MONETA Money Bank : Přepis prezentace výsledků hospodaření 3Q 2022 (angličtina)

MONETA Money Bank

3Q 2022 Financial Results Conference Call

Transcript of the conference call regarding MONETA Money Bank 3Q 2022 Financial Results held on 27 October 2022 at 10:00 AM CET.

This transcript of MONETA Money Bank 3Q 2022 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, Chief Executive Officer & Chairman of the Management Board
• Carl Normann Vokt, Chief Risk Officer & Vice-Chairman of the Management Board
• Jan Fricek, Chief Financial Officer & Member of the Management Board
• Jan Novotny, Chief Commercial Banking Officer & Member of the Management Board
• Andrew Gerber, Chief Products & Marketing Officer
• Linda Kavanova, Head of Investor Relations

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Operator:

Dear ladies and gentlemen, welcome to the conference call of MONETA Money Bank regarding the third quarter of 2022 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.

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. Tomas Spurny speaking. I have MONETA's management with me and we will walk you through the presentation. I'll make the opening remarks.

So, if we start on page 2, MONETA's performance for the nine months, we delivered net profit of CZK 4.1 billion. This actually exceeds the operating plan of the bank. It also exceeds in a way the initial

MONETA Money Bank, a.s. | Vyskočilova 1442/1b, 140 28 Praha 4 - Michle | Company ID 25672720 | Registered by the Municipal Court in Prague, Section B, Insert 5403 | tel.: [phone] | www.moneta.cz

guidance that we've provided. And thirdly, we believe that we have met and exceeded the analyst consensus.

The net profit is constituted by operating income at the level of CZK 9.1 billion or where we garnered growth of 11.6%. We've managed to keep the operating cost base stable at CZK 4.2 billion resulting in operating profit of CZK 5 billion with an increase of more than 22%. On Cost of Risk, we've incurred a release of CZK 150 million. So, we have created additional provisions. Normann will cover that, and the provisioning level of the bank increased approximately by CZK 100 million and is at historically high level.

On page 3, the shape of our balance sheet. First and foremost, throughout third quarter, we increased the deposit base by CZK 23.6 billion to a level of CZK 320 billion, delivering deposit gathering increase of 20% year-on-year. Albeit the increase comes at a cost as the interest rate environment provides challenges with respect to Cost of Funds and I'll cover it later on.

The lending base or gross performing receivables increased to CZK 270 billion, this is increased more than 9% albeit, the growth of the asset side of the bank is slowing and we will cover it also later on in the presentation. The overall balance sheet at CZK 371 billion is slightly higher with issued bonds at CZK 8.7 billion and accounting equity at CZK 30 billion.

Looking at the key performance metrics, year-to-date, our net interest margin at 2.8% in the third quarter, the interest margin declined to 2.7% and we expect contraction of this metric over the next three quarters and then subsequent, again, increase or widening of the margin. Cost to Income ratio at 45.6% and our performance translates into return on tangible equity in excess of 20%.

The capital adequacy at the end of third quarter stood at 17%, slight improvement from the previous quarter and liquidity coverage ratio improved quite substantially to 198%. If we then look at the key trends, which are impacting our performance currently and which are likely to impact our performance into 2023, we are experiencing a weaker demand for credit products, if you look at the overall underwritten or disbursed loan volume. The loan volume stood at nearly CZK 50 billion, specifically CZK 49.4 billion, this constitutes a decrease of 25% year-on-year. The decrease is driven mainly through contraction of the mortgage franchise. However, on the consumer lending front we also have a decline of 8.4%, we underwrote CZK 12.8 billion in the first nine months, albeit at a significantly better price than a year ago.

The second trend is partly positive and partly less positive. First and foremost, we improved liquidity of the bank quite substantially. This is evidenced by the very solid LCR ratio at 198% and also loan to deposit ratio declined to 80%. Nonetheless, the deposits come at fairly high cost, impacting the Cost of Funds year-to-date at 127 basis points. This is more than four times against the previous year. And the Cost of Funds, the Core Cost of Funds at the end of period stood at 176 basis points.

The third challenge the bank has to contend with, with respect to medium-term guidance is the likely windfall tax, which we have reported to you at the previous conference. The windfall tax will be

applicable most likely for the next three years. This is '23, '24, '25. We estimate cumulative impact of the tax to come in at CZK 2 billion. And if you look at our targeted minimum cumulative profitability for the tax period, it should be at minimum CZK 14.3 billion. Hence, the windfall tax based on this estimate would impact approximately 14% of the cumulative profitability.

The fourth development is the high inflation, 12.7% on an annualised basis. Currently, accompanied by continued nominal wage growth, which is at 4.4%. And if you look at our performance, we have reported 90 basis points increase in the cost base. If you strip away the one-offs, which are part of that reported number, the recurrent cost base of the bank increased by 3.7% year-on-year, which we consider a fairly good performance amid a very difficult environment where the inflation project itself into most services and commodities that the bank procures in order to operate.

On the following page, page 6, we have the operating platform. Here we have couple of significant developments. With respect to employment of the bank, we decreased the employment on year-to-year basis by 7.3% and we will continue to do so until middle of the next year at approximately the same rate in order to combat the inflationary pressure on our cost base.

On the positive side, we have continued growth in the usage of our mobile banking platform. The growth is quite good. We also have the highest growth in the five-year period in our ability to acquire new customers into the bank. So, the customer base of the bank expanded to CZK 1.5 million and grew at 7.6%, which is roughly 70% higher growth than we had in previous years.

Lastly, our agreement with Komercni banka, a subsidiary of Société Générale pertaining to ATMs expanded our available ATM network to 1,400 ATMs. This is significant from a perspective of upcoming year and perhaps years. This agreement will enable us to optimise the dislocation of the network and hopefully, optimisation of the cost base, contributing to our effort at cost discipline. The branch network remained stable and 154 branches. And as every year, we will examine the width and breadth of the network again, within the context of digital distribution and overall cost efficiency of the bank and we will make decisions, if any, throughout the first quarter of 2023.

Now, let me comment a little bit on the macroeconomic environment, it starts on page 8. We believe the economy is likely to slow down into a recessionary environment. This is framed within the opinion of Ministry of Finance and Czech National Bank, where the GDP growth is expected to slow down in the second half of the year and the full year should come in, if we believe these predictions, at 2.2%. This is Ministry of Finance, and the Czech National Bank actually stands at 2.3%. So, both estimates are very close to each other.

The country continues to experience fairly significant budgetary deficit. This year the budgetary deficit is expected at CZK 375 billion. The budget was originally framed with a deficit of CZK 280 billion. So, the energy crisis, inflation and other aspects of what is happening in the Czech Republic contribute to higher public spending, which is bad news for the country, but good news for MONETA and the banking sector as hopefully, the higher expenditures will alleviate pressure on unemployment and subsequent defaults.

The unemployment rate remains stable. However, the third quarter anecdotal evidence suggests that more and more companies are notifying labour office authorities of mass layoffs. MONETA is one of them. We notified the layoff of 80 people in August and realised 30, the remainder of impacted staff will leave the bank at the end of November.

When we look at inflation on page 9, the inflation accelerated. The annualised inflation stands at 12.7%. The monthly stood at 18%. And since we have seen decisions on OPEC production and subsequent increases in petrol prices at gas stations. So, this is likely to continue and the annual figure will be probably anywhere in the range of 15% to 20%, skewed more towards the 20% than the 15%.

The yield curve remains inverted and interest rate, the key rate remains at 7%. Internally, we do not expect that at the next meeting of Czech National Bank's Board, there will be a decision to increase the rate further. This is based on publicly available interviews of various officials and their expressions of how they will treat the interest rate. So, we expect the probability is higher on stability of the rates rather than increases.

Now, let's look at briefly at the banking market evolution and MONETA's performance against such. Here we provide you with August numbers as at publishing of this material, the September figures were not available. If you look at the deposit market, we have marked shift in the deposit market. Although, the market grew at 8.5%, the growth is now concentrated in the commercial segment and the retail segment grew only at 3%. MONETA throughout the third quarter managed the significant growth on the retail front effectively growing at four times the rate of the retail market. We are obviously at a disadvantage pertaining to the commercial segment as we have predominantly - as we are predominantly - a retail bank and have small sized customers on the commercial who do not tend to have significant excess liquidity.

On page 12, we go to lending market, and this is - again, a shift is evident here where the market grew at 8%, this is roughly in line with the previous years. However, MONETA's growth slowed down to 7.7%. We are matching the market and exceeding it somewhat at the - on the front of the development of our retail franchise. Nonetheless, we are approximately 2% below the growth of the commercial segment. What is notable here, on the commercial segment, based on information that we have from the central bank, 45% of volumes in the market on commercial segment are now denominated in euros. If you look at MONETA's lending, we are a Czech crown bank, so we continue to lend predominantly in Czech crowns and our exposure to euro lending stands at EUR 480 million at the end of period. So, we have very small exposure to euro lending to our commercial customers due to our policy.

Now let me comment the digital distribution. We're making strong progress on digital. On page 14, we took the liberty of summarising the development of key features and innovations of the bank since 2017. And we try to quantify the impact of the digital strategy on our performance. This is on the - on the right hand. I think what we are trying to communicate here is that we are an innovator. This is substantiated for instance or for example by a recent Deloitte study, which third year in a row, ranks MONETA as the

most developed bank on digital front within the retail realm of the market in the Czech Republic. But the main message here is that digital distribution becomes quite substantial for the performance of the bank.

This is on page 15. And if we start on the right-hand side, you can see that between 60% to 40% of our deposit products which have term, are now distributed through the digital platform of the bank. This is due to excellent onboarding process, digital onboarding process that the bank developed over the five- year period and also, through contribution of so-called bank ID platform, which is shared among the banks, and which we helped to - we were one of the co-founders of this market utility. 30% of our current account now are delivered through an online process and this is an increase of nearly 200% year-on-year and increase is at 187%. And if you look at the lending side, nearly 50% of volume on lending, specifically 46% are now delivered through the online platform and through pre-approved limits to our existing customers. This constitutes actually 75% of units that we sell are going through the online processes. So going forward into '23 and beyond, the bank will now focus on replicating the digital distribution process for small business customers and hopefully SMEs, as we have developed capabilities that will enable us to do that over a period of next 24 months. And incidentally, the strength of the digital distribution also contributes to our efficiency on the cost front.

On page 16, we further substantiate the growth and the penetration success of the mobile banking platform, which is quite substantial as the customer usage grows at nearly 37% year-on-year, with a strong performance on the transactional side where the growth exceeds 50%. And what is more important than that; if you look at the volume of transactions that we put through the mobile banking platform today, it vastly exceeds those that we are now doing on the internet banking platform. So, the internet banking platform will be now developed to serve small businesses and SMEs as they have slightly different needs than our retail customers. So, the progress here is clearly visible.

On page 17, just a brief comment. The transactional intermediation of the bank is increasing quite well, namely, here we use the example of debit cards base, where the number of transactions increased by 23%. But if you look at our digitised payment capability through tokenised cards the growth is at almost four times that base. So, the digital strategy of MONETA is doing quite well. However, going forward we have the challenge now to digitise the space of small business and SMEs.

With that, I will turn over to my colleague, our CFO, Jan Fricek, to provide you with detailed commentary around our P&L development.

Jan Fricek:

Thank you, Tomas. Good morning, ladies and gentlemen. I am now on page 19 and will continue with the profit and loss statement. Let me repeat the key financials.

MONETA group reported net income of CZK 4.1 billion, EPS of CZK 8.1, on the revenue of CZK 9.1 billion and delivered a return on tangible equity of 20.6%. Nearly 12% revenue growth is driven by higher net interest income, up by 14.6%, accompanied by net fee and commission income, up by 9.3%. Cost base