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

Hello, ladies and gentlemen, and welcome to the conference call of MONETA Money Bank regarding first half 2024 financial results. Please note that, this conference call will be recorded. This event will have a live presentation followed by a Q&A session. [Operator Instructions] Today's speakers are Mr. Tomas Spurny; Mr. Carl Normann Vokt; and Mr. Jan Fricek. I now hand you over to Mr. Spurny, who will lead you through the conference call. Please go ahead.

Good morning. Once again, I have the pleasure to introduce our results. I will start with synthesis of the results which are on Page 2 of our presentation. During the first semester of this year, we have delivered net profit of CZK 2.7 billion. We consider this number to be satisfactory from absolute point of view and from growth compared to first semester of 2023. The result translates into 20% return on tangible equity. We were able to deliver this result mainly against growth of the operating line of the bank, which came in at CZK 6.2 billion, increasing 6%. We also have been able to grow the balance sheet of the bank, reaching CZK 483 billion. This constitutes growth of 14%. The growth is mainly accomplished through increase of the funding base of the bank, which grew by 14%. And most importantly, the bank returned back to growth on the loan portfolio. It might seem here very low, but year-to-date growth stands at 3% on the loan book. Now, turning away from the bank, a little bit about the operating environment in the Czech Republic. So please turn to Page 4. Czech Republic, from GDP growth perspective, has returned to marginal growth. As you can see, the growth is at the level of 0.3%, and we hope that the growth will solidify throughout the rest of the year. Unemployment, which is a very important metric for credit quality of the bank, remains low. Nonetheless, we can observe that there is a slight increase in the unemployment figure. On the public deficit front, the government is seeking to stabilize the deficit and decrease it. This is evident from the graph that we present with the number of CZK 252 billion being the target of the maximum deficit. Currently, the deficit stands at CZK 178 billion. However, the number is likely to somewhat decrease throughout the second semester of the year. Then, if we turn to Page 5, we have inflation. Here we have inflation and the interest rate environment. Inflation is rapidly decreasing, which is good news. This is translating itself into the monetary policy. As you can observe here the Czech National Bank cut the rates 5x and we currently stand with the key rate at 4.75%. This is slightly above our expectations in the operating plan. Nonetheless, if you look at the interest rate market, the yield curve has flattened considerably and it seems to be stabilizing. Nonetheless, the yield curve, especially on the medium to long-term, is higher than what were the expectations of the market at the end of previous year. Turning to Czech crown on Page 6, the currency is weakening against both euro and the dollar. This is due, we think it's due to the narrowing interest rate differential on the crown, which is for the dollar, in case of the dollar, the differential is negative. If we turn into our performance against the relevant markets of deposits and loans, starting with deposits, we have over performed the market, the market growth by nearly 3x in terms of deposit gatherings. Our growth based on these numbers, 14.7%. This is measured until May, as we don't have the relevant number for June as of today. We have had double the performance in the retail, and we've accomplished significant success in gathering commercial deposits, and this is due to the fact that we run a very successful campaign targeting cooperatives and condominiums accounts with an attractive product and that improves our ability to gather sticky stable funding from that realm. Turning Page to our performance against the relevant lending market. You can see that, we grew less than 1%. This is slightly -- or this impacted by the fact that during 2023 we have significantly changed the lending criteria made them conservative. Nonetheless, throughout the first semester, we observed significant growth or relatively significant growth of 3%. And we've been growing at the same rate as the commercial market on the commercial portfolio. And we will come to the details of lending activity, substantiating that we have significant improvement in that later on in the presentation. Now, let me comment on our operating platform. And I would ask you to turn your attention to Page 10. If you look at MONETA's operating platform, it consists of 3 pillars, digital, brick-and-mortar, network, and contact center. If we examine the key numbers, the bank is stable in terms of branch network, although we've decreased it somewhat. We have continuous, solid growth on digital platform users. We keep stable employment against the comparable period of last year, and we enjoy structural advantage of a shared ATM network where we cooperate with Komercni banka, Air Bank and Unicredit and throughout the second semester we will actually enable within this network deposit taking functions on nearly 800 ATMs, and this will help us to manage transactional costs in the bank. Number of clients stable, growing at a rate of 2.8% and the growth in the customer base slowed down as we are not able currently to provide as attractive deposit offers as we were able to do in late 2022 and throughout 2023. If you look at the digital platform, overall, digital is really gaining speed and importance in the bank's operations. On Page 11, we show you that we have on a daily basis nearly 700,000 touch points with customers. This is growing at 14% rate, whilst the digital users are growing at a rounded up 10% growth. So this shows that the platform, amongst other, enables our customers to perform more transactions and to perform also more self-service operations. Self-service operations at more than 11 million transactions in the first 6 months, growing more than 25%. This obviously helps us to start thinking about the branch network again, and on payment transactions we also have solid growth of 15%. Equally importantly, with respect to lending activity, we've received more than 170,000 loan applications through the platform, which is rounded up 34% growth year-on-year. The overall sales transactions are growing at 5%. You can claim that, this is a slow growth, but I would argue that it is not, because throughout 2023 and late 2022, we've had significant new account openings due to the attractive rates on certain products. This was the activity increased quite significantly there, and obviously with falling rates we don't have that phenomena. On Page 12, we show you how mobile banking platform gains and continues to gain dominance in both transactions and platform users. So the internet banking platform that we have is more and more becoming utility for small businesses and commercial customers, and we will aim for the development and management of the platform on those relevant segments. On Page 13, illustration of the importance of the digital platform in terms of units. If you look at, for instance, at an important category, which is unsecured lending, in terms of units, we have more than 70% of applications taken through the digital platform and on the background of pre-approved credits that we make available to our customers. From volume perspective, the consumer lending on digital platform is about 50%. And we see progress, I would claim, against all the product categories, the simpler product, the higher penetration through the digital and the more complex products. Obviously, we have to distribute through the network and its specialized sales forces. On Page 14, brief commentary on the branch network. As I have said, the footprint remains pretty much stable. We have 1,100 full-time equivalent employees, slight decrease against the previous year. What is the most notable here is the decreasing intensity of cash transactions put through the branch network. The decrease is quite substantial. It's more than 20%. And if you think about customer touch points, we have 2 metrics here. About 400,000 customers of the bank use actively the network. This is 10% decrease year-on-year, and this is an expected trend. And if you look at the branch visits at 850,000 during the first semester, we effectively are close to that number or are reaching, will reach that number on a daily basis through the digital touch point. So the change becomes very tangible, and we will reevaluate the network accordingly. If you look at Page 15, a little bit of the contact center, which had processed in the first semester more than 400,000 inbound inquiries and 85,000 email and digital media and social media inquiries into the bank. Both numbers are decreasing fairly rapidly and this is again testifying that the digital and our effort on development of self-service capabilities is working because the traffic is moving into the digital channels. We have stable performance on quality of customer service in terms of customers served and call abandoned rate. And lastly, the contact center is delivering a very solid growth on distribution of third-party insurance products. During the first semester, it accomplished CZK 70 million in sales. This is measured in lifetime value of those products, which is nearly 25% growth year-on-year. So this is the opening of the presentation, CZK 2.7 billion of profit, 20% return on tangible equity, and from a P&L perspective, my colleague, Mr. Fricek, will walk you through the individual lines of our P&L.

Thank you, Tomas. Good morning, ladies and gentlemen. I am now on Page 17 and will continue with the profit and loss statement. In the first half of the year, MONETA delivered net profit of CZK 2.7 billion, which represents CZK 5.3 per share and return on tangible equity of 20%. Operating income stood at CZK 6.2 billion for the first 6 months and this is by 6% better result than a year ago, mostly driven by higher commission income amid continuing success in distribution of wealth management and insurance products. On the cost side, we managed to reduce operating expenses by 2.7%. And CZK 2.8 billion for the first half of the year is in line with our full-year target of less than CZK 5.8 billion. Cost of risk remained benign at CZK 237 million or 18 basis points of the loan portfolio, which is nearly at the midpoint of our guided range, 10 to 30 basis points. So altogether, our net profit increased by more than 9% year-on-year, or CZK 226 million. And with that, we remain on track to meet or potentially exceed the full-year minimum target of CZK 5.2 billion. On Page 18, we provide further detail on net interest income. On the left, we report 2.6% decrease year-on-year. This is predominantly due to lower to weak repo rate. So far, not fully compensated by repricing on the deposits. However, as you can see, our repricing effort resulted in a turnaround of the quarterly trend in the second quarter. On the right, we report increasing net interest income from lending by CZK 255 million year-on-year. This was supported by higher portfolio yield as well as expanding clone portfolio since the beginning of the year. Below that, net interest income from treasury operations is up year-on-year as well by CZK 191 million. However, reversed trend in the second quarter is a function of decreasing 2-week repo rate. And finally, interest expense on customer deposits started to decline in the second quarter as a result of several repricing actions on the deposit. Moving forward, on Page 19, we report net fee and commission income, which is up by 13.4% year-on-year, and this was easily achieved by improved performance in distribution of wealth management and insurance products. More detail to that I will provide on the following 2 pages. If I start on Page 20 with the wealth management products distribution, on the left we report nearly 55% growth of the outstanding amount of distributed wealth management products to CZK 48.7 billion reported at the end of June. This significant growth was achieved based on CZK 11.5 billion of volume sold in the first 6 months. And as you can see on the right, this is by 125% more than we achieved in the comparable period a year ago. Strong performance in the distribution together with increased opening fee in the second quarter resulted in 127% increase of our commission income to CZK 333 million generated in the first half of the year. And on Page 21, we continue with the insurance product distribution, which is our second key pillar of the commission income growth strategy. We successfully continued in a division of life insurance with annual premium equivalent up by 25% year-on-year, and the chart below shows the overall commission income growth by 4.5% year-on-year to CZK 611 million delivered in the first half of the year. The growth was supported by improved performance across all product categories and that more than offset the decline of the bonuses that we received from our main partners. The amount of bonuses reported in 2023 was supported by a significant one-off bonus from NN for granted exclusivity, as we discussed already. On Page 22, we newly added the detail of our net income from financial operations, which increased by nearly 40% year-on-year, and reached CZK 514 million in the first 6 months. And this growth was mainly driven by bond sale gain of CZK 59 million realized in the first quarter, together with positive revaluation of derivatives. FX margin reached CZK 351 million and is up by 2% year-on-year, supported by higher margin realized on client FX conversions in mobile application, partially offset by lower result on cash FX conversions at branches. And we complete this section with operating expenses reported on Page 23. As mentioned before, we managed to reduce the cost base by 2.7% year-on-year, predominantly due to lower regulatory charges by CZK 91 million, or 30%, and also savings realized in other 2 categories, D&A and admin costs, by 4.9% or 3.5% respectively. On the other hand, we incurred higher personnel costs by 6.1%, and this is driven predominantly by higher sales incentives, reflecting improved performance in the front office, and also increase in average salary amid persisting inflation on the labor market. With that, let me hand over back to Tomas. Thank you.

Let me provide comments on the balance sheet structure and size. On Page 25, we have a summary page of the key developments. As I already mentioned, on the net customer loans, we stand at CZK 271 billion, and we were able to deliver 3% growth. So based on that, I think by the end of the year aspirational target for the bank would be to end with a portfolio of CZK 280 billion, if we succeed in our endeavors. If you look at the funding base, I already mentioned the annual growth. What is interesting here, that the growth continues on semi-annual basis at a relatively similar rate, despite the rate decreases and adjustment of pricing that we put in place. The funding base is now at CZK 443 billion. Cost of funds going down by 30 basis points, but later on in the presentation, we show you the rapid decrease of the cost of the funding base. Loan portfolio yields table. Again, this is a function of the decreasing rates. On Page 26, you can see structural development of the balance sheet where I suppose the most important is what we do with the additional liquidity. You can see that the deposits grew by 6.7% since the beginning of this year. And then if you examine the left side of the chart, you will see that nearly all of that liquidity or rather majority of that liquidity is being sterilized with a positive spread with the Czech National Bank nonetheless. Obviously, because of the rate decreases, the spread is narrowing. On Page 27, you have more detail and segment view of the long portfolio. Here I would highlight that the most cherished or most important success that we consider the growth on small business on annual basis is more than 16% and the growth is also strong on the semi-annual basis. This product line and the growth is the most profitable for the bank from return on equity point of view. And therefore, we are investing a lot of effort in order to grow it. Retail impacted by the management of the mortgage portfolio, but later on and in the appendix, you can see that we have stabilized and returned to growth the unsecured lending. And on SME, we have solid performance, namely throughout the first semester of this year, which is driven by improvement in investment loans as customers realize some of the delayed projects and we also have a very solid growth on working capital products. On the following page, on Page 28, we seek to substantiate the argument that we are returning to growth. If you look at the new loans that we've put on the balance sheet, the volume is nearly CZK 29 billion. This constitutes rounded up 43% growth against the comparable period of the previous year. The growth is equally distributed between retail and commercial lending, where even on mortgages we decided to fill some of the repayments and the activity -- the mortgage activity increased by 57% at the end of the first semester. And second aspect that I would like to mention is the 65% growth in small business lending, where we have significant success with secured product distribution. So we consider this to be in line and actually in excess of the operating plan targets that we are seeking to deliver. On Page 29, average quarterly yield. The yield is stable for the last 3 quarters across the bank. However, as we hedged the loan portfolios, selling fixed and buying variable, obviously we are impacted by the rate cuts and have, I would say, accounted for that in our expectations this year. On customer deposits, Page 30, you can see that the deposit growth continues nonetheless it's slowing down namely it is slowing down on retail where on semi-annual basis the bank delivers growth of 3.9%, so it's significantly slower than the growth on annual basis. We have fantastic performance in the commercial realm. As I mentioned, this is through targeted marketing actions, which yielded additional volumes from this segment, contributing positively to the bank's growth. On Page 31, we disclose detail on the cost of funds. So here you can see that, if you look at the semi-annual basis the funding through deposit gathering increased by 6.7%. In contrast to that, we decreased the cost of deposits to 300 basis points measured on the monthly basis. And additionally, in the 3-weeks of July, the cost of funds declined further by 30 basis points. So we are very focused on this, trying to balance the overall funding base with the necessity to decrease the cost of funding. Page 32 provides more quarterly view. And again, the decrease in cost of funds is evidenced by the figures here and in both segments retail and -- retail and commercial the decline is by 30 to 40 basis points range. So this completes my remarks on the balance sheet development and on the yields and cost of funds. And Jan will walk you through our liquidity.

Thank you, Tomas. On Page 34, before we go into more detail, let me summarize the key liquidity ratios. The incremental liquidity which we obtained during the last 12 months contributed to significant strengthening of our liquidity position, which is demonstrated across. If I start with loan to deposit ratio, the position stood at 64% at the end of June against 73% a year ago. And also share of high-quality liquid assets on customer deposits increased to 42%. Below that, the regulatory metrics, net stable funding ratio increased to 178%. This is by 30 percentage points above the position a year ago, and liquidity coverage ratio of 340%, both positions significantly above the regulatory limit of 100%. On Page 35, we report the development of our position in high-quality liquid assets, which reached CZK 178 billion at the end of June. This represents a growth of 48% year-on-year or CZK 58 billion in absolute amount. You can also see that the growth continues also this year, however, at a slightly lower pace due to using liquidity or allocating liquidity into expanding loan portfolio. This position partially invested in the government bonds and partially placed in the central bank significantly contributed to our net interest income during the last 12 months. However, since the beginning of the year, the spread is narrowing down in line with the 2-week repo rate decrease. On Page 36, we report the repricing and repayment profile of our loan portfolio. If you look at the left side, out of CZK 272 billion, we maintain CZK 24 billion of exposures at variable rate, typically repriced on a monthly basis. Then CZK 85 billion of exposures at the fixed rate to maturity and CZK 162 billion at the fixed rate until the end of the fixation period. And the table on the right shows that 30% of the loan portfolio is expected to be repriced or repaid within the next 12 months and 80% within the next 36 months. And if you flip the page, we provide similar analysis of the deposit base, where out of CZK 425.8 billion, 2/3s can be repriced within the next 3 months, subject to market competition and other considerations. With that, let me move to the capital section starting on Page 39. I start with the overview of key capital ratios on the consolidated level. Capital adequacy ratios stood at 19.4% against the management's target of 15.55%. This represents an excess of 3.85%. And more importantly, our Tier 1 capital adequacy of 15.36% is by 2.64% above the management's target. This Tier 1 capital excess in absolute amount represents CZK 4.5 billion or CZK 9 per share. And let me emphasize that besides these positions, we maintained accrual for the dividend distribution of CZK 2.4 billion, which represents 90% of mid-year consolidated profit. On Page 40, we add more detail to the consolidated position on the -- to the capital position on the consolidated level, where the position is to that CZK 33.4 billion, stable since the beginning of the year, and risk-weighted asset density at 35.4% represents a decrease by 1 percentage points since the beginning of the year. And if you flip the page, we can continue with capital position on the individual level, where the total regulatory capital including MREL instruments stood at CZK 39.3 billion, which is by nearly CZK 1 billion increase since the beginning of the year. And risk-weighted assets density stood at 35.3%. MREL adequacy ratio then reached 23.69%, which is by 1.24% above the management target. Although, the capital position on individual level remains stable and strong, there is room for further optimization. Therefore, we are now preparing an issuance of MREL eligible bond to be issued later this year. This will enable us to release Tier 1 capital, which currently is used to cover MREL requirements. So that was all from my side for the capital section. And I will now hand over to Normann on the risk.

Thank you, Jan, and good morning to you. We are now on Page 43 with an overview of key risk performance metrics. Let me start on the bottom left with cost of risk, which came in at 18 basis points for the first half of the year which is in line with our guidance of 10 to 13 basis points. If you move up to the non-performing loan ratio, this came in at 1.44%, which is identical to the number which we reported at the end of last year. And as far as the loan loss provision coverage and total NPL coverage are concerned, those values came in at the lower level, largely driven to NPL sales which we conducted during the period, adjustments which we made on the management overlays, namely releases on those, and also upgrades of previously forewarned receivables. On the next page, Page 44, we have a more granular overview how cost of risk evolved over the last couple of quarters. If you just look at the second quarter of this year, in absolute numbers, the cost of risk amounted to CZK 102 million, out of which CZK 17 million was for the commercial book and CZK 85 million for the retail book. The Q2 result was affected by the adjustments on the management overlays where altogether we released around CZK 102 million. The big part of that was a release in the commercial book. That's also one of the reasons why the CZK 17 million for commercial was fairly low in the second quarter. And in terms of percentages, the second quarter came in better than in the previous 4 quarters and stood at 15 basis points. Continuing on Page 45, here we have 5 snapshots of the gross loss portfolios, NPLs, loan loss provisions and coverages. So, whereas the gross loan portfolio increased by almost CZK 3 billion year-over-year, loan loss provisions dropped by around CZK 150 million. Again, the key driver are the adjustments we made on the management overlays. If you look at Q2 stock of provisions of CZK 4.6 billion, we still have around CZK 450 million of management overlays within the provisioning bucket. In terms of the coverages, as said before, 116% for the total NPL coverage and 1.67% for the overall coverage. Then Page 46, here we have the overview of NPL in and outflows since June '23. If we just look at the second quarter, here we saw a net NPL formation of CZK 91 million. The NPL gross formation came in lower compared to the previous 2 quarters and stood at CZK 1.17 billion. Also important to note is that in the second quarter, we had lower NPL sales compared to the first quarter, which were CZK 92 million in Q2, as opposed to CZK 268 million in the first quarter this year. And the last page, Page 47 of the risk section, shows the delinquency ratios 30, 60, 90 days past due. You can see on the chart they have been really largely stable over the last couple of years, oscillating within a corridor of around 5 to 10 basis points up or down. Going forward, I think it's rather likely that these numbers will increase over time, obviously being a function of the macro and also the degree of new volumes which are going to originate in coming periods. So, summarizing the risk section, I think we had another good quarter with a solid core credit performance. Due to that, we were in a position to make adjustments of management overlays totaling CZK 189 million in the first half. We'll continue reviewing those in the second half of the year and where possible we'll make further adjustments downward. In the third quarter, we expect a new macro forecast from the Czech National Bank, which serves as an input to our IFRS 9 reserving model. And we'll see where that is going to spit out. And last but not least, I think very important, there is a new regulation or a registration requirement coming from the Czech National Bank for buyers of distressed assets and entities administrating that. Now, the registration process has been fairly slow and there only have been a few market participants being registered. If that will not continue, obviously, this would have an adverse impact on our ability to sell distressed assets in the second half of the year. But it's still too early to predict whether this is going to stay like this and I'm positive it will change. With that, I hand over to Tomas Spurny. Thank you.

Okay. So, let me put in some closing remarks. If you go to Page 49, you see that we are at the beginning of fulfillment of the 5-year plan. The 4-year plan calls for absolute profitability at minimum CZK 27.7 billion. This constitutes more than 30% increase against the previous 5-years. So, here, if we look, if we focus on the year 2024, we are slightly ahead of the minimum target and we hope to overachieve it. Currently, our position is that we confirm that we are on track to fulfill the market with upside in the range of CZK 100 million to CZK 200 million. With respect to volumes, if you look at Page 50, I'm sorry, Page 52, if you look at the loan portfolio, the target for this year was fairly conservative, CZK 266.4 billion. As I already mentioned, I would like the bank to achieve CZK 280 billion on total enterprise level with respect to the gross loans and that is an aspirational target for the remainder of the year. With respect to customer deposit development, our year-end target was set at CZK 415 billion. We are currently operating the bank at significantly more than that. So, obviously, we have additional room to grow at marginal profitability. If you look at the asset management target, it was set at CZK 50 billion and we have reached it as of this week. So, the situation so far is developing favorably, and last but not the least, the most important aspect is that we ended up the semester with cost of funds at 299 basis points and as I said, in the third week of July, the trend continues and we shaved off additional 30 basis points and another reprice on the core deposit products is coming imminently. And I don't want to say when because that is sensitive information. So, the management is confident that we will fulfill the guided target. I would also say that we are confident that we will meet the current analyst consensus. And with that, I would first and foremost like to thank my colleagues for delivery of the targets, and we will open the floor for Q&A.

[Operator Instructions] Our first question today comes from Mikhail Butkov with Goldman Sachs.

So I have 3 of them. First one is on the retail lending growth. Looking at your guidance for the next few years, it implies quite low single-digit growth in the retail balances despite the rates cutting cycle is underway. Are there any additional requirements for the retail lending to accelerate or basically why lower rates will not help for the significant -- for a bigger acceleration? That's the first question. The second question is actually on -- it was on the loans and deposit repricing. In the end of the presentation, you mentioned that it is a bit of a sensitive information, I presume, but if you could give any color at least on maybe on loan yields repricing, is there anything, any trajectory you see in July or till the end of the year that could be interesting to know? And lastly, you also mentioned the management overlays in terms of the provisions. Do you incorporate the releases of these provisions into your guidance in 2024-'25 or your guidance excludes these releases? So, 3 questions for me.

So, let's go in the reverse order. On management overlays, yes, the releases of the overlays are built into our operating plan and they are part of the guidance. On loan yields, year-to-date, we have lent at a contractual yield of 7%, 5 basis points. This is the year-to-date figure of new lending. That's a combined figure between retail and commercial. So, the trend in the second half of the year, in the first 3 weeks of the second semester, we achieved loan yield on the production of 740 basis points. So, 7.4%. The increase of the yield is not a function of pricing, but it's more or less a function of how we manage the loan origination, seeking to focus on the high margin products rather than on the low margin products. With that in mind, in the second half of the year, we plan to further continue with the mortgage growth. And that typically pushes the yield down because mortgages, the average mortgage rate in the Czech Republic will be now around 5%. This is the year-to-date origination of the market, if I remember. On the deposit reprice, we will follow the market. We will be very tactical about this. And I will not disclose the spread that we have in our operating plan, because if I take the experience from the first quarter, we were subject to very, very difficult situations where our competitors offered high rates during the cycle of the first 3 cuts and we were effectively prevented from cutting the rates. From policy point of view, we want to be in the middle between the large banks offering the lowest rates and between the small banks on the other end of the spectrum offering very high rates. So, essentially, our policy is to pay premium over the large banks. And on the retail lending growth, I think if you look at the numbers, I would say the year-to-date growth is solid. With respect to the guidance, we constructed the guidance at the end of 2023 with the view that the GDP growth will be rather slow, which is proving to be the fact. We've also taken a super, I would say, conservative position. If we were to hold the portfolio study, what would be the result? And we incorporated that into the guidance. As I said today, we could, with some effort and some luck, quite frankly, reach growth of the portfolio to CZK 280 billion by the end of this year. We might not be able to do so, but this is in the heads of the management. And to look at the further years out, I don't dare today to make a prediction, but I've said to Reuters and Bloomberg this morning that I expect that the market will grow. The overall lending market will grow somewhere around 5% in the next 24 months. So, we will adjust our activity to the market growth.

Okay. Just one clarification on management overlay releases. You usually provide a range on the cost of risk outlook. Is the difference between the higher and the lower end of that guidance implies this optionality to release some provisions, or it's not the best way to think about this range on the cost of risk, which you usually provide?

Yes, I don't want to answer that question, actually.

Our next question comes from Karel Nedved with Fio Banka.

I would like to ask 2 questions, if I may. The first one, a few quarters ago, you canceled the cooperation with the brokers. A big portion of the new mortgage business used to come from brokers. Do you see that the loss of this new business from brokers is compensated in other channels, such as digital, because you do not have to pay commissions there and therefore can be very competitive there? How is that changing strategy working out so far? Could you please shed some light on that? And my second question would be, during the last conference call, you mentioned that the excess capital might be distributed to shareholders and that the decision might be taken in the third quarter. At this point, what do you believe is the probability of that capital being paid out? Is it 50-50, or is it more probable that you will pay it out? And if so, what portion of that excess capital do you believe would be paid out?

Okay. On the brokers, we are satisfied with the performance of both the digital and the brand channel. If you look at the digital channel, it constitutes about 30% of the units. We receive significant interest from both the end point clients, and we actually receive significant interest from brokers, who would like to cooperate with us without commission. With respect to distribution capability of the bank, we are quite satisfied that we will meet the target for this year. Nonetheless, one has to keep in mind that our target is to keep the mortgage portfolio stable, so 20% of our attention goes to new volume, and 80% of the attention goes to retention of existing customers and repricing of the existing loan book, mortgage loan book. We've also significantly improved fee production capability from the mortgage book as we have -- as we have introduced fees that relate to the mortgage franchise, and which have proven to be very successful in reinforcing overall profitability of the mortgage franchise. With respect to excess capital, yes, we said that, we would examine it in third quarter. That was perhaps premature because we have the corporate governance of the bank is now focused on reappointment and on Supervisory Board, because there are 3 mandates expiring. This will be one of the tasks in the September session of Supervisory Board. From the excess capital point of view, I don't think we will actually make that decision in third quarter. We will defer it further down the line. The question on distributability, on theoretical distributability of the capital, the other reason for actually deferring that decision down the line is the loan growth. We need to understand how the book will behave, have an update of the 5-year plan with respect to growth and on that basis, I will be able to answer the potential distributability in relative or absolute terms of the excess capital.

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

I had a couple of questions, maybe firstly on cost of funds. Clearly, the development is very encouraging there and listening to your comments, it seems the trend will continue in the second half. You mentioned you declined your savings rate, the headline one, now to 3.8%. But at the same time, if we look at the deposit base, again, there is a very strong growth year-to-date at 7%. So, can I ask what is, in your view, driving this with the savings rate also coming down and also considering there are still offers in the market above 5%? And maybe in relation to this, if you could also comment on the competitive trends, how they've evolved over the second quarter and how do you expect them to evolve in the second half of the year? That would be very helpful. And maybe a second question, if I may and that will be on your net profit guidance. Clearly, it seems like there is some upside to it. You're usually quite vocal about risks in the operating environment. So, can I ask if you see key ones in the second half that may take you to the lower end of this guidance and maybe also connected to this, the discussions of a bank tax seem like have faded away. But do you have any current views on that topic also, given we discussed that recently?

So, first, cost of funds and the volume. What is driving it? MONETA is an attractive -- provides attractive propositions to the market. We buy deposits at premium against the large banks. Our communication strategy focuses not on flowers and smiling people, but we communicate numbers to the market, which are very, I would say, accurate and consistent. So, we are able with the communication strategy, with the footprint, with the digital presence and with the strength of the overall, let's say, brand combination with value proposition, we are able to grow faster. We typically, not typically, we take market share from the large banks and we lose our customers typically to the smaller competitors. This is effectively, these are the driving forces. From management point of view, why we pay premium against the large banks is that we believe that based on events in 2022 in the U.S., we believe that safeguarding very comfortable liquidity at a profit is the best policy, because should there be some unforeseen market event, liquidity is priceless. So, we follow this policy. On the net profit target, what I see as risks, well, obviously, it is always the potential of having one of the larger exposures become NPL. So far, we do not have any signs that the large exposures would be under pressure, but it can happen. I think we have a solid book. We've entirely exited the real estate market where we virtually don't finance any offices and we were successful in exiting that realm of real estate finance without a single penny loss, and we are being careful, but you never know. So, it is I don't see in the quality of loan book anything particular that endangers the profitability by the end of the year, especially keeping in mind that the bank still has 10% of its provisioning stock set aside in management overlays. So, the probability seems to be very low. On the bank tax, it faded away because it is summer, but I think if I had to put a probability on the bank tax in covering the year 2024, I would say, this is less than 20%, maybe 30%, but less than 20% because time is ticking away. Nonetheless, if I were to look at the potential probability for '25, I think it is fairly high, and I don't want to speculate, so let's call it 50-50 because you will have parliamentary elections, and this is a favorite topic before any elections. If you track discussions of bank tax, sector tax in the Czech Republic, it is very much aligned with the electoral cycle, so this, as we call it, this ghost will reappear within the next 6 months with certainty of 100%. I hope I covered your queries.

We have a written question that was already answered, so if you wanted to add anything. The question is, is there any plan or chance of an extra dividend, as mentioned a few times in the past, or is it not considered at all at the present time?

As I said, at the present time, we are not considering it. Is there a chance? Absolutely. Because I cannot foresee that we will use the entire amount of the excess capital. Again, reiterating, we are not in a position to decide, because we need to see what is the lending demand and what will be the capital position, so I apologize for previously making a statement that we will consider it in the third quarter. This will be deferred. As I said, we have changes in corporate governance structure of the bank, which we need to manage, and we still have uncertainty in terms of the lending development. So far, the evidence based on origination in the bank shows that we will need more capital than previously assumed in our operating plan.

There are no further questions in the queue, so I'll turn the call back over to Mr. Tomas Spurny for any closing comments.

Thank you very much for your attention. We value your presence on these calls. We consider the semi-annual result satisfactory and a springboard -- the springboard meeting the minimum target. We believe there is upside in the minimum target in the sense that the market consensus is CZK 100 million higher than our minimum target, I believe that we can meet both of these benchmarks. We have very good momentum. I hope it will continue and we are fulfilling our commitments to shareholders. With that in mind, we are looking forward to our disclosure with respect to third quarter and I believe that, we will continue to have satisfactory results in view of the targets that we committed to. Have a good day. And we thank you for your participation.

This concludes today's call. Thank you for joining. You may now disconnect your line.