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

Dear ladies and gentlemen, welcome to the conference call for MONETA Money Bank Regarding Full Year 2022 Financial Results. Please note that this conference call will be recorded. [Operator Instructions] May I now hand you over to Mr. Spurny, who will lead you through the conference call. Sir, please go ahead.

Good morning, ladies and gentlemen. This is Tomas Spurny speaking. I have the pleasure to begin our today's presentation. If I may ask you to turn your attention to Page 2. We start with the summary. During 2022, we were able to generate net profit of CZK 5.2 billion. This translates to CZK 10.20 earnings per share. If you look at the geography of the result on operating income, we reached CZK 12.1 billion, which is approximately CZK 100 million better than we anticipated in last February's guidance. On operating expenses, we came in at CZK 5.6 billion, equally this is about CZK 100 million better than originally anticipated. Our operating profit before tax and before cost of risk is CZK 6.5 billion. This constitutes an increase of nearly 16% against the previous year. We generated cost of risk charge for the year in the total amount of CZK 90 million. This is despite the fact that we have created considerable management overlays in anticipation of current or upcoming likelihood of recession. Likewise, we come in below -- significantly below the guidance through excellent performance of our workout team in recoveries, namely in disposal of nonperforming receivables. Now if we go to Page 3 quickly regarding developments of the balance sheet. Our asset base increased nearly 14% to CZK 388 billion. This is chiefly due to the fact that we have raised the CZK 49 billion of additional liquidity into the bank and the deposit base ended up at CZK 334 billion. Likewise, we strengthened issuance of securities. The year-end issued securities come at CZK 10 billion. We've raised additional CZK 3.9 billion in MREL-eligible securities. Our accounting equity stands at CZK 31 billion, which is an increase of 5.5%, and this reflects both the paid dividends during 2022, and over and above that, we added 20% of our current year earnings into the equity base. Gross performing receivables at CZK 270 billion. This constitutes growth of 5.6%, and we will go through the details of that in a few minutes. Investment securities portfolio increased by nearly 18% to CZK 58 billion as we have purchased chiefly Czech government securities, but we've also invested into some of the MREL issues of our competitors. Now on Page 4, the key ratios. Our net interest margin declined 20 basis points, and this is due to concentrated efforts to gather additional liquidity. Part of that was [ fueled ] by liquidity concerns this summer when we saw significant outflows from the bank. Secondly, our subsidiary, MONETA Building Society or MONETA Stavebni Sporitelna, is under legislative threat as the government is likely to withdraw support of the interest rate subsidies. Hence, we wanted to build additional liquidity buffer should that business be impacted by the tax policy or rather by the consolidation of public finance in Czech Republic, and today it is confirmed that is likely to take place. On productivity, cost-to-income ratio improved to a level of 46%. We also exceeded our expectations on the minimum return on tangible equity targets. We came in at 18.7% for the full year 2022. Loan-to-deposit ratio vastly improved to a level of 80%. At some points, we were operating the bank with this [ indicator at ] level of 94% to 95%. So this is a significant improvement of liquidity position of the bank. And on capital, through MREL issuance and through optimization, we reached 18%. If we turn page to key trends, I've already commented on the improved liquidity. We raised, all in all, about CZK 49 billion and decreased wholesale cost of funding by replacing it with retail deposits. On the capital and MREL requirement, we fulfilled the requirement to what we believe is a eligible cost. And additionally, we optimized RWAs and used some exceptions in the regulations to improve the overall capital ratio. Apart from that, we have focused, and we'll continue to focus on repricing of loan book. Last year, with respect to the yield on the loan book, we added 50 basis points, and we expect, at minimum, same performance this year gradually improving the NII. And with respect to dividend distribution, we exceeded the guidance quite significantly, and we intend to propose CZK 8 per share. This is subject to regulatory acquiescence. We have to file some documents with the regulator in order we receive a go ahead. And second milestone is the shareholder approval on [indiscernible] currently planned on 25th of April. If you look at the operating platform of the bank on Page 6, with respect to branches, we remain in an unchanged position of 153 units. Nonetheless, during the restructuring discussions that took place in the bank in the second half of the year, we've decided to exit 14 locations which are peripheral to both distribution and customer service, and we plan that this figure or footprint of the bank will change to 140 by the end of first quarter. Additionally, we've entered, as you know, into shared infrastructure agreement with Komercni Banka. Hence, our ATM footprint was enlarged 1,400 -- more than 1,400 ATMs. By the end of first quarter this year, we shall increase the footprint to more than 2,000 machines which we have [ contracted ] into this agreement, Air Bank and UniCredit Bank. With respect to employment, we ended the year with 2,700, shy 1, FTEs. By the end of first quarter, we will come near to our target of 2,500 FTEs as to reflect current business conditions and also the continued drive to achieve higher productivity in the bank, and this will help us in the current year to offset inflationary pressures that we face with respect to our cost base. With respect to total customers at MONETA, we exceeded the 1.5 million threshold. On gross basis, the bank attracted 170,000 new customers, which is roughly double the performance of previous years. And on our digital platform, we continue to enjoy a fairly strong success, namely through the integrated mobile banking platform called Smart Banka where we exceeded 800,000 users, and I'll come back to it in a minute. Now let me comment on the operating environment in the Czech Republic. So turning to Page 8. If you look at the GDP expectations, this comes in at 2.5%. Nonetheless, we believe that Czech Republic [ has ] entered into a technical recession, until [ latest ] reported numbers show 30 basis points decline of the GDP. This, however, so far has not translated itself into higher unemployment, which remains at low level. Nonetheless, the country has a significant structural deficit of public finance and continued to have high deficits for past 3 years. In the current year, the reported number is in excess of CZK 360 million. The current year 2023, the deficit is supposed to decrease to below CZK 300 billion, and the government, as of today, announced likely changes to real estate tax, withdrawal of support of the building savings societies, and additional accelerated measures. So the liquidity gathering exercise that we have endeavored in the second half of the year has proven to be useful as we now face difficult situation in our subsidiary. And I would like to remind that 10% of our funding comes from MONETA Stavebni Sporitelna or MONETA Building Society. If we look at Page 9, here we cover inflation, its [ compared ] impacts on interest rates. So if you look at the inflation, this is estimated to come in at 15.8%. The chief contributors to inflation are, obviously, energy prices, which are translating itself into also higher food prices and certain services are getting more expensive. With respect to Czech National Bank But and key rates, we have seen in past 2 years' time a sustained hikes in key rates. It's at 7%, and it seems to be held at this level as the Czech National Bank had a policy meeting yesterday and left the rates unchanged. We also portray here -- illustrate swap and bond yield curve. My comment here is that if you look at weekly volatility, it has been significant increasing actually during third and fourth quarter where the rates are changing by approximately 20 basis points each week. We have seen weeks where the rates were bouncing 40 to 50 basis points. So the environment is significantly different from what we experienced in last 5 years. Let me provide you also with a quick update on the banking market and MONETA performance against that. On Page 11, we look at the relevant deposit market, which grew 7% to CZK 5.6 billion. MONETA vastly outperformed this growth. We have posted growth in excess of 17%. The most notable growth and actually focus of our strategy was to diversify the deposit base into retail deposits. Here we grew at 18% [ off a ] significant cost and negative impact to the NII of the bank. Nonetheless, we've also enjoyed strong growth on the commercial deposit side where rounded up the market grew 10%, and we posted growth of 14.5%. Turning the page to Page 12. Let me walk you through the development of the relevant lending market. The lending market expanded at 5.6% to CZK 3.7 trillion. This is the first year where our growth in the loan book -- the overall loan book is lower than the market. We posted 4.8% growth. We matched the market growth on retail. Nonetheless, we had half the market growth on commercial. And this is due to the fact that the lending to commercial entities in Czech Republic is very quickly converting itself to euro-based loans. MONETA is a Czech crown-based bank. We have not easy access to funding on that front. And secondly, our prudential policy seeks to avoid underwriting foreign currency loans for entities that do not have income -- max income in that currency. So we are at a relative disadvantage due to these aspects to underwriting such lending. A brief comment on digital distribution and service that we provide. If you look at Page 14, we walk you through the 5-year development of our digital platforms, and we also try to estimate the impact of various features that we have added over those years. Here I would like to comment that we believe to be at the vanguard of providing digital services to our customers. And that is substantiated on Page 15 where we believe to have delivered satisfactory and, in some aspects, excellent performance. If you look on the right side of the chart, the excellent performance on current account and savings account distribution, where we enjoyed 60% and 35% overall proportion of our product origination to -- is attributable to digital channels. So it's one factor. Second factor is that the distribution of current accounts came in at 50,000 units, which is double -- more than double the previous year. If you look at on lending side, we continue to have growth. We've had 6% growth in digital distribution of consumer loans. This is predominantly done through existing customers of the bank, and we underwrote CZK 6.9 billion, reaching nearly 50% of the overall production being done through digital. Likewise, on small business, the growth of volume constitute 8.6% year-on-year and nearly 1/4 of the production to self-employed and small companies is now conducted to our digital channels. On Page 16, we illustrate the growth in the digital platforms where I would focus your attention on the mobile banking platform which grew nearly 50%. This is now the penetration of the core customer base increased from 39% to 55% of our customers now have downloaded the utility. And if you look at the transaction intensity, it is soon going to be double of what we do on the internet bank. So again, investment into wide and deep functionality of the application clearly bears fruits. On Page 17, just very quickly, our card business and digitization of cards. If you look at growth in our card transactions, they are in excess of 22%, which is, we believe, satisfactory performance in its own right. And additionally, if you look at cards that have been digitized, transactions are growing at more than 80%. So in the midterm, we would like to -- we would like to tokenize all cards that we issue and gradually discontinue issuance of plastic, improving our ESG or green posture for the bank. And with that comment, I will pause. I will hand over to my colleague, Jan Fricek, who will walk you through details of our financial performance. Jan, go ahead.

Thank you. Good morning, ladies and gentlemen. I am now on Page 19, and we'll continue with the profit and loss statement. Let me repeat the key financials. MONETA Group reported net income of CZK 5.2 billion, EPS of CZK 10.2 on revenue of CZK 12.1 billion and delivered return on tangible equity of 18.7%. Revenue growth of 8.5% is driven by higher net interest income, up by 8.2%, accompanied by net fee and commission income up by 12.1%. Cost base of CZK 5.6 billion kept broadly stable year-on-year despite double-digit inflation in the economy. On the cost of risk line, we reported CZK 90 million charge against nearly CZK 700 million last year. This favorable result was achieved through solid load portfolio quality, low delinquencies, and NPL portfolio reduction. More detail will be provided by [ Normannn in next section ]. On Page 20, we continue with NII. Firstly, lending interest income in the top right corner is up by CZK 0.5 billion, or 21%, achieved through loan book expansion of 5.6% accompanied by improved loan portfolio yield by 40 basis points. Treasury income, which is reported below. went up by more than CZK 1 billion, supported by the base rate increase by 3.25 percentage bonds during the last 12 months. Higher treasury income offset nearly 2/3 of the CZK 1.8 billion increase of the cost of deposits. The growth of cost of deposits is a function of the 17% deposit base expansion accompanied by repricing of significant portion of the balance to the current market planning. The deal flow of new deposits improved our liquidity position and support also our profitability through positive margin [indiscernible] excess liquidity in the central bank. Nonetheless, increased cost of funding led to NIM compression to 2.3% in Q4 against 2.6% reported for the whole year. This is in line with our outlook provided during the third quarter earnings call. Prospectively, we expect the NIM to reach a bottom in the first half of the year at 2.1%. And from the third quarter, should start picking up subject to our ability to reprice deposits down. Reported NIM for the Q1 '24 should be back at 2.7%. On the next page, we continue with the development of the net fee and commission income. The 19% growth is driven by higher commissions through the third-party product distribution, together with the higher transactional activity of our customers. On top of that, net fee income reported in Q4 was supported by extraordinary bonuses from our partners. The most significant bonus was linked to completed migration of our payment card portfolio to Visa. The income side is further broken down into categories on the next page. The chart on the left-hand side [ depicts ] transactional fee income growth of nearly 18% accompanied by pickup in servicing fees, predominantly early termination fees [ are below ] last year due to limited space for opportunistic refinancing. Third-party commissions on the right hand side reached CZK 322 million against CZK 283 million last year. Nearly 14% growth was achieved through solid performance in bulk distributed product categories. Further detail is provided on the next 2 pages. Income from distribution of insurance policies is analyzed on Page 23. The split indicates that about half of the delivered income is generated by distribution of payment protection insurance linked to our lending franchise. Besides that, the main increase year-on-year was achieved in personal financial insurance distribution, which nearly [ quadrupled ] year-on-year. Turning to Page 25, we have asset management overview. The income growth of 28% was delivered through outstanding bank expansion by more than 3% and further supported by updated pricing policy. Now we can move forward to the cost section, starting on Page 25. On the left-hand side, [indiscernible] year-on-year development. Overall cost base of kept broadly stable against 2021 as well as personnel and admin cost categories. The moderate growth is reported in regulatory charges and D&A. Cost-to-income ratio was pushed down to 46%. This outcome required a lot of focus and cost discipline across the bank, offsetting the overall inflationary pressure. Quarterly development is further analyzed over the next 2 pages, hence, let me go directly on Slide 26. On the right-hand side, we report quarterly development of the employment capacity. At the end of the last year, we reported 2,700 FTEs, which is 9.5%, so 282 below last year's numbers. Productivity improvement resulted from the FTEs reduction was critical to compensate for the average salary increase by 7.8% year on year and to maintain stability in personnel costs. Quarterly development on the left hand side also illustrates the impact of the one-offs on reported results. These one-offs mainly consist of severance payments and managerial performance bonuses that we typically accrue in the last quarter of the year. And on the next page, we conclude this section with the remaining 2 cost categories. In the chart on the left, we report administrative expenses adjusted for M&A-related costs that were reimbursed, almost 17% growth year-on-year is attributable to higher energy bills together with other facilities-related expenditures, accompanied by higher cost of cash transportation. Depreciation and amortization charge was up by 7.5% in the last quarter year-on-year and by 4.4% on a full year basis due to ongoing investments into the digital capability and IT infrastructure. With that, I will hand over to Andrew Gerber, who will continue with the balance sheet section. Thank you.

Thank you, Jan, and Good morning, ladies and gentlemen. So moving to Page 29, we present the development of the balance sheet, which expanded 13.9% year-over-year, with the customer deposit base increasing 17.2% whilst the loan portfolio increased 5.1%, leading to a decrease in the loan-to-deposit ratio from 90% to 80%. And we'll go into the detail behind some of these trends as we go through the material. Moving to Page 30, we present the development of the lending base, which increased by CZK 14.4 billion year-on-year with stable balance development visible in the last 2 quarters in line with the bank's strategy as we took a more circumspect position with respect to new credit risk origination in light of the uncertain outlook. Overall, now the retail and small business portfolios account for 74% of the total loan portfolio, just 1 percentage point below our target of 75%. Moving to Page 31, we present the development of the loan portfolio yields, which increased to 4.4%, driven by variable interest rate loans in the commercial segment and repricing across the retail products. When you look at the retail products, you see that the portfolio yield increased just 10 basis points, reflecting the fixed rate infrastructure of that portfolio, whereas in commercial, the portfolio yield increased by 150 bps on the basis that 28% of that portfolio is floating. Jan Novotny will take you through some detail as to the repricing outlook for the portfolios later on in the presentation. Moving to Page 32. We look at the development of the retail loan portfolio, which increased 6.8% year-over-year, predominantly driven by drawdown of existing mortgage commitments on the back of a very strong pipeline coming into the year. The mortgage portfolio itself increased 8.4% year-over-year. However, new business origination in the year 2022 was down significantly, 69% lower as the market slowed materially, and we expect this now to translate into lower [indiscernible] over the coming quarters. Similarly, in consumer loans, we saw modest growth of 2.9%. Again, this was on the back of significantly lower new origination with volumes down 6.8% in the year. However, we were -- we benefited from a significant improvement in early termination in the portfolio with early terminations down 28% year-over-year, leading to the modest growth in the portfolio. Moving on to Page 39. We present the developments of the yields in more detail. The new lending yields have improved significantly, supported by the higher interest rate environment. You can see in mortgages that the new volume yield increased 350 bps, whilst the portfolio yields increased 160 bps. Important to say is that this is the hedged yield. If we look at the underlying yield, the increase was more modest, 30 bps to 2.4%. In consumer lending, the new volume yields increased 160 bps reaching 8.9%, and this was enough to stabilize the portfolio yield overall. So with that, I will hand over to Jan Novotny who will take you through the commercial section.

Thank you very much, Andrew. Good morning, ladies and gentlemen. Now please let me walk you through the [ similar ] slides for commercial banking platform MONETA Money Bank. Let me start on Slide 34. You can see that we have ended up the year at CZK 83.4 billion, which is slightly below at the end of Q3. The slight decrease was caused by several [ bigger ] transactions being repaid as the customers were optimizing their cash and lending position for [indiscernible] financial statements. However, despite the short-term decrease, we have achieved 33.1% growth year-on-year. When you look on the right side of the page, you can see that we grew in almost all categories, the strongest growth in working capital and small business with a growth of above 20% as well as in auto loan portfolio that we have grew up by 7.8%. It is also worth to mention that in Q4, we have discontinued 3 business lines in commercial and put them into a [ runoff ] mode, leasing line, real estate financing line, and financing of housing properties. The effect of the closing is not visible in Q4. However, it will have some impact on the new origination and portfolio size going forward. Now let me move to Page 35, where you can see the development of the new volumes yields and the portfolio yield by the product category. We have continued to increase the pricing on new volumes throughout fourth quarter, and you can see the increasing portfolio rates across all the product lines, but especially in working capital product as the vast majority of those loans are based on the floating. This leads me to the overview on the next page, Page 37, which is showing the composition of the overall bank portfolio from interest rate [ structure view ]. As you can see on the chart, approximately 65% of our loan book will be retired or repaid in the next 36 months. You can see the split into variable rates, fixed to maturity, and a fixed to refixation period and its respective amounts within the next 12, 24, and 36 months. And now please let us move to the other side of our balance sheet. And for that, I would hand over back to Andrew.

Thank you, Jan. So on Page 37, we present the developments of the deposit base, which increased by CZK 44 billion year-over-year, CZK 39 billion in retail, CZK 10 billion in commercial, whilst the wholesale portfolio declined by CZK 5 billion. Overall, the strong development in retail and commercial deposit gathering was driven by our competitive positioning throughout the year, where we aim to remain competitive at least relative to the large players in the market. And we generally aim to move ahead of the market in order to try and gather deposits before the competitive intensity really increased. We were also very successful in exploiting our online assets in this space with 61% of the new savings accounts opened during 2022 opened fully online. Moving to Page 38. We look at the impact on cost of funding. You can see the acceleration of the cost of funding growth continued into the fourth quarter in both the retail and the commercial segments. The cost of funds increased 214 bps year-over-year overall with core customer deposits increasing 217 bps and similar trends in both retail and commercial. I think what's important to note here is that during the last 6 months, we have made a lot of assets in order to move a significant part of the portfolio into a pricing structure which will give us the flexibility to reprice effectively every 3 months with the first large tranche due for repricing at the end of March. So what we expect to see now is continued increase in the cost of funds through the first quarter and partially into the second quarter. And then subject to market conditions, we will be looking to start repricing of the portfolio later in the year with the effect becoming visible in the third and fourth quarter. But this, of course, is just subject to development of rates on the market. What's important is that we've given ourselves the legal and the technical room in order to do this. Moving to Page 39. We present the development of the retail deposit portfolio in a little more detail. Overall, the portfolio grew at 18%. And as I said, savings in terms of deposits were the main driver here, up 32.7%, whilst in current accounts, we saw 14.5% decline in the balance. This is driven predominantly by clients moving liquidity to higher-yielding savings accounts now that they're available on the market. What's important here is, as Tomas said earlier, overall, we recruited across retail and commercial, 170,000 new clients during the course of 2022. And we now see the first sign that this additional growth in the client base is sufficient to start stabilizing the current account portfolio, so we will be watching that over the coming quarters, but as I said, [ first signs ]. With that, I'll hand back to Jan who will take you through the commercial section.

Thank you very much, Andrew. Now on the Slide 40, you can see that the commercial deposit-taking franchise reported similar trends visible in retail. We have reached overall balance of CZK 77.5 billion, which represents 14.5% growth, thanks to improved product offer and also by refocusing our sales network from loan origination more towards deposit taking. We can also see positive slowdown of decreasing balance on current accounts with continued strong growth on savings and other resources. And now on the last page of the balance sheet section on Page 41. Please let me walk you through the evolution of our wholesale funding base of MONETA Money Bank. We have slightly increased our position in Q4, which was driven by successful issuance of additional CZK 1.5 billion MREL-eligible bonds, in line with the MREL build-up plan of MONETA Money Bank. This is all from my side. Thank you very much for your attention. And now please let me hand over to Normannn for the risk metrics, asset quality section of today's presentation.

All right. Thank you very much, Jan. Good morning. We are now on Page 43 with an overview of cost of risk over the last 2 years. Looking at Q4 of '22, we recorded a cost of risk of CZK 216 million. This is impacted by adjustments of managerial overlays both for our retail and commercial portfolios. These overlays shall account for the lack of sensitivity of our provisioning models towards the very specific macro and geopolitical situation we are currently facing. The total aggregate amount of such overlays at the end of '22 stood at close to CZK 850 million. Moreover, we still benefited from upgrades of previously downgraded and forborne receivables from Stage 3 to Stage 2. despite the aforementioned overlays, which were created throughout '22, the full year cost of risk amounted to only CZK 90 million, or 3 basis points, which is a significant improvement compared to the same period in '21. On the following Page 44, here we show the evolution of the loan portfolio, loan loss allowances, and overall coverages over the last 5 quarters. So while gross receivables grew by more than CZK 12 billion year-over-year, loan loss allowances dropped by around CZK 600 million, largely driven by a drop in our NPL stock, thanks to upgrades of the previously downgraded receivables. Sales of nonperforming loans have also so far experienced solid [ premium MREL ] to our customers. And as far as the overall coverage is concerned, this stands at 1.9% and remained unchanged the third quarter in a row. Moving to the next page, 45. Here we show the development of NPL in- and out-flows since December '21. The fourth quarter of last year showed a moderate net NPL formation, however, largely driven by a few isolated smaller commercial exposures. As a consequence, quarter-over-quarter, the NPL stock slightly increased by around CZK 40 million to a stock of CZK 3.8 billion at the year-end. Continuing on Page 46. Here we have a more detailed overview how the NPL stock evolved in the last 5 quarters. So year-over-year, both the retail as well as the commercial NPL stock showed significant drops and stood at CZK 2.85 billion for the retail book and close to CZK 940 million for the commercial book, respectively, at the end of Q4, the latter being the commercial increase due to some isolated downgrades we conducted in Q4, as I indicated on the previous page. And as far as the NPL ratio is concerned, this dropped from 2.2% in Q4 '21 to 1.4% at the end of '22, and it remained unchanged compared to the second and third quarters of last year. And the last page of the risk section here we show the evolution of delinquencies 30, 60 and 90 days past due over the last 4 years. What you can see across these buckets, delinquency rates remained fairly solid. They showed some small increases over the last 2 quarters, but significantly less pronounced than what we had anticipated earlier in '22. So summarizing the risk section, I think the core message is that despite moderately increased delinquency rates, the core performance of the credit portfolio remains fairly solid, and we have not yet seen any significant changes in key risk performance metrics. Notwithstanding that, we will continue monitoring our portfolio carefully with respect to the implications stemming from inflation, energy costs, and the overall geopolitical and macroeconomic environment. And as far as our provisioning approach is concerned, here we have tried, and we continue to do so, address these risks by having accounted for potential deterioration of the credit portfolio through the extension of management overlays within the framework we have created. As I said before, as of the end of December, we had a total amount of such overlays of around CZK 850 million, and this will be subject to reviews going forward. And with that, I'll hand over to Jan Fricek. Thank you.

Thank you, Normann. I'm now on Page 49. Evaluating the [ core position ] of the capital requirements stipulated by the Central Bank to the group as well as for the bank on an individual basis. As you can see on the left, our management's capital target on consolidated level currently stands at 16.1% and from the 12th of April that'll increase to 16.6%. But on the standalone level, the management capital target stands at 19.6% and is expected to go up during the year to 23.1%, primarily due to increase of the MREL requirement. Both capital positions are further analyzed on the next 2 pages. Let me start with a consolidated position on Page 15. At the end of the year, we reported regulatory capital of CZK 30.9 billion, RWAs reached CZK 172 billion with RWA density reduced to 43.4% through the implementation of net income derivatives, and as a result of that, capital adequacy ratio stood at 18%, with excess of 1.9% or CZK 3.3 billion in an absolute amount. This doesn't include the dividend accrual in the amount of CZK 4.1 billion, which is [ taken ] separately. The chart in the bottom-right corner reports development of the excess capital during the year. Increase of capital requirement in 2022 consumed CZK 2.9 billion of capital, nearly 10% of our total capital position. Nevertheless, this was offset through the RWA density improvement and regulatory capital optimization. If you [ turn the page ], we can continue with the standalone view. At the end of the fourth quarter, we reported regulatory capital position of CZK 35.3 billion, including MREL instruments of CZK 3.9 billion. MREL adequacy ratio stood at 21.4%, which is 80 basis points above our management stack. The anticipated increase of the capital requirement by 2.5%, the required additional capital or MREL-eligible instruments in amount of CZK 3.5 billion, considering several options, offering eligible deposit products to our clients or issuing eligible instruments, either on the domestic or international market. From the time perspective, we will target the second half of the year. And on Page 52, we conclude this section with the detail of our dividend proposal. Management plans to propose dividends in total amount of CZK 4.1 billion or CZK 8 per share, which is 14% above the year before. [ Implied ] payout ratio would represent 79% of consolidated net profit. So this concludes the capital management section, and I will now hand over to Tomas for the guidance and final remarks. Thank you.

Very well. So Page 54, we start with the [ backward ] view against guidance and our current results, the guidance which was communicated like February, you can see that we have across the board fulfilled the minimum targets. Now let's go to Page 55. And here, we then illustrate the minimum target for following 5-year period in terms of net profit and in terms of operating profit. So in terms of net profit, our minimum target for the next 5 years stands at CZK 23.6 billion. This is improvement in cumulative earnings of 18%. As you can see, the improvement is more notable in 2026 and in 2027. This is simply a function of the bank levy impacting the years of 2023 to 2025. The bank levy is estimated on a cumulative basis and about CZK 1 billion subject to change. So those earnings are diminished through that tax. Similar picture on the operating profit level. We would like to increase the operating profit level to cumulative CZK 35.9 billion, whilst during past 5 years, the bank made CZK 29.5 billion. So if we go to the following page, Page 27, here you have the pro forma P&L from perspective of minimum target. So overall, during the 5-year period, we would like to accomplish top line growth of minimum 4% in 2023, which is probably [ most relevant ]. We would like to match the operating income of past year, albeit the minimum target is slightly below. Its CZK 12 billion versus CZK 12.1 billion. On the cost level, even though we take many initiatives to control the cost base of the bank, we believe that we will come in at CZK 5.7 billion, and this probably has 3 components. First component are regulatory charges as we enjoy a higher deposit base, this will be impacted by that. Second, even though we are reducing level of employment in the bank, if you look at 2022, the average salary in the bank accelerated by 7.8%. And we expect a similar trend will be present with us during 2023 due to the inflationary environment. And on the bottom line through '23, we project minimum result of CZK 4.3 billion and the guidance is underpinned by a 80% payout ratio with respect to shareholder distributions, and this is obviously function of regulatory compliance and shareholder acquiescence with such. So if we turn to Page 58, you can see the key assumptions under the medium-term plan. With respect to 2023, we expect GDP contraction of 70 basis points, which is a bit more than the current recently published Czech National Bank's forecast. Unemployment at 3.2% during this year. The current unemployment is vastly below that. It's at a level of 2.5%. Inflation, when we constructed the slide, we estimated that the inflation would come down to 9.1%. Currently, the Governor of Czech National Bank mentioned in an interview that the Czech National Bank's projection on inflation for 2023 stands at 11%. We see -- [ we trend ] the plan in decreasing short-term rate. This is visible here in fairly strong crown against the euro, albeit the current exchange rate is even lower. The crown is stronger against the euro than we had in the plan. On Page 59, is a new balance sheet volumes. From volume perspective, our plan is not conservative because if you look at gross performing receivables, effectively we are projecting stable loan portfolio over the period of 3 years, and this is due to the uncertainty with respect to mortgage market, with respect to affordability of consumer lending, and additionally, the lower demand across commercial customers that we serve. On the customer deposit base, we are projecting a decline and the decline is caused by 2 factors: #1, uncertainty, what is going to happen with the building society deposits, which are currently substituted by the government and the Finance Ministry today confirmed that the subsidy will be withdrawn; and the second factor in our deposit strategy pertains to repricing that Andrew explained how we have built the products in order to be able to reprice them on a 3-month basis. So the plan reflects expected outflow of deposits and stabilization in '24 and '25 for 2 years and subsequently grow as the operating environment hopefully normalizes. So all in all, the guidance sets aspiration of the bank to increase the cumulative net profit by 18%, and I would like to stress that these are minimum targets which we would like to exceed as we have exceeded our targets in the past 5 years. Ladies and gentlemen, thank you for your patience with us, and we will now turn to Q&A and answer your questions.

[Operator Instructions] Our first question comes from Andrzej Nowaczek.

I have a couple of questions. First, on the [ windfall ] tax, it appears from the guidance that you are relatively relaxed about it, presumably because the NII has been weak, but also because you might be planning some mitigating measures. So any comment on it a little bit more, please?

We are proud to pay the tax as we are good citizens of this country. However, we are planning to enjoy tax-free returns on government bonds and this will positively impact our [ tax base ]. We will continue investments into assets on digital, namely in the small business and in SME perhaps accelerating those. And we are, I would say, conscientious of the tax, and we will use the 3-year period to strengthen the customer base of the bank, because if you look at 2022, we learned a couple of things: number one, nothing is forever. This pertains to the building saving society where we've been very successful competing against the 4 competitors that we have in the market. However, the government decides to change this, and we saw an alternative, and we successfully created that alternative in the form of deposits. So this was the first lesson. The second lesson is that we paid reasonable interest rate on our savings product with term deposits to both retail and commercial customers and the value of MONETA brand has been improved quite considerably by that, substantiated by the 170,000 customers who came into us, second lesson. The third lesson is the undisputable capacity of the digital assets that we operate, because if you look at 60% of the nearly CZK 40 billion on retail [ values ] through digital assets. So we have actually during 2022 entirely changed the strategy from lending, deposit gathering, and as we are able to optimize the cost base in the bank, we will be able to optimize the cost base of the funding. But we come out of 2022, difficult conditions, as a clear winner in terms of [ protecting ] and deepening customer loyalty, and we are tremendously proud of that.

Okay. So lower but appropriate ratio, more invested in bonds, what else? Let's see. And my second question is precisely on obviously on cost of risk specifically. The CNB seems to have implied rates will not fall too quick, and you're hoping that you'll be able to reprice the deposits from Q3. And then there's those other things that you mentioned withdrawal of the subsidies and so on. So if the CNB doesn't cut, will you keep your rates unchanged at the risk of losing market share and liquidity deteriorating, or would you just stay put?

We will behave according to the market, and I would split it into 2 parts. If you look at the portfolio, 68% of the portfolio will be repriced in 3 years, 28% of the portfolio will be repriced during 2023 on the asset side, so this provides upside to the NII which is not actually in my view present in many of the estimates by analysts around MONETA, so there is a significant upside on the asset side. That's #1. #2, we will adjust our strategy obviously to the interest rate environment. We frame the assumptions in fourth quarter based predictions by Czech National Bank with respect to the interest rates. Now this has changed, then we will see how situations develop. So we cannot guarantee that we will accomplish the reprice if the rates remain the same or if the rates go up. But if you look at it from today's vantage point, our deposit book is already repriced, by and large, not entirely, but by and large; the current account balances are stable; and we are attracting -- we continue to attract the very strong interest in our current account product. So we are as optimistic as circumstances allow that we will manage the minimum targets of CZK 12 billion on operating income level that we provide in the guidance. And we have some potential upside coming from other areas that I cannot comment right now, which would help us to supplement any gap on the expected NII performance.

And just to clarify, what did Jan say about the NIM outlook 2.7% in 2023 or was it 2024?

Before the first quarter.

Our next question comes from Robert Brzoza from PKO BP Securities.

I have a couple more questions. First of all, as I understand from the presentation that the bonus for partners which was included in the fee and commission line was in the -- it has manifested itself by lower expenses. Is that correct? And the next question would be, that implies that the expenses in this line should return to a more normal level going forward, right, treat it as one-off?

That's correct.

Okay. Then on employee-related costs, did I understood correctly that you already included some severance payments for the recently announced layoffs in the 4Q results? If so, maybe you can share the size of this additional charge, or whether still there will be some outstanding costs to be borne in 2023? And then moving on to the NII. You mentioned that you...

Robert.

Yes.

Jan Fricek will answer the question because otherwise...

In the fourth quarter we reported accrual for severance costs that will be paid in the first quarter of '23 in amount of CZK 14 million.

Right. And then on the NII performance and outlook, you mentioned that you made wriggle room for repricing. Can you be perhaps be more specific what you're referring to? Did you change, for example, frequency of repricing on loans or change from terms for deposits, what did you mean in detail here? And additionally, on the NII, are you looking when deciding about changing your approach towards deposit gathering, do you look at some parameters which guide you to set that decision in motion, say, loan to depo ratio or what potential indicators should we follow as a guidance to your decision making? So this is my almost last -- [ pre-last ] question on the NII if I may.

I apologize, but we don't have answer to that because this is public information and for obvious reasons we don't want to share the approach. The wriggle room that Andrew has created in the product design, I will let him comment on the "wriggle room."

This is with respect to the deposit product that I was referring. And what we have done is we've created a product structure where the interest rate comprises a base interest rate and a bonus that is applicable for a 3-month period, and then at the end of each 3-month period, we have the opportunity to set a new bonus or indeed to leave no bonus should that be the right thing to do. So this is how the product works and effectively gives us a repricing point every 3 months.

Right. Correct. Understood. And my last question on the NPL information. You noted in the presentation it has increased somewhat both in quarterly and annual terms -- I'm talking gross NPL formation -- Due to some incidents in the corporate segment. Could you give us more color on this? was it related to higher wage bill or higher energy spend? Do you have any visibility there whether that's something that given the situation in the overall economy could be repeated in the coming quarters or whether these were totally unrelated to the energy prices, to the inflation? Something completely different and therefore should not be repeated in the coming quarters.

Right. The very particular downgrades which we have conducted here in Q4 were indeed unrelated to the overall, let's say, economic situation be it energy prices. We have been going through a very extended period of literally 0xx defaults. Now we had a few minor ones, not big tickets. And on top of that, of course, we continue with the forbearance measures for customers who have a problem and ask for a payment holiday which would have downgrade. So we don't see here with these isolated cases a general change of the trends. I cannot predict the future. That's why we have created the managerial overlays both for commercial and for retail, which takes into account and stress tests part of our portfolio exactly because of energy price increases, inflation, and the overall macroeconomic situation, but these particular increases which we have witnessed in Q4 were not unrelated, so I cannot see a beginning of the change of the trends.

Very specifically, if you look at the increase in the NPL, it's driven by commercial, it's on Page 46, and NPLs in retail are actually going down about CZK 80 million. In commercial, we had 3 notable defaults. Not actually defaults. One is -- not actually defaults default but downgrades: one is a well-collateralized agricultural enterprise, which invested in the biogas power plant. And the biogas power plant was [ removed ] with the delay. However, our level of collateralization to agricultural land and to assets of the company is sufficient. This was in the order of magnitude of about -- and I'm fishing in my mind -- I think hitting CZK 80 million. Secondly, we had medical equipment manufacturer who got into difficulties because cost of funding where we believe that the company can be restructured. And again, we are fairly well collateralized on that, and this is an order of magnitude of about CZK 50 million, these are 2 that we have seen in the commercial element that what we see on the commercial side. A small construction company getting into difficulty because the construction market is contracting due to the high barrier similarly better and I realize in the imports. So we see some companies. Nonetheless, I would like to stress, on the res side, as Normann reported, we have management overlie in the amount in excess of CZK 800 million to CZK 850 million. So this is already on the books as pushing over and above. There is model output. And if you look at the guidance, we have a conservative guidance all in all, the bank is positioned to the tune of CZK 1.8 billion, perhaps CZK 2 billion to absorb any upcoming defaults on retails and for commercials during 2023. So we are as well prepared as we can be -- for potential difficulties. And last argument, in last year, we sold CZK 1 billion of non-performing receivables with a gain of CZK 247 million, and we have broadly equivalent targets for 2023, which is not embedded neither in the guidance or business plan of the Bank, because by definition, we are unable to plan this subject to demand and satisfactory prices coming from third parties to buy these receivables.

Right. I understood. Can I -- just one last, because I couldn't hear clearly on my side, the figure CZK 2.4 billion, which you have given during the presentation, did it refer to the NII in the 1Q '23 or that was something different?

I haven't given any CZK 2.4 billion neither anybody else here.

[Operator Instructions] Our next question is from [indiscernible]. He asks, are you considering buybacks in the future?

Yes, we will consider this in view of the 80% payout. This is something that we have successfully approved with Czech National Bank previously. We were not able to execute it because of the onset of the COVID pandemic. And we will consider the buyback or buybacks once the MREL requirement is fully met by the banks. So this would be third or fourth quarter of this year and potential realizations. If we like to go this way, would come in at the beginning of next year. That is 2024. But this is something under consideration.

Our final question comes from Thomas Unger.

I would have 3 questions that I still would like to raise. First of all, what do you assume in terms of the capital ratio development in 2023? And specifically, is there a potential for RWAs optimization throughout the year. You don't expect any asset growth or loan growth throughout the year. So do you assume RWAs to decline throughout the year? The second question would be on maybe a bit more of specifics on the revenue outlook for '23 and '24 mid-term. If you can talk about what you assume for the NII? And how far you assume fees and commissions to increase this year, next year? That would be great. And then lastly, and you just talked about the risk development and your portfolio NPL ratio very low, and the stock of overlays, is that CZK 850 million currently? Does the risk guidance for '23 include any utilization of those overlays? You said that NPL sales are -- the gains of that are not included in the outlook. So a bit more color on '23 risk environment, what you assume would be wonderful?

We should send us our spreadsheet and results fully. If I can, slightly broadly on the RWAs, we are not assuming decline because we have optimized the declines out the RWAs. So the only current density reduction available to us is 2 additional collateralization, namely of the small business franchise, where this will have in essence for very low impact on the overall RWAs. So that's the answer to the first question. Number 2, you asked about the NII. We will not provide estimates to breakdown of the NII. The only comment I will make is on the net fees and commissions, where we would like this year to accomplish low double-digit growth. So [indiscernible] let's say, somewhere around 10%, this is the aspiration of the bank with respect to less fees and commissions this year, and this will come on third-party product distribution, and it will come from transactional fees. What was the third question?

Cost of risk?

On the cost of risk, Normann will give you some additional view.

As you can see in the guidance, we have put that 25 to 45 basis points the managerial overlay, which we have created the CZK 850 million follows a certain logic, because the output of the calculation, which we have done for potentially vulnerable portfolios, both in retail and commercial. Now should these assumptions not materialize, obviously, that we don't need the material -- overlay anymore and if it is contemplates [indiscernible]. So to your question, yes, the cost of risk for this year within this range would include amenity or overlay. At the end of the day, the risk performance would be better and the macro, which the underlying assumptions for the stress testing would not materialize or not being rated anymore. And we will come in with a lower number. And this tells, on which Tomas referred to is not yet included.

[Operator Instructions] Our next question is from Marta Jezewska-Wasilewska.

Yes. Can I ask if you could guide us through the downgrade of outlook for revenues? In February 2022, you presented 2023 outlook for revenues of CZK 12.5 billion guidance. This time, you expect at least CZK 12 billion for revenues. Can you just talk us through what were the main reason for this downgrade?

It's obviously coming from the NII and higher cost of deposits. If you look at the key assumptions under the plan in 2022, the key rates have changed from assumed 4.5% to 7%. So this does have a negative impact on the cost of deposits because well, I think it's obvious. So on that front, the environment had developed in an entirely different way than what we had assumed in January 2022 when we were constructing the guidance at that point.

Okay. And maybe just another question, during the presentation, you mentioned there were some inventory lines on the corporate segment is mainly leasing for your spread financing [ and start one ] I didn't catch, but can you just share some light, why you see this decline in the business?

Jan Novotny will give you an answer.

The inventory lines, which was a leasing as you remember from the past, it was a company we acquired back in 2014, and the company long-term starts to meet the profitability requirements. So from a cost perspective, we decide to really put it into the runoffs. So there will be no more new origination in leasing. The second was real estate. We had a small team dedicated for the real estate transactions. But as the market is quite volatile, despite the fact that we have no delinquencies, neither a covenant breach, we decided to stop or to do it very selectively to invest into the real estate. So that was the second line. The third line was the housing societies. We decided, again, on the legal side, we decided to discontinue again. We did a very few volumes in 2022. There was originally acquired business from [indiscernible], however, with a super tiny margin. I think we have a very big business profitability. Not profitability, I think we have a huge disadvantage in this case, not to be on IRB. But to be standardized approach, we're -- long time to achieve sufficient profitability. And again, because we wanted to save the cost and streamline the business, we expect to discontinue also origination on the fund.

And I would add on the leasing. We faced very unfavorable tax treatment of rate charges. That is charges are effectively not tax deductible, due to a clerk in Czech EXCO. So if you run our leasing business, it actually takes a very long-time before any losses that you suffer on the credit become tax deductible. And this was the additional basis that negatively impacted our view on the leasing business. We operated the leasing business mainly in order to be able to reclaim a portion of our VAT-based services and commodities purchased by the Bank and the leasing market had converted itself from provision of reaching -- provision of credit. So we saw it announced in the call to have credit origination capability in the Bank and the prices and at parallel and is in the recent companies. So I think we should actually be paid for being fairly fanatical about trying to achieve a minimum 15% return on equity in the subsidiaries and if they don't fulfill this requirements we close them.

Okay. And just maybe one specific question about the public guarantee fund contribution for this year. Any thoughts on that?

The total will be around CZK 250 million. CZK 280 million, I'm sorry, I misspoke, CZK 280 million.

Altogether, including contribution to the net voucher and recovery fund.

We currently have no further questions. I'll now hand back over to Tomas Spurny for closing remarks.

Thanks. So let me summarize, looking backwards, we've made CZK 5.2 billion net profit. This translates to 18.7% return on tangible equity, net return therefore 3.7% higher than our minimum management target as we would like to deliver a steady performance at the minimum 15% return on tangible equity. That closes the discussion regarding 2022. Going forward, on a 5-year cumulative basis, we would like to accomplish net profit of CZK 33.6 billion, which is cumulatively 18% higher than the previous 5 years. We estimate the bank levy impact at around CZK 1 billion. This will impact the Bank's earnings during the year 2023 until 2025. We are tremendously grateful to your interest in MONETA. We thank you for the participation. And collectively as well as individually, we wish you a good weekend, and we are looking forward to our next interaction of 27 April 2023.

Thank you, everyone. This concludes today's webinar. You may now disconnect from the call.