Okay. Good afternoon, ladies and gentlemen. Let me welcome you to the presentation of the results of Komerční Banka for the first half and also second quarter of 2023. It is third of August today, third of August 2023, apparently. Please note that this call is being recorded. The recording starts now. Our speakers today will be Jan Juchelka, Chairman of the Board and Chief Operating, sorry, Chief Executive Officer of Komerční Banka; Jiří Perůtka, Chief Financial Officer; and Didier Colin, Chief Risk Officer. In a later part of the presentation, we will also have a wrap on ESG topics provided by Jitka Hubová, Chief Operating Officer, Miroslav Hyršl, Head of Retail Banking, and David Podmanický, Head of Corporate and Investment Banking.
We have also Margus Simson with us, Chief Digital Officer. As usually, we'll begin the presentation, with the speech of the, of the CEO. After the presentation part, we will, there, there will be questions and answer session, when you will have opportunity to, to ask for more details on, on the topics that are on, of interest to you. During the presentation part, all participants will be on listening only mode. Please kindly keep your microphones, muted during that time, and as, as I said, I will, let you ask your questions later on. Now let me hand over, to Jan Juchelka. Jan, please.
All right. Hello, everyone. Thank you for investing your time into this presentation in such a high amount. We highly appreciate your interest. It's my pleasure, together with the management team of Komerční Banka Group, to lead you through the presentation of consolidated unaudited results for the first half of 2023 and for the second quarter of 2023. We can move to the first page. We are delivering CZK 8.1 billion net group income, which is slightly down below the first half of last year, whilst delivering very, I would say, strong ROE at the level of 13.5%. Cost-to-income ratio oscillates around 50%.
In both cases, ROE and cost to income, should, if we be linearized through the year, we would be at a slightly better, better result. Komerční Banka continues its very, I would say, strict and very disciplined delivery in the level of efficiency of its operations. Second quarter of 2023, it's at level of CZK 4.5 billion, which is by 27.1% higher quarter-over-quarter, and the ROE is at 15%, cost to income below 45. How it, how it's composed? The client's loans were growing by 3.3%. We will show you a bit of detail.
It's mainly driven by re-rebound, demand on mortgages and housing loans, as well as the corporate financing. Deposits on year-over-year basis are slightly down, but we see very strong tendency of growth, either year to date or quarter-over-quarter. Again, we will show you a bit of detail on that. In assets under management, which in our case, it's joint production together with Amundi or products provided by our private banking, was growing by double digits, almost 15% growth. Compared to last to the previous quarter, it was by almost 4%.
Despite this very active activity, the loan-to-deposits ratio remains at very satisfactory 80.2%, as well as other balance sheet-related indicators remain very strong. Liquidity coverage ratio at almost 170%. Total capital ratio at 20%, 19.5% is core Tier 1. This is what the markets sort of appreciated or was sort of unexpected level is net release of provisions, mainly thanks to the superb quality of our assets. In April, the first half for us was very busy. In April, we launched our brand-new proposition for our clients, which is represented by new internet banking and new mobile application.
None, nonetheless, what is behind, not so visible for the clients, it's a state-of-art, new core banking system and new analytical layer. KB continues its implementation of KB 2025 strategic plan. Myself, I was elected as the President of Czech Banking Association, with the effective date of 21 of June, for three years mandate. We can move to next page. Thank you. Macroeconomic environment. GDP in Q2 was up by 0.1% on quarter-over-quarter basis, slightly down on year, year-over-year basis. Czech economy, even for the entire 2023, is predicted to, to be in black 0, or +0.1% GDP growth.
You may know that on fiscal side, the government is in the process of adopting, so-called stabilization package to manage positively the structural deficit of state finance or public finance. In parallel with that, Czech National Bank keeps its rate at 7%. Both of these tendencies are playing in favor of, let's say, slowing down the inflation. Inflation was at 9.7%. Our macroeconomic team predicts that we will be very shortly in 2024, close or even below 2% of consumer price inflation.
The other part, which is playing positively in favor of our P&L and, and quality of assets, and potentially negatively on the costs of on the costs of or on the personnel costs, is frozen labor market. This is a long-term issue of our, of our economy. We are very much speaking through our association and through the other associations of industries with, with the, with the government on relaxing a bit immigration law and allow the large and small employers to get to get a bit more, I would say, lively labor, labor market. Positively, it pays back through a low cost of risk, as I mentioned.
The Czech National Bank, and it was already, already said, is keeping the basis, the base rate at 7%. Czech koruna is slightly weakening, and we do expect that both the rates and Czech koruna exchange currency rate, will be a part of the maneuver of Czech National Bank, rather in 2024 than in 2023. We will see. Next page is showing the business performance on the side of assets. The total loans is 3.3% up. I mentioned already, pretty strong signal from mortgages and housing loans, which are up by 51% vis-a-vis the first quarter of 2023, even though still lower than the record high levels a year ago or even or even before than a year, a year ago.
The consumer lending is driven by successful offer of flexible loans, which we are selling predominantly online, or we are selling them at our branches. When we focus and pay attention to what is the lending towards businesses, it was mainly corporate clients who had driven the dynamics on that side of our loan book. Needless to say, that the most dynamic growth inside corporate lending is represented by euro-denominated loans. We can move to next page.
In the next page, you see a traditional list of our remarkable corporate deals, which go again across the segments and across the sectors, including public sector, including private, with one exceptional achievement, which is the inaugural sustainability-linked loan for our dear client, Eurowag payment solution company, where KB played the role of mandated lead arranger, coordinator of the syndicate, agent, security agent, and ESG coordinator. Here I wanted to thank our corporate corporate clients. We are providing our services to municipal and municipal related clients, as well as private equity, which is the case of Carlyle, who is pretty active in Czech in Czech market.
We are proud of being the the assistant of foreign investors coming to this country. We can move to next page. This is the deposits. I hope... I have already mentioned and commented the small decrease on year-over-year basis, but also a pretty dynamic tendency on the side of year-to-date or quarter-over-quarter growth of deposits, as well as the double digit growth of other assets under management. You see that even the net sales of fixed income funds are, are doing very well in cooperation with, in cooperation with our with our friends from Amundi.
Well, what is the other tendency inside the deposits is that money are moving from, current accounts to paid deposits, which is eating a bit the net interest income, obviously, but and is also increasing the funding costs for us. Nonetheless, we see that the situation will not last too long. I am handing over to Jiří Perůtka, who will invite you to deeper detail of all of these categories. Thank you, Jiří Perůtka.
Thank you very much, Jan, and good afternoon, everyone. Indeed, we are reporting a very strong quarter, leading to year-to-date profit above CZK 8 billion, slightly below last year. As usual, the main drivers are visible in the left upper waterfall chart. As expected, negatively is contributing mainly net interest income, as a consequence of several factors, and I will touch them later, but the main one is increasing cost of funds. Somehow, naturally, also, OpEx is higher year-on-year, and here, the main reason, obviously, is a high inflationary environment. Other revenues are still at the waterfall chart, and I, I mean for here, mainly fees and commissions and financial operations are, on the other hand, are contributing slightly positive.
At the end of the day, what changes the picture completely is a cost of risk, as mentioned by Jan, that is, a release of provisions that is by almost CZK 1.5 billion higher, I mean, release, than a year ago. Of course, we will comment what's what's behind this evolution. The upper right chart is showing a quarterly net profit evolution. Compared to the previous quarter, there is a non-negligible jump of the bottom line. At the same time, it's fair to say that it is mainly impact of IFRIC 21, i.e., in line with the regulation, we booked an estimated full-year regulatory charges already in Q1. Here on this chart, it is kind of, rather kind of a base effect.
From my perspective, a more valuable message is visible from the bottom right chart. What I mean is that our revenues, and that's on this chart, it is a red, red color bar. After peaking in Q3 last year, since that time, declining, reported some kind of a sign of the recovery in Q2, Q2 this year. Again, it's mainly on NII side, and I will definitely touch it later on. Let's move, please. Well, before, maybe a couple of sentences about the profitability indicators. The profitability indicators are still, still strong. I would say very strong, but at the same time, very much thanks also to release of the provisions, yeah?
Jan was mentioning ROE, so just to add, for example, ROTE, hitting 16%. Now it's time to move to the balance sheet, please. The balance sheet is growing significantly year-to-date by more than 12%. On the other hand, year-over-year, it is rather stable. The reason for significant growth of year-to-date is well known to you. The main driver on a year-on-year basis, on the liability side, is very clearly senior non-preferred loan from Société Générale, from our mother company. Instrument we have to have due to regulatory reasons, so that's related to MREL, MREL regulation. That's on the chart. It is it is brown color.
Here, it is visible that from CZK 9 billion at the end of first half last year, it increased to CZK 40, CZK 49, and I will touch it as well later. On the asset side, majority of the funds have been placed naturally into the client loans, and the rest, mainly to the Czech government funds , that are growing much faster than the alternative of the repo plus swap. Again, here, the reason is that the first one is more, let's say, attractive than the giving us more attractive yields. Let's move to the capital, which is still super strong.
The capital adequacy further increased year to date by 54 basis points, also quarter-over-quarter by roughly 23 basis points to the level of 20%, which means 2.4% above the minimal requirement. That's described at the bottom right chart. This was mainly influenced by profit generated, of course, adjusted by accrued dividends at the level of 65 basis points, with the impact of this combination, with the impact in Q2, whereas roughly 31 basis points. The impact of the growth of risk-weighted assets was rather minor for last last quarter. In terms of MREL, we are gradually fulfilling the-... There's probably something wrong on the station of Rachel.
We, we can hear you now. It's, it's solved. You can continue.
Thank you. Just to complete MREL , we are gradually fulfilling the requirement. After EUR 1.5 billion issued last year in 2022, in first half of this year, we issued another EUR 450 million, having now altogether almost EUR 2 billion in the balance sheet, and still some issues in front of us. This was the capital. Now, please, let's move to net interest income, income and other categories of our, you know, you know. NII, year-on-year, went significantly down, it's minus 9.5%. The main reason behind here is on the deposit side, declining, declining by 14% year-on-year.
You know, I, I would say there are not too many changes in the, in the trends. As mentioned already, three months ago, last year, we were still benefiting from the rising interest rate cycle and somehow delaying our pricing on deposit side. Now we do not benefit from that anymore. The rates, and this is mainly the case of short-term rates, are stable already more than one year, and long-term rates are already in the declining trend. On top of that, currently, we are already, as we were mentioning already last quarter, fully competitive in terms of pricing of deposits, at least versus Tier 1 banks.
Having said that, this is one, this is on one hand side, stopped the trend of the declining, declining of the deposits, but at the same time increase our, our cost of, cost of funds. What, what is not naturally helping either is a continuing shift of current accounts to the paid deposits, as was already shown by Jan, but probably you notice on the chart that the speed a bit decelerated, which is a good sign. In terms of loans, the trend of a very slight erosion of the margins, unfortunately, still continues, mainly in retail. We are not talking about big changes. It is 1 or 2 basis points, quarter-over-quarter, but the trend is there.
True that the new production, and, here and now, I mean, mainly mortgage loans, is being sold for higher spreads than one year ago. At the same time, the maturing old loans in this category with much higher spreads are overriding this positive effect, at least partially. On a quarter-over-quarter basis, and that's right, bottom chart, there is already mentioned sign of a recovery, and we believe that this recovery is in NII category. We believe that this positive trend will. It was expected, and we believe that this positive trend will continue even in the quarters to come. Last comment on this slide is related to NIM, Net Interest Margin, shown in the upper left chart.
Here we reported a slight decrease by 9-10 basis points on quarter-over-quarter basis, and 2 basis points on, let's say, from year-to-date perspective. And it is now at a level of 2%, i.e., roughly 23 basis points down year-over-year. And again, we believe that the trend of the decline, decline is already over or behind, behind us. Next slide should focus on fees and commissions. Thank you.
They are growing year on year by 2.7%, and it's basically the case for all subcategories of this category, with 1 exception, and it is specialized financial services, where this quarter, there was a kind of lower contribution from debt capital markets, so services, less structure deals, etc., etc. You probably remember that this gray category is time to time a bit more volatile, depending on structure deals generated by the bank or group in the quarter. Financial operations, please, here, I would say another great result, again, above CZK 1 billion, and basically in line with our expectation.
What helped this quarter was the increased volatility on the market, influenced by evolving expectations for rates development. Also a couple of larger transactions, hedging transactions, contributed positively to the result. On a bit negative side, net FX gains from structural books, so that's the blue part of the chart, are slightly down in the second quarter, partially as a result of seasonality of traveling. Anyway, for the Q3 upcoming quarter, in this chapter, we are expecting relatively strong, strong recovery. We are not changing our guidance for financial, financial operations. Finally, before passing forward to Didier, it's about OpEx.
Given still very high inflation, it's, I would say, perfect under control, growing by only 8%, here through the kind of one negative surprise. What I mean is the increase of the regulatory charge by more than CZK 100 million than expected. A part of that was related to deposit guarantee fund due to Sberbank resolution or liquidation, if you wish. It's roughly 50% of this kind of unexpected impact. The rest is related to resolution fund charge, where we have received the final invoice in April or May, by roughly CZK 50 million higher as well. The personal expenses are growing by 7%, very much influenced by the increase of base salaries at the end of last year.
Administrative costs are up by 14% for year-on-year, mainly due to higher marketing costs, real estate costs, and overall inflation-related, related costs, rents, et cetera. I also already mentioning regulatory, so, only to say that depreciation and amortization is at a 9% level of year-on-year, which is simply reflecting the position in the, I would say, transformation cycle we are right now, so it is reflecting investments in digital, digital transformation. Cost-to-income ratio on quarterly basis, 44.7%, as visualized at the bottom of the left chart, where I believe we are confirming, confirming leading position in the market. Now let me already pass forward to asset quality and cost of risk. Didier, please, what is yours?
Thank you, Jiří. Good afternoon, ladies and gentlemen. A brief overview of the evolution of our loan book quality in the second quarter. In fact, this will be very much a repeat of what we communicated to you last quarter. We have continued to record two very strong features that well describe this asset quality. Definitely not new, but in fact, surprisingly persisting despite the sluggish macroeconomic environment. The first one is the continued low default intensity. In fact, this is this is a situation which is shared by our peers.
In our case, there was a little deviation from that, which we recorded on our consumer finance portfolio, where we saw some sub-pockets with a higher risk profile, which we identified on time and treated quite swiftly. It's rather just for your information and residual mar- marginal development. The second feature is also the continued very low migration intensity of clients between the S1 and S2 asset class. In fact, we continue to record migration going both ways below the level of CZK 10 billion , which compares to a total exposure for those two asset classes in the range of CZK 780 billion , so roughly 1% of this part of our loan book.
Not surprisingly, those two strong features translated into stable risk ratios. Starting with the S2 ratio, recorded at 13%. Again, here, I will repeat what I said last quarter. What is probably important to remember is that our provision coverage ratio, so the stock of provision for this S1 and S2 asset class, evolved or more than doubled between 2019 and the second quarter of 2023, from 0.3%- 0.6%, as a result of our effort to build reserves during those three, four years.
At the same time, during the same period, the credit risk rating distribution of our non-defaulted exposure remained very stable, some minor deterioration here and there, but nothing that would be a source of concern. As for the S3 or NPL ratio, it's slightly declined quarter-on-quarter, and our provision coverage ratio for the defaulted part of the portfolio continue to be stable, slightly above 50%. Now turning to the cost of risk overview on the next slide. Thank you.
As mentioned, in fact, we recorded a level of net releases in the second quarter at a very similar level compared to the first quarter, i.e., slightly above CZK 450 million, which translated into cost of risk at -22 basis point on a year-to-date basis. I will give you the overview by segment, starting with the corporate segment or our corporate exposures, where we recorded a level of net release at roughly CZK 500 million. Here we find again, the drivers I was just mentioning before.
The first one is this surprisingly strong level of recovery performance recorded on our default corporate exposure, where we recorded a little bit above CZK 500 million in net releases. The second one is the low level of default rate on this corporate segment. We had some residual level of net provision creations booked on the non-defaulted exposure, and the resulting cost of risk for this corporate part of our loan book was recorded at the abnormally low level of -52 basis points. Looking briefly at the retail segment and retail product, we had in the second quarter low level of net creations.
In fact, we booked a bit of provisions on our consumer loan and small business loan exposures. This was partially offset by some positive impact coming from the IFRS 9 related maintenance that we had to perform on our models, as well as on our inflation reserves related to these non-defaulted retail exposures. Cost of risk for the first semester and for our retail portfolio was recorded at a level-- low level of +6 basis point. Maybe one very brief note here to mention is that this second quarter, 2023, for the first time, we started to observe moderate decline in the level of recovery performance for this retail segment, which is the first time in several years, again, with a very mild intensity.
Maybe one before going to the year-end guidance, one point to mention is that in the second quarter, we decided to... that we will not reduce our 2021, 2022 inflation reserve in the second quarter as a prudent step. Had we done that, in fact, we would have booked another level of CZK 300 million, so the cost of risk for Q2 would have been in the range of CZK 750 in net releases. To stay on the safe side, we decided not to do that in the second quarter. I will finish with the year-end guidance.
As you have seen, we adjusted it from the Q1 level at 15-10 basis points in terms of net creations, down to a new range between 0 and 10 basis points. In fact, expected to be closer to 0 than 10 basis point in net creations. The key factors or elements behind this adjusted guidance are, first, the default intensity across all segments and retail products, which in fact we reset at the 2022 level. That's the first factor. The second one is that we expect in the second half of the year, some further net recoveries on our corporate NPL exposure. We also have reserved some buffer to cover the occurrence of a large corporate client default, if this were to happen.
And the last element is that we will have some mandatory release of our non-retail or corporate inflation overlay, as per the IFRS 9 principle, and following the strong resilience of our corporate exposure, with the question mark today of the possibility to recycle part of it in order to keep adequate or sufficient level of reserve for the non-defaulted part of our loan book. And on this, I will now hand over to Jiří. Thank you.
Thanks, Didier. Well, let's focus briefly on outlook for the rest of 2023. Well, there are not too many changes. In majority of cases, we are confirming the previous one with a couple of exceptions. Three of them are pretty minor, one really material, and that's what Didier was commenting right right now, material and positive. Let's go through on macro eco front. The change or adjustment in the guidance is that three months ago, we are expecting economy to grow by on top of my head, 0.6%. Now it is rather flourish, 0., 0.1%. First, second, second, also our guidance for the interest rates outlook has changed slightly.
Three months ago, the expectation was that we would end at the end of the year at 6.25%. Currently, the expectation has changed, and we think that the rates, CMB repo rates will stay stable by the end of the year, i.e., 7%. In terms of growth of the banking market, no changes at all. On loan side, mid-single digit, on deposit side, mid to high single digit, and here, relatively faster in the corporate segments. Our position on this market, guidance, haven't changed neither. We are targeting a mid-single digit growth in, i-in loans.
At the same time, we would like to grow a bit faster than the market and thus to confirm, let's say, gaining market shares, which was the case last three years. In deposits, it's mid-single digit base, but basically, here, the target is to go together with the market after we lost a bit of market share. Consciously, the market share of last year. Financial outlook, no changes in revenues, so they should decline somewhat from 2022 levels. Let's say, low to mid-single digit, very much influenced by NII retreat. OpEx, that's third slight adjustment of our guidance, to grow by high single digit.
Some of you remember that, three months ago, we are saying mid to high, but it was before the charge coming from the Resolution and Deposit Guarantee Funds Authorities. That's just one change. Otherwise, we are sticking to the guidance, and cost of risk is digital itself, so I think Didier was commenting in full details. Risks, simply we are leaving the same as was the case three months ago. That's for outlook. Now let me pass over to Jan and other colleagues for the dedicated part of this presentation, focusing on ESG. Jan, please.
Jiří, thank you. Thank you very much. We, we wanted to bring back to you, to your attention, what we do in the area of ESG, because for us, ESG is not a, it's not a slogan. It's, it's a set of principles which are flowing in our business model, through the regulation. It's related to everything, what is risk, what is compliance, what is governance, but also to businesses, both retail and corporate, and to our own, I would say, behaviors as an institution. For us, we are part of the family of Société Générale Group. You know, that our global group has its own ambitions in, in this area.
Komerční Banka wants to be the role model on the Czech market, but also inside the family of Société Générale Group. We are very much putting in our strategic program, KB Change 2025, the parameters of ESG. We have the pillars, which will be further elaborated by my colleague, Jitka Hubová, for our own operations and our overall ambitions in ESG sphere, and by David Podmanický for the corporate banking and Miroslav Hyršl for the retail banking, as well as Didier Colin for the part related to risk management. KB Group integrates into its ESG strategy, the sustainable development goals, which are set by the United Nations and the principles set by the Paris Agreement on Climate Change.
Our strategic ambition is to be the leader in sustainable banking in on the Czech financial market. We believe that various awards as the Sustainable Bank of the Year, as the Banking Innovator of the Year in the field of ESG, as well as the recently received prize for as named Green Crown, is also positioning ourselves properly in the eyes of general public and of clients and non-clients of Komerční Banka. The investment, which is needed to adapt to of our economy, Czech economy, is of huge magnitude.
We believe that the only way forward is the smart combination of public and private capital. We feel that we have strong role and business opportunities stemming from that in the field of financing, the transitory period of well-industrialized Czech economy to its a low emission stage. Let me hand over now, first to Jitka, and then to the other colleagues for commenting the next pages. Thank you.
Good afternoon. I will continue. We divided our ESG strategy in four pillars: a culture of responsible, environmental transition, positive local impact, and being a responsible employer. The first pillar is creating a culture of responsibility. You can see on the next slide the materiality assessment, where we, and we review on annual basis with all stakeholders, including clients, employees, shareholders, and partners, the importance of a specific topic and its business impact. We selected the data security, business transition, because the breadth of investment needed to adapt our economies, especially here in the Czech Republic, not been seen before, which is both challenging and promising. Next, operational resilience, and of course, the digitization. This approach mirrors on the next slide.
I will start with ESG governance. Next slide. The main owner of the sustainability concept is the KB CEO, Jan Juchelka, and the sponsor is the operation manager, me. The activities are coordinated by the working group, where key departments are represented. Sustainable targets, measured by OKRs, have been incorporated into the incentive systems, also for senior management and are regularly reviewed. ESG is incorporated, which is, I believe, very important, into the standard KB processes at every level of our organization. Achievements are reported in a KB sustainability report that is prepared under the Sustainable Finance Disclosure Regulation, and is reported in the annual reports and posted on KB's web page.
You can see all overall basic principles of our governance as to the management, for example. What is also interesting is rooted in our capacity of innovation and building the new standards. I would like to mention at least two. Our leadership role in the Czech Banking Association's platform in creation on the market standard of ESG related data collected from clients by Czech banks and imposed to the regulation data will be kept in one shared register, and clients will be asked for their data just once. Additional data will be harmonized and more reliable.
I believe it is a very similar unique system comparable to the online checking of AML client data through the Czech State Register as a result of the BankID authentication method established by Czech banks, allowing Czech State to digitize free of charge in this category. Regulation is a vital aspect, of course. KB carefully follows all ESG-related regulations. Since 2021, we have been publishing the Sustainable Financial Disclosure based on the regulation. We published also the requested entity-level principal adverse impact disclosure. At the beginning of this year, we of course, published the non-financial report. In February 2020, we started to implement environmental and social risk process, which is closely related to KYC process and credit risk approval process.
Now I will hand over to Didier, who will further elaborate on this, crucial topic.
Thank you, Jitka. Yes, I will continue to give you a brief overview of how this important domain of ESG is structured and approached from the perspective of the second line of defense, if you will. There are four main streams to put it simply. The first one is in terms of our organization, logic, and structure, or in terms of the operational setup. In fact, we defined who does what between the first line and the second line of defense, between-... Komerční Banka and its mother company, SOGEN, in terms of, you know, processing all clients' information and client profiles, processing all client transaction flows.
In this first stream, we have two particularly important areas of focus. One is the automation of processes, and the second one is to meet this requirement to implement an holistic approach, taking into consideration the risk views, the compliance views. This is what we have done under this first stream of our organization, logic, and structure. The second stream is more specifically about the risk management framework in the environment area of ESG, and here we have been working on several aspects. The first one is in terms of risk measures, starting with the transition risk, and we'll continue with the physical risk as well as with the biodiversity risk. We also are working actively on the evolution of our credit and sector policies.
There's a special focus when it comes to the real estate collateral management policies and activities centered around this famous ESG certificates. We are also actively working on this climate stress testing at the requirement of the regulators, the Czech National Bank, as well as the ECB, and not forgetting the management of all the monetarist disclosures. This was for the second stream, being the risk management framework, with a special focus on the environment area. There's obviously the very important stream of data management, where it's about sourcing, processing, and storing of all those data needed for the management of this environment component of our ESG program and activities.
The last stream is related to the needed and adequate IT architecture with several dimensions, such as the proper coverage of the compliance and the risk domains, the proper distribution and segregation between the first line and the second line of defense, as well as the distribution between what is done here at the level of KB group versus what can be done at the level of the SOGEN headquarters unit. That's the overview of the ESG from the LOD2 perspective. On this, I will hand over back to either Jitka or David or Miroslav. Thank you.
Maybe on the next slide, you can see, second pillar, that is dedicated to business, and I would like to invite the most qualified colleagues, to join the discussion. We will start with corporate, David Podmanický. David?
Thank you, Jitka. Good afternoon to everyone. Just let me comment briefly or, or let's say, supplement the information provided by Jitka and Didier what's being done in the area of corporate banking. Generally, the assessment of the environmental and social risks or so-called non-financial risk has become an integral part of the general risk assessment and basically part of the decision-making when onboarding new clients or we're deciding on new financings. We measure our investment loans, or we assess our investments loans according to the taxonomy, and we mark them as sustainable positive loans. The loan book on the group basis has grown year-over-year by 42%.
This is combined KB and SGEF, and now it has reached almost CZK 48 billion. When we look what is the portion of the of the sustainable positive impact loans on the generation of new investment loans, so it's also over 40%. We have also incorporated into our offer towards corporate clients specific products or services like sustainable linked loans and bonds or so-called green loans and bonds. So green loans and bonds are dedicated to financing of some of some investment having clear, sustainable, positive effect. The sustainable linked loans and bonds have certain parameters which are to be fulfilled by the client.
As has been mentioned previously, this year, we have been mandated as the ESG coordinator for a Landmark transaction for the WAG, where this syndicated loan for this group, has been, or has defined certain parameters and is now a sustainable linked loan. One year ago, we have acquired the consultancy company, very active and experienced in the area of decarbonization and energy, energy savings and we have combined our teams from the internal teams, KB Advisory and the ENVIROS, and we are now able to provide our clients also with, a very, technical advice and expertise in the area of decarbonization, energy savings, et cetera. We have also specific, and I would say, quite unique, financing offer for our clients.
We call this offer Photovoltaics for CZK 1, which has been developed together with our subsidiary, SGEF, and in partnership with the company ČEZ ESCO from ČEZ Group , and which gives the clients opportunity to save their energy costs, and, and basically, being or having installed the photovoltaics power plant for free, which is being repaid over, over a long time out of the proceeds from the electricity production. In the area of communication, we operate a specific webpage called Together Sustainable.cz, where we share various news and also references or examples of, of, of various projects in the area of sustainability. We have also applied or we, we apply sectorial policies.
We have now nine sectorial policies. The most important are in the area of the thermal coal, where we have clear objectives to reduce our exposure towards the coal sector to zero by 2030, but also other sectorial policies, which again, you know, played an instrumental role in assessing our environmental and social risk, which I mentioned at the beginning. Now I pass the word to, to Miros to, to speak about the retail banking.
Thank you, David. Good afternoon to all of you who are with us today. Sincerely appreciate it. ESG is everybody's cause and everybody's task. I have selected two topics to comment a bit with a few sentences to demonstrate that on the retail side. The first one, where I'd like to spend a few minutes is new digital bank, already commented by Jan Juchelka at the beginning. You all know we launched this initiative on, in April this year, so we've been through for a few months. The number of users is decently growing. We will soon be at 30,000 of users there. It is probably happening today. If not today, it will for sure happen tomorrow.
This, I would say, inflow or number of users is going to further increase as we will accelerate the migration effort and acquisition effort will keep moving. When I say NDB, what is the ESG aspect of that? There are two that I see, and both are quite material. The first one is NDB solution is fully paperless, meaning no paper at all, nowhere. Okay, you may argue that we have just 30,000 clients now, but gradually we will have every single retail client there, and at the end, every client there. This would mean no printers, no cartridges, no paper, so super positive impact on the environment. The second aspect of that particular point is not that often discussed, but I believe is very much, very much positive.
This is many services for which you will need to get in touch with the bank, and quite often come to our branch, can be in the new platform done in a self-assisted manner, or if you insist on having a human being talking to you, you can still do so, but through a very secure video call. It's not just talking. By getting in touch with such a person, you can basically execute everything that you can do on a branch. Believe this would result and will result one day in a much, much lower traffic on the branches. On the other hand, not jeopardizing our quality of service or sales volumes at all. This was the first thing I wanted to share with you.
The second, and it might be even like more immediately seen already, is all kinds of our retail financing, supporting basically energy efficiency and reduction of carbon footprint. You can see in the middle of the page that this is not just Komerční Banka as a product provider. These are other companies from our group on the Czech market. Speaking about also Modrá pyramida , the building saving company, and speaking about Essox. Altogether, we provide all needed variety of solutions for sustainable technologies and sustainable housing. To give you some figures, in last six months or first half of this year, altogether, we sold a bit above CZK 400 million of these kind of loans.
The average size of the ticket is around CZK 200,000 , which means that we served more or less 2,000 clients. It's very concrete and happening. It's not just a product that would sit on our web page. By the way, the demand is increasing. What are those loans used for? The usual topics, such as photovoltaic panels, heat pumps, recuperation units, but also other things linked to water management and wastewater management in particular. Let's hope that we will see further growth of demand, and we are ready for that. Those two highlights on my side, and I am returning the floor to
Jitka Hu or anybody else?
Me, I will continue, or I will move to the area of our operations. In 2020, we began reducing our own carbon footprint, and we have decreased it by 44% compared to 2019 base. It was driven by energies, and it decreased by -27%. This focus on reducing our energies consumption proved to be very beneficial, especially during the energy crisis, when our energy bill nearly tripled. Within the last three years, we have adopted several, let's say, bold decisions. We have closed 200 branches because we are confident that many clients can manage their standard operations via mobile phone or internet banking.
We have relocated 2,500 people to modern, more environmental-friendly buildings in Studenka, where I'm sitting now. We have sold 30% of our buildings. We scanned extensive amount of paper documents, and again, we sold several other buildings. I can share that we have a nice interactive modern application based on the Internet of Things, which automatically detects waste and utility. I, I hope, you know about our ATM sharing. We shared our ATM network with four other banks, which is a very, let's say, interesting for our clients because we double link our network. Our clients can now make cash withdrawals, and starting next year, also depositing free of charge.
Of course, there are certain cost-saving benefits, but also, we were able to provide this 24/7 service to clients in distant regions because we moved already more than 60 ATMs to the regions. In the middle and back offices, we are moving from, let's say, manual, paper-based work to having flexible teams using end-to-end digital workflow process, measure it, and and be more effective. We were able to lay off more than 20% of colleagues in this area. We have also launched a completely new payment and card infrastructure for all clients.
It's important to highlight that everything we do is for clients, good, because there is a more stable environment, more secure operations, ensuring 24/7 mode. Of course, there is also lower cost maintenance. Next slide. A slide down, a slide, next slide shows, Jakub, please. Next slide shows the two remaining pillars. We have high client satisfaction, and we have been awarded as a Bank Without Barriers because our mobile app has several advanced functions for disabled people. I would like also to mention that we have charity, charity, named Jistota Foundation. During 2022, we saw extreme events, fear, and changes, but also a huge solidarity, and we somehow distributed a record amount of money.
The last pillar features the responsible employer framework, including, for example, gender balance, equal pay, support for social inclusion. KBM is to close its gender pay gap by 2025 and to increase the share of senior management position held by women to 30%. I have to say that we are very close. The final slide is a summarization of our awards for sustainability activities and our commitments to this area. Above all, we have improved our position in international ratings. I can mention the MSCI ESG rating, we climbed from BBB to AA. That brings me to the end of the presentation.
We believe that our approach that prioritizes ESG will lead to outperforming our peers in the long run.
All right. That's it, not only for the part of ESG, that's it also for the for the presentation. We have still a few pages in the appendices. I don't know if someone wants to comment, or we turn now the voice back to the analysts and open the Q&A session. Thank you.
Yes, indeed. Thank you very much, ladies and gentlemen. This has concluded the presentation part of this meeting. Now we will be happy to answer your questions. Let me 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, then I will invite you to ask questions later, later on. We have a first question, which is coming from Máté Nemes from UBS. Máté, please.
Hi. Yes, good afternoon, and thank you for the presentation. I have three questions, please, if I may. The first one is on a new housing loan origination.... I think we've seen quite a strong pickup from, from, from the bottom end in the first quarter, about 50% higher now in the second quarter. Could, could you just give us a bit more color what has been driving that? Is this the pent-up demand? Is that increased confidence? What is that really, and how sustainable is it? That's the first one. Second question is on the net interest income, net interest margin. I think, in the previous call, you guided for about 30-35 basis point decline from last year, year-on-year. Has that changed in any way?
Also, given, I think you've shifted your expectation with regards to rate cuts. Could you give us a sense regarding your expectation of NII next year? The last question is on cost of risk to Didier. I'm not sure I understood it. Does the 0-10 basis points guidance incorporate the release of the CZK 300 million inflation reserves? If you could clarify that. Thank you.
Probably the first, related to mortgages can go to, to Miroslav, in potential in combination with Jiří.
Yes, look, when you have the figures for the mortgage market, I would rather call it normalization of the development. Still, year-over-year, the first half compared to a year ago is down in the market, almost by 60%. KB is down by 40%, so outperforming the market in pretty decent way. Those last two months were promising. This is true, and we hope it will keep promising because we see the pipelines, and the pipelines are quite full of loan applications. I think there are a few explanations. One of them is that once this super high interest rate environment started, which made mortgages really, really expensive, people started postponing their investments and purchases.
On the other hand, you can't, you can't, keep postponing it forever, so many just decided to somehow digest the increased cost and go for the plans and projects. This is definitely one of those drivers. The second one is certain correction of real estate, real estate, prices, because you can get a bit better price today with the demand-supply balance that is different than it was before. Sustainability, we believe that this can stay as it is. It might even grow now, but once again, it's rather returning back to a normal level because the market was very much down, and it was huge difference compared to the boosts that we experienced before.
If you ask me as a commercial person, I'm rather on relatively optimistic side for the mortgage production in coming quarters and years.
If I... Yes, absolutely. I think Mirek covered almost everything. Maybe to add or to complement what is also helping demand for mortgage loans is relatively very dynamic growth of the income of the household. It's year-over-year by 10% on top of my head. Also, also, small, let's say, decrease of the real estate prices. The household do not do not expect a further, let's say, decrease of these prices. It's, it's combination of all these things, and the output is as you can see in the slide. This was about housing loans. There was question for me related to NIM.
First sub-question was whether whether we are confirming decline of NIM on full year basis at 35 basis points. Yes, it is still still the case, confirmed. You know, we are seeing 30 to 35 basis points, so in one sent- in one word, the answer is yes, confirmed. The other one was related to rate cuts impact and the potential implications into 2023. You know, I'm not sure if I did, but I, I think I, I, I did did commented it last time. We compared to the situation one or 1.5 year ago, we set our interest rates position in a way that we basically are not sensitive for the movements of the market interest rates.
The fact that our guidance for the key policy rate has kind of extended by the end by the beginning of next year is not hitting us too much so. Having said this, we are expecting that for next year, the NII should continue recovering through mainly influenced by volumes. At the same time, we believe that NIM neither should continue declining. Just a very first indicative guidance would be NIM at the same level, and.
... and I, driven by, by volume center. You know, usually what are our targets, both in, deposit sides and loan sides. From that, you can relatively easily calculate what is our full year for next year NII guidance. I think I covered the questions.
I will finish with your third question on the cost risk guidance. In fact, it, this year-end guidance definitely includes some reversal of our inflation overlay. It does just because we are expected to do so as per the IFRS 9 regulation, basically. The uncertainty factor is in our capacity to identify another potential deterioration area in our portfolio and to develop the argumentation and to book a reserve, and this is what we will be working on, and this is where we don't know, is it going to be for 100%? Is it going to be for 50% of what we will have to release coming from this corporate inflation overlay? This is a good question where we do not have an answer yet.
Understood. Thank you very much for the detailed answers.
Thank you. The next questions come from Andrei Novachekov of GBC.
Good afternoon. Yes, my question is on ESG. Your presentation was very interesting, but I want to ask specifically about Scope 3 emissions. Can you help me understand how advanced you are in your Scope 3 emission calculations? I can see in your sustainability report, it includes investments, employee transport ways, but it presumably doesn't include any lending, does it? What are you doing to be able to improve your disclosure on Scope 3 emissions? There are any requirements to disclose everything anytime soon? How do you compare in terms of disclosure, specifically on Scope 3 Société Générale?
I will start. Today, we are measuring the scope one, two, and partly three, regarding the suppliers to Komerční Banka. Regarding your clients, as also Didier mentioned, we have the external process, which is called the Environmental and Social Management Process, where we are gathering, let's say, 80 questions from our clients that will help us to gather all the information to be able to calculate Scope 3 . Unfortunately, today, only the large Czech companies are able to disclose such information. For example, what is their portion of the green energy? What is your carbon footprint based on the client's level?
After, we are able to calculate, the client footprint and also the, client's transaction, footprint, we will be able to disclose, the scope three. The regulation, is saying you have to do it, in 25.
o-okay, okay. Thank you very much. Thanks for that.
You... So, if you have any further questions, please, use the raise the hand icon, and also, if you are connected, Okay. The next question is coming from Robert Prazak, of KKBP. Robert, please go on.
Yes. Hello, everyone. Thank you for the presentation. A quick question from me, one on the NII outlook again. If I recall correctly, you had roughly CZK 80 billion at savings accounts. My question is, if that figure is still correct, and what is your expectation regarding the pass-through, given the 3 percentage points of rate cuts expected throughout 2024, I would expect the re, I mean the reduction in the rate offered on savings accounts to be an additional driver to the NII in 2024. So my question is whether that reasoning makes sense. Second question is on the windfall tax. Do you still expect some additional tax payments to be made this year or in the coming years?
My understanding is that tax, the windfall tax is actually not an issue anymore, but I, I, want to some confirmation of that reasoning. I mean, mostly due to the fact that we had an, declining, especially NII, with negative impact on, on, on the net level and operating level, this year in particular. Thank you.
Yes, thank you for the question. The first one was NII, outlook.
Well, I would like just to confirm that NII is gonna be down on a full year basis, year-over-year, by let's say in high single digits territory. I would say that NII is gonna be driven by volumes, and here we are expecting higher dynamics on loan side, mainly in corporate. Probably, you noticed that in the first half a year, it was around 2.5%, so at the end of the year, it should be mid-single digit. Also, mortgage loans, as we were showing you with Miroslav Hyršl, the new dynamics of the sales.
This first thing, other thing is, that, from my perspective, the, majority of the deposits, have, repriced, already. What I mean is that, the clients, sensitive on interest rates, either left, the bank or switched their current accounts to the, to the paid, paid, deposits. Of course, we are not still, at the end of the process, but, I strongly believe that, the ratio of current accounts versus, TDs or paid deposits, if you wish, is going to bottom up, in either in Q3 or Q4, this, this year. Another, element, to mention is that, we are expecting that also IB is gonna contribute to NII, at least at the level of, of, Q2.
All in all, we believe the trend of increasing NII in upcoming quarters, I don't know, I don't know, the run rate is, whatever, around around 3% to to to to continue. This is 1 point. Other point you were mentioning also kind of pass through or or better in terms of in terms of paid paid deposits on retail side. Currently, we are paid, yes, so it is not a mix with current accounts. Currently, we are at the level of roughly 65% in retail and much more in corporate, of course, 80%-85%. That's probably just to just to complete your question.
Let me know, please, whether I answered it. If yes, a couple of sentences about windfall tax. Here to say we do not have any new information on top of what we told you last time, i.e., in 2023, limited impact, if any. Maybe here it is also worth to mention that relatively very recently, one week ago, Minister of Finance, Mr. Stanjura, confirmed that publicly confirmed that he still considers windfall tax as kind of a extraordinary tax, used for extraordinary spendings, like energy, energy caps, et cetera, et cetera.
He mentioned that in the beginning of 2024, he plans to open a discussion about about preliminary establishment of this of this tax, if the energy caps are not are not prolonged. On the other hand, you know, this is please take it just as a kind of indication of Minister of Finance opinion and not opinion of government or government coalition. We should not definitely count on this, but we are indicating this three, six months ago, now it was somehow publicly, publicly mentioned. Thank you.
Yes, thank you very much. I have to, to admit, I, I thought that the positive impact in 2024, obviously, coming from potential reductions in the CNB rate and then passing on to lower term deposit rates, savings accounts in particular, I, I thought they would have a much more positive impact on the NII outlook in 2024. That's something I not quite understand, but that's okay anyway. Thank you.
Sure.
Thank you. If you wish to ask a question through a telephone, please, press star and six on your handset, and then ask your question. Of course, you can also still, use the raiser, and button, and I think, our next question is coming from, Marcelin from JP Morgan. Please go on.
Good afternoon. Thanks very much for the presentation. I just had one follow-up to the windfall tax question. I know you historically don't guide for effective tax rate, but just conceptually, could you help us think about tax rates going forward, as one of your peers has revised it down quite significantly recently, putting everything together, including the windfall tax and the increase in the corporate tax rate? You know, the tax-exempt government bonds that you have on your balance sheet. So how should we think about that concept? Actually, any, any color would be helpful. Secondly, just on the rollout of the new bank, since April, I see that you've onboarded about 22,000 clients so far in the new digital bank.
Can I ask, is that basically a controlled rollout so far so that you are determining who comes? Or is that basically this number, 22,000, was that basically in line with your previous expectations? Where do you see this going forward based on the feedback that you get so far? Do you expect a significant acceleration in that, for example, going forward, and maybe other color that you may have would be helpful? Thank you.
I will start with info for tax or taxes generally. Our corporate tax, for the time being, is the law of 20%, of 90%. Our effective tax rate is by 1 or 2 percentage points lower. Probably to mention that that part of the austerity package announced by the government, I don't know, three months ago, is also the increase of the corporate tax by 2 percentage points. This is probably impact we will have to bear. At that time, we made a kind of a quantification of the impact on that line, and it was around CZK 400 million.
For windfall, well, there are basically two elements impacting the size of windfall, and first one is, of course, in a simplified way, in pre-tax pre-tax profit, which is influenced by, by, let's say, all the, all chapters. Other thing is also, and as you are correctly saying, change of the structure of the revenues from, say, tax perspective, and some of them are taxable, some of them tax-exempt. That's exactly the case for, for, let's say, a newly issued government bonds, since beginning of 2021.
Of course, you know, the, the banks are, and started already in January 2021, are continuing in, in, these, these investments, which is further, let's say, decreasing the, tax base, for the, windfall tax, payment.
Jiří, just if I can, if I can add one sentence, let's not over-engineer the perception here. The windfall tax was not a systemic approach to the composition of taxes in Czech Republic. It was an ad hoc decision, which was imposed on only six banks in this country, under the explanation that it will serve people who will be short of paying their electricity bills, right? It was at the beginning of the energy crisis. This one is hopefully over. The purpose of imposing this tax is over.
We hear the finance minister speaking loudly and publicly about shortening the effectiveness of this law, which needs to be approved by the government and needs to be approved by the parliament, which has not yet happened. We will probably be a better position to, to, to give you, to give you more answer in the, in the, in the future. I'm afraid that when composing this structure of taxes, the policymakers did not make your analysis be ahead of adopting adopting the law. In contrary, we see even though we would not like it, we see the 2 percentage points of increase of corporate tax for all the participants in the market as not so much favorable, obviously, but still, systemic decision and legislation.
I will kick off also with first part of the answer for the next question, which was: What about NDB, New Digital Bank, whether the composition of the newcomers is in, in, in line with our expectations, et cetera. We should probably make it clear that we are building completely new core banking system and new front ends for the branches, for our mobile banking and for our internet banking, for the existing clients, and we build it also as a tool for onboarding new clients. The composition of those 22,000 is the existing clients, rather the cohorts of, let's say, simple clients, so current account or current account plus a payment card.
We have our calendar of migrating clients from the old stack to the new stack, and the calendar for phasing out and decommissioning the old hardware and software. I'm inviting Miroslav, if you, if you would like to put more details on this frame. Thank you.
Yeah, I would add a few more figures to that today, what you see. By the way, as I was commenting during my short speech, we are just about to reach 30,000, so it's nicely growing because the figure you saw in the presentation, it's four weeks old, of course. It's a mix of onboarded clients and migrated clients, and mainly the migration component will keep increasing now because we will accelerate. And why we will accelerate?
As this is business migration, we always need to wait for deployment of new products and new functionalities so that those clients who will be migrated, can really get transferred with everything they have in the old platform to the new platform. As looking at the plan today, we are opening the migration process for approximately 20,000 clients or 15,000-20,000 clients per month. This number will multi-multiply during the autumn, reaching 70,000 to be migrated clients in October, and even 110,000 clients ready for migration in November. We will gradually, over the autumn, reach the ultimate speed, and if everything goes according to the plan, all retail clients of KB will be migrated in 2025.
If you ask us where this is going to lead to, migration plus acquisition should get us to have everything in the new platform in 2025. So far, it's more or less around the business case assumptions. We still need to work on the structure of tariffs and paid and non-paid customers, but it's not too far from the original expectations, and the figures are almost in line. Touching the wood, it looks quite promising at the moment.
That's very helpful. Thank you very much.
Thank you. We don't seem to have any further questions at the moment. Let me wait maybe a few, few more moments to give you opportunity to ask questions. Nothing coming in. I would like to ask Jan for a concluding remark.
Yeah. Thank you very much, everyone, for spending your time today with us. We very much appreciate your interest. Komerční Banka and its team, its management team, and the broader team of KB is very much dedicated to both delivering the value to shareholders and implementing its strategic plan, KB 2025. In parallel with that, we are, and we are trying to position ourselves as an active contributor into the strategic changes which would be happening soon in, on the side of Société Générale Group by sharing our expertise, by sharing our value, which we have been creating on composing the new technological investments into our core banking system and others.
We do believe that, 2023, even though it will be a bit of mediocre growth of the GDP, will continue being rather a stable year, from macroeconomic perspective, which was during our call, also confirmed by the decision of Czech National Bank to keep the rates where they are. For the future, we believe that on the longer, on the longer term or midterm, we will gain technological advantage vis-a-vis the other banks, and we will continue creating value for for the shareholders also through that, and not only shareholders, but also for our clients.
In the meantime, let me, let me wish you successful and joyful second half of the summer, and we will be looking forward to seeing you at the occasion of the next quarterly results or in between with any individual questions, should, should you have such questions. Thank you very much.
Thank you. This has concluded today's presentation. Thank you very much. You can, you can now disconnect.
Bye.
Bye. Bye to all.
Bye.