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

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; Mr. Jan Fricek; and Mr. Jan Novotny. May I now hand over to Mr. Spurny, who will lead you through the conference call. Sir, please go ahead.

Good morning, ladies and gentlemen. I have the pleasure of presenting yet another quarter. So, if I can ask you to turn attention to Page 2, where we summarize key highlights of our performance. At the end of the third quarter, we generated year-to-date profit of CZK 4.2 billion. The profit increased 6.6% on year-on-year basis. The net profit so far translates to return on tangible equity, which is nearly 20%. It's 19.8%, so we have a slight increase in the return ratio. Majority of the result is driven by operating income performance, which increased by nearly 5% to a level of CZK 9.5 billion. On the performance of the third quarter, we've also put together an outlook for the rest of the calendar year. And currently, we are targeting -- not only affirming the guidance that we provided at the beginning of the year, but we increased the targeted net profit to CZK 5.6 billion for the full year. From a balance sheet perspective, our total assets reached CZK 448 billion, this is increase of nearly 9%. The loan portfolio remained stable. However, if you look at it in more detail, and we will, you see that the lending activity is reinvigorated, and we look with confidence towards the end of the year and towards 2025. The funding base of the bank increased substantially at the rate of 8.6% and reached at the end of the quarter CZK 444 billion. Continuing on Page 3, we look at capital and some other important aspects. From capital perspective, we are at 19.2% capital adequacy ratio, which we consider sound and solid. With respect to excess capital, over the OCR, we hold CZK 7.2 billion of surplus capital. If you look at it from perspective of structure of the excess capital, CZK 5.3 billion is against Tier 1 and CZK 1.9 billion is related to Tier 2. We've also improved the MREL ratio of the bank on a stand-alone basis. The ratio now stands at 28.1%, and this was accomplished on the basis of MREL bond issuance in the amount of EUR 300 million. We issued the bond in early September. And lastly, we managed to decrease, or the regulator decreased our Pillar II requirement by 30 basis points to a level of 2%. Just from a context of longer perspective, before the pandemic we had 1.9%. So, this also normalizes in time. Based on strong recurrent profitability, based on solid capital position and large surplus capital, we've elected to propose CZK 3 per share extraordinary dividend, which should be decided upon in the upcoming general meeting, which will be held in late November. And if approved, the payout will then be before the end of this year. Turning to macroeconomic environment on Page 5. The economy is improving. However, the growth of the economy is substandard. If you look at the GDP growth in relative terms, we've had 2 quarters of growth coming from negative territory in the third quarter of 2023. The projection for this year is overall growth of 1.1%, which is probably a bridge too far, but we will certainly see at the end of the year. From perspective of Czech Republic's indebtedness, the ratio is relatively stable at 43.4% and the state budget deficit for this year is projected at CZK 282 billion. Currently, the deficit as at the end of September stands at CZK 182 billion. For the next year, the Czech Parliament just approved the main, let's say, constraints of the public finance and the deficit should be at the level of CZK 241 billion in 2025. And we continue to enjoy low unemployment, which obviously is good for our business. Turning to Page 6, we look at inflation and interest rates. Inflation has been coming down, the reported number 3.5% at the end of September. The full year should come in at the level of 2.6% for 2024. On the basis of declining inflation, the Central Bank cut the rates 7 times. And currently, the key rate stands at 425 basis points. And you can see the impact of the cuts on short end of the yield curve in the graph below. Nonetheless, the Governor of Czech National Bank warned that there are at least 2 factors that might impact further cuts. One is being the absolute and relative size of the deficit, and second, evolution of inflation within the segment of services and the price increases there seem to continue throughout the current year. Now how are we performing against the market? So, we provide you with a brief view on Page 7. This is our performance against the deposit market, where MONETA produced growth of 7.1% against the market growth of 5.6%. I would call this broadly with the market with a slight overperformance in retail and lagging -- somewhat lagging in the commercial deposit segment, but this is mostly due to our pricing policy conscientious, tactical decisions we've taken during the past 3 quarters. Turning page to the lending market. Currently, we are underperforming the lending market. We grew 50 basis points against the market performance of 4.6%. This is mainly attributable to our performance in 2023, where we really drove through the year with the foot on brakes. Nonetheless, when we look at the performance year-to-date later on in the presentation, you see that we have reinvigorated the lending growth, and we look with confidence towards the year-end and particularly towards 2025. Now let me go into the operating platform of the bank, starting with the overall view. We currently have a customer base of 1.6 million rounded out. The customer base continues to grow, albeit at a slower pace. The pace of growth is 2%. This is obviously connected to the interest rate environment and to the cuts that we have done on the deposit gathering -- price cuts on the deposit gathering side of our business. Branch network, we have 134 outlets. What is perhaps more important than the 12-month evolution is that we've elected to close 11 outlets this year. This will be accomplished by the end of the year and will help us to manage the cost base of the bank. And it's also a reaction, as you will see later, on evolution of the branch traffic and utilization. We continue to share ATM infrastructure with 3 other banks. So, we have very strong position in terms of ATM footprint throughout the country. With respect to the employment of the bank, it is stable. Here, you can clearly see that on the front line, we have slightly less people, and we have taken on more people into namely enabling functions. This is due to the digitization of the bank and higher demand for people within management of the digital platforms that we operate. And this is natural when you look at the digital on Page 11. If you look at it from a customer perspective, registered into the digital channels, this is nearly 1.5 million with a very solid growth of 8%. If you were to dissect this number into growth of users in the key platform, which is the mobile banking platform we operate, the growth there is 13% of registrations. The digital channels have become the primary channel, how the bank and customers interact with each other. On average day, we have 676,000 visits and the growth here is fairly strong at more than 13%. But perhaps more importantly, where we experienced the biggest growth is on servicing transactions, nearly 17 million transactions since the beginning of this year, and this constitutes a very high growth of more than 25%, and this obviously takes away traffic from both branches and our contact center, and you will see that on the following pages. Additionally, we have relatively good growth in sales transactions and very solid growth in loan applications and in payments as well. Now, turning page to the branch network. We see fairly robust decline in branch visits, nearly 15%, 1.2 million visits year-to-date. So, if you put it in the context of the digital channels, it's actually quite interesting from that perspective. We are trimming down the staff at the branches. And you can see that the biggest impact that we have, and this is due to the shared infrastructure on ATMs, is a very strong decrease of cash transactions. This is deposits, withdrawals at the branch level. Solid growth -- on the other hand, we have still solid growth in loan applications within the brick-and-mortar network and usage -- well, the usage of the branch network is about 1/3 of our customer visits uses it. Nonetheless, again, the usage of the network is declining by robust 10%. Turning page -- to Page 13. In the contact center, if you look at the inbound traffic, this testifies both the inbound traffic and the e-mail communication, that the traffic is declining, and this is as a result of the success of the digital channels. Again, we are trimming down the staff somewhat, and client service level is satisfactory, even though we run the contact center in order to have slightly -- let's say, to have constrained capacity in order to convince our customers to use self-care in the digital channels. On insurance, we have, again, a fairly good performance and solid growth on this dimension of the contact center. Then if we turn page, this is the last one on the operating platform, Page 14, the ATM network. The biggest accomplishment of this year is that we have shared deposit facility with 2 banks, it's Komercni and Air Bank, with the third bank, UniCredit will come online during 2025. But having more than 40% market share in the deposit machines helps us to transfer the deposit flows from the branches into the deposit ATMs. If you look at the ATM infrastructure, withdrawals are declining overall and the deposits are growing at a robust rate of more than 20%. And again, even the ATM network has lower traffic of service transactions as the digital channels are taking that away. And with that in mind, I guess the most important message here is that we are on track with respect to the guidance, with the performance across all of the major lines generating profit of CZK 4.2 billion and being confident that we can reach CZK 5.6 billion net profit for the calendar year 2024. And apart from that, we will initiate shareholder distribution in the amount of CZK 3 per share, subject to approval. This shareholder distribution will not impact the 2024 dividend, which we accrue at 90%. And now my colleague, Jan Fricek, will walk you through the details of the P&L. Thank you very much.

Thank you, Tomas. Good morning, ladies and gentlemen. I'm on Page 16, and it's my pleasure to walk you through the profit and loss development section. Let me repeat the key financials. This year MONETA delivered net profit of CZK 4.2 billion so far, which represents earnings per share of CZK 8.3 and return on tangible equity of 19.8%. Operating income of CZK 9.5 billion is up by 4.6% year-on-year, and this was mainly achieved through the 14.5% growth in net fee and commission income. On the cost base, we report a broadly stable balance year-on-year of CZK 4.2 billion, which represents cost-to-income ratio of 44%. On the cost of risk line, we incurred net cost of CZK 351 million, corresponding to 18 basis points of the average loan portfolio, and this is nearly at the midpoint of our original guided range, 10 to 30 basis points. So altogether, net profit of CZK 4.2 billion is up by 6.6% year-on-year and such a strong profitability enabled us to increase the minimum guidance on the net profit by CZK 400 million to CZK 5.6 billion, as mentioned before. Moving forward on Page 17, we provide the detail to the net interest income development, which is up by nearly 5% year-on-year. And you can see that the improvement further accelerated in the third quarter, which is up by 9.2% against the second quarter. This also resulted in the net interest margin improvement to 194 basis points in the third quarter. Drivers of the growth are explained on the right side, starting with the lending interest income being up by 4.5% year-on-year, supported by loan portfolio yield up by 20 basis points. Treasury income decreased by 21% year-on-year, which reflects declining 2-week repo rate. However, almost all missing treasury income was offset through lower cost of funding stemming from our repricing effort on the deposit side. Moving forward on Page 18, net fee and commission income development. In the third quarter, we achieved a growth of 10.6% year-on-year, predominantly due to improved performance in distribution and wealth management products, which you can see in the top right corner, and I will provide more detail on Page 19. Firstly, the outstanding amount of distributed wealth management products expanded year-on-year by 63.2%, and this great expansion was delivered on a basis of CZK 17.2 billion of volumes distributed this year, which is by 118% more than the volume distributed last year. Such a significant balance sheet -- such a significant outstanding amount expansion together with increased opening fee resulted in commission income growth by 122% or CZK 282 million year-on-year, which you can see in the bottom left chart. On Page 20, we provide more detail to the distribution of insurance products. First of all, this year, we generated commission income from this franchise of CZK 900 million, which is almost the same result as delivered last year. However, I have to point out that last year result was greatly supported by the extraordinary bonus of CZK 267 million. If adjusted for that, recurrent income increased by 19% year-on-year, and this was achieved through improved performance in distribution of all insurance products in our offer, which you can see in the numbers on the right side. On Page 21, we can continue with the net income from financial operations being up by 4.5% year-on-year. The growth was achieved predominantly due to better margin on client FX conversions, together with the extraordinary gain on bond sale, which is higher this year against the last year. On the other hand, result was partially impacted by a lower result on derivatives. And on Page 22, we complete this section with the OpEx. As mentioned before, cost base remained broadly stable of CZK 4.2 billion. What is important, 3 out of 4 categories are reporting declining trend. The most pronounced is visible on regulatory charges being down by CZK 91 million year-on-year. On the other hand, personnel costs increased by 6.3%, which was mostly driven by higher sales incentives this year, reflecting improved performance in the sales force and also higher or increased average salaries amid persisting inflation on labor market. However, I would like to point out that personnel costs incurred this year are nearly at the same level as reported for the comparable period of 2022, where the compound annual growth rate over the last 2 years stood at 60 basis points only. This almost 0 inflation was achieved through the 10% reduction in the number of FTEs, which we realized in the first half of 2023. So, with that, let me hand over to my colleague, Jan Novotny. Thank you.

Thank you, Jan, and good morning, ladies and gentlemen. I have a pleasure to walk you through the next section of today's presentation, which is the balance sheet development section. I'm starting on the Page #24, where we are showing the key highlights for the Q3 2024. And let me comment first on the top left chart. We have successfully returned our lending portfolio to growth. On a year-on-year comparison, it is plus 0.5% growth. However, the growth from the beginning of this year is already more than 2.8%. Moving to the top right chart. The funding base is also a very solid growth, up by 8.6% year-on-year and 6.9% for the last 3 quarters, including the successful issuance of MREL bonds in a value of EUR 300 million. The 2 bottom charts are showing the key highlights from the pricing perspective, showing stable loan portfolio yield at 4.9% and significantly reduced cost of funds to the level of 2.7% for the Q3 2024. Now let me continue with more in-depth view. On the Page #25, we are showing the development of the overall balance sheet of MONETA Group. We have ended up with a level of CZK 488.2 billion as of the end of Q3 with year-on-year growth of 8.7%. We're also showing the composition of both sides of the balance sheet with its respective growth rates. On the next page, Page 26, we provide more details on the success we drive on the lending growth. We are more than 43% up on the total new volume production compared with the same period the last year, and we are reaching CZK 42.5 billion of new volume disbursement so far. On the right side of the slide is the split, retail and commercial volume, with a very robust growth across all the categories with more than positive outlook regarding the further growth in Q4 this year, as already mentioned by Mr. Spurny. Now moving to the next slide, Slide #27. Here, you can see the evolution of our lending portfolio and its split into the 3 segments we are serving, being it retail, small business and SMEs and its corresponding growth rates. If you look closer to the retail growth, which is on the Slide #28, you can notice that the growth story begins to be visible from Q1 this year, especially in the consumer loan portfolio as well as in auto loans. Also, the mortgage portfolio starts to grow again as we see current market potential to increase the production while keeping superior profitability. The only category which is not growing is a small credit card and overdraft portfolio. However, this corresponds with the market size and its contraction over the past few years. On the next page, we have prepared a similar split for the commercial portfolio, where we have successfully managed to grow across board, except for year-on-year view on working capital category. However, this was influenced by a few larger repayments at the end of 2023. Now moving to the yield section. On the Page 30, it's clearly visible that we have managed the loan portfolio yield to stay at the same level of 4.9% for the past few quarters. Retail portfolio yield has slightly increased in Q3 and commercial went slightly down, both by roughly 0.1%. Maybe what's worth to mention regarding the commercial is that we kept almost the same yield despite the fact that there is a material portion of commercial loans on the PRIBOR based float rate. So that was the part about the loan portfolio yield. And now let's move to the deposit overview section, starting on the Page #31. As mentioned already, we're still keeping very strong growth. However, it is visible that the growth is slowing down due to continuous PRIBOR rate decrease and therefore, also customer rate decrease, which slows down the customer appetite to keep the cash on the saving products. You can also see the respective growth in all segments with retail maintaining its dominant position. Now talking about the repricing effort, please let me move to Page #32, which is showing the evolution of the overall balance and our funding cost repricing effort results. We are now more than 100 basis points below the Q1 level, and this trend is expected to continue into Q4. What is also remarkable is the fact that we have managed at the same time to increase our funding base by almost 6%. Now on the next page, Page #33, we are showing the evolution of the retail customer deposit split into current account balances and saving, term and other deposits. All the categories grew up in a strong pace and the overall balance stood at CZK 322.7 billion at the end of September this year. On the Page 34, you can see the same split for the commercial deposit product, which are mirroring the results in retail, except for the current account, which is again driven by a change of balance of a few bigger deposit customers at the end of Q3 2023. Last component of the deposit balance, the wholesale funding is in more detail on the Slide #35. Overall level of wholesale funding has reached CZK 22.6 billion, mainly due to already several times mentioned successful MREL bond issuance of a total value of EUR 300 million and nominally small decrease of the due to the banks and other category. Now please let me move to the last slide of the balance sheet section, which is the Page #36, showing the composition of the overall cost of funds into specific categories. The key is the overall decrease from 3.6% to 2.7% in last 2 quarters, driven by both retail and commercial customer deposit, which, as you saw already, supported the improvement of the net interest income for the whole MONETA Group. So that was the last slide for this section. Thank you very much for your attention. And please let me hand over to our Chief Risk Officer and Vice Chairman of the Board of Directors, Normann Vokt, to walk you through the next chapter of today's presentation.

Thank you, Jan. I will continue with the liquidity section.

So [ yes ], you've been promoted.

I apologize for small [ confusement ]. I'm on Page 38. In a nutshell, liquidity position during the third quarter remained strong and robust, which is demonstrated across all key liquidity metrics. Loan-to-deposit ratio decreased to 64% and the share of high-quality liquid assets on customer deposits increased to 43%. Below that, the regulatory metrics report a significant surplus over the 100% regulatory limit, namely liquidity coverage ratio being at 340% and the net stable funding ratio being at 178%. On Page 39, we report the development of our high-quality liquid assets. You can see the growth rate year-on-year 28.5% and 14.6% achieved since the beginning of the year. These high-quality liquid assets provided a significant support to our net interest income over the last 8 quarters. Not surprisingly, the spread over the cost of funds narrowed down since the beginning of the year, reflecting 2-week repo rate decline. However, in the third quarter, we managed to recover part of the lost margin through the repricing of the deposit base. With that, let me proceed to the capital section, starting on Page 41. First of all, key metrics on the consolidated level, where we reported 19.2% capital adequacy against the management target of 15%. This excess represents CZK 7.2 billion in absolute amount, which is visible in the bottom right corner, and the composition was already mentioned, CZK 5.3 billion excess on Tier 1 capital level and CZK 1.9 billion excess on Tier 2 level. On the right, the chart in the bottom -- sorry, on the left -- the chart on the bottom left shows -- and it clearly shows that the extraordinary dividend of CZK 1.5 billion would be paid on top of the regular annual dividend, which we continue to accrue at 90% of consolidated net profit. On Page 42, we provide further detail to the capital level -- to the capital position on consolidated level. The position in absolute amount stood at CZK 33.3 billion, mostly stable since the beginning of the year. And the chart with excess capital development in the bottom right corner shows that at the end of September, MONETA maintained available capital of CZK 11 billion, which is a sum of CZK 7.2 billion excess and CZK 3.8 billion dividend accrual. So altogether, this corresponds to CZK 22 per share. And we complete this section on Page 43 with the capital position on the individual level. As mentioned before, the MREL issuance resulted in the overall position expansion to CZK 46.9 billion reported at the end of September. And also, MREL adequacy ratio increased to 28.1% against the management's target of nearly 22%. So, as you can see, MONETA maintained robust capital positions on both levels, and this enabled us to propose accelerated dividend and also to continue with the dividend accrual at 90% of the consolidated profit. With that, let me hand over to Normann, our Chief Risk Officer. Thank you very much.

All right. Thank you, Jan, and good morning to you. We are now on Page 45 with an overview of key risk performance metrics. Let me start on the top left of the page. So cost of risk came in at 18 basis points, which is well within the provided guidance of 10 to 30 basis points, which we published earlier this year. When you look at the loan loss provision coverage and the total NPL coverage, here the values ended up at a level of 1.62% and 112%, respectively. The drop of these coverages were largely driven by NPL sales, which we conducted in the reporting period, upgrades of previously forborne receivables and also the partial releases of the ECL management overlays we conducted throughout the first 9 months of this year. And as regards the NPL ratio, this remained flat compared to the end of last year and stood at a level of 1.4%. Moving to Page 46, here we have a more detailed overview of how cost of risk evolved in the first 9 months. If you look at the absolute amount of cost of risk, which we incurred in Q3, this amounted to CZK 114 million, out of which retail contributed CZK 167 million book up and CZK 53 million release in commercial. The retail book up of CZK 167 million was also impacted by some management overlay we created for the flood which occurred in the Czech Republic at the end of September. And also, we increased some -- increased the coverages for the insolvency portfolio for our retail portfolio. In commercial, the release of CZK 53 million was impacted largely by a macro update, which we conducted in August this year. If we continue to Page 47, here we have 5 data points each of the development of the loan portfolio, NPL balances, loan loss allowances and coverages. Let me again start on the top left. The portfolio actually grew by CZK 7 billion since the end of last year. At the same time, loan loss provisions dropped by around CZK 230 million since the end of '23. If you just look at the stock of provisions of CZK 4.5 billion, we still have management overlays of CZK 450 million. They remained largely unchanged to the second quarter. We will conduct another review in the course of November and assess to which extent any adjustments on the ECL overlays have to be conducted. And as far as the loan loss provision coverages, I mentioned this before, 112% and 1.62% and the NPL ratio has been flat throughout the year, standing at 1.4% and the stock of NPL was, by coincidence, identical to the stock which we had at the end of June this year. Continuing on Page 48. Here, we have the overview of NPL in and outflows since September '23. If we just look to the right side, to the third quarter, we essentially had 0 net NPL formation in the reporting period and this was largely due to the NPL sales we conducted in the third quarter, write-offs and also a fairly solid curated performance of the portfolio. And the last page of the risk section, Page 49. Here, we have the evolution of delinquency ratios across the 3 buckets, 30, 60, 90 days past due. As is clearly visible, they remained flat already for an extended period of time and still remain well below pre-COVID levels. So summarizing the risk section, I would say the key takeaways are the following. One, we have seen a solid core performance on cost of risk within the guidance. Two, the third quarter was positively impacted by NPL sales. Until the end of September, we have conducted debt sales in excess of CZK 700 million, realizing a pre-tax gain of more than CZK 90 million. In the month of October, we conducted another fairly large debt sale of CZK 300 million with a CZK 33 million gain. This brings the total amount of debt sales until today to CZK 1 billion. Now, on the back of these developments, meaning the solid core performance and the above expectation on debt sales, we have updated the targeted result on the cost of risk and see it to come in, in a range of 15 to 20 basis points instead of the initial 10 to 30 basis points guidance we provided earlier in the year. Obviously, all this assuming that no major external adverse developments occur or there would be any commercial -- larger commercial default. And with that, I hand over back to Tomas Spurny.

I would like to comment on current outlook for the year, which is set forth on Page 51. We would like to accomplish operating income at level of CZK 12.8 billion. You can see that the upside against the original guidance is CZK 400 million. Coincidentally, this is the highest level of operating income that we've accomplished since the IPO in 2016. So the good news that we would like to get across is that typically, we were outperforming the cost of risk, and now we are coming to, let's say, core growth of operating income being the chief cause of the better-than-expected performance. On operating expenses, we have upside of CZK 100 million against the February guidance. So we would like to land at CZK 5.7 billion on the operating expenses. We've also tightened the range for cost of risk and we have to see how the year will turn out. Therefore, we are targeting CZK 5.6 billion net profit where the equal is stronger than the higher than. And if we are able to accomplish the CZK 5.6 billion, this would constitute CZK 11 earnings per share and a return on tangible equity at a level of 19.5%. If then I can provide a brief comment on Page 52. If you look at 2025, we will -- in '25, we are expecting to absorb the mandatory minimum reserve issue. The Czech National Bank increased the reserves from 2% to 4% and this is non-interest-bearing. Henceforth, in '25 we face a setback in the operating income in the amount of CZK 250 million when we will seek to absorb it into the numbers without changing the CZK 5.3 billion minimum target for net profit for 2025. And we are currently studying whether we will be in a position actually to increase that target of CZK 5.3 billion to a different level, but we will be able to communicate that soonest in early February, or late February actually. Thank you very much for your attention. I would like to thank my colleagues for solid and entertaining presentations. And now if we can go to Q&A.

[Operator Instructions] We have the first written question, which we have 3 questions. And the first one is, thank you for your presentation. Despite strong new lending momentum this year, net loans didn't grow in 3Q, which partly seems to be related to your cautious stance on the mortgages. How do you anticipate net loan growth in Q4 '24 and into 2025?

It has 2 assumptions. First is stable balances as we faced some repayments. We have from this vantage point a temporary setback. So if we accomplish stable balances and maintain the current growth, we will accomplish growth. And this is also related to the third element of that. If you look at our October performance, it is actually stronger than September performance, namely with respect to mortgages where we have so far this year the highest off-balance sheet commitment item. It's at CZK 2.7 billion. And if you look at the mortgage pipeline, we command a pipeline of around CZK 8 billion, which is the highest level since 2022. On commercial, we have a pipeline of about 800 transactions, which constitute volume of CZK 9 billion. Of course, not all of this will be converted. However, looking at the pipeline, it is strongest in last 24 months, I dare to say. And the fourth element is underwriting or origination, which doesn't immediately flow into the balance sheet. At an enterprise level, the difference between volume put on books and originated volume at the end of the third quarter constituted more than CZK 10 billion. So the CZK 10 billion are in commitments that the bank has made towards clients and it remains to be seen when these commitments will be drawn. So we have actual evidence, let's say, leading in the direction of optimism rather than other direction.

And question 2, you've achieved notable relief in funding costs through deposit repricing efforts. Given the current interest rate trend and competitive landscape, how much further improvement do you foresee in the coming quarters from here?

We see some marginal improvement. We will react to additional rate cuts if [indiscernible] decides to do them. And for competitive reasons, we don't want to comment on this. If you look at our behavior throughout the year, we postponed the rate cuts into the end of second quarter and we carried them out in the summer. So we were actually quite nervous whether we would be able to meet our commitments with respect to the internal plan. We have a plan how to approach it for the remaining of the year. What is -- I would suppose the most important is we promised to decrease the cost of funding, we did so, number one. Number 2, we avoided loss of liquidity in the bank, which is quite important, because what we have gained in terms of clients and in terms of volumes in the last 2 years stayed with the bank, knock on wood. And third element is, we need the deposits due to a very strong cross-selling effort into the wealth management. More than 70% of the wealth management sales are funded from the existing deposits of the bank. So if you were to include that into the numbers, you will see that the growth of the bank is actually significantly stronger than what we show on the balance sheet.

And question 3, looking ahead to 2025, how do you view NII considering growth dynamics, ease funding costs, but also the recent changes in reserve requirements? You've successfully navigated previous changes in reserve requirements. Do you see room to mitigate them in this time?

Well, as I said when I commented the guidance for 2025, based on what we know today, we will be able to absorb the cost -- the regulatory -- the additional regulatory cost. And we look with confidence to 2025. And I don't want to comment beyond that right now.

We have a question from [indiscernible]. Can you please advise on your regulatory funding strategy for 2025? In particular, do you plan to continue rolling the 2 CZK Tier 2 bonds? The 1st September 2024 call option was already skipped, as I understand. Another is coming in January 2025. Or maybe you see room for another international bond to replace the CZK Tier 2 debt plus also the CZK 1.5 billion SP bond that will lose its MREL eligibility in 2025 December?

Yes. I will take this -- answer this question. First of all, we plan to -- not to call the Tier 2 instrument, which could be called in January 2025. So we will roll over that predominantly due to price advantage this -- the existing instrument provided us against the new issuance. We are also projecting a potential small issuance in the second half of 2022 of Tier 2 instrument, but small and haven't been decided yet.

We now have Shane Mathews with WhiteOak Capital. Congratulations on the results. One question from my end on yields. Why hasn't the commercial loan book yields reduced despite rates cuts since it's floating rate book? How should we think about overall loan yields going forward, i.e., 2025 and impact on NIM?

Okay. Let me take the answer for this question. I think the key reason is that there's only a part of the portfolio which is on the float rates. The majority of the investment portfolio is, in fact, fixed. So it will be fixed for until -- either the refixation until the end of the loan. Also, one of the key important thing is that we grew up, especially in the categories with the high margins, being it either small business or other specific products. So this helped us to keep the same yield throughout this year. Now going forward, it will certainly sort of slow down, or slowly it will go down. This will definitely happen. However, as it's fixed portfolio, it will not happen too much throughout 2025. Now on the NIM, now I will comment only from the commercial perspective. I think what helped us, we turned most of our saving accounts of our deposits into the float rates too. So in fact, we are floating significant portion of the deposit base on the PRIBOR. The positive is that if the PRIBOR is decreased, the day after also the customer rates are decreased by the same level. So this will help to manage the yield itself.

So just to maybe add, we improved the repricing ladder on the deposit business, namely in commercial where we offer a PRIBOR minus type of rates and the repricing is very quick. On the loan book, I would say that in the fourth quarter we are lending at the level of 6.25-plus percent. So the new production on enterprise level comes at 2% margin against the key rate as it stands now. And this is helping the yield to stay at the level of 4.9%. This is not the hedge yield, but the contractual or the effective yield of the portfolio. So -- and we are -- we have oriented the bank more towards smaller loans. We are doing a lot of fully secured loans through real estate assets at a very good rate. So we slightly moved the business model in retail and small business. Obviously, the high-margin products are growing. The small business, high-margin product category is growing at 17% currently year-on-year. This is the balanced growth. And if you look at the growth in consumer unsecured lending since the beginning of the year, it's at 5% level, and there we accomplished effective rate on that category which is around 8% or close to 8%. So this helps to stabilize the yield. In our outlook for '25, we expect the yield to come down a little bit, but it's a marginal decline.

[Operator Instructions]

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