deposits due to the nature of the customer segment. Now please let me move to the last slide of the balance sheet development section of today's presentation, which is Slide #43, regarding the wholesale funding development. You can see that we have achieved growth exceeding 45% in year-on-year comparison. And on the right side of the page, you can also see that the MREL bonds issuance in Q1 2022 has further solidified our position with a very favorable pricing at 1.7%. So that was all from my side, and this concludes the balance sheet development section. And now please let me thank you for your attention. And please let me hand over to Normann Vokt to walk you through the next section, the risk metrics and asset quality.

Thank you, Jan. Good afternoon. We are now on Page 45 with an overview of cost of risk so in the first 6 months of this year, we recorded a net release of risk provisions in the amount of CZK 250 million or 19 basis points, which constitutes a significant improvement compared to the first half of last year. The main driver behind this positive development is the solid core performance of the portfolio, upgrades of around CZK 1.6 billion of receivables from Stage 3 to Stage 2 as well as net sales having a positive P&L impact on cost of risk in the amount of CZK 160 million. Looking at the performance of the 2 main segments. In the second quarter here, retail recorded a net release of CZK 262 million, mainly driven by improving credit quality and net sales. And as for the commercial segment, here, we saw a book-up of CZK 106 million due to individual prudential provisioning measures associated with the current macro environment and effects of the Russian invasion to Ukraine. On the following Page 46 here, we show the evolution of the loan portfolio, loan loss allowances and overall coverages over the last 5 quarters, while our gross receivables grew by more than CZK 25 million year-over-year. Loan loss allowances dropped by around CZK 1.1 billion, largely driven by upgraded restructured receivables, NPL sales and the solid repayment MREL but also improving macroeconomic assumptions in our models. As far as the overall coverage is concerned, this currently stands at 1.9%. Moving to the next page, 47. Here, we show the evolution of nonperforming loans in and outflows since June 2021. The development in the second quarter of this year was significantly and positively impacted by almost CZK 1.3 billion of receivables, which secured out of which around CZK 0.5 billion comes from upgrades of COVID-related restructured receivables. And as a consequence, year-over-year, the NPL stock dropped by almost CZK 2.5 billion. Going to Page 48 here. We have a more detailed overview how the nonperforming loan stock evolved year-over-year, both the commercial as well as the retail NPL stock dropped by around CZK 2 billion and CZK 0.5 billion, respectively. And as a result of this, the NPL ratio dropped from 2.5% a year ago to 1.4% at the end of June, which is a historical low. On the next page, 49, here, we show the evolution of delinquencies, 30, 60, 90 days past due for the last 3.5 years. So across delinquency buckets, these remain on a comparatively low level, still significantly below levels observed during pre-COVID times. However, given the overall current environment, it can be expected that delinquencies should be gradually rising over the next quarters. Even though at this stage, we cannot observe any major deterioration of the portfolio. So summarizing the risk section, the core message is that we have seen a solid performance in the first 2 quarters of this year, both in terms of delinquencies, cost of risk and evolution of NPL ratio whilst maintaining prudent coverages. However, with the current interest rate environment, significant inflationary pressure and further anticipated increase of energy prices or gas supply shortages, the risk increases that this will sooner or later adversely impact the cap servicing of models. Needless to say, uncertainties around the development of the Russian-initiated war as well as the evolution of the pandemic in the second half of this year, make it challenging to fully predict the overall impact on cost of risk. Since this macroeconomic and geopolitical situation is unprecedented, we intend not to exclusively rely on our statistical reserving models. And we, therefore, plan to create a framework of managerial overlays for some of our portfolios. These overlays shall compensate for the lack of sensitivities of our IFRS 9 models to the specificity of the current situation and reflect potential risks stemming from the increased interest rates, gas and energy price increases or gas shortages, including these overlays, we currently expect to incur a cost of risk of somewhere between 20 and 40 basis points for the full year, which is in line with the provided guidance we provided back in February 2022. And with that, I hand over to Jan Fricek. Thank you.

Thank you, Normann. I'm now on Page 51 where we provide a projection of capital requirement on consolidated and individual basis. Group management capital target we put it in the upper table, currently stands at 15.1%, which is 100 basis points above our regulatory requirement valid from the July 1. In the next 9 months, the capital target will increase by 150 basis points to a level of 16.6%. This is a result of Central Bank's decision to gradually increase the country's cyclical buffer to 2.5%. In absolute figures, the 150 basis points increase will consume about CZK 2.7 billion of our regulatory capital. The main difference between the individual and the consolidated requirements is the MREL requirement, which is relevant only on the individual basis reported in the bottom table. Our strategy here is to cover our MREL requirements from issuance of so-called MREL eligible bonds. In the first quarter, we printed CZK 100 million of senior preferred euro-denominated bonds, and we plan to go to the market again later this year, subject to market availability. This time, it's the benchmark size, which will sufficiently cover our needs for a minimum next 2 years. Let me emphasize the fact that successful issuance of these bonds is critical to keep our dividend capacity untouched. And now we can look at our reported position on Page 52. At the end of June, our accounting equity stood at CZK 28.8 billion and regulatory capital reached CZK 29.3 million. The increase of both positions is driven by the retained earnings. However, only 20% of current year profit has been retained in the balance of regulatory capital. The rest, CZK 2.3 billion is retained separately as an accrual for future dividends. Risk-weighted assets reported bill increased by 13.6% during the last 18 months against the loan portfolio growth of 18% over the same period. This resulted in a decrease of RWA density by 4 percentage points. Main drivers of this efficiency improvement besides diligent capital management is increasing share of secured lending, namely mortgages with lower risk rate. And on Page 53, we report our capital adequacy position and excess capital. Total capital adequacy of 16.8% reported in June is 1.7% above our capital management target. And Tier 1 capital adequacy stood at 14.1% with an excess of 1.9%. In the chart below, we show development of the excess capital from the beginning of the year, increased by the dividend accrual. Altogether, at the end of the second quarter, we reported excess of CZK 5.2 billion or CZK 10 per share. This concludes the capital management section, and I will now hand over to Tomas for an update about upcoming events and closing remarks. Thank you.

Okay. If you look at Page 55, we have 4 upcoming events for investor interaction. And what is important here is that we have moved the date of our third quarter earnings release to October 27, so we have shortened the reporting period from November 3. This is on the basis of the fact that previously, we had expected that we would report MONETA Money Bank. Hence, we added 1 week. Now we are taking it back in order to be first in the market. If I look at our situation today and the expectation of second half of this year, I think what we would like to do is confirm the guidance where we've committed to target CZK 4.4 billion net profit for this year, we consider that being achievable. If we start with the positives, we could have an upside of approximately 10% in the net profit, perhaps slightly more. However, we see some negatives, which are surrounding us and provide quite formidable headwinds. If I try to summarize them by size, the first headwind is cost of funding as we expect that the cost of funding will increase and might accelerate in the second half of the year. Second headwind, which could be quite unpleasant is the taxation as we tend to think there is likelihood that this could come in already this year. Third is cost of risk where we are working, as Normann said, on a framework of management overlays where we would try to simulate the shortcoming of past-looking statistical models with insight and local knowledge and try to create additional provisions through the management overlays to prepare the bank for what might turn out to be a very difficult 2023 from cost of risk performance. The last one is actually inflation of cost as we believe that we have demonstrated ability to deal with the cost challenge, which is a lot more in many instances in our control. So these are the 4 distinct headwinds that we might have to somehow challenge. On this basis, we've elected not to change the guidance because confluence of any 3 of those could lead to results, which will not be materially different from the guidance. So we want to have caution. On dividend distribution, there is an additional headwind as Jan reported the increasing capital requirement in the 9 months in itself will consume additional CZK 2.7 billion. So this is given. Second, we need to fulfill the MREL requirement stipulated by the regulator on the individual -- the MONETA individual basis and starting in the fall of this year, we need to satisfy the requirement. We are planning to do CZK 500 million equivalent in order to be able to continue with our payout policy, we need to issue at minimum CZK 200 million to prepare the bank for 2023. And subsequently, we would have to do the rest of it. So we have started planning this way ahead. We are about 90% ready. Nonetheless, we can't guarantee that there will be depth in the market to absorb our MREL. That's why we have gone to the market in February before the Russian started prosecuting the war. We obviously didn't have that insight, and we tried to do a debut in the market where we were able to issue CZK 100 million under conditions that prevailed then. So I believe that we have done what we are planning as much as possible to prepare the bank for fairly challenging 12, perhaps 20, 24 months. And with that thought, I will turn over to the moderator the discussion, and we will try to answer any questions that you might have. And we again apologize for the technical difficulty. However, this was beyond our control.

[Operator Instructions] Our first question comes from the line of Simon Nellis. [Operator Instructions]

I missed the first half of the presentation, actually, I think I was stuck in the wrong waiting room for a while. I was just hoping you could elaborate just a bit more on where you see margin going over the next couple of quarters and into next year and the various factors influencing it? That would be my main question. And then maybe just on the tax, if you could summarize what's led you to be so pessimistic on the outlook for special taxes?

Well, on the margin, on the spread on the balance sheet, we would like to achieve NIM of 2.7%. This is built into our business plan, perhaps slightly better. This depends very much on -- not so much on the loan book but it depends on our ability to manage the deposit position, and this is quite frankly unpredictable at the moment because the situation is challenging. We will not, let's say, bounce over that. And I don't really want to say more than that because I simply don't know. We will do our utmost to keep it at the business plan level, but we can't guarantee it. On the tax, what made me so negative? Well, I would say my Hungarian experience, my Romanian experience and what I observed in the country. The debt Czech Republic surpassed CZK 2.7 trillion. So that's CZK 2,700 billion. This was reported 2 weeks ago. The intended budget deficit was revised from CZK 280 billion to CZK 330 billion. And in May, the country incurred deficit of CZK 183 billion. So on the more micro minute level, I've had discussions with some senior people from the largest energy company in the Czech Republic, and they have provided me with anecdotal evidence of what they are subjected to from the public with respect to retail bills. And on that basis, I think politically, the energy sector will get taxed 100% because there is a fair amount of displeasure on their profitability and the banks are entering that equation because that's where the money is. So based on my experience, I have also seen some papers that were discussed by the government officials and these papers point to the need to take this action. And lastly, 4 out of 5 coalition partners are in favor of taxation. So it's just a question of time before the 5th will join them because the state of public finance in Czech Republic is in disarray, we are -- we can be grateful to the preceding government for that. And I think the situation is such where argumentation against the tax is not a particularly good idea. So this is my assessment, and we felt compelled to put it on the table transparently because nobody else seems to be doing it.

Yes. No, I appreciate it. And then just -- sorry, just back on the margins. So you're guiding -- well, you're hoping to hit the plan of 2.7%, but I guess the margin is kind of there. So you're looking for, well, at best flattish margin in the second half.

That is correct.

[Operator Instructions]

Robert, I think we will complete the conference. Once again, I tremendously apologize that you've encountered difficulty at the beginning that we began late the presentation. Next time, we will be even more diligent in trying to avoid a situation like this. We thank you for your time, and we are looking forward to seeing you, hearing you, presenting to you next time. Next time is October 27. The date has been moved, and we are looking forward to giving you some good results at that time, hopefully. Have a very good rest of the afternoon, as per the weekend we are looking forward to communicating with you again. Thank you very much on behalf of management of MONETA Money Bank.

Thank you, everybody. This concludes today's call. You may now disconnect.