MONETA Money Bank : Přepis záznamu z prezentace výsledků hospodaření za 1Q 2024 (angličtina)

MONETA Money Bank

1Q 2024 Financial Results Conference Call

Transcript of the conference call regarding MONETA Money Bank 1Q 2024 Financial Results held on 25 April 2024 at 10:00 AM CET.

This transcript of MONETA Money Bank 1Q 2024 Financial Results conference call is intended for informational purposes only. The transcript may not correspond exactly to the original and may contain misspellings and inaccuracies.

MONETA Money Bank participants:

• Tomas Spurny, Chairman of the Management Board & Chief Executive Officer
• Carl Normann Vokt, Vice-Chairman of the Management Board & Chief Risk Officer
• Jan Fricek, Member of the Management Board & Chief Financial Officer
• Jan Novotny, Member of the Management Board & Chief Commercial Banking Officer
• Andrew Gerber, Chief Products & Marketing Officer
• Linda Kavanova, Head of Investor Relations

Operator:

Dear ladies and gentlemen, welcome to the conference call of MONETA Money Bank regarding 1Q 2024 Financial Results. Please note that this conference call will be recorded. This event will have a live presentation, followed by a Q&A session. As a reminder, all participants will be in a listen-only mode.

Today's speakers are Mr. Tomas Spurny, Mr. Carl Normann Vokt, Mr. Jan Fricek, Mr. Jan Novotny, and Mr. Andrew Gerber. May I now hand over to Mr. Spurny, who will lead you through the conference call.

Sir, please go ahead.

Tomas Spurny:

Good morning, ladies and gentlemen. I have the pleasure of beginning today's presentation of our quarterly results.

I would ask you to turn to page 2. We ended the quarter with a net profit of CZK 1.3 billion, this constitutes a 5.8% increase against the comparable quarter of last year. The result was accomplished on the basis of improving operating income, the growth in operating income at 9.6% and the category reached CZK 3.1 billion. The net profit translates amongst other into 17.1% Return on Tangible Equity. If you look at broadly the balance sheet of the Bank, we are continuing in fairly rapid growth. The total assets of the Bank reached CZK 468 billion, increasing at 15.7%. This is on the basis of vastly improved funding base of the Bank, which reached CZK 423 billion and grew nearly 17%. We do have stable loan book. The loan book is at CZK 267 billion, a slight increase from the previous year of 0.3%, nonetheless the increase is quite notable if you compare the fourth quarter versus the current quarter where we have returned the loan

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book back to growth.

On the following page just a brief comment on our AGM which was held this Tuesday on April 23. We have successfully approved all of the points proposed by the management, with the support of three proxy agencies which we are grateful for. We also had very high participation at the shareholder meeting, it exceeded 74%. The most important item on the agenda was the dividend payment, so we have approval to pay out on May 21, CZK 9 per share and in totality that is CZK 4.6 billion.

Now let me provide a brief view of the macroeconomic environment.

If we turn to page 5, you see the profile of the GDP, which against comparable quarter really remains unchanged. With respect to the forecast for the year, the Ministry of Finance expects growth of 1.2% in the GDP. The government debt essentially remains stable with respect as a percentage of the GDP. And you can see that the budget deficit is narrowing on the basis of the current government's actions. So, for this year, it is planned to reach CZK 252 billion. And we continue to enjoy low unemployment at 2.7% as of February. Nonetheless, the unemployment rate is expected to slightly increase to a level of 3%.

Turning the page to number 6, we provide a view on inflation and interest rates. If you look at the inflation, it is abating quite rapidly. In March, the monthly figure reached 2%. So, we are at the Czech National Bank's target inflation. On this basis, the Czech National Bank elected to decrease the key rate, two-week repo. They have done it so far three times, and currently we stand at 575 basis points. With respect to forward- looking view, the CNB will meet on the 2 May, and the market expects that the consensus is around an additional 50 basis points cut into the repo rate. Nonetheless, or on top of that, if you look at the market expectations expressed through the yield curve based on interest rate swaps, we can see that the current expectation is actually higher, than what we had at the year-end. And the market expects that the rates will stabilise by the end of the year at 4%, which is about 100 basis points higher than what we expected when putting together the plan for the current year. So, we have a reason to believe that the Bank will have some positive momentum with respect to the ability to generate core earnings.

On the following page, we provide a view on the currency. Czech crown has been weakening against a pair of major currencies, it depreciated against the euro at a rate of 7.5% on annual basis, and likewise against the US dollar by 8.1%. We think the main cause of the depreciation of the currency is that the convergence story of Czech Republic is pretty much played out and the country's currency is very much dependent upon the interest rate differential. And in both currencies, you can see quite rapid decline of the interest rate differential. Here we illustrate it on two-year swap. Interestingly enough, the differential is now negative to the US dollar rate.

On the following page we summarised development of the banking market starting with deposits and how MONETA performs within this context. So, if you look at the overall deposit market of resident deposits it reached nearly CZK 7 trillion, grew on annual basis by 7.6% and we have vastly outperformed the market growth where MONETA grew by more than 16%, reaching in February CZK 407 billion in the deposit funding base. The success is visible from the nearly 18% growth on retail and likewise we outperformed the commercial deposit market by delivering growth of 11%.

If you turn the page, we look at the lending market in the country. The volume of loans nearly at

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CZK 4 trillion, growing on annual basis by more than 6%. Against that, we held the portfolio stable, decreasing the total portfolio by 20 basis points. This is due to the fact that we have taken a defensive posture on lending last year based on the projections of GDP contraction and based on our view that earnings in retail have not matched inflation, so we took a more careful position. Nonetheless, if you look at the retail and commercial gross loans of MONETA, we've turned the corner and returned back to growth both in retail and commercial segments. Now, this will be further substantiated down the line in the presentation where we show you the lending intensity and the volumes that we are putting on the books to support this claim that we have returned back to growth.

So, with that in mind, the Bank delivers more than 17% Return on Tangible Equity on the strength of net profit of CZK 1.3 billion, rounded slightly up.

Now, I will ask my colleague, Andrew Gerber, to walk you through the operating platform development of the Bank.

Andrew Gerber:

Thank you, Tomas and good morning, ladies and gentlemen.

On page 11, we present some highlights of the digital platform, which is a critical distribution and service channel for the Bank. We had almost CZK 23 million payment, service and sales transactions conducted through the digital platform in the first quarter, and we continue to see strong growth in these metrics. In terms of digital platform users, we had growth of 11% year-over-year, and likewise, in daily average visits, we had growth of nearly 15% year-over-year, outpacing the growth in the user base as we see customers becoming ever more deeply engaged with the Bank through the digital platform.

On page 12, we present some detail behind the development of the platform users and the transaction numbers. And here, I think the key takeaway is the growing importance of the mobile banking platform as the driver of growth. So, you can see that the mobile banking platform now accounts for 77% of the users of the digital platform and 79% of the transactions. And at the same time, you see that the internet banking platform as a standalone channel continues to decline in importance.

On page 13, we present a snapshot of the distribution channel mix for a number of the key products, and here, I would observe the critical role that the digital channels now play in a number of key areas, including consumer loans, term deposits, and FX, where it's the dominant channel. At the same time, it's important to say that the branch network continues to play an important role in the distribution of some of the more complex products, such as mortgages, pensions, and a number of the insurance products. And what we continue to see, and we see perhaps in increasing frequency, is clients choosing to start the process online, but ultimately ending up in the branch at some stage during the process. So, it's important that these two channels continue to complement each other and support the development of the business.

On page 14, we present an overview of the branch network. Here you see the branch visits declining year- over-year, down 18%, but as I said, the branch network continues to play an important role in the distribution of some of the more complex and high-value products. In the first quarter, we conducted an analysis of the lifetime value contributed by the respective channels, and what that shows, is that the

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branch network continues to contribute significantly larger share of lifetime value by virtue of the fact that it's an important channel for distribution of high-value products such as life insurance, investments, and mortgages, as I said. In terms of number of branches, we ended the quarter at 134 branches. This is down six year-over-year, and likewise, the staffing of the branch network decreased 3.5%, reflecting the smaller network and our determination to maintain cost discipline.

So that concludes the brief overview of the operating platform, and with that, I will hand over to Jan Fricek, who will take you through the profit and loss development.

Jan Fricek:

Thank you, Andrew. Good morning, ladies and gentlemen.

I'm now on page 16, and will walk you through the P&L. Let me repeat the key financials. In the first quarter, MONETA delivered a net profit of CZK 1.3 billion, representing earnings per share of CZK 2.5 per share and Return on Tangible Equity of 17.1%. Operating income of CZK 3.1 billion is up by 9.6%, and the growth was delivered on a basis of improvement reported across all three categories. We managed to reduce the operating expenses down by 3.8%, below CZK 1.5 billion. On the cost of risk line, we reported CZK 135 million, which is a subdued level of 20 basis points. However, above the year before, where we benefited from release of provisions and realised gain on NPL disposals. Altogether, net profit increased by 5.8%, or CZK 70 million in absolute amount.

Moving forward on page 17, we report an analysis of net interest income development and its drivers. The 2.2% growth was supported by higher income from lending, and also incremental income from excess liquidity placed in the central bank or invested into government bonds. This positive trend was partially offset by higher cost of funding due to higher market rates, and also expanded funding base. Nonetheless, quarterly development shows a decline in the first quarter this year, which is a result of a gap between two-week repo rate cuts and our repricing actions. This trend is broadly in line with our projection in the business plan from the beginning of the year.

On page 18, we report net fee and commission income growth of 20%, predominantly attributable to our successful performance in distribution of third-party products, which is visible on the right, namely asset management products and insurance products. I will comment in more detail on this category on the following page. Before that, I can say that the other two categories, fee income and fee expense, we managed to maintain broadly stable.

On page 19, as I said, I will comment our performance in distribution of third-party products, starting with the asset management on the left. We had a very successful first quarter this year, which supported the asset under management balance growth by nearly 45% and the related commission income more than doubled. On the right, you can see that also commission income from insurance product distribution increased by 14% and this was supported by all products. However, the year-on-year trend of life and pension insurance income is impacted by the extraordinary bonus we obtained last year.

And I will complete this section on page 20 with the cost base. As I mentioned, we reduced the cost base by 3.8% and this was supported by three categories, namely regulatory charges down by nearly 15%, admin

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costs by 11% and also D&A charge reduced by 6.8%. On the other hand, personnel costs slightly increased by 7% due to persisting inflation on the labour market.

With that, I will hand over to my colleague, Jan Novotny.

Thank you.

Jan Novotny:

Thank you very much, Jan. Good morning, ladies and gentlemen.

I have the pleasure to walk you through the next part of today's presentation, which is the balance sheet development section.

Let me start on the page number 22, showing the evolution of the net customer loans on the left side and funding base on the right side. As projected in 2023 plan, we have kept our lending portfolio rather stable with a 0.3% growth against Q1 2023. However, at the end of the last year and in the Q1, we have started to focus on lending growth again. I will talk about the new volume production growth later in my presentation, but the signs of the growth are already visible as we have delivered 1.4% increase of loan portfolio in the last quarter.

On the funding base, the trend is, as Tomas already mentioned, a little bit different. We had a fantastic growth of almost 17% last year. However, in the last quarter, the growth has slowed down to 1.8% due to competitive pressure. What is also worth to mention is the evolution of the yields and cost of funds that both have stabilised at 4.9% and 3.6% respectively, with a positive outlook especially on the cost of funds side, where we expect to land approximately 30 basis points lower at the end of Q2 compared to the Q1.

Now let's move to the page 23, showing the overall picture of our balance sheet with a very solid growth of almost 16% in the last twelve months. As mentioned already, the key growing category were the customer deposits with more than CZK 55 billion of new liquidity in the last year. We have continued to invest the free liquidity into either investment securities or we kept it in the cash in balances with the Czech National Bank category, which is visible on the left side of the slide.

Now let's have a look on the composition of our gross performing lending portfolio.

This is the page 24. The key trends were already commented, so maybe just let me add the segment dimensions. Our current portfolio is 67% retail, 6% small business and 27% SMEs.

Now moving to the next page, page 25, you can see a new slide. This is the trend of the new lending volumes production. If we compare the Q1 2024 results with the Q1 of 2023, you can see a significant increase by almost 24% across the Bank. This outstanding result is driven by almost all products and segments, with mortgages up by 35%, consumer loans by 39% and small business even by 60%. The only product which was not growing was the SME volumes, however, if you would deduct few larger transactions in Q1 2023, this category would also be showing a strong growth trajectory.

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And maybe the last more detailed information about the lending book is on the page number 26. Our loan portfolio yield has stabilized at 4.9% with the retail average yield at 4.2% and commercial loan portfolio yield at 6.3%, all those numbers without the effect of the hedging.

Now let me move to the deposit side. On the page 27 is a detailed split of the customer deposits and wholesale funding. All of the segments have shown a very solid growth, with 17.5% in retail, almost 11% in commercial and almost 41% in wholesale. On the right side of the page there is the share base with the largest proportion in retail deposits, which constitutes 74% of all our customer deposits.

And now let me move to the last page of my section, page 28, which shows the evolution of the cost of funds. And you can see that the cost of funds has stabilised across all the parts with the overall cost at 3.6%. And as I have mentioned already, we expect the cost of funding to drop by approximately 30 bps in the 2Q.

That was all from my side. Thank you very much for your attention. And please let me hand over back to Jan Fricek for the liquidity development chapter. Thank you very much.

Jan Fricek:

Thank you, Jan.

I am now on page 30. And before I will go into more detail, let me summarise the key liquidity ratios. The incremental liquidity that we obtained during the last twelve months significantly strengthened our liquidity position, which is visible from all ratios, starting with the loan to deposit ratio, which we declined or decreased by 10 percentage points to 66%, and remained stable since the beginning of the year. And the share of high-quality liquid assets increased to 40%. Below that, the net stable funding ratio reached 168%, and also the liquidity coverage ratio reached a record high level of 360%. Both ratios significantly above the regulatory requirements.

On page 31, we also show in detail development of our high-quality liquid assets. At the end of the first quarter, it stood at CZK 164 billion, and this constitutes a growth of 52%. As you can see, the incremental liquidity was invested into partially government bonds and also placed with the Central Bank. This position provides a solid or generous capacity for future lending growth of the Bank.

On page 32, we report repricing and repayment profile of our loan portfolio, which at the end of the quarter stood at CZK 267 billion. And out of that CZK 24 billion exposures were at variable interest rate, CZK 84 billion at the fixed rate till maturity, and the largest portion of CZK 159 billion at fixed rate till the end of the re-fixation period. In the table on the right, you can then see that within the next twelve months, we expect that 30% of the loan book will be repriced or repaid, and more than three quarters will be repriced or repaid within the next 36 months.

And if you flip the page, on page 33, we provide a similar view on our deposit base, which stood at CZK 406 billion and about two-thirds represent savings accounts, CZK 62 billion term deposits and CZK 92 billion current accounts. On the right, you can then see that 62% of the deposit base can be repriced within the next three months and moreover majority of savings accounts are re-priceable on a monthly basis. By

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the way, this is a process, the repricing of the deposit base is the process which we started in the first quarter with the support of decreasing market rates. And we will continue with that during the rest of the year in order to support net interest margin.

So, this was all to the liquidity management section, and I will now smoothly move to page 35, where we start with the capital management section. At the beginning, let me summarise capital ratios on a consolidated level where we reported the capital adequacy of 19.6% and Tier 1 capital adequacy of 15.42% against management target of 12.73%. The excess of Tier 1 capital in absolute amount represents CZK 4.6 billion or CZK 9 per share. And let me emphasise, that both capital positions were lowered by accrual for dividend in total amount of CZK 5.8 billion which consists of the dividend from net profit of 2023 and also net profit of the first quarter this year.

On page 36 we continue with detail overview of capital requirements relevant for individual, and also consolidated level. Starting with the consolidated basis on the left, where you can see that our management target decreased by 25 basis points to 15.55% which is the target relevant since the 1st of April and this decline is attributable to a relief on countercyclical buffer of 25 basis points. The same movement is visible also on the right on individual basis, where the capital management target stands at 22.45%.

Moving forward on page 37, we provide, or we report our capital position on individual level in more detail. You can see stable development where the position stands at CZK 39.3 billion and MREL adequacy at 23.96%.

And on page 38, similar trend is visible also on the consolidated level where our excess capital as I mentioned on Tier 1 capital level stands at CZK 4.6 billion or CZK 9 per share and this provides a solid basis to continue with dividend payout ratio target at 90% and also provides a sufficient capacity for further growth of the Bank. With that, let me hand over to Norman.

Carl Normann Vokt:

Thank you very much, Jan, and good morning to you as well from my side.

We are now on page 40 with an overview of key risk performance metrics for Q1 and two more data points in '23. Let me start on the bottom left of the page and then moving up clockwise.

So, cost of risk came in at 20 basis points net creation which is identical to the Q4 results. It's also the midpoint of our previously provided guidance of 10 to 30 basis points. It is higher than in the first quarter of last year where we heavily benefited from the disposals of NPL sales at that time leading to a net release of 17 basis points. As regards to the NPL ratio, this remained flat standing at 1.43% compared to 1.44% at the end of Q4.

And as far as the provision coverage is concerned, loan loss provision coverage and total non-performing loan coverage is concerned, they stood at 1.7% and 118.5%, both values coming down over the last year due to NPL sales and upgrades of previously forborne receivables.

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Moving to page 41, here we have a more granular view on cost of risk also in absolute numbers if you look at the left side of the page. So, in absolute numbers, cost of risk came in at CZK 135 million out of which the retail book produced CZK 36 million and the commercial book CZK 99 million. We also generated within Q1 pre-tax gains resulting from NPL disposals in the amount of CZK 29 million which was significantly lower compared to Q1 last year where we had a pre-tax gain of CZK 221 million.

On the next page, page 42, here we have a snapshot of a few metrics, loan book, NPLs, provisions and coverages. So, while the loan book grew by around CZK 0.5 billion year-over-year, the stock of provisions dropped by around CZK 200 million, ending up on the level of CZK 4.6 billion. Within that amount, we still have around CZK 560 million management overlays, as you can see here, this dropped quarter over quarter by 86 million. What we have done in Q1, we have back tested, reviewed the underlying assumptions of the overlay framework, and due to the fact that inflation has come down quite significantly, we were in a position to conduct this release in the first quarter. NPL ratio, I mentioned before at 1.4% and still remaining on historically low levels throughout the last year. And the loan loss provision coverage I mentioned before at 118% total NPL coverage and 1.7% for the loan loss provision coverage.

This takes me to page 43 with a walk of our non-performing loans over the last four quarters. Just looking at Q1 this year, we saw a very moderate net formation of non-performing loans of CZK 37 million. This was driven by a lower formation of NPLs overall compared to Q4 and higher cure rates and higher write-offs in the first quarter, leading to the flat balance development quarter over quarter.

And last page of the risk section, page 44, an overview of the delinquency rates. We have this long-term view how 30, 60, 90 plus delinquency ratios developed. As you can see, they have been remaining flat for quite some time now and moving in a small corridor. I think mid-term, it's rather likely that these values will go up compared to the current level, which are significantly below the pre-COVID delinquency levels, which we have seen before 2020.

So, summarising the risk section, I think we can say we have seen another fairly stable and positive performance on the cost of risk line. Thanks to some improving macro factors, in particular the lowering inflation and also the drop in interest rates, we have been in a position to make adjustments on the overlays, leading to a release of CZK 86 million. We will continue reviewing the overlays now every quarter and make adjustments where possible and reasonable.

And with that, I hand over back to Tomas Spurny. Thank you.

Tomas Spurny:

Just a couple of words about the guidance.

If you look at page 46, this is a repeat of the same information, our target is to accomplish cumulative net profit of CZK 27.7 billion, which would constitute a 32% increase against the previous five-year period. So, as we are in 2024, we are confident with respect to the minimum target of CZK 5.2 billion. We have a couple of positive factors helping us in this endeavour. Number one, if you look at our strategic plan, with respect to volumes, we perform well in both, the size of loan portfolio, where we are about CZK 5 billion ahead, and if we look at deposits, the same situation prevails there. Second, we have already announced to the

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market 50 basis points cut on the savings products. This will be realised and will come into effect on May 2. Third, if you look at the plan and underlying assumptions and confront them with what we know today, it seems that we will benefit from the elevated level of the repo rate by the end of the year, where the gap or the positive gap to our plan is around 100 basis points. So, this will support the NII development. And in the other categories, we also have positive news if we continue this year at the rate of distribution and cross-sell of collective investment products into the deposit. This will further support the P&L, where we are again pretty much ahead of the planned volumes as well as the planned fee income.

On the cost side, if you look at the quarterly development on the personnel costs, 7.4% growth is actually in line with the increase of the Czech average wage. So, we are not an outlier, nor are we below the market standard, if I can call that. So, that's a negative. Nonetheless, we believe that we can absorb it and manage it. On the administrative costs, we are performing so far well. And on the regulatory charges, the expectation was met by reality of the calculation. So, this is exactly at the planned level.

With respect to cost of risk, we do not see any worsening of repayment discipline of the portfolio. We had one single case, an automobile, used automobile dealer at the end of 2023. So, this tweaked the numbers a little bit, but we see steady performance. Nonetheless, one has to keep in mind that the NPL ratio is at minimum level when we look at it from through the cycle perspective. And our guidance actually reflects the possibility that the performance could worsen.

So, with that, the only thing to say is that without any changes, significant changes in the environment, we are confident that we will deliver the CZK 5.2 billion target as promised in the previous communication.

Thank you very much for your attention. And we turn to the moderator, we will answer your questions.

Operator:

Thank you. We will now begin our Q&A session. (Operator Instructions)

Our first question today is from the line of Mikhail Butkov of Goldman Sachs. Mikhail, your line is open. If you'd like to unmute locally and proceed.

Mikhail Butkov (Goldman Sachs):

Good day. Thank you very much for the presentation. I have four questions.

The first is on your non-interest income performance. So, both fee income and trading income line, it was quite a strong improvement on quarter-over-quarter basis across your insurance, investment products, also trading income line. Can you maybe unpack what part of that performance do you see as more sustainable into the year and what was maybe driven by some seasonality effects, or one offs across these lines, that's the first question.

The second question is on NII and NIM in the first quarter result. So, I think in presentation it is mentioned on the page, some delayed repricing of deposits and also it seems that the contribution from hedging income was reduced a bit on a quarter over quarter basis, if you could give some colour on that dynamic it

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could be good.

The third question is on the outlook for the net interest income. It was mentioned that you plan to cut 50 basis points on the consumer deposits plus there can be some additional income from repo operations, would it be fair to say then, that the first quarter NIM is likely the floor or there can be some other factors which could be a headwind for net interest income in the remaining quarters of the year.

And finally on capital, do you have any MRL requirements or issuance plans, additional plans for this year? Thank you.

Tomas Spurny:

Okay, I will provide a brief response and if we need to go into a bit more detail Jan will help me. So, starting with the fourth question, MREL issuance, the answer is no. This year we don't need anything, and we might issue something in 2025 and 2026.

Outlook on NII, we will decide whether to provide guidance on the NII as we did last year. Last year, if I remember correctly, we provided the guidance at the middle of the year.

Is it a floor? Well, we will see, we will seek to reduce the deposit rate, as my colleague said, by 30 basis points between the first and second quarter. Currently, we are one-third of the way, the current cost of funds is 3.4%, so we will continue in that endeavour, and I don't want to go beyond that.

On second question, which was NII and NIM, we are not focusing on the NIM strength, we are focusing rather on incremental income, and this is purely driven by the fact that we have committed to shareholders to deliver operating income of CZK 12.4 billion. If you remember, last year, during the fourth quarter, the Czech National Bank elected to stop paying interest on mandatory reserves. This created a hole of CZK 450 million, which we have to somehow fill with other sources of revenue. So right now, we are focusing on positive spread, but not necessarily on the relative strength of the spread. And broadly speaking, it will remain stable at around 2%, with some deviations probably.

And on sustainability of non-interest income, if you dissect the numbers, and Jan will help me, we have positive effect on expiry of some swaps, which had negative revaluation effects. So, from that perspective, the current result is sustainable. We also have strength on the improved FX margin on the Bank, which is simply a function of the FX volume and turnovers that the Bank realises for end customers. And as we have disclosed in the presentation, the other income also has one-off of CZK 50 million, which is related to sale of a marginal bonds. So yes, it's sustainable, except for the CZK 59 million one-off that we've had in the first quarter.

And I think this completes the round.

Mikhail Butkov (Goldman Sachs):

Okay, thank you very much for these detailed answers. It's clear. Thank you.

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