Hello, and good afternoon, good morning, ladies and gentlemen. Welcome from Komerční banka, and thank you for sharing your summer time with us today. It is the first of August 2024 today, and we are going to discuss the results of Komerční banka Group for the first half and second quarter of 2024. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board and CEO of Komerční banka, Jitka Haubová, Chief Operating Officer, Jiří Šperl, Chief Financial Officer, and Didier Colin, Chief Risk Officer. Standing by in case of questions from them are Miroslav Hiršl, Head of Retail Banking, David Formánek, Head of Corporate and Investment Banking, and Margus Simson, Chief Digital Officer. As always, we'll begin with the presentation of results.
This will be followed by questions and answer session. During the presentation part, all participants will be on listen-only mode, so we would appreciate if you could keep your microphones muted during that time. So now I would like to ask the CEO, Jan Juchelka, to begin over. Thank you.
Thank you, Jakub. Thank you very much for being with us. Good morning or good afternoon to everyone. It's my pleasure to walk you through with my colleagues, Jitka Haubová, Jiří Šperl, and Didier Colin, through the presentation of second quarter of 2024 and first half of 2024. Komerční banka remained very strong in its capital base and its liquidity base. Our total capital ratio totaled at a level of 18.95%. Liquidity coverage ratio 170%. We are keeping excellent level of quality of our assets, which is translated into 13 bps of cost of risk on year-to-date basis.
Despite pretty dynamic growth of our loan book, we remain in very safe territory of 78.5% of loans to deposit ratio. The business performance is framed in a strong growth of deposits, both retail and corporate, by 6.5% on year-over-year comparison. With the very latest trend of strengthening the current accounts, whereas the global picture was more in favor of saving accounts and term deposits. Assets under management outside the balance sheet of the book, i.e., for us, solution delivered together with Amundi or our private banking solutions, grew by 26.2%, so very, very strong dynamism of growth.
When you mix it together with pension schemes and subscribed investments in Komerční Pojišťovna, KP Insurance business, the total growth remains double-digit, close to 14%. Clients loans, 3.7% overall, and we will go through the breakdown of this number. It's more driven by Retail than the Corporate, but it's growing in both main segments. All that was translated into first- half financial results of CZK 6.3 billion group net income, which is CZK 33.6 per share, with double-digit ROE at the level of 10.5%, and potentially 11% if IFRIC 21 was linearized. Cost-to-income ratio, 51.7%.
The second quarter contributed into the first half by CZK 3.5 billion net income, ROE with 11.6%, and cost to income below 50% at a level of 49%. So we can move to the macro eco, where I will spend only a few seconds. We are still waiting for the decision of Czech National Bank Board today on setting the new level, potentially the new level of two-week repo rate, currently at 14.75%. The GDP is growing in a very mediocre way in Czech Republic. It was in second quarter of 2024 by 0.3% on QoQ basis, and 0.4% on year-over-year basis.
In fact, the main, I would say, if not the only, well-working engine here is the consumption of households. The tight, the labor market remains stretched, with almost non-existing unemployment rate. Whereas the inflation is back to normal at 2%. What is probably good to see is the evolution on Czech koruna, which landed at 25 CZK per EUR, as of June 30, and we will see, as I said, what the Czech National Bank will decide today. The longer-term rates were sloping slightly positively since January.
Three-month PRIBOR at 4.721, which was down on a year-over-year basis by 242 basis points. 10-year interest rates were at 3.89%, 5-year interest rates were at 3.85%, and 10-year CZGB is at 4.24%. Next page is going to our business performance on the side of financing. The loans grew by 3.7%. On the right-hand side, you see the breakdown between group lending. So it is visible that what is growing pretty nicely is everything what is related to housing, either it goes from Modrá pyramida building savings company or from mortgages provided by the bank.
Consumer loans are also pretty nicely growing by 5.1%, whereas businesses and other loans by 2.7%. When you break down those 2.7%, you see that SGEF is one of the main, let's say, main contributor in the sense of growth. And it was our pleasure to obviously to show our signed Memorandum of Understanding with SGEF International and SG Group on buying the remaining 49.9%, and becoming a sole shareholder of this company. We like it. We do believe that by becoming the sole shareholder, we will be able to cement our position as a leading bank in financing of corporate clients.
The housing loans grew by 42.3% on a year-over-year basis and by a very strong 60.2% on a quarter-over-quarter basis. So, we could say that this is bouncing back with very strong power, and we believe that we will be able to follow the market to follow the market without making any without leading any pricing race or at least initiating them. So we can move to we can move to next page, which is the tombstones achieved by the transactions with our corporate clients. Here you see everything the everything what is framed in green is either ESG- eligible or green bonds or green loans.
It's a nice mixture, again, between the public sector and private sector, between medium-sized companies and large companies. We are supporting our clients in their acquisitions and many others. So here we are, remain very proud of being a strong supporter of Czech corporate clients. We can move to next page. Deposits grew by 6.5%. I already commented these deposits or assets under management outside the bank, so our cooperation with Amundi is pretty smooth and at the benefit of both sides, which is translated into 26.2% growth together with the private bank, with the private banking, not only Amundi, but predominantly Amundi. Two percent in life insurance reserves and another 2% in the field of pension schemes.
The group deposits in total grew by 6.5%. When you break it down, it's mainly driven by business deposits together with retail deposits and, let's say, expected drop in or continuous slowdown in building savings. The mixture, not so much surprisingly, it goes to remunerated deposits, so term accounts, savings accounts, a little bit less but still growing in current accounts on year-over-year basis. We can go to next page. Here I'm handing over to Jiří. Thank you.
Thank you very much, Jan. So just before I start, I'm suggesting now to pass over to Jitka, who will cover for KB, also very important area, i.e., ESG. So, Jitka, please, at least briefly.
Sorry, it was my communication mistake, Jitka. I should have given the word to you already at the beginning. Sorry for that, Jitka and ESG. Sorry.
It's very okay. Good afternoon. In the following moments, as was said, I would like to talk about ESG as one of the notable client experience-enhancing philosophy, but also, let's say, passionately debated and highly regulated topic. To be specific, I have selected one story, the story of ATMs sharing with other four Czech banks. ATM is an abbreviation for an automated teller machine, which it's a self-service banking terminal for withdrawing and depositing money. I would like to go through all three letters from G, governance perspective and mainly client satisfaction point of view.
Our customers can make free withdrawals from 2,000 ATMs and make deposits in over 900 machines, which represents 40% of all ATMs in the Czech Republic. It is good to say that in the Czech Republic, over 60% of citizens still prefer to pay by cash. This service is our regulatory duty and the most expensive service also. So logically, we try to reduce the cost. Concerning the social aspect, clients now have better access to this 24/7 automated online service, thanks to moving dozens of machines to villages where there were no ATMs before. This has given 100,000 citizens ATM access where they had none previously.
In the Czech Republic, we have around 50% fewer ATMs than are typical found throughout Western Europe, and concentrated to the big cities. From the environmental aspect, customer can see how we are able to save energy, how we can save money, and how we are able to reduce our carbon footprint. Just generally, we have decreased our carbon footprint by 60% compared to 2019. Obviously, it is also saving of money, because majority of this saving is driven by energy savings. And this has been also positively assessed by rating agencies.
As you can see on the slide, all ratings of our ESG strategy are at a high level, and we are ranked among the top companies throughout the world. Recently, KB has received also many other awards, which can be seen in the slide in the right-hand corner. I would like to highlight that we won Bank of the Year in 2023, including recognition for a bank without barriers. The most visible feature was a so-called Touch Card for use by blind clients. We were also delighted to be granted the Green Crown Award in recognition of our product, green product loan for sustainable technologies.
By the way, our share of new corporate investment loans with the ESG parameters is around 50%, five-zero. We have also lots of leasing for corporate photovoltaic plants. Also, we are providing eco-mortgages. We are providing also comprehensive service and advice on preparing ESG strategies, obtaining EU subsidies for our clients, and also providing the energy audits. All of our ESG performance indicators can be seen here on the left-hand corner. I already mentioned the major ones. Finally, the last box shows the remaining regulatory activities. We presented double materiality assessment, which is important from the CSRD perspective. We presented a so-called business environment scan to ECB, where we evaluated the climate risk.
Also finally, we are assessing our clients and transactions, applying the ESG aspects, copying KYC procedure, because it is fundamentally very similar. To conclude, we are confident that ESG can offer benefits not only for bank and our shareholders, but also clients. Jiří?
Yes. Thank you, Jitka. Financial results. So let me start with the big picture, i.e., the main drivers of the profitability, year-over-year, at the upper left part of the slide. Overall, the bottom line is, as already mentioned by Jan, -21%, with weaker NII and financial operations, but at the same time, with a very solid fees and commissions. There is also visible, clearly visible positive contribution of the regulatory funds, at the level of almost CZK 500 million. Otherwise, OpEx are growing, but are still under control.
What makes the main difference year-on-year is the cost of risk, where this year, in 2024, after releases, heavy releases last year, we created by almost CZK 1.5 billion small provisions. In the area of cost of risk, it's clearly the base effect. From the quarterly perspective, that's the upper right chart. There is a jump from CZK 2.8 billion to CZK 3.5 billion, influenced mainly by the regulatory charges, of course, moved already in Q1 this year, as it is the obligation. Even if we adjust by this effect, there is a quarter-over-quarter growth, which is positive.
True, it is influenced by positive cost of risk contribution, and still, it leads to the double-digit profitability indicators, as mentioned by Jan. To mention here, at least a return on tier one capital at the level of 13.3, IFRIC adjusted. Let's move to the next slide, please, which is about balance sheet. So the balance sheet slowed down a bit, growing 1.1% year-to-date, but still, there is a solid growth year-over-year at the level of 4.5%, i.e., roughly CZK 770 billion in absolute terms.
On the liability side, still, the deposits are the main driver of the growth on a year-on-year basis, growing by strong 10%, while both money market operations and accounting capital went slightly down. Decline of the capital pre-receive only as a payment of the dividends last year profit dividends in Q2 for this year. On the asset side, half of the new resources have been placed to the loans, and the remaining part to the repo operations with the central bank. It's visible that liquidity remains still very high, very excellent.
Jan was mentioning LCR at level of 170%, to complement also a bit longer liquidity profile, measured by NSFR, is also at very safe level, i.e., 140%+, when the regulatory limit is at 100%. Let's move to the net interest income, please. Yes, thanks. And let's start with the year-over-year perspective. Here, NII went still down by 2.4%, influenced mainly by, first, declining income from the deposits, in still, I would say, challenging environment. Second, increased costs of senior and non-preferred loans. It is, it is, let's say, a regulatory-wise link to the MREL.
Last year we were still in this era in the building phase of this regulatory obligation, regulatory duty, while this year the impact is transposed into the P&L NII already fully. Third reason or reason is the impact of the minimum obligatory reserves or cancellation implemented as of October 1 last year is also not negligible impact. If we focus, however, more on the trends, i.e., the quarterly evolution at the bottom right chart, we see that both income from deposits and loans have grown not significantly, but the growth is there. The only categories declining are two categories, other NII income, and that's mainly the pink color.
That's mainly because we paid dividends in 5th May. And the other one is NII from investment banking, which is by definition more volatile. So having said this, I believe that I can say that fundamentals for the quarters to come are healthy in terms of core net interest net interest income. This also transposed into net interest margin, as shown in the upper left chart, where there is a slight move up on a year-to-date basis. And we think that the trend is to continue in the quarters to come. Let's move to the fees and commissions. So they have grown solid pace, even I have to say a bit better than we expected. There are two main reasons for this positive evolution.
First, it's fees from cross-selling growing year-on-year by a very strong 10%. And here to mention, an important driver of the cross-sell fees is a dynamic evolution in the insurance business, where the gross premium written is growing on non-life plus almost 18% year-on-year. And on life insurance, a bit less, but its subcategory, risk life insurance by a very strong 12%. And the second reason for such a positive evolution of the fees and commissions is behind specialized financial services, where thanks to better income from private banking, bonds issuance, custody, depository services, and in Q2, also loan syndications, it was growing by a super strong 21%.
This is bringing me to the financial operations. Thank you. So here to mention, after super high result in 2023, there is a correction, a clear correction down by roughly 18%. And this correction is solely solely influenced by lower investment banking income. What's behind mainly is a weak client demand for interest rate and FX hedging due to the development and expectations for Czech crowns rates, both FX and and interest rate. On a positive, much more positive note, a much less volatile FX income from the structural book, and that's blue part of the chart, is running great supported mainly by higher, much higher volumes of the transactions year-over-year. Mainly cards, payments, and also by some kind of adjustments in the pricing.
At this front, I mean, the blue part of the chart, we are expecting the trends to continue, at least in Q3, but probably also in Q4, due to the seasonality. Q3 is typically the highest quarter, one of the highest quarters due to the traveling seasons. Last point, before passing forward to Didier, is about the OpEx. So, there are traditionally under control, year-on-year, flat and even a bit down, -0.2. At the same time, it should be reminded, and I was touching that already at the beginning of my speech, and that this chapter has been very much supported by much lower regulatory charges, so less resolution funds and deposit guarantee funds, that decreased year-on-year.
That's the pink color in the chart. On the underlying basis, i.e., without this positive effect, the growth of the cost would be whatever, between 5% and 6%. And I will get back to that during the outlook for the full year. If you go briefly into the structure, personal expenses growing by 7% year-on-year, affected, of course, mainly by the regular annual increase of salaries, and, relatively newly, by another element, which is kind of successful in sourcing activities in IT area. Not sure I was mentioning last time, but the bank is very successful in sourcing activities, i.e., replacing externals or third parties, developers by the employees.
Of course, it has, on one hand side, there is increasing HR cost, staff cost. On the other hand, it is the deducting from GAE, that are, and that's red, red part of the chart, flat, and even slightly declining. So for, let's say, for comparison purposes, these two categories should be taken probably together. And finally, depreciation, growing low teens percentage points as a reflection of digitization investments and activation of these investments as a part of our transformation. Transposing to cost income ratio, that's like bottom chart, IFRIC-linearized, landed at 49.5% on year-to-date basis. Now it's time for Didier Colin focusing on asset quality and cost of risk. Thank you.
Thank you, Jiří. Good morning. Good afternoon to all of you. Turning to the evolution of our asset quality in the second quarter, I will briefly start with giving you an overview of our default rate evolution, not disclosed on this slide, but being a little bit the anchor of our asset quality in three points. The first point is that our SME portfolio, which started to record some default rate increase in the first quarter, in the second quarter stabilized. So this is a first piece of good news. Still in the corporate segment, we continued to record near zero cost-of-risk level for the large corporate portfolio.
The second point concerns the consumer loan and small business portfolios, and I will briefly mention it, because as you probably remember, those two portfolios were also a little bit under some default rate hikes in the recent quarters. And this past quarter, we continued to witness the stabilization of those two portfolios. And the last brief comment goes for our mortgage loan exposure, where here we continue to see some levels near the 2022 historically low point of default rate. So overall, a good evolution in the second quarter. The translation of this into the IFRS 9 risk classification gives you what is on this slide.
Basically, with our exposure classified as to, slightly down, again, being a reflection of a strong resilience of our loan exposure on the private individual segment, which more than offsets some moderate risk-rating deterioration observed for the small business portfolio, as well as a couple of watch listing situations for our corporate segment. And what is also a good persisting point is that the intensity of migration that we regularly measure between S1 and S2 continue to be in the second quarter at low level. The exposure classified default, the S3 part of our portfolio, also slightly decreased, simply being the direct impact of a positive resolution of the situation of one of our largest corporate clients a s well as being the mechanical result of our recurring write-off campaigns, which we perform on multi-cat exposures with limited recovery potential.
So this gives you, as of the end of the second quarter, a stable S2 ratio at 15%, a stable NPL or S3 ratio at 2%, and a stable provision coverage ratio for our defaulted portfolio. How this translated in terms of cost of risk is on the next slide, where you see that, for the second quarter, we booked a mature level of provision compared to the first quarter at only CZK 100 million in net creation of provisions. With, in fact, two opposite pictures between the two main segments. Starting with the corporate segment, we recorded CZK 100 million in net reversal.
A little like in the past, concentrated on a few client situation and overall giving you the confirmation of a continued good level of our recovery performance for this corporate segment. Going the other way, for the retail segment, we booked a little bit more than CZK 200 million in net provision creations, which is a level that is a bit higher compared to the levels recorded in the previous quarters. And here, this CZK 200 million is made of two component. The first one, at CZK 100 million, comes from what we call the core cost of risk creation, being, in fact, cost of risk coming from transition into default.
And the second CZK 100 million came from our decision to further build up our IFRS 9 provisions, this being split between our inflation overlay and our forward-looking macroeconomic reserve. Talking about those reserves, for the second quarter, we kept them flat at a level of CZK 2.3 billion. In fact, this stable level is justified by the context of the recent default rate hikes on the consumer loans, small business, and SME portfolios. And this is a stability for this reserve, which we expect to see until the end of 2024, given or taking into consideration the uncertainty of the macroeconomic environment.
We also presented for the first time the structure of our year-to-date cost of risk at 13 basis points, which you have on the bottom right of this slide. I will not comment it in details, but what it tells you is a little bit three points. The first one is the reconfirmation of the resilience of our credit risk profile, despite those recent default rate hikes on some of our portfolios. Second element that or second message that it conveys is the strong recovery performance, primarily on the corporate, but to some extent, also coming from the retail portfolio. And last point is our prudent approach to portfolio provisioning applied to the non-defaulted exposure.
Now, taking into account, and this will be the end of this brief overview, taking into account the recent evolution of our credit risk profile in the second quarter, we've decided to revise downward our guidance for the full year from its previous level in the range of 15-20 basis points to the new level of 10 basis points. And this lower level, in fact, relies on three main expectations. The first one being the expected improved outlook for one of our core large corporate clients by the end of the year, for which there is a significant amount of provision. The second one is the lowering of our default rate assumption for the large core portfolio, taking into account what we observed in the first semester.
The third assumption is the continued stabilization of the risk profile for those three portfolios that went through some default rate hike in the recent quarters, being consumer loans, small business loan, and SME. On this, I will hand over back to you, Jiří. Thank you.
Thank you, Didier. So let's continue with the capital. As Jan already mentioned at the beginning, the capital adequacy is still very strong, despite the fact that we are accruing 100% of the profit for this year's profit dividend. And it even slightly increased in the first 6 months of the year, mainly due to the slowdown of the loan growth in corporate. Currently, it is at the level of 18.95, which is roughly 2.45 percentage points above the minimum requirements, and even a bit above the management buffer for the capital capital adequacy.
It's probably worth to mention here now that there were some changes in the minimum capital requirements recently. First one, the decrease of the countercyclical buffer by 50 basis points, you know, from July the first this year. And the other one, increase of systemic risk buffer by the same 50 basis points. But as of January the first, 2025. So basically, these two changes are offsetting each other. There is also, let's say, shift in the time. Which is bringing me to the last slide of the presentation. So that's outlook for 2024.
It's usually we updated it, and, there are, some changes, I would say both directions, compared to the same months of the guidance. Let's start with the macro eco. So our expert, downgraded a bit the GDP growth from, I remember 1.4%, three months ago, to 0.7%. Now, Jan was already commenting on that, so no more comments here. The key policy rates by CNB are expected to land, at the end of the year, a bit, higher than we thought three months ago. At that time, it was, 3.5%. Now, our macro economist expect, 3.75%.
Yes, in the meantime, I see that the CNB board already decided today, so the decision is cut by 25 basis points, which is in line with our macroeconomists. So that's the macro eco front. In terms of banking market, there are no changes in this outlook, i.e., both loans and deposits are expected to grow mid-single digit. For the KB business outlook, we are confirming the outlook for the growth of the loans, i.e., mid-single digit. Probably after a bit slowdown in H1, mainly in the CIB loans production. I would add the lower end of mid-single digit, but still mid-single digit.
On the flip side, we are upgrading the growth of the deposits from mid-single digit to mid-to high single digit, thanks to the successful first half of the year at this front. The revenues. On the revenue side, we also confirm basically our guidance, i.e., revenues are going to grow low to mid-single digit, mainly supported by the growing business and improvements in the balance sheet structure. However, the same like for the loans growth, the guidance has a bit changed to the also lower edge or lower end of the automatic growth, due to some elements observed in H1, mainly slowdown of corporate loans and also slower shift in the deposit structure in favor of unpaid deposits than expected.
No changes on OpEx side, so we are confirming a low single-digit growth. And to complete, to be complete, we are improving the guidance for cost of risk, as already commented by Didier. So, it's from 15 to 23 months ago to around 10 basis points. And finally, there is one positive effect impact into our P&L, which is extraordinary income from sale of Václavské náměstí 42 subsidiary, which is going to be booked in Q3 this year, as the closing was at the beginning of July. And in terms of the quantification, we still do not know exact impact, but it will be whatever, between CZK 2.4 billion and CZK 2.5 billion.
So, so to be booked, you will see that in the figures, in three months, three months' time. So that's it. That's it, and, I'm passing forward to, to Jakub Černý.
Thanks to all the presenters. Now we will be happy to answer your questions. Ladies and gentlemen, let me remind you that this meeting is being recorded. If you have a question, please click on the icon with raised hand on the upper part of your screen, and then please wait to be called. If you are connected through a telephone, please wait for me to invite you to ask questions later. So, it seems, Mehmet Sevim from JP Morgan wishes to ask the first question. Mehmet, please, go on.
Good afternoon. Thanks very much for the presentation and for taking my question. I have three questions, if I may. One, loan growth, clearly tracking a bit behind your initial expectations and, also lower than the sector trend. But clearly, as you also suggested, this is coming from the business segment more visibly. So can I just ask, what is driving that? Is it a surprise to you, or, was it in line with your expectations? And, when we think about the second half of the year, are you really comfortable that you can reach the, mid-single- digit target? And, maybe connected to this, also, NII. Now, given the quarterly drop, driven by all these other segments and the IB business, looks like it will really need a big recovery in the second half to reach the guidance.
Again, how comfortable are you on that? And, finally, j ust on, the scale of the headquarters building and the upcoming net proceeds from it, can I confirm that the earnings from that will be accrued for dividends, in line with this year's 100%, policy? Thanks very much.
Thank you for the questions. I will start, and probably at least for first question, my colleagues from business lines will complete me. So, in terms of the loan growth, and whether it was in line with our expectation or not, I would say not fully. In terms of retail loans and more completely, mortgage loans, it was in line. And even if you have a look on the sales side, in Q2, it was let's say huge huge recovery, which is not in the balance sheet yet, so it is coming in second half of the year.
We were expecting a bit more dynamic growth of consumer loans, but it seems that the market a bit slowed down versus our original expectation. So at the end of the year, probably, we are going to grow a bit slower than expected 3 or 6 months ago. And I would say the biggest kind of miss is coming from the CIB loans, where we were a bit declining, and that's something where we need to get back to the dynamics.
Maybe to mention what is the expectation for the full year: So, I was probably mentioning last time, but the growth should be generally driven more by retail, as we are already somehow benefiting from the almost completed transformation. So for retail, it is mid-single- digit plus, and supported mainly by the recovery on mortgage loans. In terms of corporate, our guidance is now rather, let's say, low to mid. And thus, offset gap from the first half of the year. I don't know whether my colleagues, Mirek and David, would like to comment on that.
Yes, just a short comment from my side regarding the business of corporate financings. Generally speaking, the sentiment of the corporates, especially the industry, is kind of hesitant, and the companies are reviewing their options and being postponing some decisions regarding further investments, also given the economic situation in Germany being the largest export market for our companies. Nevertheless, we record a number of quite interesting projects in the pipeline, also on the side of the large companies, not only investments, but also in the area of acquisition financings and real estate.
Basically, this gives us a confidence for the second half of the year to be stronger in the generation of new loans and especially a generation of new assets.
And if I may, I'll just use one sentence to say that I share the optimism on mortgages. I see the pipelines are pretty full. The market has been growing 80% compared to the last year in first six months, and we should be soon after the One Mortgage Factory implementation in a shape to take even more than we did in the first six months of the year. So on rather optimistic side there.
Let me add one sentence, if I can, from my side on that front. We have made a tremendous move in migrating clients in the retail part of the new digital bank from the old world to the new world whilst onboarding new clients. So we are now having in our relationships 47,000 more clients than we had to. And then we would love to have them banking with us in larger scope than only with the initial bank account opening and, let's say, debit card. So we are building another part of foundations for growing further on the side of retail. The tendency of initial—
Sales of new mortgages is pretty promising. We will gain further on our side of processing them after building them and putting in place the new One Mortgage Factory. And in parallel with that, and this is outside the NII, but more on the side of fees and commissions, we do believe that we will continue selling the non-life part, as well as life part of our insurance by double-digit, as it was the case on year-to-date basis. So on both NII and fees and commissions, we see rather promising horizon here. And let's say underlined probably by today's decision of the Czech National Bank.
Yes, and, I think that's, that's the first question. The second question was related to, how to reword that, to the comfort of the management, to deliver the NII in second half of the year. Well, we are not saying it is not a challenging, challenging target, but, we strongly believe that, that, it will be delivered. And, I can list, several reasons, why we feel, so. So first one is, and I was touching that, even before, it's a kind of expansion of the loans, in second half, versus, half one. So that's, that's clear.
The other reason is that we are expecting that deposits spreads are gonna continue slightly up. Maybe here, it's worth to mention that Q2 this year was the first quarter after, I think, six or seven when the cost of deposits went down, and we are expecting for this trend to continue. Third point is also back, and Jan was touching this point during this part of the presentation, but, as a matter of fact, during the Q2, the structure of the deposits improved. And after some time, current accounts, one of the most profitable products in the bank's portfolio, was growing faster than the pay deposits, at least quarter-over-quarter.
We believe that this is gonna continue even in the quarters to come. Maybe here, one technical detail of the change of this, let's say, structure, paid versus unpaid, has happened rather at the end of the quarter, so you don't see in the figures the impact which is, let's say, increasing our comfort for the quarters to come. Third, maybe it's also kind of a kind of technical base effect, but it's also necessary to take into account that first three quarters this year, on a year-over-year basis, was or were hit by the canceling of the minimum obligatory reserves.
And the yearly impact, as I remember well, was around CZK 1.1 billion. And on a base effect, it will not be the case of Q4 for this year anymore, right? So because this happened with the validity October the first last year, so Q4 this year will be for the first time on kind of very comparable and like-for-like basis. And last point to mention is—a nd again, Jan was touching the point, but we are growing number of clients significantly, and this trend is expected to continue even by the end of the year. And naturally, the new clients of course, with some delay, but are also, among others, bringing their deposits with them.
So, that's kind of a list of, I don't know, four or five reasons what is behind our guidance. Thank you. And there was still a third question. Head office, head office building. Well, you know, to say the capital level of, as I was commenting on that, is still super strong, even we are accruing the 100% of the profit. So, we do not tend to change the dividend payout ratio. In other words, I do not see any reason not to pay it also as a dividend.
Of course, of course, I have to say, subject to approval by the general meeting, but, but, again, I do not see any reason why not to pay. I, I think we, we covered all three, right?
Yes. Yes, you have. Thank you. I really appreciate the comprehensive answer.
Pleasure.
Thank you. So, let me remind you, if you wish to ask a question, please push the raise hand button. The next question is coming from Michał Konarski from mBank. Michał, please go on.
Yes. Hi, thank you so much for taking my questions. I just wanted to confirm: so it is still possible that Komerční may pay out 100% next year, if I heard correctly. And secondly, maybe I would like to once again ask about this net interest income guidance. Because if I'm calculating correctly, if you would assume even that net interest income would grow by 1% year-on-year, this would mean that the current quarterly net interest income run rate should increase about 9%. So this is a lot, I would say. So this is very optimistic guidance, I would say.
Thirdly, I would like to ask if you know your assumptions regarding the base rate for the end of the year will somehow support this NII outlook. This is, I guess, yes, if I'm not mistaken, 25 basis points higher right now, the base rate at the end of the year than you expected a quarter ago. Yeah, that's all from me. Thank you. And maybe one more question. This one-off in the first quarter, this CZK 2.4 billion-CZK 2.5 billion, this is gross or net amount? Thank you.
Okay, so question number one, the answer is yes. That was about IFRS and IFRIC, the dividends confirmed, understood well. Question number two, again, touching the relatively expected huge and significant growth in our NII. You are saying 9%, my figure is rather 7%. I'm confirming that this is our guidance. I'm confirming it is a challenging target, but deliverable. And maybe to add one more one last comment is that that's true, that it is rather sensitive for some, let's say, assumptions used.
And probably the most important assumption here is again and again, and we are touching that three months ago, six months ago, is the structure of the deposits. So once this assumption is confirmed, it will be there. And the third point is, I didn't get it fully, so it was something about base rate. What is our expectation of base rate? I think I was touching that during the outlook part, and the guidance of the bank is 3.75 at the end of the year. I mean, the two weeks repo rate of Česká národní banka. Was this the question? Or...
Well, well, a quarter ago, there was a guidance for 3.5% base rate. Yeah. So the central bank will cut the base rate to 3.5% versus 3.75%. I know this is a very small difference right now, a small change in the forecast, but I was wondering if it will impact net interest income in any way.
Okay, okay. Sorry, I've got it now. Well, not really, because the structural position of the bank hasn't changed. Meaning that the bank is basically neutral to whatever moves of the market interest rates. So, yeah, the shortest answer is no.
Okay, actually, question about this one, if it's gross or net, the impact you presented. One more question, maybe regarding the outlook for 2024. Let's say that Komerční banka will not be able to deliver NII growth for 2024. Let's say it will be flattish. Would you then try to make any effort to cut costs, to maintain cost to income guidance, yes?
Yes. So two follow-up questions. First one, one of whether it is a gross impact or a net impact. Probably, I'm not sure I understand fully, but the impact, net impact into the P&L, of the bank will be CZK 2.5 billion. So probably according to your definition, it is net, right? So it is selling price, basically, minus the book value, so net. And outlook for 2025, probably let me here be less concrete, because we are getting back to the outlook for 2025 during the next earnings call.
Of course, of course, if the bank is not delivering, let's assume the result on the revenue side, we would do the best or some corrections, adjustments also on the OpEx side. Yes, Jan.
Yeah, I think easy, Michał, was more in 2024 still than 2025.
Yes, that is correct.
But, the answer remained the same.
Okay. Thank you so much. Thank you.
Thank you. So, the next question is coming from Cihan. Please go ahead.
Hi, thank you very much for the—
Sorry, we cannot hear you, at least.
Sorry. Yeah, no, I got muted. I'm sorry about that. My question is on the impact of market interest rates on NII. When we think about it, which rate matters to your NII profile more? Is the repo rate the key rate for you, or is it the 10-year yields? And if these, those two diverge, meaning repo rate goes down, but 10-year yields don't, as it oftentimes happens, what would be the impact on NII profile from loan deposit or, you know, your hedges perspective?
Well, naturally, the bank is more sensitive for the short-term interest rates, as we have really huge amounts invested into repo loans. At the same time, hedging operations are more or less offsetting that, more or less fully. i.e., And I was commenting on that, like, 6 or 9 months ago, we a bit adjusted our hedging policy and focused more on on NIM hedging, net interest income. i.e., a short-term impact, but only partially. The impact of longer-term rates is lower.
But if I'm talking about, let's say, neutralization of the structural position in terms of interest rate risk, of course, we are hedging both elements, short and long term.
Understood. And my second question is on the mix of current accounts in the total deposits. Of course, we saw migration from current accounts to interest-paying deposits as the rates rose. Now, on the rates going down, how do you see this mix evolving? Do you see the current accounts as a percentage of deposits going back to where it was before rates rose? Or do you think there is reason to believe that the customer behavior has changed, and maybe the clients might put money in term deposits or mutual funds, et cetera, and the CAR ratio can actually come down?
Exactly. You are perfectly right. And this was already happening during the last quarter, and we strongly believe that it is gonna continue. In our projections, of course, we see and know the behavior of the clients from the past through all different cycles. So we believe we see and believe that these shifts are continuing. At the same time, we are not very aggressive on that front. What I mean is that our expectation in the planning documents is that this paid versus unpaid ratio will not get back to the original levels.
Because, currently, simply, the world is a bit different, and with the continuing digitization, of course, the clients manage their liquidity, i.e., let's say, current accounts versus the paid deposits, much more efficient. So there is expected increase of, or improvement, in that regard, but not as fast and high as was the past.
Yeah. Thank you. One last quick question, if I may, on the new digital bank. As we see a very fast client growth, can you comment on how what would be the deposit ticket size of these accounts compared to traditional commercial banker clients? And do you expect maybe in one or two years' time, a kicker to come in the form of deposit growth as these digital bank accounts get funded? What is your expectations on those things? Thank you.
So if I may take the first part of the answer, what we see on the inflow, which is, which is quite high, is that the characteristics don't look too different from the clients that we have been acquiring, in, I would say, before this, before this campaign and, before NDB was launched. On the other hand, it is probably rational to expect a bit higher churn after some time. We included the assumption into the business case. We say probably 20% of clients acquired this way will not stay with us. We believe that for the rest, they will start behaving more or less the same way as standard KB clients always, always are. But this is still to be tested, because it's a bit too early to conclude.
For the moment, I have to say that what I see from the behavior of this sample of clients, there are no major deviations from what we, what we expected. Does it make sense? Am I reacting to what you wanted to know?
Yes, yes. Thank you very much. Yeah, that's helpful.
Thank you.
Thank you. So now I would like to invite, participants who are connected through a telephone, if you want to ask a question, please unmute yourself by pressing star and six, and then ask, your question directly, please. And we have one coming from Kamil Stolarski or not Kamil. Yeah, it is.
Yes, we have. Yes, we have. Sorry for that.
From Santander, yeah.
I have just one question about the 2025 guidance and your targets of the strategy. From what I understood, we were supposed to see, like, this accelerated improvement in cost to income starting from 2024 and going into 2025. This was supposed to be a result of this rollout of the new digital bank. My question would be: Would we see something still this year? Is this delayed, or, you know, is it, is this guidance valid for the cost to income?
Okay, I will start. The first comment is, probably I touched it a couple of minutes ago. Let us comment and update, potentially update the guidance for 2025 during the next earnings call, which will, where there will be the dedicated session. Still, we are sticking to the fact that in 2025 there should be a rather significant jump in revenues. Why? Because of benefiting from the completed retail transformation and monetizing on that. Which in combination with the significantly increased number of the clients and increased digital sales will significantly improve the picture.
On OpEx side, I can probably indicate already now that we are expecting even decline of the costs in 2025. One of the reasons, on top of the increased efficiency, is also the regulatory-wise impact. I mean, the further decrease of the resolution fund charges, yeah. So that's probably what I would mention now, and to stop now, and if you don't mind, to give you more details in three months' time.
Yeah.
So we will definitely, Kamil, we will definitely come back to you with more, like, detailed breakdown of how we are doing in the field of implementation of the strategic plan. But please, just small reminder that, the fact that we have, in the first stage, reshaped, pretty massively, the organization of the headquarters, here in KB. In the second step, we have been investing into the new technologies. We are awaiting that, or expecting there will be a twofold effect. The first one is that we are massively simplifying the client's proposition and everything what is behind that. So let's say everything what is not visible for the client, so our internal processes, and hence, a high level of end-to-end digitized sales.
On the other hand, or let's say as a consequence of that, we need less branches, we need less people inside the bank, and here we are, we have been delivering so far what we promised as far as the number of branches is concerned and as far as the trajectory of FTE is concerned. But we will come back to you with a detailed, with a detailed breakdown. For the statistics are not complete yet because we have 500,000 users of the new bank application, out of which almost 50,000 completely new clients. So we believe that next quarter, we will be more comfortable to give you more like, 360 view.
Thanks a lot. Thank you.
Thank you . Don't seem to have any question now in the queue. Let's wait a few moments if one comes. It does not seem so, so I would like to hand back to Jan for a conclusion.
All right. Thank you very much for being with us. Thank you also for your very concrete and straight-to-the-point questions. We very much appreciate it. I would like to thank all my colleagues who presented or who answered your question. We do appreciate the coverage of KB shares from your side, and we obviously stay at your disposal for any questions you might have in between. And we are very much looking forward for the next quarter presentation which with you, which will be enriched, as we have just ended with that, also by the with deeper dive into the deliveries of our strategic plan. In between, enjoy the rest of the summer season and have a good afternoon. Thank you very much, everyone.
Thank you. Bye.
Thank you. This has concluded our meeting today. You can now disconnect. Thank you.
Thank you. Bye-bye.
Bye-bye. Bye.