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

Dear ladies and gentlemen, welcome to the conference call of MONETA Money Bank regarding FY 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; Mr. Jan Fricek; Mr. Andrew Gerber; 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. Welcome to everyone. We will present the results of 2024 and fourth quarter. If we can begin on Page #2. During the past year, MONETA Bank generated operating income of CZK 12.9 billion with growth of 6.3% against 2023. Our cost base remains stable at CZK 5.7 billion. And on this basis, we accomplished, the bank generated net profit of CZK 5.8 billion. This constitutes an increase of 11.7% versus the year before. In terms of growth, the bank accomplished growth in its balance sheet of 8%, and we reached a level of CZK 495 billion. This is due to increased funding base of the bank. The funding base increased by 9% to a level of CZK 452 billion. And our net loan portfolio grew by nearly 5%, 4.7% to be exact, to a level of CZK 275 billion. If we then go to other key metrics of the bank, we continue to enjoy a strong capital adequacy position with that ratio coming at 18.2%, and we have excess over the legal requirement plus the management target of 3.2%. The excess can be expressed in financial terms, it is CZK 5.5 billion, excluding the accrued dividend from earnings of 2024. The accrued dividend equals to CZK 5.1 billion, and we intend to propose dividend per share in the amount of CZK 10 at the April shareholder meeting. If you look at the other important ratio, which is MREL, we also have a comfortable position at 27%. Based on profitability of the bank, if you look at the return that we accomplished this year with respect to return on tangible equity, this is in excess of 20%, and it increased -- the return increased by 2.4% compared to the previous year. On this basis, the bank accomplished a good total shareholder return in the amount of 48%. This has 2 components, obviously, the dividend stream paid out in 2024, which equals to CZK 12 per share and the rest comes from the share appreciation. On the following page, we show our performance against the minimum target that we communicated to you in February 2024. Obviously, we have exceeded the net profit target by the amount of nearly 12%. However, if you look at the performance of the bank, it is better across virtually all P&L lines. Now I would like to comment briefly on the macroeconomic environment in the Czech Republic. If you look at the GDP growth, today is actually the number where the official growth number is being published. So the expectations are that the Czech economy grew in 2024 by 1.1%. The forward-looking estimate by Ministry of Finance that the economy will grow at 2.3%. So that one has to add the risk of import tariffs imposed by the Trump administration and the Ministry of Finance estimate that, that could take out approximately 50% of the future -- I apologize, 50 basis points of the future GDP growth estimate. If you look at government debt, it's slightly increased. Nonetheless, Czech Republic still has debt of approximately 1/2 against the average of the 20 Eurozone countries. Positive news is that the budget deficit that has been approved in the country's budget narrows. It is set -- the target for the government is set at CZK 241 billion. And here, you see the 5-year development. So it's substantially lower than the amount incurred in the COVID pandemic years. Let's look at interest rates. We start with inflation. If we look at the 2024 inflation at 2.4% and the monthly -- the year-end monthly at 3%. So the inflation is still above the Czech National Bank's target. Nonetheless, the steep decline in inflation materialized itself in eight subsequent rate -- key rate reductions. So currently, we are at 4% and the expectation in our business plan is that this rate will go down to 3% or the average for the 2025 will be at 3.3%. If you look at the yield curve, you can see the dramatic evolution of the yield curve, which has flattened. What is interesting here is that the expectations of mid- to long-term rate which were prevalent at the end of '23 have now increased by approximately 50 basis points across the various maturities. So this is the operating environment. And now let's go to MONETA's operating platform and its evolution throughout the year. On Page 9, we portray the growth in the customer base. We are reaching 1.6 million with a net growth in customer base of 1.4%. The customer growth decelerated due to decrease of interest rates and subsequent repricing of deposits. We have optimized the branch network, closing 10 branches in the fourth quarter. And currently, we run network of 124 units. And based on digital performance and other metrics, we will continue to optimize the network. We enjoy wide reach through ATM network, which we share with 3 competitor banks that remains fairly stable. Nonetheless, we are planning to add more deposit-taking machines throughout the year 2025. In terms of employment, the bank reduced employment somewhat nearly 1%. We ended up the year with 2,490 FTE equivalent. You can see that we are reducing network in the front line. This is really linked to branch closure and optimization of the frontline personnel. On the other hand, we are increasing people on the back of the bank. If I had to summarize the key trends, we are investing more people into management of the digital platform of the bank. We are also investing people into risk management, namely into valuations in order to take benefit from the CRR3 and other functions related to either ESG or compliance related matters. Turning page, speaking of digital. In terms of digital users, we reached 1.5 million. The base grew 7.3%, which we consider a healthy growth number. Overall, 95% of our customer base today is digital enabled. In terms of touchdowns with customers through the digital platform, we are close to 700,000 visits a day, 684,000. But perhaps more important is the growth. The touchdowns grow annually at the rate of more than 12%. And this growth is mirrored into transactional intensity. If you look at payments, again, we have growth of 13% through the digital platform. And most importantly, we invested significant resources in the past 2 years into servicing capability through digital. And this grows almost 24%. This enables us to increase productivity and reduce costs of servicing -- in terms of servicing of our customers. We have 26% plus growth in loan applications through the digital and sales transactions grew nearly 9% last year. Turning a page briefly on the branch network. If you look at footfall or visits into the branches, these have declined 16%. Obviously, some role is played by the branch closure, but I would say it's minimal. The network attractiveness for transactions is lower. However, if you look at loan applications, we have nearly 490,000 applications with a growth of close to 12%. So the branch network is very important to us, both for the lending activity. It is also very important to us for distribution of bancassurance and also for distribution of wealth management products. 590,000 customers are using the branch network. This is a decline of 10%, and we see a dramatic decline of cash transactions in the network. These are both withdrawals and deposits. The decline here is nearly by 1 quarter. Specifically, it is 23.6% year-on-year. Turning page, a brief commentary on the contact center. This is another important channel to us. We've had inbound traffic of 791,000. This is nearly 5% decline year-on-year. We maintain stable staff in order to have a reasonable level of services. What is very interesting and important to us is that the e-mail communication to our contact center has declined by 1/5. We put that on the account of increased serviceability of customers through the digital platform. And we also use the contact center for both inbound and outbound distribution of simple insurance products. Here, we have grown the lifetime value produced by our colleagues by nearly 48% and the value is CZK 154 million, and we try to expand this activity. On Page 13, a brief commentary on the ATM network. We currently operate 557 ATMs, and we will keep modernizing the network. However, the investment goes into cash deposit-enabled machines. If you look at the deposit transactions, we have realized 2 million transactions. This grows nearly 20%, and this becomes a very important channel, enabling our customers to deposit their receipts into the bank. On the other hand, with higher, let's say, digitization of payments, we see a decline in the withdrawals to the ATMs by nearly 5%. And again, the digital platform is taking predominance on service transactions where we see a decline of service transactions on the ATMs. On Page 14, we summarize achievements that we have done on 3 dimensions, which is daily banking, credit distribution, fee income, and we provide you with some summary of actions that we plan to take in order to enhance our value proposition to customers. I will not go through this because I think it's relatively self-explanatory. This focuses on retail. Overall, our investments into digital are now very much focused on covering small business and our SME customers as we would like to digitize as much of the processes and at the same time, enable digital sales, namely of credit and fee products to those customers. Thank you for your attention, and I will hand over to Jan Fricek, who will walk you through the details of our P&L.

Thank you so much. Good morning, ladies and gentlemen. I'm now on Page 16, and it's my pleasure to walk you through the profit and loss statement section. Let me repeat the key financials. In 2024, MONETA delivered net profit of CZK 5.8 billion, representing earnings per share of CZK 11.4 and return on tangible equity of 20.4%. More than CZK 600 million higher net profit was delivered on the basis of operating income growth of 6.3% or CZK 764 million in absolute amount, closing the year at CZK 12.9 billion. Revenue line growth is a result of net interest income increased by 4% year-on-year, driven by balance sheet expansion accompanied by significant repricing of the deposit base. And on net fee and commission income line, we report 16.6% increase, which is a result of ongoing strong performance in distribution of third-party products, namely wealth management products and insurance. On the cost base, we report a stable development at CZK 5.7 billion level, which resulted in the cost-to-income reduction to 44%. Cost of risk line shows a net cost of CZK 386 million or 14 basis points of the average loan portfolio, which is a result at the lower end of our guided range, 10 basis points to 30 basis points. So altogether, net profit of CZK 5.8 billion is the highest result MONETA delivered so far. Let me continue on Page 17 with net interest income development. MONETA had a very strong fourth quarter last year, delivering 11.4% growth year-on-year and 5.4% improvement against the previous quarter. At the same time, this resulted to the net interest margin improvement to 202 basis points in the fourth quarter. Drivers of the development are provided on the right side. Interest income from lending is up by CZK 91 million, while treasury income decline is attributable to 2-week repo rate reduction during the year. On the other hand, CZK 1.1 billion reduction of cost of funding was achieved predominantly through several repricing actions of our key retail savings products. On Page 18, we can continue with net fee and commission income development. Also in this area, we delivered very strong fourth quarter being by 23% up year-on-year and 8% up against the previous quarter. Development in this area is predominantly a function of our performance in distribution of third-party products, which we report in the top chart on the right side. And I will comment in more detail this area on the following 2 pages. First of all, on Page 19, wealth management product distribution. In 2024, we achieved more than 54% expansion of the outstanding amount of distributed wealth management products, which resulted in trailer fee income growth of 73% to CZK 441 million in 2024. The outstanding amount expansion was predominantly delivered through CZK 23.5 billion of new investments made by our customers. And this, together with higher pricing, resulted in more than quadrupled opening fee income to a level of CZK 298 million in 2024. So altogether, in this franchise, we delivered CZK 739 million, which is by 123% better result than in 2023. And if you flip the page, I can continue with the insurance product distribution. This franchise generated an income of CZK 1.2 billion in 2024, which is by only 1% improvement against the previous year. However, and this is important result of 2023 was greatly supported by one-offs of CZK 224 million. So if adjusted for that, on a recurrent basis, we achieved nearly 19% improvement year-on-year. This improvement was driven by majority of insurance products in our offer, namely life insurance, personal belongings protection as well as payment protection insurance. Now let me move forward to Page 21, where we report net income from financial operations development, which is down by 3.3%, reaching CZK 860 million in 2024. The decline is predominantly a function of lower results from hedging. However, this was partially compensated by improved FX margin and extraordinary gain on the bond sale. And we complete this section on Page 22 with the operating expenses management. As mentioned before, we maintained cost base stable at CZK 5.7 billion, which is a result of combination of 3 categories reporting savings out of 4, the highest saving was achieved in the regulatory charges front. On the other hand, personnel expenses are up by 6.4%, which is driven by higher variable compensation to our front office line, reflecting improved distribution performance and also increase in average salary, which results from persistent inflation and pressures on the labor market. So this was profit and loss statement section, and I will now hand over to my colleague, Andrew Gerber, who will continue with the balance sheet development. Thank you.

Thank you, Jan, and good morning, ladies and gentlemen. So moving to Page 24, we present some highlights of the balance sheet development, where you can see that lending returned to growth, and we continued the expansion of the funding base driven by strong deposit gathering despite significant repricing that we implemented over the course of the year. Net customer loans increased 4.7% year-over-year, reaching CZK 275.4 billion. And at the same time, the yield on the loan portfolio increased 20 basis points, reaching 4.9%, which was driven predominantly by gradual repricing of the mortgage portfolio, partially offset by slightly lower yields on the commercial portfolio driven by the fact that a significant part of that portfolio is on floating rates. The funding base expanded 8.9%, reaching CZK 452.4 billion, whilst the cost of funding decreased 30 basis points to 3%. These numbers are presented on an annual basis. Later in the presentation, we have it on a monthly basis as you can see that the actual decrease on a monthly basis is somewhat more marked. Moving to Page 25. We look at the overall development of the balance sheet, which you can see expanded to CZK 495 billion. Again, this was driven by strong deposit growth as well as issuance of the MREL bond. On the asset side, net customer loans increased 4.7%, whilst investment securities were up 11.8% and cash and balances at the Central Bank up 14.6%. On the liability side, deposit growth was the main drivers, up 7.7% and there was also growth in the issued bonds as a result of the MREL issuance. Moving to Page 26, we look briefly at the new lending origination of the bank, where you can see that we came back to the market strongly in 2024 with overall new lending volume origination up 53.4%, reaching CZK 62.5 billion. And this growth was broadly spread across both segments. Retail was up 59.4%, whilst the commercial segment was up 45.5%. This obviously partly reflects strengthening in the market. But I think what's important to mention here is that in January of last year, we took the decision to completely exit third-party distribution, which in a number of these segments played a very important role. So the growth that we delivered last year was delivered predominantly by our internal distribution channels, which I think makes the achievement all the more encouraging. So going on to Page 27, we look at the development of the loan portfolio. As I said, it was up 4.5% year-over-year with more modest growth in retail, up 2% and stronger growth in small business, which is up 17.6% and SME is up 8.5%. On Page 28, we look in a bit more detail at the retail lending portfolio. And here, you can see that the growth was driven more or less equally by the mortgage portfolio, which was up 2.1% and the consumer loan portfolio up 5%. The smaller auto loan portfolio grew at 9%, whilst the other products showed a decline of 8.7%. Here, I should say that the majority of this portfolio is represented by the supplementary housing loan, which is a product that was originated by the building savings entity and predominantly distributed through external distribution. This is effectively now a runoff portfolio. Although we have a replacement product in preparation, but this will not be piloted until later in the year. So we will see whether it makes any meaningful impact on the market. So with that, I will hand over to Jan, who will take you through the commercial loan portfolio.

Thank you very much, Andrew, and good morning, ladies and gentlemen. As you can see on the Page 29, we have also a very successful growth story in the commercial segment. The overall loan portfolio grew up by 10% compared with the end of 2023. On the right side of the page, we are breaking down the growth into specific product categories. You may notice that the growth in investment loans in Q4 was more than significant, while working capital category went down in the same period of time. This was an effect of the repayment of a large bilateral facility in working capital line and replacing it by a minor share in a syndicated investment loan for the same customer at the end of November 2024. Even though we have decreased the overall position of this specific customer, we have still grew up combined portfolio investment and working capital loans by an excellent pace of 10% year-on-year. What also worth to mention is an outstanding growth of 17.6% in small business loans while keeping superior return on capital on this segment. This all thanks to several successful marketing and sales campaigns throughout the year 2024. On the next page, Page 30, we are showing the evolution of the loan portfolio yield for the bank. And it is visible that we are successful in keeping the yield on a very healthy level of 4.9%. On the right side of the page is the split between the retail loan yield with a slight increase and the slight decrease of the commercial loan portfolio as there is material portion of commercial loans on float rates based on the PRIBOR. And now let's move to the deposit realm. And for that, please let me hand over back to Andrew.

Thank you, Jan. So going to Page 31, we look at the overall funding base of the bank, which, as I said, grew by 8.9%, reaching CZK 452.4 billion, where customer deposits were the key driver of growth, up 7.7%. And here, you see the retail deposit portfolio growing at 3.5% and the commercial portfolio growing more strongly at 22.9%. And as I said before, the wholesale funding growth was driven by the MREL bond issuance. On Page 32, we look at the development of the cost of funds on the customer deposits, which decreased by 141 basis points, almost 40% as a result of several repricing actions that we took during the year. And this contributed to returning the NIM to growth, which closed -- NIM closed the year at 2.1%. Over the course of the year, the cost of customer deposits decreased from 3.57% to 2.16%. And I think the fact that we were able to maintain 7.7% growth despite this reasonably aggressive repricing is a very good result. Going to Page 33, we look at the retail deposit portfolio in a little bit more detail. And here, you see that the primary driver of growth was the savings and term deposits, up 3.3% year-over-year. However, we still had reasonably strong growth of 4.3% in the current account portfolio, which I think is a good result in the context of a situation where we still had relatively attractive rates on savings and term deposits, which was pulling money out of the current accounts. So that concludes my role in this presentation. I'll hand back to Jan, who will take you through the commercial deposit portfolio.

Thank you, Andrew. On the Page 34, we are presenting similar split for the commercial deposits. The overall balance has grown to CZK 105.8 billion, which represents 22.9% year-on-year growth. However, this result was influenced by a large deposit over the end of the year of one single customer in a total amount of CZK 6 billion. If you would deduct this one-off, we would reach a level of almost CZK 100 billion, which represents still very strong growth of 16% year-on-year. On the next page, Page 35, you can find the evolution of the wholesale funding, strengthened by EUR 300 million bond issuance in September 2024, which resulted in a total year-end growth of 39%. Moving to the next page, Page 36. Here is the evolution of our cost of funds. And as commented by Jan and Andrew previously, thanks to our very diligent repricing approach, we have managed to decrease the cost of funds by more than 1.2% from 3.6% in Q4 2023 to a level of 2.4% at the end of 2024. This positive development across both retail and commercial segments supports improvement in our net interest income and NIM. And that was the last slide of the balance sheet development section. Thank you very much for your attention. And please let me hand over to Jan Fricek for the liquidity development chapter. Thank you very much.

Thank you, Jan. Let me now continue on Page 38 with key liquidity ratios. MONETA maintains a robust and solid liquidity position, which is demonstrated across all our relevant ratios. Loan-to-deposit ratio at 64%. This is above the banking market average level. And share of high-quality liquid assets on customer deposits increased to 43%. Below that, we report regulatory ratios, both significantly above 100%, namely net stable funding ratio of 181% and liquidity coverage ratio of 357%. And if you flip the page, I will comment briefly on the development of high-quality liquid assets. As you can see during 2024, we delivered nearly 17% expansion of this position up to CZK 186.8 billion. As you know, high-quality liquid assets provided significant support to our net interest income generation capacity over the last 2 years. Going forward, we will seek to utilize part of the excess liquidity in lending in order to further improve net interest income as well as net interest margin. Now let me move to the capital management section on Page 41. Again, we start with the key capital ratios. At the end of 2024, we reported overall capital adequacy at 18.25%, which represents 3.2% excess over the management's target. And on Tier 1 capital level, the excess stood at 2.24%. In the chart below, we report the excesses in absolute amount. So on the overall level, the excess stood at CZK 5.5 billion, of which Tier 1 excess stood at CZK 3.9 billion. The year-on-year reduction or the decline visible in ratios as well as in the excess is attributable to the extraordinary dividend of CZK 1.5 billion, which we distributed in December. On Page 42, we provide more detail to the consolidated capital position where the position stood at CZK 31.6 billion at the year-end. And what I would like also to highlight is the chart in the bottom right corner, which shows that on the top of the excess capital, we held a dividend accrual of CZK 5.1 billion. So in other words, at the end of 2024, the available capital stood at CZK 10.7 billion or CZK 21 per share. And on Page 43, we can look at a stand-alone capital position where the overall position, including MREL instruments stood at 45.4% (sic) [ CZK 45.4 billion ]. The year-on-year increase is driven by the successful MREL issuance of EUR 300 million size we completed in September last year. And below that, MREL adequacy ratio stood at 27% by 504 basis points above MREL management target. So if I summarize the capital management section, MONETA reports solid excess capital above all relevant management targets, which enables, first of all, to target the dividend distribution at 90% level and at the same time, to keep sufficient capital for the loan portfolio expansion going forward. So this was capital management section, and I will now hand over to my colleague, Normann Vokt, who will take you through the risk section. Thank you very much.

All right. Thank you, Jan. Good morning. We're now on Page 45 with an overview of key risk performance metrics for both 2023 and '24. Let me start on the top left of the page. So in 2024, cost of risk came in at CZK 386 million or 14 basis points, which is in line with the initial cost of risk guidance we published early last year in the range of 10 basis points to 30 basis points. It ultimately landed on the lower end of the latest forecast we had, which was 15 basis points to 20 basis points. In terms of loan loss provision coverages and total NPL coverage, both values were dropping year-over-year and reached a level of 1.45% and 113.6%. The drops of these ratios are primarily driven by upgrades of previously for warrant receivables as well as NPL sales. And as regards to the nonperforming loan ratio, this dropped by 10 basis points year-over-year and reached a level of 1.3%, which is a historical low level. If we turn to page on Page 46 here, we have a more detailed overview of how cost of risk evolved over the last 5 quarters. If you just look at Q4, here, we had a cost of risk of CZK 35 million or 5 basis points, which is better both in Q3 in '24 and Q4 in '23. The Q4 result was supported by a recalibration of our LGD model, adjustments which we have made to the ECL management overlays and as well as NPL sales, which contributed around CZK 40 million to the cost of risk. If we carry on and move to Page 47. Here, we have 5 data points on the loan portfolio, loan loss provisions coverages and the NPL stock. If you just look at the gross loan portfolio, here, we saw an increase by almost CZK 12 billion year-over-year. At the same time, provisions dropped by around CZK 600 million. Within the stock of provisions of a bit more than CZK 4 billion, we still have CZK 394 million management overlays where we made an adjustment by around CZK 60 million in Q4. Loan loss provision coverage, total NPL coverage dropped. I mentioned this on the previous pages, and the nonperforming loan ratio stood at 1.3% and the stock of NPLs dropped by around CZK 300 million. If we continue on Page 48 here, we have the development of NPL in net outflows in the last 12 months. Just focusing on Q4 here, what you can see is the NPL formation came in lower compared to previous quarters. At the same time, the cured rate or cured amount was even a tick higher than observed in the previous 3 quarters. The drop of the NPL balance year-over -- quarter-over-quarter is around CZK 400 million. And this takes me to the last page, Page 49 of the risk section. Here, you have the evolution of delinquency ratios 30, 60, 90 plus since 2018. As you can see, overall, over the last 3 years, we have been observing fairly low levels of delinquency rates. In Q4, in particular of last year, we saw even a further drop quarter-over-quarter. So summing up, summarizing this section, I think we can say we had another quarter and full year of robust core performance of our credit portfolio. Debt sales clearly supported both the cost of risk line as well as the NPL ratio as we have been in the position to sell CZK 1.5 billion of nonperforming loans. Management overlays have been coming down. We stay cautious, but at the same time, we do count for a further decrease in the course of 2025. And the overall cost of risk guidance for 2025, here, we foresee a range of 15 basis points to 35 basis points. And with that, I hand over to Tomas Spurny. Thank you.

Okay. And we go to the plan, to the guidance. Based on the updated 5-year horizon, we estimate that on a cumulative basis over 5 years, we would like to accomplish minimum cumulative net profit of CZK 33.3 billion. If you look at the composition of the 5 years, the earnings of the bank, the net earnings should grow at a rate of 5.4%, and in 2025, we have aspiration to achieve minimum CZK 6 billion of net profit. Consequently, if you look at the growth in the first 3 years of the plan, the earnings should improve by CZK 300 million until '27. And then the growth is CZK 400 million in the subsequent years, '28 and '29. If we then flip to the following page and compare the outlook to actual 5-year performance in the period between 2020 and '24, we have generated net profit of CZK 22.8 billion. If we compare that with the minimum target for the next 5 years, this is CZK 33.3 billion, and it constitutes an increase of 46%. In terms of operating income of the bank, we generated cumulative operating income of CZK 60.4 billion in the last 5 years. We would like to increase this by 25% to a level of nearly CZK 76 billion. Then if we look at Page 53, we plan in terms of shareholder distribution to pay out 90% of the future profit. If we were successful in fulfilling the minimum target, this would amount to CZK 58.6 per share, an increase of 46% because in the last 5 years, we paid out CZK 40 per share. If we then look at the key pieces under the plan, we portray that on Page 54, and this is hinging, let's say, on the growth of the Czech economy in the neighborhood of 2.4% to 2.5% per year. Unemployment remaining stable. Inflation gravitating towards the Czech National Bank target by 2027. The key repo rate, which is the average for every given year moving from 3.3% this year to a level -- to a stable level of 3% over the horizon of 2026 to 2029. We also have PRIBOR here and the exchange rate -- and the anticipated exchange rate to euro. On Page 55, the key items from our balance sheet, how we would wish them to evolve over time. In terms of lending, we are projecting average growth of 5.2%. So in '25, if this were to be accomplished, we would have nearly CZK 290 billion on gross performing loan portfolio. On the other side of the balance sheet, the deposit of the bank should increase to CZK 435 billion. And in the plan, we impute 2.7% growth on the deposit side as we are already -- we seem to be at a robust position from a liquidity point of view, and we have significant excess of liquidity. So we would like to deploy it over the next 5 years, as Andrew mentioned. So we believe that these are aspirational targets. I hope that we will continue to meet those targets and to fulfill them. And as a commentary, which is perhaps important, we enter the year 2025 on the first year basis, we continue on the same trend that we had in the fourth quarter. We see growth in our loan portfolio. We see a fairly good performance on the third-party products. And the biggest worry that the management has is actually revolving around the cost base. And you can see that the profitability improvement is driven by the cost base projected to increase by 2.8% and the operating income growing at more than double -- close to double this rate. So we hope that this will -- that we will be able to meet those targets. With that, I will turn over to you to answer your questions. Thank you very much for your patience with us.

[Operator Instructions] And our first question will be from the line of Mikhail Butkov.

I have several questions. The first one is on the guidance on the upgrade and on the revenues in particular. So there is some increase relative to the previous guidance. Is that driven primarily by higher expectations on NII and net interest margin? And maybe could you provide us with a bit additional color how do you expect net interest margin to evolve over the next quarters? So it's the first question.

Okay. Let me take the net interest margin projection. As I mentioned, we closed the year at a level of 202 basis points. Going forward through the deployment of excess liquidity into lending, this should result in a slight improvement between 10 basis points to 15 basis points over the next 3 years.

Okay. And in terms of the funding costs, so there was some reduction, obviously, in line with the rate cuts. How would you assess the current competitive dynamic on the funding side of things? And also where would you expect deposit yields to land with further rate cuts? What's the terminal rate on deposit yields do you expect?

I don't think we want to discuss this question, quite frankly. If you look at it structurally today, we are at a competitive position being at the bottom of the fourth quartile of the highest quartile in terms of highest rates being offered. We don't want to discuss neither yields nor margins on deposits because this is a tactical information that we don't want to be misused by our competitors. But so far, if you look at our behavior, last February, we told you that we would decrease the rates by 75% of the decreases of the Czech National Bank. If you then look at the monthly chart on the cost of funds, we have done exactly that. And with respect to 2025, we will have to operate within a corridor of funding rate and competitive behavior as we did in 2024. So as long as the current situation remains as it is, we will continue with the policy of 75% reduction with respect to Czech National Bank reduction of the benchmark rate. If we see competitive behavior, which tries to take liquidity from us, we will adjust that behavior and so on and so forth, but we are not ready to discuss this.

Okay. And also -- and the last question on the loan portfolio yield. So excluding hedges, it was pretty -- it was quite stable over the past 12 months. Obviously, hedges helped to keep yield higher. But in the last quarter, these 2 rates have converged. So what dynamic also, if you could share a bit color, do you expect going forward? Will yield portfolio be more sensitive to the lower rates? Or there are some other -- some new hedges, which can protect it?

Look, in the plan, we incorporate the rate reductions. I'm pleased now with grain of salt. I think that the impact on the NII is below CZK 100 million this year that we have in the projections, and this is a function of the existing hedges on the loan portfolio, some of them running out this year when we publish the annual report, you can see the structure of the interest rate swaps, and we have about, if I remember correctly, this year, CZK 22 billion of those running out. So the impact of the decline of the hedge result as is included in the business plan. So we would have to see a dramatically different rate scenario in order for it to have impact on the minimum targets that we have published today.

Our next question will be from the line of Robert Brzoza.

Congratulations on solid results. I have a question related to the expected exit from the third-party mortgage contract distributors. Could you provide your view on how the transition could be going? I mean, what are your potential advantages against third-party distributors? And secondly, maybe you can provide more color on what percentage of mortgage volumes over the past year or 2 have been brought by these external agents? And on average, per annum, how much have you been paying out either via lower than in-house margin on sales or via additional cost of fees? So I understand that's going to be beneficial on 2 counts: one, potentially better volumes via online channels; second, lower costs. So if you comment on these developments, that would be helpful.

Robert, I'm really surprised by your question because the transition is done. We have no broker business since 1st of May 2024. Broadly speaking, we rely on our digital platform, which constituted in 24%, 33% of our production. And in the fourth quarter, the number increased quite substantially. Secondly, we have internal staff in the branches. The bank used to pay nearly 1.8% to financial intermediaries, which we no longer pay and we don't incur the cost. The typical time on books of the bank on the mortgage brought by financial intermediary was 6 years. So we consider the cost and its amortization to be fairly unpleasant. And we terminated all of the contracts effectively prior to May last year. So since May, we had no transaction. I would assume that the loan production last year was about 20% out of the CZK 15 billion that we did, approximately CZK 3 billion were done by the brokers. So this has all been done. Currently, we continuously maintain pipeline between CZK 4.5 billion to CZK 6 billion depending on the price offer that we put into the market. And if you look at our mortgage commitment size, which is off balance sheet, it is CZK 2.5 billion. So we are doing just fine. The goal of the bank is not to dramatically increase the portfolio, but to get the highest possible profitability with respect to the capital deployed. And here, we have 2 advantages because the CRR3 will increase the profitability of the existing mortgage portfolio because it will decrease the risk-weighted asset calculation quite substantially. That's number one. Number two, this year, we are repricing CZK 17 billion of mortgages, and we have currently a retention rate of 95% on those that we reprice. And secondly, we plan to underwrite during 2025, CZK 17.5 billion of mortgages, and we are comfortable that we will be able to accomplish that.

Right. If I may follow up on the question regarding the pricing on deposits. If I'm correct, one of your midsized competitors, namely Air Bank, has already decreased the rate offered on savings accounts to as low as 2.5%. And in this sort of regard, where do you see most of the growth on the deposit gathering side to be happening, I mean, corporate or retail? And whether in your opinion, this type of headline pricing, does it indicate that there is actually no or very little competition for the savings account-related deposits in the system in the Czech Republic?

Well, you have it on Page -- I think it's Page 55. We have a split of -- in the guidance. We show you on Page 55, the split of the growth, and it should come 3.3% is the annual compounded growth rate on the retail deposits and 0.8% is the growth rate on the commercial deposits. So how do we see competition? I couldn't tell you because I simply don't know. But this is what we plan and we hope to accomplish it by our wherewithal in ability to distribute and an ability to price accordingly. And that's all I will say to that. Just there's no more to say. If you look at our past guidances, I would argue that we have never failed to deliver the minimum target.

Understood.

Never failed so far.

And our next question will be from [ Jan Mikolas ] who asks, how do you plan to further use AI in reducing operating costs? How have you managed to use AI in marketing to acquire new customers or loans?

We are using AI mainly in the realm of anti-money laundering. We have a project which where the implementation is imminent and will continue through 2025. That's one use. Second use is in our contact center where we have voice bot if that can be -- it's more or less an IVR, which is smart, which we are deploying there in order to keep the cost at the same level. And Andrew will answer whether AI will be used to acquire new customers in retail, I doubt.

I think at this stage, most of the use cases or the promising use cases we see are about improving efficiency in the operation through automation. So as yet, we're not working on anything on the acquisition side.

And the third use is actually in cyber fraud, where we try to protect -- we will try to protect our customers better through AI in order to identify transactions which are out of ordinary. This is under discussion, and we will try to expand the artificial intelligence to help us to prevent cyber fraud in the bank.

And we have a question on the line from Thomas Unger.

Sorry about that. Can you hear me now?

Now we can hear you loud and clear.

One would be a follow-up on the question to -- regarding the net interest margin. And you see an improvement of 10 basis points to 15 basis points, correct? Was that over the next 3 years? Did I get that correctly? Or was that the next 3 quarters?

Over the next 3 years, correct.

3 years, correct. Then on loan growth in 2025, from your guidance, I see that on retail loan growth, what you expect is plus 3%, 3% loan growth in 2025. And if I look at the new volumes and especially in mortgages, which were really strong in Q4 and then also the commercial volumes -- new volumes that were strong in Q4. Is that -- what sort of dynamics do you expect on the loan side now for the next quarters? I would suspect that based on these new volumes, you may get to a higher growth figure throughout 2025.

Well, yes, we might. Nonetheless, these are minimum targets. Taking into account competitive situation on the unsecured lending and taking account the competitive situation in terms of the mortgage lending. So we try to put in the plan something which is, from our perspective, achievable, and we obviously hope to overperform it. But if you look at the realm of retail lending, we find the consumer loan arena to be overcrowded and extremely competitive. Our answer to that is to focus on the small business and self-employed segment, which in our banks is in the commercial. And on the mortgages, we plan to do CZK 17.5 billion. And if you look at the metrics of repayments, this constitutes a growth of -- I don't remember how much, but it will be around 2.5% to 3%. So we are trying to play it carefully with respect to our commitment because we obviously face a lot of uncertainties in the market. Just like to add on the artificial intelligence, I forgot to mention one idea -- one area where we deploy fairly frequently, and this is the AI Copilot in terms of programming. And as the Copilot is evolving rapidly, I expect or we expect that the usage in IT development will be fairly significant.

And we have another question on the line from Karel Nedved.

I would like to ask, so if the financial targets over the next 5 years are met, how likely is the payment of the extraordinary dividends during this period?

Well, that's a function of overperforming the minimum target, isn't it, in a way. Because if you look at the excess capital we have at the Tier 1, it's at CZK 3.9 billion. If we were to accomplish the balance sheet growth, there is really no room to pay extraordinary dividend because the excess capital at the Tier 1 level in year '29 will be how much?

About half of what it is now, so from CZK 3.9 billion to about CZK 1.92 billion. So effectively, we try to maximize the dividend payout already in the provided guidance.

And our next question is from [ Ruslan Gadeev ] who asks, congratulations with the solid results. Can you please elaborate a bit on your plan regarding regulatory wholesale funding for 2025? If I understand correctly, there is a CZK 1.5 billion senior preferred bond that may be callable this year. And given the recovering lending market, some additional regulatory funding might be needed. Do you plan any sizable bond issuance in 2025?

We plan to call it. That's built into the plan, and we plan to issue in first quarter of 2026.

CZK 2 billion small issuance.

Small issuance.

Tier 2...

There is possibility that we will push it forward or backward rather into December or November 2025. This is undecided as of yet. However, our funding plan, which is submitted to the regulator has the issuance in January 2026.

Call option -- the utilization of call option of the Tier 2 instrument hasn't been decided yet. We are still discussing the timing of that because even though the utilization of Tier 2 is decreasing, it is still fully eligible for the requirement coverage. And because of a relatively low cost of this instrument given the time when it was issued, it might happen that we decide to postpone the date of the calling the instrument.

We have a precise answer. Yes.

The original maturity is 2029. So that's why we have time to call it.

That's great. And the next question from [ Radomir Janacek ] who asks, do you expect impacts of escalation of geopolitical tension regarding Trump administration measures, war in Ukraine and tension in the Middle East on MONETA's future operations?

We tend to hope for the best. If we were putting together the plan at a time when Trump administration already imposed 10% import levy on European goods, we would come out with a very different plans. We do not believe that the tensions in the Middle East really impact our operations very much.

That's great. I will now hand over to Mr. Spurny for closing remarks.

Well, thank you very much for your attendance. First and foremost, I would like to say that I'm tremendously grateful to the management team of MONETA and all of our staff because we accomplished a couple of things that were being questioned by the investment community. First and foremost, it is return to lending. In the guidance, in February '23, we said we would return to growth in lending in the summer. We did exactly that. And from the third quarter results, you see acceleration in the lending activity. That's number one. Number 2, what we accomplished this year is a very significant success in the realm on the field of distribution of asset management products. We reached the distribution was CZK 22 billion. And effectively, we faced the same challenge this year. So this is a very good accomplishment. The lending activity, we also steer towards the small business and self-employed as the regulatory risks in that realm are significantly lower, and we have built a leading position in servicing this segment and in product proposition to this segment. And I do trust that from CZK 6 billion nearly CZK 7 billion loan production in that round. We will increase it again. So these are -- apart from that, we benefited from a reduction of regulatory costs as we had to pay for the Russian sale bank in the Czech Republic in the year 2023. So hopefully, we will not pay for any bank anymore. We have done well in adjusting the administrative costs of the bank. So this is also good. And we pay our people better namely the impact comes from variable rewards, and I believe that we are a very good employer from that perspective. And as long as we remain so, again, I look with optimism into 2025, and that optimism is confirmed by the results of the bank so far in the month of January, which is always the worst month of performance for not only for us, but I guess, for everyone. So we are grateful for your interest in MONETA. We hope it continues. And we trust that we will not disappoint you in the first quarter and throughout the year 2025. So have a nice weekend to all of you.

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