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

Dear ladies and gentlemen, welcome to the conference call of MONETA Money Bank regarding 1Q 2024 financial results. Please note that this conference call will be recorded. [Operator Instructions]. Today's speakers are Mr. Tomas Spurny, Mr. Carl Normann, Mr. Jan Fricek, Mr. Jan Novotny 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 of beginning today's presentation of our quarterly results. I would ask you to turn to Page 2. We ended the quarter with a net profit of CZK 1.3 billion. This constitutes a 5.6% increase, 5.8% increase against the comparable quarter of last year. The result was accomplished on a basis of improving operating income. The growth in operating income at 9.6% and the category reached CZK 3.1 billion. The net profit translates amongst other into 17.1% return on tangible equity. If you look at broadly the balance sheet of the bank, we are continuing in a fairly rapid growth. The total assets of the bank reached 468 billion, increasing 15.7%. This is on basis of vastly improved funding base of the bank, which reached 423 billion and grew nearly 17%. We do have stable loan book is at 267 billion, a slight increase from previous year of 0.3% normalized increase is quite notable. If you compare the fourth quarter versus the current quarter where we have returned the loan book back to growth. On the following page, just a brief comment on our AGM, which was held this Tuesday on April '23. We have successfully approved all of the points proposed by the management with the support of 3 proxy agencies, which we are grateful for. We also had very high participation at the shareholder meeting. It exceeded 74%. The most important item on the agenda was the dividend payment. So we have approval to pay out on May 21 CZK 9 per share. And in totality, that is 4.6 billion. Now let me provide a brief view of the macroeconomic environment. If we turn to Page 5, you see the profile of the GDP, which against comparable quarter really remains unchanged. With respect to the forecast for the year, the Ministry of Finance expects growth of 1.2% in the GDP. The government debt essentially remains stable with respect as a percentage of the GDP. And you can see that the budget deficit is narrowing on the basis of the current government's action. So for this year, it is planned to reach 252 billion. And we continue to enjoy low unemployment at 2.7% as of February nonetheless, whatever the unemployment rate is expected to slightly increase to the level of 3%. Turning the page to #6. We provide a view on inflation and interest rates. If you look at the inflation, it is abating quite rapidly in March. The monthly figure reached 2%. So we are at the Czech National Bank's target inflation. On this basis, the Czech National Bank elected to decrease the key rate to week repo. They have done it so far 3 times. And currently, we stand at 575 basis points. With respect to forward-looking view chair board will meet on the 2nd of May, and the market expects that the consensus is around an additional 50 basis cuts into the import. Nonetheless, or on top of that, if you look at the market expectations expressed through the yield curves based on interest rate swaps, we can see that the current expectation is actually higher than what we had at the year-end. And the market expects that the rates will stabilize by the end of the year at 4%, which is about 100 basis points higher than will be expected when putting together the plan for the current year. So we have a reason to believe that the bank will have some positive momentum with respect to the ability to generate core earnings. On the following page, we provide a view on the currency. Czech crown has been weakening against are of major currencies depreciated against the euro at a range of 7.5% on an annual basis and likewise against the dollar by 8.1%. We think the main cause of the depreciation of the currency is that the convergence story of Czech Republic is pretty much played out. And the country's currency is very much dependent on interest rate differential. And in both currencies, you can see quite a rapid decline of the interest rate differential here we ill-stated on 2-year swap. Interestingly enough, the differential is now negative to the dollar rate. On the following page, we summarize development of the banking market, starting with deposits and how MONETA performs within this context. So if you look at the overall deposit market of resident deposits, it reached nearly CZK 7 trillion grew on an annual basis by 7.6%, and we have vastly outperformed the market growth where MONETA grew by more than 16%, reaching in February, 407 billion in the deposit funding base. The success is visible from the nearly 18% growth on retail. And likewise, we outperformed the commercial deposit market by nearly by delivering growth of 11%. If you turn the page, we look at the lending market in the country, the volume of loans nearly at CZK 41 trillion, growing on an annual basis by more than 6%. Against that, we have the portfolio stable, decreasing the total portfolio by 20 basis points. This is due to the fact that we have taken a defensive posture on lending last year based on the projections of GDP contraction and based on our view that earnings in retail have not matched the inflation, so we took a more careful position. And otherwise, if you look at the retail and commercial gross loans of MONETA, we've turned the corner and return back to go, both in retail and commercial segments. Now this will be further substantiated down the line in the presentation where we show you the lending intensity and the volumes that we are putting on the books to support this client that we have returned back to growth. So with that in mind, the bank delivers more than 17% return on tangible equity on the strength of net profit of CZK 4.3 billion round slightly up. And now I will ask my colleague, Andrew Gerber, to walk you through the operating platform development of the bank.

Thank you, Tomas, and good morning, ladies and gentlemen. On Page 11, we present some highlights of the digital platform, which is a critical distribution and service channel for the bank. We had almost 23 million payment service and sales transactions conducted through the digital platform in the first quarter, and we continue to see strong growth in these metrics. In terms of digital platform users, we had growth of 11% year-over-year. And likewise, in daily average visits, we had growth of nearly 15% year-over-year, outpacing the growth in the user base as we see customers becoming ever more deeply engaged with the bank through the digital platform. On Page 12, we present some detail behind the development of the platform users and the transaction numbers. And here, I think the key takeaway is the growing importance of the mobile banking platform as the driver of growth. So you can see that the mobile banking platform now accounts for 77% of the users of the digital platform and 79% of the transactions. And at the same time, you see that the Internet banking platform as a stand-alone channel continues to decline in importance. On Page 13, we present a snapshot of the distribution channel mix for a number of the key products. And here, I'd observe the critical role that the digital channels now play in a number of key areas, including consumer loans, term deposits and FX where it's the dominant channel. At the same time, it's important to say that the branch network continues to play an important role in the distribution of some of the more complex products such as mortgages, pensions and a number of the insurance products. And what we continue to see and we see perhaps an increasing frequency is clients choosing to start the process online but ultimately ending up in the branch at some stage during the process. So it's important that these 2 channels continue to complement each other and support the development of the business. On Page 14, we present an overview of the branch. Here, you see the branch visits declining year-over-year, down 18%. But as I said, the branch network continues to be in an important role in the distribution of some of the more complex and high-value products. In the first quarter, we conducted an analysis of the lifetime value contributed by the respective channels. And what that shows is that the branch network continues to contribute significantly larger share of lifetime value by virtue of the fact that it's an important channel for distribution of high-value products, such as life insurance, investments and mortgages, as I said. In terms of number of branches, we ended the quarter at 134 branches. This is down 6% year-over-year. And likewise, the staffing of the branch network decreased 3.5%, reflecting the smaller network and our determination to maintain cost discipline. So that concludes the brief overview of the operating platform. 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'm now on Page 16, and I'm going to walk you through the P&L. I may repeat the key financials. In the first quarter, MONETA delivered a net profit of 1.3 billion, representing earnings per share of CZK 2.5 per share and a return of 17.1%. Operating income of 3.1 billion is up by 9.6% and the growth was delivered on a basis on improvement reported across all 3 categories. We managed to reduce the operating expenses down by 3.8%, below 1.5 billion. On the cost of risk line, we reported 135 million, which is a subdued level of 20 basis points. However, above the year before where we benefited from the release of provisions and the realized gain on and beyond disposals. Altogether, net profit increased by 5.8% or 70 million in absolute amount. Moving forward, on Page 17, we report an analysis of net interest income development and its drivers. The 2.2% growth was supported by higher income from lending and also incremental income from excess liquidity placed in the Central Bank or invested into government bonds. This positive trend was partially offset by a higher cost of funding due to higher market rates and also expanded funding base. Nonetheless, quarter development shows a decline in the first quarter this year, which is a result of a gap between 2 recuperate and our repricing actions. This trend is broadly in line with our projection in the business plan from the beginning of the year. On Page 18, we report net fee and commission income growth of 20%, predominantly attributable to our successful performance in distribution and third-party products, which is visible on the right, namely asset management products and insurance products. I will comment in more detail this category on the following page before that. I can say that the other 2 categories, fee income and fee expense, we managed to maintain nominal. On Page 19, as I said, I will comment our performance in distribution third-party products, starting with the asset management on the left. We had a very successful first quarter this year, which supported the asset management balance growth by nearly 45%. And the related commission income more than doubled. On the right, you can see that also commission income from insurance product distribution increased by 14%, and this was supported by all products. However, the year-on-year trend of life and pension insurance income is impacted by the extraordinary obtained last year. And I will complete this section on Page 28, which is the cost base. As I mentioned, we reduced the cost base by 3.8%. And this was supported by 3 categories, namely regulatory charges, down by nearly 15%, admin costs by 11% and also D&A charge reduced by 6.8%. On the other hand, personnel costs slightly increased by 7% due to persisting inflation on the labor market. With that, I will hand over to my colleague, Jan Novotny. Thank you.

Thank you very much, Jan, and good morning, ladies and gentlemen. I have a pleasure to walk you through the next part of today's presentation, which is the balance sheet development section. Let me start on the Page #22, showing the evolution of the net customer loans on the west side and funding base on the right side. As projected in 2023 plan, we have kept our lending portfolio loans stable with 0.3% growth against Q1 2023. However, at the end of the last year and in the Q1, we have started to focus our lending growth again. I will talk about the new volume production growth later in my presentation, but the signs of the growth are already visible as we have delivered 1.4% increase of own portfolio in the last quarter. On the funding base, the trend is, as Tomas already mentioned, a little bit different. We had a fantastic growth of almost 17% last year. However, in the last quarter, the growth has slowed down to 1.8% due to competitive pressure. What is also worth to mention is the evolution of the yield and cost of funds that both have stabilized at 4.9% and 3.6%, respectively, with a positive outlook, especially on the cost of fund side, where we expect to run approximately 30 basis points lower at the end of Q2 compared to the Q1. Now let's move to the Page 23, showing the overall picture of our balance sheet with a very solid growth of almost 16% in the last 12 months. As mentioned already, the key growing category were the customer deposits with more than 55 billion of new liquidity in last year. We have continued to invest the free liquidity into either investment securities, all receptive in the cash imbalances with the Czech National Bank category, which is visible on the left side of the slide. Now let's have a look on the composition of our gross performing lending portfolio. This is the Page #24. And the key trends I already commented. So maybe just let me add the segment dimension. Our current portfolio is 67% retail, 6% small business and 27% SMEs. Now moving to the next page, Page 25, you can see in your slide, this is the trend of the new lending volumes production. If you compare the Q1 2024 results with the Q1 of 2023, you can see a significant increase by almost 24% across the bank. This outstanding result is driven by almost all products and segments with mortgages up by 35%, consumables by 39% and small business even by 60%. The only product which was not growing was the SME volumes. However, if you will deduct a few larger transactions in Q1 2023, this category would also be showing a strong growth trajectory. And maybe the last more detailed information about the lending book is on the Page #26. Our loan portfolio has stabilized at 4.9%, with the retail average yield at 4.2% and commercial loan portfolio and 6.3%, all those numbers without the effect of the hedge in. Now let me move to the deposit side. On the Page 27 is a detailed split of the customer deposits and wholesale funding. All of the segments has shown a very solid growth with 17.5% in retail, almost 11% in commercial and almost 41% in wholesale. On the right side of the page, that is the share-based industry share and retail deposits, which constitutes 74% of overall customer deposits. And now let me move to the last page of my section, Page 28, which shows the evolution of the cost of funds. And you can see that the cost of funds have stabilized across all the bars with the overall cost at 3.6%. And as I have mentioned already, we expect the cost of funding to drop by approximately 30 bps in the Q2. That was all from my side. Thank you very much for your attention. And please let me hand over back to Andrew for the liquidity development ratios. Thank you very much.

Thank you Jan. I'm now on Page 30. And before I will go into more detail, let me summarize skill liquidity ratios. The incremental liquidity that we obtained during last 12 months significantly strengthened our liquidity position, which is visible from all ratios. Starting with the loan to deposit ratio, which we declined or decreased by 10 percentage points to 66% and remained stable since the beginning of the year. And the share of high-quality liquid assets in case to 40%. Will that net stable funding ratio reached 168% and also liquidity coverage ratio reached a record high level of 360%. Both ratios significantly above the [indiscernible] requirements. On Page 31, we also show in detail development of our high quality liquid asset that at the end of the first quarter stood at 164 billion, and this constitutes a growth of 52%. As you can see, the incremental liquidity was invested into partially government bonds and also paid to the central bank. This position provides solid or generous capacity for future lending growth of the bank. On Page 32, we report repricing and repayment profile of our loan portfolio at the end of the quarter stood at 267 million. And out of that, 24 billion exposures at variable interest rates, 84 billion at the fixed rate still maturity and the largest portion of 159 billion at fixed rates till the end of fertigation period. In the table on the right, you can then see that within the next 12 months, we expect that 30% of the loan book that'll be repriced or repaid and more than 3 quarters will be repriced or repaid within the next 36 months. And if you flip the page, on Page 33, we provide a similar view on our deposit base. We stood at 406 billion and about 2/3 present savings amounts 62 million term deposits and 92 billion current accounts. On the right, you can then see that 62% of the deposit base can be repriced within the next 3 months. And moreover, majority of savings accounts are repriceable on a monthly basis. By the way, this is a process where pricing of the deposit base is the process which we started in the first quarter with the support of decreasing market rates, and we will continue with that during the rest of the year in order to support net interest margin. So this was all to the liquidity management section, and I don’t know if they move to Page 35 that we more start with the capital management sector. At the beginning, let me summarize capital ratios on a consolidated level, where we reported a capital adequacy of 19.6% and Tier 1 capital adequacy of 15.42% against management target of 12.73%. The excess of Tier 1 capital in absolute amount represents 4.6 billion or 9 gallons per share. And let me emphasize that both capital positions were lowered by accrual for dividend in total amount of 5.8 billion, which consists of the dividend from net profit of 2023 and also net profit of the first quarter this year. On Page 36, we continue with overview, detailed overview of capital requirements relevant for individual and also consolidated level, starting with the consolidated basis on pay on the last, where you can see that our management target decreased by 25 basis points to 15.55%, which is the target relevant since the 1st of April. And this decline is attributable to a relief on target capital buffer of 25 basis points. The same movement is visible also on the right on an individual basis where the capital management target stands at 22.4%. Moving forward, on Page 37, we provide when we report our capital position on individual level in more detail. You can see stable development when the position stands at 39.3 billion and MREL adequacy as 2015, 96%. And on Page 38, similar trend is visible also on the consolidated level that our excess capital, as I mentioned, on Tier 1 capital level stands at 4.6 billion or in account per share. And this provides a solid basis to continue with the dividend payout ratio target at 90% and also provides a sufficient capacity for further growth of the bank. So with that, let me hand over to Normann.

Thank you very much, Jan, and good morning to you as well from my side. We now Page 4 with an overview of key risk performance metrics for Q1 and 2 more data points in '23. Let me start on the bottom next of the page and then moving up to the top wise. So cost of risk came in at 20 basis points, net creation, which is identical to the Q4 results. It's also the midpoint of our previously provided guidance of 10 to 30 basis points. It is higher than in the first quarter of last year where we heavily benefited from the disposals of NPL sales at that time, leading to a net release of 17 basis points. As regards to the NPL ratio, this remained flat, standing at 1.43% compared to 1.44 at the end of Q4. And as far as the provision coverage are concerned loan loss provision coverage and total nonperforming loan coverage terms. They stood at 1.7% and 118.5%. Both values coming down over the last year due to NPL sales and upgrades of previously forborn receivables. Moving to Page 41. Here, we have a more grand overview on cost of risk also in absolute numbers, if you look at the left side of the page. So in absolute numbers, cost of risk came in at CZK 135 million, of which the retail book produced 36 million in the commercial book, 99 million. We also generated within Q1 pretax gains resulting from NPL disposals in the amount of 29 million, which was significantly lower compared to Q1 last year, where we had the pretax gain of 221 million. On the next Page 42. Here, we have a snapshot of a few metrics, loan book, NPLs, provisions and coverages. So while the loan book grew by around 0.5 billion year-over-year, the stock of provisions dropped by around 200 million, ending up on a level of CZK 4.6 billion. Within that amount, we still have around 560 million management overlays. As you can see here, this dropped quarter-over-quarter by 86 million. What we have done in Q1, we have accessed reviewed the underlying assumptions of the overlay framework and due to the fact that inflation has come down quite significantly, we were in a position to conduct this release in the first quarter. NPL ratio, I mentioned before at 1.4 and still remaining on historically low levels throughout the last year. And loan loss provision coverage, I mentioned before at 118 million move coverage and 1.7% for the loan loss provision coverage. I take you to Page 43 with an award of our nonperforming loans over the last 4 quarters. Just looking at Q1 this year, we saw a very moderate net formation of nonperforming loans of 37 million. This was driven by a lower formation of NPLs overall compared to Q4 and higher cure rates and higher write-offs in the first quarter, leading to the flat balance development quarter-over-quarter. And the last page of the risk section, Page 44, an overview of the delinquency rates where you have this long-term view how 30, 60, 90-plus delinquency ratios developed. As you can see, has been remaining said for quite some time now and moving in a small corridor. I think midterm; it's rather likely that these values will go up compared to the current level, which are significantly below the pre-coat delinquency levels, which we have seen before 2020. So summarizing the risk section, I think we can say we have seen another fairly stable and positive performance on the cost of risk line, thanks to some improving macro factors, in particular, the lowering inflation and also the drop in interest rates, we have been in a position to make adjustments on the overlays leading to a release of 86 million. We will continue reviewing the overlays now every quarter and make adjustments where visible and reasonable. And with that, I hand over back to Tomas Spurny. Thank you.

There's just a couple of words about the guidance. If you look at Page 46. This is a bit of the same information. Our target is to accomplish a cumulative net profit of 27.7 billion, which would constitute 32% increase against the previous 5-year period. So as we are in 2024, we are confident with respect to the minimum target of 5.2% about 0.2 billion. We have a couple of positive factors helping us in this endeavor. Number one, if you look at our strategic plan with respect to volumes, we performed well in both the size of loan portfolio, where we are about 5 billion ahead. And if you look at deposits, the same situation prevails there. Second, we have already announced the market 50 basis cut on the savings products. This will be realized will come into effect on May 2. And third, if you look at the plan and underlying assumptions and confront them with what we know today, it seems that we will benefit from the elevated levels, the report by the end of the year where the gap where the positive gap to our plan is around 100 basis points of this will support the NII development. And in the other categories, we also have positive news on if we continue this year at the rate of distribution and cross-sell of collective investment products into the deposits will further support the P&L where we are, again, pretty much ahead of the planned volumes as well as the planned fee income. On the cost side, if you look at the quarterly development on the personnel costs, 7.4% growth is actually in line with the increase of the check average wage. So we're not an outlier or are we below the market standard, if I can call that. So that's a negative Nonetheless, we believe that we can absorb it and manage it. On the administrative costs, we are performing so far well and on the regulatory charges, the expectation was met by reality of the calculation. So this is exactly at the planned level. With respect to cost of gas, we do not see any worsening of repayment discipline on the portfolio. We had one single case a used automobile dealer at the end of 2023. So this peak the numbers a little bit, but we see steady performance. Nonetheless one has to keep in mind that the NPL ratio is at minimum level when we look at it through the cycle perspective and our guidance actually reflects the possibility that the performance could worsen. So with that, the only thing to say is that without any, significant changes in the environment, we are confident that we will deliver the 5.2 billion target as promised in the previous communication. Thank you very much for your attention. And we turn to the moderator. We will answer your questions.

[Operator Instructions]. Our first question today is from the line of Mikhail Butkov of Goldman Sachs.

I have 4 questions. The first is on your noninterest income performance. So both fee income and trading income line, it was a quite strong improvement on quarter-over-quarter basis across your insurance, investment products also trading income line. Can you maybe unpack what part of that performance do you see as more sustainable into the year? And what was maybe driven by some seasonality effects of earn-offs across these lines? That's the first question. The second question is on NII and NIM in the first quarter result. So I think in the presentation, it is mentioned on the page some delays repricing of deposits. And also, it seems that the contribution from hedging income was reduced a bit on a quarter-over-quarter basis. If you could give some color on that dynamic, it could be good. The third question is on the outlook for the net interest income. It was mentioned that you plan to cut 50 basis points on the consumer deposits, plus there can be some additional income from repo operations. Would it be fair to say then that the first quarter NIM is likely the floor or there can be some other factors, which could be a headwind for net interest income in the remaining quarters of the year? And finally, on capital, do you have any MREL requirements or issuance plans for additional plans for this year?

I will provide a brief response. And if we need to go in a bit more detail on the -- we're starting with the fourth question, MREL issuance, the answer is no. This year, we don't need anything we might issue something in '25 and '26. Outlook on NII, we will decide whether to provide guidance on the NII, as we did last year. Last year, if I remember correctly, we provided the guidance at the middle of the year. Is it a floor? Well, we will see, we will seek to reduce the deposit base as my colleague said by 30 basis points between the first and second quarter. Currently, we are 1/3 of the way. The current cost of funds is 3.4%. So we will continue in that endeavor. And I don't want to go beyond that. On second question, which was NII and NIM, we are not focusing on the NIM strength, we're focusing rather on incremental income and this is purely driven by the fact that we've committed to shareholders to deliver operating income of 12.4 billion. If you remember last year, during the fourth quarter, Czech National Bank elected to stop paying into mandatory reserves this created a whole of 450 million, which we have to somehow fill with other sources of revenue. So right now, we are focusing on positive spread but not necessarily on the relative strength of the path. And broadly speaking, it will remain stable at around 2% with some deviation probably. And on sustainability of noninterest income, if you dissect the numbers and Andrew will help me, we have positive effects on expiry of some swaps, which had negative revaluation effect. So from that perspective, the current result is sustainable. We also have strength on the improved FX margin on the bank, which is simply a function of the FX volume and turnover that the bank realizes for end customers. And as we have disclosed in the presentation, the other income of as one-off of CZK 50 million, which is related to sale of a marginal bond. So yes, it's sustainable, except for the 59 million one-off that we had in the first quarter. And I think this completes round.

Our next question today is from the line of Mehmet Sevim of JPMorgan.

My questions would be just a follow-up, 2 of them, if I may. So one, Tom, as you mentioned previously that managing the deposit cost would be one of the main challenges the bank is facing for this year. Now with the CMB having cut 125 basis points so far, you may ask what you've observed in the markets, both maybe in terms of pricing by the other banks, but also how customers may have reacted to those? And was this in line with your initial expectations? And what is your thinking from now given more cuts are expected on pricing of those deposits? My second question is on capital and also dividends. Capital requirements have come down and you're comfortably above the target that you have. Are there any risks for those requirements to go up again? For example, maybe a systemic risk buffer or anything like that, that you may have inside. And I think you were quoted in the press earlier that you may debate returning more capital to shareholders as well. So may I ask what the latest thinking on that would be and what's the preacquisition?

Let's start with this one, easier from perhaps just a return to capital to shareholders. If the bank is not able to absorb the capital through growth, the time for such consideration would be third quarter. It's as simple as that because if you look at the bank structurally, we have 5.7 billion in accrued dividend. So we are accruing the current earnings at 90% into the dividend account. We also will pay and have managed the approval for the dividend payment of 4.6%. So this is the 5.7 billion. On top of that, we have 4.5 billion in excess capital. And on top of that, if you look at the presentation in the capital section, the capital requirement actually goes slightly down about 30 basis points. So we expected in the second quarter, we will maintain similar excess capital as we have today. And it depends very much on the size of the bank and on the size of the loan portfolio. So on the capital risk, yes, the new buffer might be introduced, nonetheless, I don't think it will be introduced in an aggressive manner, somehow curtailing our ability to grow or curtailing our ability to potentially make other than current earnings distribution to the shareholders. And this would be fair to do as the excess capital is related to the corona mess of 2020 and '21. So this needs to be considered by the management Board agreed with Supervisory Board of the bank communicated to the regulator, and we would do it in the third quarter when the situation becomes clearer to us what is the underlying profitability of the bank. That's answering the second question. The first question does the deposit market and its pricing evolve according to our expectations. The answer is absolutely not because during the first quarter, we were faced with a very state competition from Air Bank, which offered a 6% rate on its deposits. This was complemented by a bank called which offered 6.3% on savings account. And there is a newly established bank in the market by the largest broker organization called Partners bank, which offers 6%. So these challenger banks are really seeking to improve their market shares and have provided offers which are in excess of the dueling reported. So this we did not expect, however, we stood it and are able to report growth in the deposit base. So this didn't happen. With respect to the in cuts, I believe the tunable surprised us because the depth of the cuts is 25 basis points deeper than what we expected in the business plan. Nonetheless we have reacted by slowing down the anticipated reprice. And during April, we have taken a decision, which is public to cut the deposit rate on savings accounts to a level of 4.6%. So we expect that we might have some outflows. Nonetheless, the bank is very well positioned with respect to liquidity, i.e., the HQLA asset base is very, very strong. And we will still with an attractive offer, if compared to the large incumbents and the large incumbents typically conditions that rates by payment or other client behavior. We are not doing that in order to have a transparent and clear proposition, communicating the effective interest rate effectively. So we're not playing these stakes because medium to long term, we believe this impacts the client trust in the bank. We will do our upholds to stream down the cost. And I believe as I have no other choice that we will be successful in doing that.

[Operator Instructions]. Our next question today is from the line of Shane Mathews of WhiteOak Capital Management.

Two questions from my end. One, on the mortgage strategy, I think in the previous quarter, you had announced that you are changing the traditional broker network, which the banks have been using. And I wanted to understand your, let's say, speeding so far, it seems like in loan volumes, mortgages have been doing quite well. So the transition seems to have been quite going well at the moment. So I just wanted to get a bit more color on that and how you're seeing the movement going forward? And second, on the deposit mix, thank you for the clarification on, let's say, you're cutting savings rate by 50 bps. This is the first time you're cutting the rates since, let's say, the tier rates have been cut, there's a clarification also on the mix, you see that current account mix in the bank is maybe around 22-odd percent, and it's been steadily declining over the past year or so. So is that also our target, the bank seeks to achieve improve the current account mix in the overall, let's say, base? And just any insight on how you plan to move.

So let's start with the second question, the deposits. The deposit rates, the decrease of current accounts that phenomena that you can observe not only MONETA, but it's across the market, and this is simply a function of the higher interest rate environment and people taking care of the money and seeking to return on the money. The second part of the question was whether we cut the it before, yes, we did, we cut the rates on the savings account by 20 basis points. This cut was done in February 24, and we've got across the term deposit offer by 20 to 50 basis points. It's not the first cut that we are doing with respect to the May 2 repricing. The mortgage strategy, we have cut ties with all the brokers. Our strategy is to provide competitively priced mortgage, which is supported by fee income with respect to management of the mortgage. So we would like to achieve medium-term 50% share through digital because this is the least expensive way to distribute as we don't pay variable compensation on those transactions to neither our staff nor the brokers and 50% grew the managed network. We have an aspiration to keep the market share in mortgages between 7.5% to 8.5%. And we are remain the incoming volumes based on this strategy, and that's a structural issue for the bank because we don't want to be too invested into very long assets. The other part of our mortgage strategies that we now changed pricing of mortgages on weekly basis, which makes us an outlier in the Czech market. We have cut the commitment period on granted mortgages for a drawdown from 3 months to 1 month, and we have added a quite significant on committed undrawn balances. So we are seeking to, let's say, limit mortgage exposure to market share consistent with our deposit market share. We are seeking to improve the profitability, and we are seeking to, let's say, create an additional income from the mortgage business, which we've implemented a handling fee CZK 500 for any service we provide by bond to disbursement of a mortgage loan. So we are like Ryanair, we charge money for the later.

Just a follow-up on the first part, the current account, my question was more alluding to is there, let's say, a target to improve the current accounting, the movement since rates are going to fall or given the competitive, let's say, environment which you're describing earlier, is that still a challenge?

It is still a challenge because as long as you have a -- at this level, it's more advantages to people to deposit the money in the term deposit or in a high-yield savings product and our strategy is to convert the high-yield deposits into asset management and that is possible from the bank's performance and distribution of the wealth management products. Is there a target on the current account balances, absolutely, both Andrew, Jan were sitting with me in the room and the head of distribution, the branch distribution targets, on balances of the current accounts, but we have to also recognize the reality of the market and the behavior of both retail and commercial customers.

And we have had a written question submitted from [indiscernible] of Avaron Asset Management. And the question is as follows: there have been some statements made that the government might adjust the banking tax. Do you have any insight on what direction those changes might take place?

The government might use the blueprint for Slovakia. We understand that within the existing 5-party coalition government, there is some support from a foreign. This is being debated by the current government. Thankfully, so far, the centralized particles, ODS is against that proposal. So we have to observe what happens. But I would say the probability is nearing 50% because we have 1 year and a quater until the next parliamentary elections in Czech Republic and taxing banks seems to be popular in Europe, unfortunately. And I don't want to make prediction on which way it will go, but the danger is clear and fairly imminent.

We have no further questions. So I would now like to hand back to Mr. Spurny for closing remarks.

Well, thank you for participation. We are really grateful for it. With respect to the bank, we delivered what I consider satisfactory first quarter; we will focus our efforts on reducing the cost of funding. This is the priority #1 for the bank. Priority #2 is to maintain momentum in lending capacity of the bank, further improving performance that we have delivered during the first quarter and focusing the bank predominantly on the new created from a return on equity point of view, lending categories serving our customers. We have no plans currently to extend or expand investment into government bonds or other types of securities. So the bank will focus on deposit taking, making it more efficient from a cost point of view, whilst supporting our core customers through the bread-and-butter activities. From a cost perspective, we are seeking to optimize some cost categories. As you know, we've leased to Generali Group quarter of our headquarters. This will contribute positively to cost stabilization. We are trying to work on other categories such as cash transportation and other to contain the cost expansion. We are continuing to invest into digital channel improvement, mainly focusing on sales capacity. Currently, the majority of our investments are focused on small business subsegment and commercial segments that we provide higher value in the online world to our customers. Based on the result of first quarter, based on the higher outlook for the key rate by the year-end, based on the volume ability or volume growth, we are confident that unless something dramatically changes, which could be the tax. But we don't expect that likely for this year, we will deliver the minimum target and with some luck, we could exceed it, but it will be a discussion amongst us during the next quarter. And the last comment is we have super strong capital position to support these plans. Thank you very much. We wish you successful rest of the week, and we are really grateful for your attention.

This concludes today's webinar. Thank you all for joining. You may now disconnect from the call. Goodbye.