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

Dear ladies and gentlemen, welcome to the Conference Call of MONETA Money Bank regarding Full Year 2023 Financial Results. Please note that this conference call will be recorded. This event will have a live presentation followed by a Q&A session. As a reminder, all participants will be in listen-only mode. Today's speakers are Mr. Tomas Spurny, Mr. Carl Normann Vokt, Mr. Jan Fricek, and Mr. Andrew Gerber. 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 to open today's presentation of our 2023 result and coverage of the fourth quarter of the previous year. If I may ask you to turn attention to Page #2, where we have the key highlights of the full year. Last year, MONETA generated net profit of CZK 5.2 billion. We have slight improvement or stability, if you will. Against the previous year, we performed at a level of 0.3% better. The net result translates into earnings per share of CZK 10.2 per share. And on the basis of the result as well as strong capital position of the bank, we intend to propose the general shareholder meeting dividend distribution of CZK 9 per share. CZK 9 per share constitutes more than 12% increase against the dividend paid with respect to 2022. Additionally to that, we had relatively good year if you look at the size of the bank, the organic growth, brought expansion of more than 19% with respect to the overall asset base of the bank. Our tactical posture on the market was very much geared towards deposit gathering. Hence, the funding base of the bank expanded by 20% the level and reached a level of CZK 415 billion. As anticipated in February 2023, we were concerned regarding economic contraction in the Czech Republic, we tightened credit standards. And we forecasted that the lending portfolio will be kept at a stable level, which is the reality. We came back with CZK 263 billion in performing loans or contraction of 2.1%. If we then look at Page 3, very briefly, last year in February '23, we published guidance. Here, we have the results against that guidance. We believe we have met it in all categories. We could discuss that the operating expense in granular view is [ 5,732 ]. So there is a slight overrun against the minimum target, nonetheless, given the circumstances of last year, namely the inflationary pressures, we think this is a satisfactory result. With respect to return on tangible equity, we delivered 18%, which is above the target that we have committed to. Now if I can turn attention to the operating environment, brief synthesis on Page 5, we have a quarterly view of the GDP both in absolute and relative terms. Overall, the year, the estimated contraction is at level of 40 basis points, which is somewhat below what we had expected for the year, we thought the contraction would be more significant. If you look at the quarterly view, the fourth quarter came in at 20 basis contraction. For the upcoming year, we expect that the GDP will grow at 1.5%, and this is contained in the guidance assumptions that we will cover later. If you look at the government debt and public deficit, you see third consecutive year of public deficit coming down from very high level at COVID and post-COVID period. So the consolidation of public finance is ongoing and it has also been reflected in so-called consolidation package, which the current government was able to pass through legislators. The economy also continues to enjoy nearly full employment. Based on the eurostat methodology, the unemployment level is at 2.7%. Therefore, we are slightly skeptical with respect to the growth capacity of the Czech economy in the upcoming year. On Page 6, we provide a brief summary of inflation and interest rate environment. If you look at last year's inflation, double-digit figure of nearly 11% or 10.7% to be specific with the December inflation reaching nearly 7% to 6.9%. So clearly, the message is positive. The inflation is coming down. It should come down quite considerably throughout 2024. In the table below, we show you the key contributors to inflation on both annual and December basis. So the positive news here is that namely food and beverages price increases have been arrested and are abating. We still face housing and energy increase in December, which is not surprising. I would say the positive expectations, coupled with the decrease of inflation, namely throughout the fourth quarter, resulted in market optimism with respect to medium and long-term rates. This is visible from the expectations embedded in the spot market. If you look at the graph, the gray line shows where the expectations were at the end of '22. And the blue line shows the decline in interest rate expectations, which we face currently. And equally importantly, the Central Bank cut the key [ 2-week ] rates by 25 basis points at the end of December. We expect another cut in the upcoming meeting of the Central Bank on February 8, and we estimate that the cut could be 50 basis points this time around. Now if we turn page to Page 7, brief view of the relevant banking market. If you look at the deposit market, it reached CZK 6.4 trillion and expanding throughout the year by nearly 15%. MONETA overperformed in terms of growth, the market rate, namely being successful in deposit gathering on the retail front, where our performance came in at above 22%, which is almost 3x the market growth. We also posted fairly solid performance in our view on the commercial deposit market. Even though we do not have large corporate customers, we managed to grow at 11%, which is roughly 1/2 of the overall market growth. Now if we turn page, we look at the lending market. Interestingly, despite the relatively negative performance of the economy, which we can call stagnation, I suppose, the lending market grew at 6.4% and reached a level of nearly CZK 4 trillion. MONETA in this respect is a laggard. We contracted the retail book at 3.8% against the market growth due to our very defensive procyclical stance based on our expectations around how the economy will perform. Nonetheless, on the commercial side of things, we managed to post a slight growth, which is driven by focusing on small business and high-value products in terms of both margin and return on equity, and this will be visible from later part of the presentation. So with this respect, I will turn over to Andrew Gerber, who will summarize for you the evolution of our digital and branch-based operating platform.

Thank you, Tomas, and good morning, ladies and gentlemen. So moving to Page 10, I'll start with an overview of the digital platform, which has become a critical distribution and service channel for the bank. Overall, 99% of retail wire transfer transactions are conducted via the digital platform. In 2023, we delivered 64.7 million payment transactions through the channel, up 17.7% year-over-year. And in terms of servicing, 18.7 million servicing transactions went through the digital platform, up 41.2% year-over-year, which reflects our continuous build-out of the servicing capability within the digital platform. In terms of sales transactions, the digital platform delivered 670,000 unit sales transactions. This was stable year-over-year, which reflected a slightly weaker performance in terms of the lending, which as Tomas described was the result of our more circumspect positioning with respect to the lending market. In terms of users, the digital platform stands at 1.4 million users, which is up 12.8% year-over-year. We have available for sale on the platform 29 products and this we continue to build out as we go. And the mobile banking platform continues to be regarded as one of the best platforms in the market with 45 awards received since 2016. Moving to Page 11. You can see that the digital channels become a key enabler for product sales and a strong complement to the branch network. There are a number of key areas where the digital platform is now the primary sales channel and there are a number of areas where we continue to make progress. I think the one area that's not on here is mortgages where branches continue to play an important role. But even there, we're seeing our online platform start to gain significant traction. Going on to Page 12. You can see that the digital platform users grew almost 13% year-over-year, and this was driven by rapid growth in mobile banking. What we see is that the Internet banking platform as a stand-alone platform is declining and more and more users are either using mobile exclusively or more frequently using a combination of the 2 where there are also occasional users of Internet banking. And this is evident on the right-hand side of the page, when you look at the transactions contracted through the digital platform, which grew 17.5% year-over-year with mobile now accounting for 78%. So we continue to see shift in actual transaction volume into the mobile platform. Moving to Page 13. We look at some of the achievements in '23 and the priorities for '24. I'll just touch on a few. And I think the most important way is in the title, which is that the digital platform attracted 47,000 new-to-bank clients. We've been very successful with this platform in the past as a cross-sell platform for existing clients, but it's always been our objective that it should also play a role in acquisition of new clients. And in '23, 35% of the new clients acquired for the bank came through the digital platform, which ensures the progress we're making there. In terms of other highlights, in credit distribution, we had 110% growth of fully online distribution of commercial credit cards which I think is a great success, and it demonstrates that we now have found a proposition on a distribution platform for credit cards that really works for distributing them online. And this is something we will continue into 2024 and have expanded into the retail segment as well. And I think no presentation these days is complete without some reference to AI. So here, I would say we're kind of at the beginning, but we did run some pilots last year. Most importantly, we are experimenting with AI as a way of streamlining operational processes within the bank. And we ran a pilot on screening of investment calls which we have a regulatory obligation to do. And this looks relatively promising. So we're optimistic that there are opportunities to streamline the operation using new technologies. So looking forward to '24, I think naturally, deposit repricing is a critical area for us. And here, we're focused on personalization and automation of retention. This is really developing more sophisticated pricing strategies for the deposit portfolio as we reprice it. We would like to transform our online currency exchange into a full 24/7 service. We experimented in '23 with extended opening hours on the service with pretty good results. So we think there's an opportunity there. And finally, in the context of our overall distribution strategy, I'll mention the omnichannel mortgage platform, where what we're planning to do is to take the online platform, which we've developed and which has been fairly successful and adapt that in order to allow it to be used also for branch distribution with a need to allowing clients to move seamlessly between the 2 channels. And this is particularly important in light of our distribution strategy, where in the fourth quarter last year, we took the decision to step back from distributing through brokers who are particularly important for the mortgage market and our ability now to get the branch network and online working together will be critical to our strategy going forward. So on that note, moving to Page 14. I'll briefly cover the branch network, which continues to play an important, however, decreasing or diminishing role in distribution and service for the bank. In terms of branch visits, we saw 1.1 million visits last year, down 5.1%. Cash transactions decreased 18.4% and other payment transactions down 8.5%. On the other hand, in terms of loan applications, we saw 382,000 loan applications via the branch network, and this was a growth of 7.5%. The number of branches ended the year at 134. This is down 19 units since the end of the previous year. And in terms of staff deployed at the branches, we had 1,143, a decrease of 6.5%. Hopefully, that provides a reasonable overview of the operating platform of the bank. And with that, I will hand over to Jan Fricek, who will take you through the profit and loss development.

Thank you, Andrew. Good morning, ladies and gentlemen. I will now continue with the profit and loss statement starting on Page 16. Let me [Technical Difficulty] the key financials. In 2023, MONETA delivered net profit of CZK 5.2 billion and earnings per share of CZK 10.20. A return on tangible equity stood at 18%. Operating income of CZK 12.1 billion was delivered on a basis of 14% growth of net fee and commission income accompanied by other income higher by CZK 440 million year-on-year. On the other hand, net interest income declined by nearly 8%. Our cost base reached CZK 5.7 billion. This is only a marginal increase of 2.4% year-on-year, and it's significantly below the inflation reported for the whole economy. Cost of risk line shows a slightly higher charge in 2023 against 2022. However, this is significantly below our original expectation, delivered based on continuing focus on portfolio quality and the benign environment. and supported from gains on NPL disposals. Net profit line significantly benefited also from a lower effective tax rate from 19.4% to 14.9%, resulting from our previous investments into Czech government bonds, generating tax-free income. On Page 17, we can continue with the net interest income drivers or analysis in more detail. Year-on-year, we report a decline of 7.9% driven by elevated cost of funding, only partially offset by improved interest income from lending together with better interest income from treasury operations. Quarterly development is reported on the right. And here, you can see in the top 2 charts that both interest income from lending as well as income from treasury operations shows improving trend during the whole year. If you look at the fourth quarter, in total, these 2 categories delivered by CZK 1,450 million better result than in the last quarter of 2022. And let me remind you that since the fourth quarter of '23, we lost the remuneration on minimum deposit reserves in the Central Bank, which cost us about CZK 120 million in the fourth quarter. Interest income on customer deposits shows increasing trend as well. However, at a slightly lower pace of CZK 1,370 million if we compare the fourth quarter of '23 against the year before. And in total, this shows improving trend of net interest income on [Technical Difficulty] basis during the year. On the following 2 pages, we provide more detail of net fee and commission income development. Year-on-year, we report a better result of 14%, in total, CZK 2.6 billion in 2023. And this improvement was delivered predominantly due to commission income growth of 40%. In the chart on the right, you can see more detail. If I start from the top, commission income from distribution of third-party products of 40% year-on-year was supported by Improving the result in distribution of asset management as well as insurance products. Fee income shows a broadly stable development on a quarterly basis during the year. An increasing trend of fee expense is in line with the higher transactional activity of our customers. Here, the lower fee expense reported in the last quarter of 2022 was supported by extraordinary bonus being obtained from our partners. And on Page 19, we provide more detail to our performance in distribution of third-party products. If I start on the left with the asset management during the year we expanded the portfolio of distributed investment funds by 37%. And at the end, the position stood at CZK 38.5 billion. Here, the driver is significantly elevated distributed volume in the fourth quarter amid improved demand for the investment products. And this positive trend is visible or continues in January of 2024. Below that, you can see that the commission income generated by the asset management improved by 9.6% and reached CZK 330 million in 2023. And the top chart on the right side shows 52% growth of the commission income from distribution of insurance products, where the main driver was improving results of distribution life insurance together with the pension insurance product, where we achieved improved commercial conditions and also strengthened the distribution capacity. And we completed this section with the cost base reported on Page 20. As I said, over a marginal increase of 2.4% year-on-year or CZK 140 million in absolute amount. This increase comparing to double-digit inflation in the economy, we perceive as fairly decent result demonstrating cost discipline of the bank. And moreover, about 2/3 of the increase are driven by higher regulatory charges. Besides that, we maintained the personnel costs stable year-on-year or slightly below the 2022, that higher or increased average salary was fully funded by improved productivity. And the quarterly development on the right shows a seasonality or volatility between the quarters, and this has several drivers. First of all, annual [indiscernible] charges are accrued in the first quarter. On the other hand, the variable performance bonuses, we typically accrue only in the last quarter. And the third driver is a different marketing effort and other initiatives during the year. So that was all about profit and loss statement. And with that, I will hand over back to Andrew to continue with the balance sheet. Thank you.

Thank you, Jan. So if we move to Page 22, we have a high-level view on the balance sheet development. where you can see stable lending with increasing yields and strong growth in the funding base resulting in higher cost of funding. Overall, net customer loans decreased 2.1%. And as Tomas said earlier, this was driven predominantly by retail and in turn, by somewhat higher pricing as we sought to reflect the higher cost of funding and also tighter credit underwriting criteria as we sought to reflect the general macro environment. Towards the end of the year, some of those pressures started to ease up, and we've been able to price a little bit more aggressively starting in December and to slightly improve approval rate. So we will see how that develops over the coming months. With respect to yield, you can see that the loan portfolio yield increased 44 basis points year-over-year. This was driven predominantly by repricing of the commercial loan portfolio where a significant part is on floating rates and to a much more limited extent by repricing of the mortgage portfolio where the refixations are much slower to roll through. In terms of the funding base, we grew 20.1% year-over-year. And as Tomas said earlier, this was driven predominantly by strong development in retail deposits although this also brought significantly higher cost of funding up 167 basis points year-over-year. If we move to Page 23, we present a more detailed view of the balance sheet development. The balance sheet expanded by CZK 458 billion, as we said, driven by strong deposit growth. On the asset side of the balance sheet, you can see net customer loans are down slightly whilst investment securities and cash and balances with the [ CNB ] increased significantly. On the liability side, you can see the growth being driven by customer deposits, which are up 19.6% year-over-year on the back of our deposit gathering strategy. Moving to Page 24, we present the detail of the loan portfolio development, where the loan portfolio decreased in line with the plan due to lower mortgage volumes and generally cautious lending approach. As I said earlier, the portfolio decreased 2.3%, where retail was down 3.8%. Small business continued to perform well, up 11.8%, driven by our automated lending products and SMEs more or less stable. On Page 25, we present the yield development of the loan portfolio. Overall, the loan portfolio yield was up 50 basis points. As I mentioned, this is driven predominantly by repricing of the commercial portfolio, which was up 80 bps and to a lesser degree by retail, where you can see the further yield was up 30 bps year-over-year. On Page 26, we present the detail of the deposit portfolio, which delivered a growth of CZK 70 billion in incremental funding, which helped to support stabilization from net interest income. Overall, as we said, the portfolio was up 20.1% with retail growing 22.2%, commercial 11.1% and wholesale up 33.1% where key driver there was the subordinated term deposit, which we distributed. Finally, on Page 27, we present the cost of funding development where the growth in cost of funding has decelerated in both retail and commercial over the latter part of the year. Overall, the cost of funds increased 93 bps year-over-year, and this is more or less reflected through the segments with the exception of commercial where the increase was slightly lower at 68 bps. So overall, I think it was obviously a very strong year in terms of deposit gathering, more of a transitional year in terms of the lending business. However, I think going forward into 2024, obviously, our big challenge now is managing the deposit portfolio and the repricing of the deposit portfolio. And this is what we will focus on now. So with that, I will hand over to Jan, who will take you through the liquidity development.

Thank you, Andrew. Before we go into the details, let me summarize key liquidity ratios reported on Page 29. Incremental liquidity, which we obtained or gathered during 2023, significantly strengthened our liquidity position, which is visible on all [ team ] ratios. If I start with loan-to-deposit ratio, here, you can see a decline by 15 percentage points to 66%. And on the right share of high-quality liquid assets on customer deposits increased to 40%. Though that net stable funding ratio stood at 164% against the regulatory limit of 100%. and liquidity coverage ratio rounds up to 354% against 100% at a regulatory limit. On Page 30, we provide a detailed development of high-quality liquid assets. As you can see, at the year-end, we reported a position of CZK 160 billion, which represents 86% year-on-year or CZK 74 billion in absolute amount. And about 2/3 of the incremental liquidity was invested into government bonds and on 1/3 remained placed with the Czech National Bank. On the next page, we provide interest rate sensitivity of our balance sheet. It is Page 31. The incremental liquidity increased the share of assets and liabilities at the variable interest rate in 2023. If we look at the asset side, here, the share increased from 32% to 46% and stood at CZK 201 billion at year-end, against, liability side, which increased, liability share increased from 51% to 58% and stood at CZK 242 billion. These assets and liabilities can be repriced within 3 months, in line with the market rate change and contractually repriced within 3 months with one exception and those are savings accounts. CZK 194 billion of savings accounts are repriceable within 3 months as well, however, based on the management's decision without the direct link to market rate levels. We also calculated simplified NII sensitivity on the static balance sheet. And this shows on this estimate that 100 basis point decline of the market rate would improve our top line by approximately by CZK 400 million on an annualized basis. And this assumes a full reflection of the 100 basis points market rate drop on the asset side as well as on the liability side. On Page 32, we continue with the repricing or a repayment profile of our loan book. Out of CZK 264 billion loans, CZK 22 billion are exposures at variable interest rate, CZK 84 billion are at fixed rate maturity and nearly CZK 158 billion are at fixed rate to the end of refixation period. Those are mostly mortgages. On the right side, you can see that about half of the loan book or 48% precisely will be repriced already paid within the next 24 months and 3 quarters repriced or repaid within the next 36 months. And if you flip the page, we provide a similar view on our customer deposit base, Out of CZK 399 billion, CZK 53 billion are term deposits, CZK 252 billion are savings accounts and CZK 94 billion of current accounts. On the right side, you can see that 57% of the deposit base or CZK 230 billion of deposits are eligible for the repricing within 3 months. And on the other hand, about 1/3 of the deposit base provides limited capacity for reprice down due to already very low pricing. So that was all to the liquidity management, and I will now move on to the capital management section starting on Page 35. Firstly, let me summarize capital ratios on a consolidated level. Capital adequacy ratio stood at 20.1% at year-end against management target of 16.1%. And also Tier 1 capital adequacy stood at 15.7% above management target of 13.2%. On both, you can see an improvement in the level against the comparing position a year ago. CZK 9 per share as a proposed dividend corresponds to dividend accrual of CZK 4.6 billion, which we reported at the year end of 2023. And as was said, this is by 12.5%, the higher position than accrued at the end of 2022. And lastly, our excess capital reached CZK 4.25 billion at the year-end, which is by 15.6% higher than we maintained at the end of 2022. On Page 36, we can continue with the detail the composition of our capital requirements on both individual and consolidated level. Let me start with the consolidated level I reported on the left, there, our capital requirement is 15.1% and management's target at 16.1%, inclusive of the management buffer of 1%. And since January 1, 2024, our management target decreased by 30 basis points, resulting from lower Pillar II. On an individual basis, we have to cover also the MREL requirement of 6.6%. Hence, the management target is higher. It stood at 22.7% and remained stable for the first quarter of 2024. The lower Pillar II by 30 basis points will be reflected only in the second quarter this year. Hence, the management target declined to 22.4% on an individual level. And let me continue on Page 37 with a detailed view on capital position on individual basis. Here, our regulatory capital and MREL instruments in total stood at CZK 38.4 Billion. This is by 8.9% above the position reported at the year end of 2022, where the growth is driven by successfully distributed [ separated ] deposit issued in June and July of 2023. Decline in risk-weighted assets density is driven by a higher share of liquidity in the balance sheet and MREL adequacy ratio stood at 24.1%, which is by 1.4% above our management target. In total, the capital position provides sufficient excess enabling to increase the proposed dividend payout from originally targeted level 80% to 88%. And let me complete this section with the consolidated position where regulatory capital reached CZK 33.6 billion at year-end. Also risk-weighted assets density decreased, and Tier 1 capital adequacy ratio stood at 15.7%. This is the most important ratio from the dividend capacity point of view, but the excess capital stood at 2.5%, which in absolute terms corresponds to CZK 4.25 billion. This is on top of the dividend accrual of CZK 4.6 billion. And last comment, let me highlight that the Pillar II reduction hasn't been reflected yet. Hence, since January 2024, the excess capital has increased by additional CZK 500 million. With that, let me hand over to Normann, who will walk you through the next section. Thank you very much.

Thank you, Jan. Good morning. We are now on Page 40 with an overview of key risk performance metrics. Let me start on the top left on the cost of risk. So the cost of risk ended up with CZK 305 million or 11 basis points. This is well below the initial guidance early last year, but also well below the last guidance we provided to you [indiscernible] of 15 to 35 basis points. The key driver I would say is a solid core performance, NPL disposals and to some extent, still upgraded [ foregone ] receivables from the past. The difference to '22, where we still had a very, very low cost of risk of 3 basis points is driven by a very huge amount of upgraded receivables from the COVID period. As this portfolio is coming down, we didn't have the same benefit in '23. With regard to loan loss provision coverage and the NPL coverage, most ratios came down for similar reasons, namely the NPL disposals and the upgrades of previously foregone receivables. And as far as the nonperforming loan ratio is concerned, this stayed flat year-over-year and stood at 1.4% at the end of December. Turning to Page 41. Here, we have a more granular view on cost of risk, a quarterly view in the last 2 years and also a segmental view. So, in the retail lending space, we recorded a cost of risk of CZK 140 million and in commercial, CZK 160 million. Within the CZK 160 million commercial, almost half of that amount is attributable to one single commercial default, if not for that, needless to say, the cost of risk would be lower. Nonperforming loan sales continue to play a fairly important role in our collection strategy. So in 2023, we executed debt sales in the amount of CZK 1.2 billion, recording a pretax profit of CZK 307 million, which was even a bit above the amount we generated in '22. Going to the next page, Page 42. Here, we have an overview of the evolution of our gross loan receivables and the loan loss provisions and related metrics. So the gross loan portfolio dropped year-over-year by around CZK 6 billion, whereas the loan loss provisions and the coverages dropped year-over-year. If you look at the top right box, and in particular Q4, here, you will notice we have reduced the management overlays from above CZK 900 million to CZK 643 million. This is a result of a back-testing exercise of our management overlay framework as we have seen that some of the risk metrics we anticipate to see in the second half of the year did not materialize, which made us conclude that an adjustment of the overlays is necessary. The nonperforming loan portfolio on the top left, the stock only increased by a small amount by roughly CZK 60 million, so almost stayed flat year-over-year. Moving to Page 43. Here, you have an overview of in and outflows of NPLs. As said, the year-over-year comparison shows a fairly flat picture. In Q4 '23, here, we saw a net NPL formation of CZK 329 million. This increase is almost entirely driven by one single commercial client default. If not for that, you would actually see a drop between the end of September and the end of December. And the last page, Page 44, the risk section here, we have an overview of delinquency ratios, 30, 60 and 90 plus. As is clearly visible, we still have a level significantly below the COVID and pre-COVID period. Already at the beginning of last year, we actually expected increase of delinquencies, which did not really materialize through the year. Only at the end of December, after Christmas, we saw here an increase, not the big one, but we saw some increase, which is already partially rolling back. We obviously were carefully monitoring this development. It's clearly a function of the macroeconomic indicators, unemployment rate, for the time being, it still looks very low compared to the past. So summarizing the risk section, I think we can see we have seen another quarter with solid core performance despite all the challenges associated with the current macroeconomic environment. As a result thereof, we were able to partially release some of the allowances we booked under the [ ECLR ] management overlay framework at release together with the successful NPL disposals contributed to a lower and expected cost of risk results. Having said so, so, we, however, remain cautious and prudent in our provisioning approach and we'll continue to monitor the credit portfolio performance as well as the movement of key macroeconomic indicators. And with that, I hand over back to Tomas on the updated market guidance. Thank you.

[Technical Difficulty] with us for a couple more minutes, the last part of the presentation contains outlook and market guidance. So beginning on Page 46, we provide you with a view of the last 5 years. and how we see the upcoming 5-year period in terms of net profit of the bank. So the last 5 years, we made CZK 21 billion. If everything comes through, we aspire to deliver on a minimum basis, CZK 27.7 billion in the following 5 years. With respect to the near future for the current year, we would like to deliver likewise, CZK 5.2 billion and then move up the earnings as we reprice both the deposit and the loan book as we have presented during Jan Fricek's part of the presentation. If you then turn to Page 47. Here, we have a more granular view of what are the minimum [Technical Difficulty] targets for the bank concerning operating income and all the lines on the P&L. I will not really comment this, apart from the fact that the operating line on a CAGR basis should grow at 4% and the net earnings or profitability of the bank should grow 3.6% being impacted by slight growth in the operating expenses and of course, evolution of the cost of risk line, which we have modeled somewhere in midpoint of these ranges. So this is the more granular view of the financial targets against which we will report. On Page 48, we have our assumptions underpinning the medium-term plan. With respect to the current year, we have GDP growth of 1.2%, which is below the official estimate. We have increase in unemployment. This assumption obviously drives potential increase of the cost of risk. Inflation we take from the official sources being arrested at 2.6%, which might be a bit optimistic assumption. And the average short-term rates, both the repo rate and PRIBOR are modeled to produce annual average of 5.2% and 5.4%, respectively. And you also have our assumption regarding the Euro-crown exchange rate, and you can see the other figures for yourself, I will not comment it for the sake of time. On Page 49, we have loan growth aspiration, and you can see that the plan is somewhat conservative and careful. The current year should see an expansion of the loan portfolio by less than CZK 3 billion. This is due to our continued strategy to focus on profitability of the mortgage business, which is projected to somewhat decline, and higher effort on the other retail lending categories. We project a relatively good growth on the commercial side, and this is really being underpinned by continued expansion of lending franchise to the small businesses, which is from a capital return of our currently most profitable activity that we have in the bank. With respect to deposit gathering, we considerably slowered the growth which is embedded in this plan. The overall deposit position on a 5-year basis should grow at 4.6% in the current year. This constitutes an increase of CZK 15 billion as we continue to place emphasis on having adequate liquidity and continue to act in that way. Nonetheless, the guidance calls for profitability improvement on a 5-year cumulative basis of 27% and we hope that we will be able to deliver and surmount the current and future challenges that the bank may face. We very much thank you for your attention. And now we turn over to you, and we will answer your questions.

Thank you. We will now begin the Q&A session. [Operator Instructions] Our first question comes from Mikhail Butkov of Goldman Sachs.

I have a couple of questions. Firstly, it was made a comment on Bloomberg that MONETA may consider increasing the payout ratio to 90%. So can you confirm this? And if so, how do you think in balancing the capital allocation between the dividend payout ratios and the growth, especially when the market conditions may allow for the faster growth, for example, when the rates will come down. So this is the first question. And the second question, yes, I noticed changes in the guidance for the medium-term outlook. Obviously, it was well explained on cost of risk, I guess. But on the operating income, it seems that the lower end of the guidance now is a bit lower than it was in July. So can you also walk through the reasons the components for that.

If you look at our business plan, which we could incidentally must submit to the Central Bank, we plan to accrue for 90% dividend payout. This is subject. It's not a guarantee. This is the intended strategy of the bank, given the fact that we currently have CZK 4.25 billion of excess capital, which will increase an estimated amount of CZK 4.75 billion in the second quarter of this year. So we have ample capital resources to support the growth of the balance sheet as it is modeled. Should we see more opportunity to expand the loan book, we will adjust that policy in order to accommodate the growth of the balance sheet. But right now, this is the policy. And the medium-term outlook, you are correct. The operating income is lower, and it's chiefly due to the fact that we had suffered a decision by the Central Bank to discontinue paying interest on on mandatory reserves, and that impact was publicized at level of CZK 450 million for the current year. Last year, that impact was CZK [ 130 ] million in the fourth quarter. Hence we've adjusted net interest income projections based on the new reality.

Okay. Just to clarify on dividends. So this 90% we speak about this year or this comment was made with regards to the medium-term payout guidance?

This comment was made with regards to both.

[Operator Instructions] Our next question comes from Mehmet Sevim of JPMorgan.

I had one question about the deposit base and the depository pricing going forward, given you mentioned this is one of the main challenges going forward. Particularly with regards to the deposit base that you've recently gained, what strategy will you follow there? Would you let some price-sensitive deposits go again when rates come down? And are you otherwise hoping to keep that excess liquidity even with LDR now at just 66%? And maybe related to this, how are you actually seeing loan growth dynamics this year? Obviously, rates have started to come down, but I assume things are still somewhat muted. So when would you expect a recovery there and from which portfolios? And maybe also going forward in your medium-term guidance, what kind of loan growth numbers are you baking in?

I'll take the easy question, and Andrew will take the difficult. In terms of loan growth, you have the figures, highlights of the business plan in the guidance, and this reflects our our current appetite. What we are seeing currently is very significant trending in January is actually we are outperforming last year by margin of 60% to 90% depending on categories and this development is taking place in the retail or small business unsecured categories. So we are seeing a very, I would say, robust start of the year and the plan obviously has a conservative margin. So we could come in better. But for all its work, it reflects our thinking from November and December. And Andrew will give you more flavor on the deposit repricing.

Yes. So I mean, with respect to deposit repricing, the overall answer is that we intend to hold on to the deposit balances. And again, you can see that in the guidance on Page 49. The some growth anticipated this year will be much slower than last year. I think our deposit strategy was built on being competitive, being relatively aggressive to the market and targeting the growth. And now in the repricing, our intention is to maintain a relatively competitive position and to protect the balances. So this is obviously an evolving area because we just had one rate cut. There's another Central Bank decision on [ February 8 ], and we will see how the market responds to that and what implications that has for us. But we have a clear strategy here that we want to follow. And now we will see how it plays out.

Can I maybe just ask on the second point as a follow-up. Could you be able to give us some flavor on how the integration of those newly acquired customers is going essentially offering them new products and integrating them into the MONETA suite of products. So are these cross customers mainly using those deposit accounts as mainly as a savings tool? Or are you actually seeing them using your current accounts now using your fees, maybe getting loans? And any flavor you would have on this point?

Okay. One thing to be clear on is that the growth that we were able to generate in 2023 came through a combination of newly acquired clients and bringing more money to the existing clients. So as with all banking markets, most clients in this market have multiple relationships. So we benefited hugely from the growth on the existing base. And yes, we also acquired new clients through a deposit proposition. These clients are typically onboarded with a current account, savings account and the mobile banking application. So this is a good start because we have all the prerequisites for the relationship. But it's still too early to draw conclusion as to whether we will be able to deepen those relationships and achieve the kind of cross-sell that we have achieved in the long term on the rest of the client base. What I would say is that we're not under any illusion that when you go to the market with decent pricing on deposits, you will obviously bring some of the hot money. And that's why our deposit repricing strategy is very sensitive to that reality.

Nonetheless, what we are observing is that the purely opportunistic relationships that are drawn by the fair good competitive value proposition is resulting in a rapid growth of our asset management distribution and pension fund distribution. So these are, I would say, the bright spots in the cross-selling strategy of the bank, which are visible from the results of the bank, and it's namely asset management after a very difficult period with respect to the first half of the year or rather first 3 quarters, we accelerated the sales on asset management distribution. We have effectively doubled our monthly sales of the funds that we offer. This trend continues through January because, again, we had a fantastic month and we have very high expectations from investment advisers that we deploy in the bank. The target for annual asset management distribution is 60% higher than last year for the current year. So our strategy is pretty much hinging on ability with the declining rates to convert part of these deposits into a steady margin business on the asset management front. And it's too early to tell whether we will be successful in this.

[Operator Instructions] Our next question comes from Thomas Unger of Erste Group.

I would like to come back to your loan growth outlook, particularly for this year and tying that together to the NII development that you expect. I think if I look at the previous guidance versus the current one, your loan growth outlook is a bit more optimistic now for 2024, likely due to the development in January that you just mentioned. But what do you expect for the NII and the net interest margin, in particular, for the coming quarters? Is Q4 2023 the low point? How do you factor in potential rate cuts and also the cancellation of the remuneration on minimum reserves, as you mentioned that multiple times in this call. Then secondly, I'd like to ask on the cost side. Operating expenses, regulatory charges, can you describe the cost pressure that you expect for this year and the measures that you will be taking to counter that? And then also, what is your expectation for the regulatory charges in the current year?

Okay, Thomas. Jan Fricek will correct me wherever I make mistake. But if you look at our projection for the next year, broadly speaking, the turnaround on the NII is to be expected in the second half of the year. The fourth quarter of '23 is certainly enough to [ troll ], because you have double whammy of #1 discontinuation of payment on the mandatory reserves. And second, you have declining short-term rates. So we will have to catch up through a repricing action on the deposits and catching up, in our case, where we are [indiscernible] large banks, we have to put some time line in how we adjust pricing on the deposits. So we have to play this very carefully. So simply put, you should see stability and growth in the NII in second half of 2024. The second question, the second part of the question. In September or rather October '22, we said the bank will have 2,500 FTEs. As of last week, we are at 2,503. We have said that we will close branches and undertake restructuring, and we were the only bank in the Czech market to start that early, and we've delivered all of what we've committed. If you look at the cost base, it is to grow by CZK 100 million. So there is some margin there for better. Nonetheless, we expect to keep the efficiency of the bank through cost discipline going forward. We expect pressure from suppliers, and we try to concentrate whatever we can to negotiate better cost positions. By now or effective February, we have subleased effectively close to 25% of all of our head-office space concerning Ostrava operation and brand. So we have [ AAA ] tenant moving into the building, and we have done a lot to position the bank against the strong headwind. I hope that we will be able to maintain the cost confidence.

There is one more element or assumption underneath the projection, and this is [indiscernible] regulatory charges that we expect a reduction of CZK 70 million, which is the combination of not paying again the one-off due to the [ Sberbank ] [indiscernible]. And also a resolution fund has been fulfilled to the level that the contribution should go down. So CZK 70 million decline is included in the projection.

And the CZK 70 million cost alleviation has been projected into the plan for '24. So you could say it's risky. We don't know whether it will materialize, but from a moral viewpoint that should certainly materialize, as there's no need to continue paying. So we will see it.

[Operator Instructions] At this stage, we have no further questions. So I'll turn the call back over to Mr. Spurny for any final remarks.

Well, we have behind us a year, which we consider as successful in the ability to match the 2020 result despite pressure on the NII. We have successfully, thanks to Andrew executed our strategy on net fee, commissions, Normann did a fantastic job on managing the cost risk because we had obtained the gain on disposal of NPLs. So if I may put some personal remarks into it, we have raised the bar. We have raised the bar by delivering CZK 5.2 billion and the target for '24 is like is and it's a minimum target, CZK 5.2 billion. I believe we will achieve it In due course. We have significantly improved the sustainability of the business model with respect to liquidity management. Jan Fricek implemented backstop liquidity facility, which we can use with Central Bank, which is under pressure, we are able to raise CZK 70 billion through our mortgage-backed securities, which is a great, let's say, accomplishment to keep the bank safe in the current year and upcoming years. We have also successfully exited from the low, however, currently difficult exposure to polyfunctional or fully office-based projects, financing of these projects. So this contributed to decline of the loan book. Klara, who is here with us, but she's not visible to you from Chief Operating Officer perspective, has put together a number of improvements on the IT operational and incident resolution side. And we feel that we are progressing against the medium-term plan on improving, solidifying our IT capabilities, skills, inclusive of cybersecurity protection of the bank, and on ESG, we will publish a sustainability report and I agree we are broadly on track with the ESG activity. So I want to give my sincere thanks to the management and the staff of the bank. I'm very happy with the result, and I would be grateful to everyone who works with us, who works with MONETA building it up. Thank you very much, and I will look forward to report the first quarter of 2024. Have a good day, and have a nice weekend.

Ladies and gentlemen, this concludes today's webinar. Thank you all for joining. You may now disconnect from the call.