Good afternoon and good morning, ladies and gentlemen. Welcome from Komerční banka, and thank you for sharing your time with us today.
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This meeting is being transcribed.
2024, and we are going to discuss the results of Komerční banka Group for nine months and for the third quarter of 2024. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board and Chief Executive Officer of Komerční banka, Jiří Šperl, Chief Financial Officer, and Didier Colin, Chief Risk Officer. And standing by, in case you have questions for them, are also Jitka Haubová, Chief Operating Officer, Margus Sim son, Chief Digital Officer, Miroslav Hiršl, Head of Retail Banking, and David Formánek, Head of Corporate and Investment Banking. During the presentation part, all participants will be on listen-only mode. We would appreciate it if you could keep your microphones muted during the time. There will be opportunities to ask questions afterwards. Now, let me ask Mr. Juchelka to start with the presentation. Thank you.
Okay. Hello, everyone. Thank you for spending your time with us. We are keen today, together with Jiří and Didier, with the help of the other members of the management team, to be fully at your disposal, leading you through the presentation first and answering your questions after. So maybe we can move to the first page. Thank you. So what are the main highlights here? Komerční banka succeeded in penetrating the market at the pace of the growth of it. So on the side of deposits, we were growing by 3.4% on a year-over-year basis. On the side of financing of the Czech economy, we were growing by 3.7%. As a special category, I would like to pick up the assets under management outside the bank, which is, in our case, mutual funds sold either through our private banking or together with Amundi, or life insurance, or pension schemes.
Overall, we were delivering double-digit growth at the level of 13.7%. Inside this category, the mutual funds, more than 25% growth. We are very happy from this development, and we believe that we can do even more in the years to come and strengthen this engine of growth for KB. Indicators from capital and liquidity point of view, we are currently having more than 19% of capital on the balance sheet. 17.9% is quarter one. So this first-class capital is making KB one of the capital-strongest players, not only in the country but in the region. Cost of risk remains contained and very low at the level of 14 basis points. Didier Colin will give you more details. We are keeping this high quality of assets on the balance sheet, and we believe that from a long-term perspective, it pays back.
The liquidity coverage ratio is almost 170%, loans to deposit at a very safe territory of 80%. That all was translated into our results. So nine months of 2024 were framed by the net income of KB Group at the level of CZK 12.5 billion, which is slightly higher than for the first nine months of last year, with a strong contribution of one-off. The one-off was sale of the company named VN42, the sole holder of the headquarters building in the historical center of Prague, Václavské náměstí 42. ROE, 13.5%, and cost-to-income ratio below 50, 49.9%. Strong contribution of last three months were mainly stemming from this one-off transaction. Nonetheless, on the ROE and cost-to-income ratio, Q3 has delivered very nice results.
That all was delivered in the parallel run of probably the largest transformation project KB went through in its history, or has been going through in its history, which is building the fully digital bank from scratch. We today can say that we are seeing the first fruits coming from the transformation process through a higher number of clients. We should be totaling at around 140,000-150,000 new clients from the beginning of building the new digital bank, and we have already successfully migrated more than 800,000 clients into the new world of the KB Plus, which is the new application, so the net-net, due to some decreases of number of clients in our subsidiaries, we are currently at 2.18 million customers in total, with a strong traction of onboarding new clients to the bank. The one-off transaction of the sale of Václavské náměstí 42 was already mentioned.
The buyer, from the publicly available sources, already the City of Prague. So we can move to macro picture, please. The macroeconomic environment of the Czech Republic remained, let's say, slightly positive, slightly positive in the sense that the economy is growing, even if not in a large phase. So on Q1Q, we are up by 1.3%. Sorry, on year-over-year, we are up by 1.3%, which was mentioned yesterday by the Czech Statistical Office. On the labor market, it remains very tight. We are fighting for talent successfully so far. We are also sending part of our people to the labor market because we are constantly optimizing the number of people working in this bank, and we, let's say, are getting a stronger push as everyone, and not only in the financial industry, for increase of wages for the years to come.
Consumer price inflation under control, back to normal, I would say, 2.6%. The main contributors to very low levels: housing, water, electricity, gas, and other fuels by 1 percentage point. Transport was even slightly lower than in the previous period of time. Czech koruna landed at 25.2 vis-à-vis euro and 25 vis-à-vis U.S. dollar. Czech National Bank, as already presented two weeks ago, agreed to the new level of repo rate at 4.25%. The longer-term rates are significantly down on a year-over-year basis. The 3M PRIBOR 4.2%, 10-year interest rates of 3.3%, 5-year interest rates of 3.11%. Czech Republic remains one of the lowest indebted countries in Europe. Please, we can move to the next page. The business performance, Komerční remains one of the main providers of financing to the needs of Czech households and Czech companies. We were growing by 3.7%.
When zooming on the main contributor here, we need to speak about mortgage loans, which were growing third quarter versus third quarter by 51.4%. The group lending was more driven by the retail and professionals than the corporate lending. Our translation, our explanation is that, and what we see in the field is that companies are somehow postponing the investments and waiting either for better price of loans or, let's say, decreased uncertainty stemming from external influence. Inside the group business loans, there was, let's say, outstanding growth of leasing financing provided by our soon 100% subsidiary SGEF Leasing. We can move to the next page. Here we have picked up a few tombstones, as usual, from which it is visible that Komerční was all over the place when supporting the clients on their either international expansion and/or new investments or refinancing of their existing debt.
Those rectangles in green are ESG eligible investment, green loan, revolving investment, municipal loan, etc., etc. So here we fulfilled the role of the leading bank on financing the businesses and municipalities. Next page, please, is bringing us to deposits. Deposits were growing by 3.4%. What we see here is that business deposits paradoxically are growing faster than the individuals' deposits. It was partly commented already that companies are piling their cash in order to be ready for future investments, which are being postponed in parallel. So we are never fully satisfied. Nonetheless, the growth is not bad per se. What we like a little bit less is that the current accounts are growing visibly lower than the remunerated deposits, which is visible on the right-hand side on the lower part of the page.
On the left-hand side, the assets under management are growing by 13.7%, inside which 25.5% growth of mutual funds. In our case, it's private banking solutions and/or Amundi mutual funds sale. A lower pace of growth was recorded on Komerční pojišťovna life insurance reserves, and very, I would say, mediocre growth at the level of pension company. So that's it for the business performance. I'm handing over to Jiří for providing you with more details on the side of financial performance. Thank you.
Thank you, Jan. Good afternoon, everyone. Indeed, KB generated a very strong result in Q3 this year, probably the strongest quarterly net income after tax in the history of the bank, i.e., roughly CZK 6.2 billion. Of course, as already commented by Jan, it was very positively influenced by the completion of the sale of Václavské náměstí building.
But also, it's important to say that although the underlying profitability, i.e., without net proceeds from sale of the building, the results are sound and growing, as visualized on the upper right chart. The main drivers in nine months' results perspective are visualized in the upper left chart. The underlying profit is still down by roughly 18%, but I would say the structure is a bit healthier than three months ago. Both fees and commissions and financial operations are higher year over year, and only NII contributes still negatively. Naturally, also OPEX, I mean, without regulatory charges, because it is positive. And the same, like three months ago, what changes the picture completely is the cost of risk, deducting year over year almost CZK 2 billion. Why? Didier will comment on that, but it's mainly the base effect.
As in 2023, we were still in the cycle of the releasing of the provisions, right? So that's the main reason. Naturally, such a strong quarter transposed also into very strong profitable indicators, to mention at least ROTE at the level of 15.3%. If we move to the balance sheet, it went up dynamically as well. The total assets are up by almost 10%, both year on year and year to date, mainly driven by the client deposits, and more specifically in this quarter by repo operations with the clients. On asset side, a big part of the new resources were placed, and now I'm commenting year to date evolution, into loans and the liquidity surplus into repo with CNB, as I would say usual.
But this quarter also into the Czech Govies, and I think I was commenting on that three months ago as well, or indicating benefiting from the increase of the asset swap spreads. Having said this, it's more meaningful now to invest into Govies than to repo plus plain vanilla interest rate swaps. This is bringing me to net interest income. So nine months versus nine months, year over year is down roughly by 3.3%, influenced negatively by three factors I was mentioning already last time, i.e., declining income from deposits in still challenging environment. It was mainly the case in the first half of this year. In Q3, there is a visible improvement, and I will get back to that. Second, increased cost of senior non-preferred loans. Last year, we were still in the building phase. This year, it is already full impact.
Just to illustrate the size of the impact on a full-year basis, we are talking about CZK 300 million impact. I mean, year over year. Finally, the impact of the canceling of the minimum obligatory reserves as of October last year was also significant impact. On the other hand, the income from loans still nine months' comparison is slightly positive from a year-over-year perspective. Now, as indicated, if we move to the quarterly evolution, and that's the bottom right chart, the situation is different and is much more positive in the area of income from deposits. The main reason here is, without any doubt, the further decrease of the cost of funds, I mean, deposits.
At the same time, I should say that our original expectation was even a bit higher, but the expected improvement in the structure of deposits, which came during Q2 2024 in favor of current accounts, of course, has not happened and has not been confirmed in Q3 the same year, as already commented by Jan. NII from loans quarter over quarter is basically sluggish. How this transposes into NIMs, into net interest margin, it is sluggish quarter over quarter at 1.64%. Maybe worth to mention that the last quarter, Q3, was negatively influenced by heavy repo operations with the clients. I was mentioning the balance sheet part. If adjusted by this effect, this would show already signs of improvement, and it is also, by the way, our outlook by the end of the year, so we are expecting NIM at the level of between 1.7% to 1.75%. Fees and commissions. Yes.
Fees and commissions, we are reporting another, I would say, above-average quarter, i.e., at the level of Q2. I would say you wouldn't be surprised by the main drivers. It's usual suspects, i.e., cross-sell fees, growing by strong 12%, collected on non-bank assets under management and notably on mutual funds. That's what Jan was also commenting. And another positive contribution last quarter came from specialized financial services. And here, it was mainly due to the better income from private banking, bond issuance, trade finance, and asset management. So overall, good result. The same like the financial operations. If we could move to the next slide. That were, after some corrections during the previous two quarters, visible on the bottom chart, the income is up again, significantly again.
It is, I would say, a pretty good quarter and even one of the highest results in this chapter for the last several years. And from the management point of view, what is even more valuable is the fact that the structure goes systematically in favor of much more stable effects income from the structural book. That's the blue color of the bottom chart. True is, and I should say as well, probably, that Q3 is traditionally the strongest quarter of every year due to summer vacation seasonality months. Summer vacations and related boosted conversions. But even if we compare Q3 this year versus Q3 last year, the growth is enormous.
This success was this quarter accompanied also by a good result of our investment banking as a consequence of increased demand of exporters and importers for hedging generated last quarter by mainly CZK volatility and also by CNB rate cutting cycle. So that's the top line in terms of OPEX. No surprise here either. The quarterly OPEX was at the same level as in the previous quarter. So the overall OPEX in nine months was up by 2.5% year on year. Personal costs and G&A growing at a similar pace between 5% to 6%. What is valid and will be by the end of the year is the positive impact of regulatory funds, more concretely resolution fund charge. And depreciation also, no surprises, it is current and it will still take some time at a running rate at low teens % levels.
FTEs went slightly down year on year and also quarter over quarter, positively influenced by the overall increase of the efficiency of the bank and at the same time partially offset by successful insourcing activities. As I remember well, I was commenting on that already three months ago. So this is still a bit continuing. Cost income ratio visualized at the left bottom in the direction down, i.e., positive, having in mind and indicating that in Q4 we are expecting trends to continue, influenced mainly by the top line. Now, let me pass over to Didier, who is going to focus on asset quality and cost of risk. Thank you.
Thank you, Jiří, and good afternoon, everyone. So let me start with the traditional overview of our 12-month default rate evolution across segments and products, not disclosed on the slide, but a key driver to our credit risk profile and asset quality. So first, starting with the SME portfolio, we continue to witness some increase in this 12-month default rate indicator, which, if you take the year-to-date perspective, was concentrated on a few cases in the first semester, and this was followed by one quite material new default recorded in the third quarter for this segment. This was partially offset or compensated for by a strong, continued, very strong resilience of our large corporate portfolio with default rates near the zero level. So definitely a strength.
Now, going into the retail segments, we continue to see the stabilization of these default rates for the consumer loan portfolio, while the small business loan level moderately increased, but both portfolios being still below their recent COVID peak level, very much in line with our expectation and well within the gross margin levels for those portfolios, and finally, the mortgage loan portfolio continued to show this historically low level of default rate, as it has been the case already in the recent years, so if you translate this into the IFRS 9 risk classification, which is presented on the slide for our loan book, you can see that the exposure classified as 2 went slightly down by CZK 1 billion. And in fact, this small contraction is the reflection of two things to keep in mind.
First, the strong resilience, again, of our loan portfolio with the private individual segment, which more than offset the moderate risk-rating deterioration, which we observed with the small business portfolio, as well as a couple of isolated downgrades recorded on the corporate segment. That's the first. And the second important element is the further confirmation of a very low intensity of loan migration dynamic between those two blocks, S1 and S2 portfolios, again, in line with our situation in the previous quarters. The exposure classified as 3, or the non-performing loan portfolio, moderately increased by a little bit less than CZK 1 billion from CZK 16 billion to CZK 17 billion. And this, in fact, is the direct impact of this new SME corporate default case I just mentioned, impact which was partially offset by some NPL exposure reduction in a mix of exposure repayment and write-offs.
These quarter-on-quarter evolutions are illustrated by the stability of our key credit risk ratios disclosed on the slide, being a stable S2 ratio, a stable NPL ratio, while the provision coverage ratio for the defaulted portfolio continued to fluctuate in this 40%-45% range. The Q on Q increase being, in fact, the result from this new unexpected SME default case that we have now to resolve. So not a surprise, well explained. Now, going to the next slide, where you have the overview of our cost of risk situation. First, starting with the quarter, the third quarter. So it was recorded at the level of CZK 370 million, which is higher than the levels we had in the last two quarters, or at least in the second quarter, with the following structure.
The first block with CZK 140 million came in net creations from our corporate portfolios. And this was, again, mainly driven by this unexpected single SME default situation, this one being partially offset by a couple of material recoveries achieved with some older default situations. So that's the first block. The second block comes with CZK 180 million in net provision creations from the retail portfolios. And here, this level is, in fact, very stable and comparable to the ones recorded in the previous quarters, being driven by our small business and our consumer loan portfolios. And we finally had a moderate near CZK 50 million coming from the quarterly recalibration of our IFRS 9 reserves, whether the one related to the forward-looking macroeconomic environment or the one related to our overlays.
Talking about these overlays and those reserves, which we created back in 2022 during the context of a very high inflation environment, in the third quarter, they were kept stable at the level of CZK 2.3 billion. The stability, in fact, continued to be justified by the environment that I just described, either through the uncertainty or also be justified by these recent default rate hikes recorded on the retail portfolios. This stability will be kept until the end of 2024 and will be reassessed for potential release starting in 2025.
If you take a look at the year-to-date structure of our cost of risk in basis points, which is at the total for the nine months of 14 basis points, the structure is worth briefly commenting, as it reflects, in fact, a strong loan recovery performance for both the defaulted corporate and the defaulted retail portfolio at a total of 6 basis points out of 14, while we continue to keep a prudent approach to portfolio provisioning for the non-defaulted exposures, contributing at a level higher than 50% to this total of 14 basis points, in line with our prudent provision policy. Now, finishing with a few words on the outlook for the end of 2024.
And here, we have to take into account one point that I had mentioned in the second quarter, which is the still unknown timing between the fourth quarter of 2024 and the first quarter of 2025 of the positive evolution of one of our core corporate client exposure, this exposure being currently covered by a material amount of provision. So for that reason and this unknown timing, we have decided to widen the year-end guidance to a range of 5 to 15 basis points from the previous 10 basis points, which we disclosed to you at the beginning of August. This level of guidance remains well below our through-the-cycle cost of risk, which is within the range of 20 to 30 basis points. And as in the previous quarters, in fact, this year-end guidance has three main elements.
The first one I just mentioned, which is the timing of this positive evolution between Q4 this year and Q1 next year, the continued near-zero default rate assumption that is for our large corporate portfolio, and the continued stabilization of the risk profile of our consumer loan and small business loan portfolios, and with that, I will hand over back to you, Jiří. Thank you.
Thank you, Didier. Please, let's move to yes, capital, well, no surprises, even here, capital is still very strong, i.e., at the level of 19%, slightly growing even quarter over quarter. It means that we are roughly 2.6% above the minimum requirement, but as I was commenting last time, starting from January the 1st, there is an increase of systemic risk buffer, so basically, we are talking about roughly 200 basis points above the requirement.
On the year-to-date perspective, there is a growth by 26 basis points. As the consumption of the equity is minor, it's mainly structural effect, as retail loans year-to-date are growing faster than the corporate. So there is a lower allocation of the equity, naturally. This is, by the way, also visible from the risk -weighted asset density evolution on the table on the left part of the slide. So this decreased year-to-date from 37% to roughly 35%. First reason is, as I was mentioning, structural mix of retail versus corporate. The other one is related to huge repo with clients I was commenting before. That's one point at this slide. And the other one is that although MREL adequately safely above the requirement, the regulatory requirement, we didn't need to conclude any senior non-preferred loans nor subdebt in Q3 this year.
To be frank, we do not plan to do that even in the months or quarters to come. This is bringing me to the outlook. There are not too many changes versus three months old guidance. On macro front, there are only minor changes in the GDP growth. It's now a bit better in 2024 by 10 basis points than three months ago and a bit worse by 40 basis points in 2025. Both rates, interest rates, and inflation at the end of the year are confirmed. Inflation fluctuating or oscillating around 2 percentage points, maybe a bit more, we will see. CNB repo rate will land at 3.75.
The same is related for the banking market and KB business outlook, i.e., banking market growth, both for the loans and deposits, up mid-single-digit and KB similar pace, except the deposits, because in deposits, we need and we will grow a bit faster. We are gaining mid- to high-single-digit. So just two changes versus the previous guidance are basically two. First slide, downgrade on the top line from original three months old low- to mid- to new and more recent low-single-digit. The main reason behind is the delayed improvement in the structure of the deposits, as I was commenting already at NII slide. And second change of the guidance is cost of risk, as was already commented by Didier. So that's a risk, potential risk are remaining the same. So skipping them and passing back to Jan. Thank you.
Right. Traditionally, in third quarter, we are coming to you with a quick status report of the implementation of transformation of KB 2025 project. I will start with the new digital bank. We have built from all possible aspects a simple solution, which is simple not only in front of the clients, but also with a huge simplification of our internal processes based on the technology stack, which is from 21st century, in which we are already recording more than 800,000 users, out of which approximately 140,000 is new clients. Total digital sales ratio on the bank is at the level of 54%, including 48% share on end-to-end digital sales. If we separated only the new stack, we would be even higher at the level of 65%.
You probably can see what is the main, I would say, change vis-à-vis the previous numbers where we were oscillating around 20%. We have successfully migrated 90% of our mortgage portfolio from the bank to Modrá Pyramida. Modrá Pyramida became the only hub in the KB Group for taking care of the client's journey related to housing. The remaining 10% of the portfolio will be migrated until the end of this year. Here, we are gaining operational synergies, enhancing the efficiency of the overall solution and concentrating on the product development only in one place in the group. We continue centralizing headquarters functions in the bank, also for the subsidiaries. This is a continuous project where we are sort of almost done with 100% owned companies. As a part of one group project, we have moved the tied agents distribution network from Modrá Pyramida to KB.
These guys are having currently enhanced the entire portfolio of KB retail to be offered to their clients. So we are strengthening also our sales power for the time to come. On the side of sustainability, together with SG Group, whose results probably you observed earlier today, we remain our position of the leading institution at Czech financial markets for financing the positive change and the transition period for Czech industry. From our own activities, our scope one and scope two emissions are down by almost 60% compared to 2019, and as a result of it, we are rated higher by all the relevant international rating agencies on that front. In the hunt for higher optimization and gaining the efficiency, we were finalizing in the previous quarter the disposal of our headquarters building, as it was already mentioned earlier today. Next page, please.
This is the financial targets, which are a natural part of our transformation strategic plan. On the cost-to-income ratio, we are confident we will be landing somewhere in the territory of 43%-44%. The return on equity is in the territory of 13%-14%, despite the fact that in the last five years, many things were changed in the external environment. I would start with COVID, continue with the war in Ukraine, and the avalanche of new regulation combined with the unexpected measures taken either by the government or by the central bank, so we are also happy to announce that we are navigating the bank very close to the targets which are part of the implementation of the new strategic plan. This is probably it from our side, so here, we are open for your questions, and thank you for your patience listening to us. Thanks.
Thank you very much. So as indicated in the next part of our meeting, management will be happy to answer your questions. Let me first remind you that this meeting is being recorded. If you have a question, please click on the icon with raised hand at the upper part of your screen, and then please wait to be called. If you are connected through a telephone and would like to ask a question, I will give you an opportunity later on. So we have the first question coming from the line of Shane Matthews. Shane, please ask your question.
Yeah. Thank you for the opportunity, and I hope I'm audible. Just one question on, let's say, the structure of deposits. I think I've mentioned a couple of times it's taken a bit longer to, let's say, improve the current account mix in the past couple of quarters. But just want to understand a bit more background. What is exactly the challenges here? Is the competitive, let's say, dynamics much more? Is it increasing now? Is there some changes in the customer behavior, which you are, let's say, working on and improving? Just want to understand how you're trying to mitigate this challenge in improving the current account and the overall deposit structure mix going forward, and how should we think about it going forward? Thanks.
Okay. I will take this one. To say there is a very clear correlation between the behavior of the clients, of the banking clients, in the area of deposits and the market interest rates.
It was very clearly seen even in the past in the situations or environment when the market interest rates are low, that the clients do not, let's say, manage too much, let's say, current accounts versus paid deposits because the variations between the remuneration of these products is very comparable. It is being changed completely in the environment when interest rates go up. This happened mainly in 2022 when from technical zero interest rates of 0.25%, they increased up to 7%, and this led to significant, let's say, moves in the structure. From the original one, so let's say 2021, 2022, at the beginning of this cycle of declining interest rates, the current accounts were roughly 75%-80% of total deposits. It went down roughly to 50%. Currently, we are in the, let's say, cycle of declining of the market interest rates.
So we took some assumptions on, let's say, reshuffling of the mix back. Of course, we are not naive to expect that we will get back again to 80%. So our assumptions like rather in small units, small units of percentage points. But this happened in Q2, but not in Q3. So we strongly believe that it is only delayed behavior of the clients, nothing else.
Got it. Got it. And is there anything the bank is doing, offering additional services, etc., to make, let's say, convert these people into more transactional kind of accounts and make them more sticky? So is that something which is also being undertaken on an additional basis now, right? Because the rate environment has changed, and there's a lot of other factors as well to consider. So any additional steps, measures to make these accounts more transactional, purely transactional base, and then attract more of these current accounts?
So if I may take the continuation of the answer, I think it would be naive to believe that clients will be leaving their deposits on current accounts anytime soon. On the other hand, there are two things that can help. The first one is massive acquisition of new clients with a large proportion of the mass market segment, because usually these types of clients keep higher reserves on their current accounts for obvious reasons. And the second one is domiciliation and activation of clients who are using us as a second or third bank. So these are basically the two angles at which we are trying to help ourselves.
Got it. Got it. Very clear. Thanks. Thank you very much.
The next question will come from Máté Nemes from UBS. Mate, please go ahead.
Yes. Good afternoon, and thank you for the presentation. I wanted to ask you a little bit about the 2025 guidance. I think you've helpfully given us the ROE and cost-income ratio expectations for next year. And I think in the morning in a press conference, you also mentioned you're expecting high single-digit overall revenue growth in 2025. I was wondering if you could give us a bridge from this year into 2025, which components are expected to drive that high single digit. Is that NII through improving margin and pickup in volumes, or you're also expecting a material pickup, perhaps, in fee growth? That's the first question. The second question is on cost of risk and asset quality broadly.
I was wondering, Didier, if you could share a bit more on that single case in the corporate segment. Which sector is that? Is that to any degree representative of perhaps still some residual risk in the portfolio? And also in this context, any thoughts and insights if you can provide on the auto sector exposure and the broader OEM and then supplier space? Thank you.
Thank you for the question. Probably let me start. I will cover the first one, 2025 kind of guidance or update. I think it's worth to start with the environment, at least with key facts. First, it is expected that the economy will grow faster than this year, which normally should help and should, let's say, support loans generation. This is the first one.
We will operate next year in full next year in kind of a normalized inflation environment at the level of 2 percentage points, and also, interest rates, market interest rates will be kind of at a normalized level. Our assumption is that repo rate will be fluctuating around 3.5% next year, and the yield curve will be growing, so that's for the context. In terms of growth of main banking products like loans and deposits, our assumption is that the market is going to grow, let's say, mid to high single digit, low range of these two figures, and KB would like definitely to gain on this market more. So we are talking about high single-digit growth of KB loans in 2025. The structure will be a bit different than previous years, i.e., we are going to grow much faster in retail categories like mortgage loans and consumer loans. Why?
Because the transformation of retail is going to be completed. Now, as Jan was commenting, we are migrating the clients and improving the application, which should lead to much higher growth. Simply, we would like to benefit or monetize from the investments into retail transformation starting from 2025 fully. In terms of business loans, and again, referring to what Jan mentioned, business transformation or corporate transformation, if you wish, started at the beginning of this year. So this is one reason of why we are not expecting the beating of the market shares and corporate areas, as was the case during the last five years. And also, we took into account the higher or more intensive consumption of the equity on these products. So that's loans. In terms of deposits, the story is similar. On the other hand, the figures are a bit different.
So the growth expected of the market is mid-single digit, and we would like to gain a bit, let's say, 1.5% more to grow by 1.5% more. And as I was saying, the story is similar here also. Retail will get greenlights to grow faster compared to the corporate. All in all, and now I'm coming to the transposition into P&L, our expectation is that NBI is going to grow by high single digit in 2025, very much supported by net interest income, but also other components are going to contribute positively. First, second, in terms of OPEX, our, let's say, ambition is not to increase OPEX. So it will be either flat or even slightly down. And I will comment on that after. And cost of risk is, for the time being, expected still very much below the through-cycle cost of risk level.
We are talking very much about the levels between 15-20 basis points. It is very important to add and to precise that it is also related or dependent on cost of risk in 2024, as Didier was commenting. Simply, if the cost of risk, it is very much dependent on the timing of release of the provisions, Didier was commenting. The figure 15-20 basis points is somehow calibrated in a way that cost of risk in 2024 is at the level of 10 basis points. So that's cost of risk. Now, maybe you might know that we are not commenting on the bottom line, but I think it's relatively easy for you to get to that. Maybe a couple of sentences about the drivers.
From my perspective, the biggest driver is going to be, and Mirek was commenting on that, growing of the client base, right? This will naturally increase the volumes. Of course, the critical, and we are fully aware of that, will be to make these new clients active. So that's first. Second, also not negligible driver is going to be continuing a change in the structure of our deposit because, as I was mentioning before, it is delayed change of the clients. So it is not like it will not happen. So it will be another driver. Third driver is the continuing dynamics in the area of fees and commissions. And again, supported very much by cross-sell from non-bank assets under management. And on OPEX side, as I was mentioning, should be more flatter, influenced mainly by two main elements.
First one is that as a big part of the bank is already running end-to-end, we are expecting further increase of the efficiency that naturally will be followed by further release of FTEs. You still remember our target to have at the end of 2025, 5.5 thousand employees at bank level. So we will deliver with the disclaimer of the insourcing. I was commenting on that before. And second reason for such a positive evolution of OPEX is that it will be also supported by lower charges for regulatory funds. Our current expectation is by CZK 300 million. And the reason is that 2025 is first year when at the end of 2024, the fund is already full. So starting from 2025, we are going to contribute only on kind of a run of run basis, i.e., together with the growth of the balance sheet.
So I think I touched all important points regarding 2025. If not, please ask follow-up question. And now I would like to pass words to Didier for the question number two.
Thank you, Jiří. So the first part of your question regarding this one-off, in fact, it's a pure one-off. The sectoral dimension is not relevant because we perform on a regular basis some sector reviews, and we had done one on the sector where this one-off belongs. So there's no connection. In fact, there's no contagion or there's no. That's the first point. And the second point is that our estimate of the final loss has been fully covered. So we do not expect any further adverse impact coming from that particular case. If anything, we will beat a little bit this final loss expectation or estimate.
That's what you should wish us, but that's the future on this particular case. And regarding your automotive question, there are a little bit two ways to answer it. The first one is from a macro or portfolio perspective. Our estimate is that this sector broadly represents something like in the range of 10% of the Czech GDP. If you take the same sector on the loan book of KB, it's anywhere between 2% and 3%. So that's the first piece of answer. The second one is that, obviously, in the current context, we have put this sector in permanent monitoring mode. And I can tell you that out of this 2%-3%, within this 2%-3%, the portion that is a little bit more sensitive is completely immaterial for the time being.
But it doesn't mean that we will not keep this close monitoring, taking into account the regional and the sectoral environment. And the other angle is, in fact, it's not so relevant because it's a little bit backward-looking, but it's taking a look at all the final losses that we incurred on this sector in the last five plus years and from the recovery angle. And here, it's near zero, in fact. So it also says that our portfolio is made essentially of spare parts suppliers. We are not exposed directly on manufacturers. And its diversification in terms of geography or of industrial technology is sufficiently good, and that explains a little bit also this quite satisfactory recovery performance in the recent years.
Thank you very much.
Thank you very much. Our next question will come from Deshkiran Kannaluri Magesh from White Oak Capital. Please go ahead.
Hi. Thank you for the opportunity. I have three questions. Maybe I'll just quickly take them one by one, if it's all right. The first one, I wanted to understand, do you have any sense of what the goal of the regulator was in increasing the reserve requirement? Because it doesn't look like the Czech banking system has excess liquidity, which they seem to want to take out, right? I mean, looking at the kind of conditions and so on. So just wanted to understand if you have a sense of what prompted this reserve rate increase.
If I can, we obviously contacted the regulator asking for the explanation here, and we didn't get, for the time being, anything more than they are targeting lower costs on the monetary policy. The dialogue is going through the Czech Banking Association, and we hope it will continue further. So we didn't get any step or any explanation beyond what was mentioned officially.
Understood. I appreciate the time. So thank you very much. My second one is on, let's say, the new digital banking clients you're gaining, right? Very impressive QoQ growth on that. If you could help us give a sense of what is the percentage of, let's say, new-to-bank clients who are there. And for these new clients, what is the strategy of lending? Because, of course, you might have less information for underwriting loans to these clients compared to, let's say, your traditional clients, clients who've been with KB for a long time. So how are you differently approaching lending to the clients who have been onboarded on the digital bank?
Maybe I will start, Didier. You will take the second part of the question.
We are acquiring like two to three times more clients than we have ever been in the history, but acquiring clients is not a new discipline for KB, as it was 60-70 thousand before. It will be 150 thousand this year, most likely. For the patterns of behavior, there's definitely a higher proportion of clients who are not active or not active yet, but it was inherently part of the incentive scheme that we launched within the campaign, so we knew that this is going to be the case, and we counted with approximately 20% of churn, which is still to be confirmed because the population of clients coming through this incentive scheme is not mature enough. For lending, we don't have any specific approach because we do lending both to our in-house clients that we know quite well and clients coming from the street.
So either we see the behavior already, and this makes it much easier, or we will ask for a certain set of information, including their salary situation and so on and so forth, and then we can do the lending once again. And I honestly even don't see a need to create something specific for new-to-bank clients once we are ready for those who we know well and those who are coming from the street completely. Didier, is there anything else you would like to add on this front?
No, Miroslav, you were clear enough. Nothing to add on my side.
Thank you very much. On the third question, I just wanted to quickly check. I think cross-sell has been supporting fee income for the last few quarters. What proportion of this cross-sell might be coming from, let's say, non-banking subsidiaries of KB itself? Do we have in-house subsidiaries for mutual funds and insurance manufacturing that we cross-sell, or is it all cross-sell of partner products?
I don't have the figures. Sorry, Jan, please go ahead.
I will just start from the end. The insurance business is in-house. It's a combination. It's a joint venture between KB and the parent subsidiary in our group, operating fully in Czech Republic and on Czech insurance license. Speaking about mutual funds, this is going to purely like partnership type of cooperation with Amundi, who used to be a member of SG Group, but is not anymore for pretty few years already. Pension company is 100% subsidiary to KB. So Miroslav, if you can amend, please, what you had. I would just add building savings on the list. It's 100% owned by KB as well. So it's a combination of KB and SG, or in one case, Amundi that is outside of the group.
Understood. Thank you very much. Those are all my questions.
Thank you. And the next question will be coming from Mehmet Sevim from JP Morgan.
Good afternoon. Thanks very much for your time. I just had two follow-up questions, please. One on NII, if I may. Looking at the evolution, I think it's quite fair to say the recovery has been a bit behind initial expectations so far for the good reasons you've already outlined. But when I think about the trajectory for next year, looking at the individual components, yes, there will be better volumes, hopefully, also for the rollout of the NDB in retail.
There should be some more core NIM improvement from the current low levels, but there's also the upcoming negative impact of the reserve requirement changes, as already discussed. If you put all that together, can I ask how comfortable with this initial guidance of this nice growth that we should see next year? Do you think there could be further risks to it that may come from either KB-related reasons or market-related reasons? And secondly, just for a question on the ROE target of 13%-14%, is it fair to assume that this assumes going back to the previous dividend payout of around 65% that underlines it? Thank you.
Okay. I will start. Maybe my colleagues will complete me. Well, we are pretty comfortable with the growth I was guiding in net interest income of 2025.
I think you mentioned that the main drivers, if I should add the biggest risk, it is that the clients will not adjust their behavior in a way I was commenting before. But here, we strongly believe that we used a reasonable assumption, and the assumption is that during the year, the ratio will move by only two percentage points, so from roughly 50 to 52, not from 50 to 20 to 70. So once this assumption is delivered, we are pretty comfortable. For your second question was about ROE in 2025 and the reality or assumption used for the dividend paid. We are commenting on the dividend during Q4 results presentation, so the question is a bit premature. So I can be only, let's say, at a kind of general level.
What I can say is that after two years of fully paid profit and in 2024, including the sale of the Václavské náměstí, we are going to announce at the beginning of 2025. I can say that I can hardly imagine that the dividend would go below our standardized level, which is at the level of 60%-70%. Even I may add that I can imagine that there is a potential for higher dividend. If you read our capital management figures, I think you would make this conclusion as well. I'm just confirming.
That's very clear and helpful. Thank you, Jiří.
Thank you. The next question will be asked by Kamil Stolarski from Santander. Kamil, please go ahead.
Hi. Thank you for taking my question. I'm mostly interested in this long-term strategy of yours. There were two things that I would want to ask about. One is the NPS target, net promoter score target, and I wonder how comfortable are you with achieving this 50, and do you see already some effects of this transformation? The second one is I wonder if you could give us some color on what is the actual cost of transformation till now of the total. What's the actual total cost of transformation, and to what extent you managed to cover it with the reprioritization from the business as usual, as you framed it before?
We will answer your questions, but before we go to the concrete reactions, which will be delivered mainly by the two persons in charge of business on one side, Miroslav Hiršl on the other side, David Formánek, let me say that we will announce soon the date on which we would like to bring back to you a pretty detailed description of what are the results of this transformation, including all the critical elements and critical indicators. So for today, you should consider it as a very, I would say, short status report of where we are after the third quarter of 2024, and we will come back to you with a larger presentation and much more detailed presentation, highly probably with the full year results of 2025.
But obviously, as far as NPS is concerned, we are going to give the word to David Formánek and to Miroslav Hiršl for corporate and retail, respectively. Thank you, guys.
Thank you. Sorry, Miroslav. Please go ahead.
Okay. Just a few comments regarding the corporate clients and the NPS. So basically, we can say that in the average, the NPS for our corporate clients oscillates around 50, and it depends on the particular subsegments of corporate clients. So for us, the main challenge is to keep this, I would say, fairly satisfactory high level of NPS of our corporate clients also during the time of the transformation and the transition. So we can say it's achievable, and the challenge is just to basically stay with this for us comfortable level of NPS.
Okay. For retail, more than half of retail clients are already in the new bank. We already hit this milestone of two banks of the equal size, and now looking just at the number, more than half is in the new bank. I'll speak just about the new bank because soon it will be the only bank that we will have in retail. I think we somehow needed to anticipate the fact that during such a massive transformation and migration of all the clients from the old environment to the new one, from the old app to the new one, you need to expect a certain temporary decrease of NPS. We even have empirical observations from the market where our peers are experiencing negative territory for quite some time. Today, in autumn 2024, our NPS is around 25 points already, which I believe is quite solid.
Basically, there are three things that clients are telling us, and all of them are either being mitigated or will be mitigated quite soon. On the other hand, I believe that we can't expect massive improvement of NPS before we finish the migration of most of the clients, which is about to happen next year in summer. On the other hand, next year in summer, it's not too far in the future. If you are asking me if I'm confident we will reach 50, I have no doubts we will. I can see things being improved. I can even see reactions of our clients in stores, in App Store, in Google Play that we were starting at very low values, and now we are already close to 4 and moving up every single week. So confidence is definitely there. We will be at 50 or plus.
Okay. Thank you for the comment.
I think the third element of the question was about the cost of the transformation. So let me not be fully precise, but we are talking about low teens of billion CZK for these, I don't know, roughly five years' time. To be frank, you do not see this amount in our cost naturally because it was from a big part somehow absorbed, and the absorption rate is whatever, around 60%. How come? Simply, we stopped almost completely the investment into the old world since the very beginning. So that's the main reason why we were able to absorb such a high number. Yeah, that's in a nutshell.
Excellent. Thank you for the comment.
We don't seem to have any further questions asked via the application. So if you'd like to ask a question through a telephone, please unmute yourself, pressing star and six, and then ask a question. I'll give you a few seconds for doing that.
Okay. It seems we don't have any further questions, so I would like to hand back to Jan for the conclusion. Thank you.
All right. Thank you, Jakub. So we appreciate very much, obviously, your time you spent with us. We wanted to thank you also for your attention, which you are paying to the shares of Komerční. We are, and I think it was visible, on one side, confident of the deliveries in 2024 in the frame which was presented. We don't expect any large, I would say, catastrophic scenario until the year end, neither any huge positive events.
Speaking about 2025, we would be continuing, let's say, the last, I would say, stage of building and finalizing the digital bank and the migration on the side of retail and continue working on the corporate solution under very, very strong supervision of the costs, not only on the OPEX side but also on the CAPEX side of the story. Being pretty confident that we will be gaining technological advantage vis-à-vis the main competitors, which is already somehow represented by our ability to onboard new clients. Our main goal would be to remain strong and solid back in front of you, the analysts, obviously good assistance towards our clients, and one of the top employers in the country for our colleagues. In the meantime, don't hesitate to contact us should you have any question on top of those which were raised today.
And we will thank you, and we will be looking forward to seeing you next time at the occasion of the presentation of full year results. Thank you very much.
Thank you. So this has concluded our meeting today. We thank you for your time. You can now disconnect.
This meeting is no longer being transcribed.
This concludes the presentation c olleagues.
Thank you. Bye-bye.
Thank you. Bye.
Thank you. Thank you. Bye.