Good afternoon, ladies and gentlemen. Let me welcome you to the presentation of the results of Komerční banka for full year and Q4 of 2022. It's the February 8th, 2023 today. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board and CEO of Komerční banka, Jiří Šperl, Chief Financial Officer, and Didier Colin, Chief Risk Officer. Together with us today, we have also Jitka Haubová, Chief Operating Officer, Miroslav Hiršl, Head of Retail Banking, and Margus Simson, Chief Digitalization Officer. You will have opportunity to direct your questions to them as well, of course.
As usual, we will begin with the presentation of the results, which will be followed by Q&A session. During the presentation part, all participants will be on listen-only mode. Please kindly keep your microphones muted during that time. Now I would like to hand over to the CEO, Jan Juchelka. Thank you.
All right. Good afternoon, everyone. Thank you for being with us. I will kindly ask all people who don't speak, please, if you can keep your micro muted, that would be
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Together with the management team to present to you the KB Group results for 2022 and for the Q4 of 2022. The year was somehow abnormal. Abnormal in its composition of bumps on the road and challenges stemming mainly from the beginning of the war in Ukraine in the Q1, which was followed by uncertainty about deliveries of energy to European countries and to the citizens of European countries, which was followed by heavily increased prices of those energies. Finally, a little bit of skepticism and fear and potential anxiety slowly but steadily stepping in the public narrative.
In contradiction with that, we witnessed very strong, and I would say renewed, economic activity of households as well as corporates after two years of COVID limitations and COVID restrictions, which created a bit of paradox of pretty strong fundamentals, combined with pretty pessimistic, forward-looking views, and very actual crisis situations in place. How all this
Meeting unlocked.
How it was reflected on the results of Komerční banka. Komerční banka did its job as usual and properly in providing the financing to Czech economy. Our loans were growing by 6.2% on year-over-year basis, with slight slowdown in the Q4. The client deposits were migrating from current accounts to saving accounts and term deposits and partly to investment solutions.
This meeting is being transcribed.
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Mainly the solutions provided by Amundi Group. The non-bank assets management, which covers also the insurance solutions and pension schemes, grew up by 6.4%. Revenues went up by 23.2% on year-over-year basis and totaled CZK 38.6 billion. The operating expenses were accounting for CZK 16 billion and went up by 6.1%, which created very nice positive jaws on that front, and where the OpEx growth was much, much lower compared to the average inflation in last year. Cost of risk remained very low levels.
We accounted for 15 basis points, which is CZK 1.2 billion new creation of new provisions and slightly negative or zero cost of risk in the Q4. In all of these areas, we will invite you to deeper detail in few minutes. This all resulted into the net profit of CZK 17.6 billion, which is up by almost 38% on year-over-year comparison, and is the highest ever profit of Komerční banka in its history. We are delivering to our investors four.
14.4% on ROE and 1.4% of return assets, which brings us to the family of the most efficient banks in Europe, especially when combined with the cost to income ratio, which remains in very low levels. At 42%. cost of risk I already mentioned. Capital equipment of our balance sheet remains very strong, 19.5% total. 18.9% is fully core Tier 1 capital. As a result, as a management board, we are proposing to our supervisory board and to the shareholders meeting to pay CZK 60.42 per share in the form of dividends.
We are also announcing that we want to keep the payout ratio at 65% of net profit also for the year 2023. Komerční banka, alongside very strong and very intensive work in favor of its clients, we're continuing implementing our strategic plan. We are already in the stage where first tangible outcomes are visible. At one moment in autumn last year, we migrated all our cards, all our card transactions from the old system into the new system, which is provided by TSYS.
The system is named PRIME and is bringing, A, more operability, B, more stable environment, C, 24/7 online operations, D, much better security standards, and E, higher space or larger space for innovations and ability to bring those innovations quicker to the market. Our achievements were also recognized by broader community. We were named the Corporate Bank of the Year 2022 by Mastercard Bank of the Year competition. We were under the same umbrella, we were awarded as Corporate Bank of the Year and Bank without Barriers. In other competition, which is the best bank, we were named as a banking innovator for 2022 by Nejlepší banka 2022. We can go to next page, please. The next page is bringing us to the macroeconomic environment.
I will fly through it very quickly. GDP in 2022 in Czech Republic went up by 2.5% despite the fact that the Q4 was a bit weaker compared to Q3 and also compared or was at the levels of Q4 of 2021. Let me remind, 2021 was still the year of COVID restrictions. Nonetheless, based on the assumptions of our macroeconomists, the mild recession is already behind us in Czechia, and there is a small positive development on GDP expected in 2023. What remains, long term, the issue of this economy is very stretched labor markets.
The unemployment rate was at the level of 2.3% in December, which creates higher pressure on expected wages growth. In nominal value, it grew up by 6.1% based on the measurement in Q3 2022. Partly or predominantly discounted obviously by the inflation. The inflation went up by 15.8%, and it became one of the most, I would say, debated and focused elements of Czech economy in 2022. It seems that in lower levels will remain with us also for 2023. Czech koruna strengthened. Czech National Bank keeps for already few consecutive quarters, the level of the base rate at 7%.
We will see how those parameters will be evolving down the road in 2023. In this environment, Komerční banka, and I will ask Jakub to bring us to next page, continued providing the financing to Czech economy with 6.2% growth, and let's say, took the appropriate part of the market share in this discipline. Having said that, the composition of our financing is impacted by half-frozen mortgage market. You can see on the right-hand side of the page, the lower graph showing that we are far from the record high numbers from third and Q4 of 2021. This stairway is not definitely going to heaven, rather the opposite direction.
We don't expect or we don't believe in strong recovery in this trend. We are, let's say, adequately reacting on it on the side of optimizing and synergizing our production of mortgage loans between the bank and between the building saving company, Modrá pyramida stavební spořitelna. The main driver of financing here was corporations of all sizes. Small caps, mid caps, large caps in international transactions, where the growth was double-digit. The fastest-growing part of our loan book is given to euro-denominated loans. The euroization of the flows in Czech economy is taking another, I would say, breath. All of those companies which are naturally hedged, i.e.
they find themselves in the supply chain of someone who invoice them in euro, and they are able to invoice their partners in euro and keep only part of their cost base in Czech koruna, are currently preferring euro-denominated loans. Despite the fact that we are very active in the financing market, Komerční banka is keeping its main indicators of liquidity at very comfortable levels. Our net loans to deposits ratio is at 85.2%, and liquidity coverage ratio at 160%. We can move to next page, please. Dedicate few seconds to the overview of remarkable transactions which have one leitmotif.
Despite the fact that they go throughout the sectors, throughout the segments, we are always assisting our clients and following our clients at their investments or expansion to abroad. You can see that there is few transactions, few expansions to abroad, which make few of our clients like global players such as a company Alwyn and few more. We can go to next page. This is dedicated to deposits. There were few trends in the deposits. The first one, very obvious, money were being transferred from current accounts to saving accounts and or term deposits inside the composition of accounts of a client. Then massively going to investments.
We see 18.5% of increase of sales of investment funds and investment solutions, Amundi or private banking of Komerční banka. Pretty mediocre but still stable growth of pension schemes sale through our pension company. Decreased pace, or slow down in the sales of insurance schemes. Partly, we were losing our deposits during or between third and Q4 of last year. As we were dedicating our interest more on creating the value instead of being the champion in pricing the deposits. We paid for that by losing part of the deposits.
Part of the deposits was of very small portion, providing that substantial part was moving to investments from KB. We can move to next point, which is financial performance here. I have the opportunity to hand over the world to Jiří Šperl, the CFO. Jiří , it's yours. Thank you.
Thank you very much, Jan. Good afternoon, ladies and gentlemen. Indeed, it's the best result in our history, the CZK 17.6 billion , higher by almost 40% year-on-year. Traditionally, the waterfall chart is visualizing the main drivers of the full year profit, which basically is NII growing by almost CZK 7 billion . You know, let's not forget also other categories on a top line, and concretely, a very dynamic growth of fees and commissions growing by more than 7% year-on-year. Costs, as mentioned by Jan, are under control, and it's the case both of operational costs, OpEx, and also cost of risk and tax costs.
Didier will comment in detail later on. The right-hand chart is showing the dynamics on quarterly basis. Probably you remember I was touching this point already during the Q3 presentation. What I mean is a kind of a slowdown on the revenue side, and mainly on the NII. I would say after, and it's on top of my head, but like 10 consecutive quarters in a row when the revenues were always growing on quarterly basis. Q4 2022 is the Q1 when there is a slight correction, and that's the bottom chart, red part. It is declining slightly by 2.1% quarter-over-quarter.
One of the reasons behind, I will get back to that once again, is that we do not benefit from the structural position, i.e. growing market interest rates anymore. In 2023, even the opposite is gonna be true. In the second half or more concretely Q4 next year, we are even expecting progressive normalization of the rates with somehow negative impact into our net interest income. The only reason for the fact that the quarterly net profit after tax, so that's upper right chart, is still better than the previous quarter is a very positive evolution in cost of risk era asset quality, as shown in this chart. Jan also at the very beginning mentioning some profitability indicators. All of them are summarized in the left bottom part of the slide.
They improved significantly both year-on-year and quarter-over-quarter, not only due to the superb full year profit, but also due to the catch-up dividend paid in December that of course naturally decreased the capital base and had positive impact on this, on this indicator. Let's move please to the three balance sheet. Well, the total assets are up by 4.8% year-on-year. It's a bit slower than was the case during the previous quarters. The main reason for that was that KB succeeded to shrink the balance sheet at the end of the year in December, even more than one year ago. You know why? It's optimization of the base for resolution fund charge calculation, so it will bring, let's say positive fruits in 2024 in OpEx.
Having said this, now we're turning to the right-hand side of liabilities. The deposits were not the main driver of the groups anymore. It's basically solid. The main driver were senior non-preferred notes. I mean, MREL-eligible instruments that increased by EUR 1.5 billion . It's dark gray color in the chart. On the asset side, the new funds have been clearly placed or invested into the loans as the priority number one and the remaining liquidity surplus preferentially into the Czech govies. That's the dark red color. They were growing relatively significantly by almost 20%, offsetting a kind of decrease in repo replacements with Czech National Bank. That's a P&L balance sheet, let's now focus on the main categories of revenues and also OpEx.
NII, as mentioned before, super strong result year-on-year 31%, very clearly influenced by strong business activities first, but of course also by the dynamically growing interest rates which helped strongly as well. This can be seen mainly in the bottom right-hand chart of the slide. Main drivers are without any doubt, deposits, income from the deposits growing by almost 40%. Not only, also by NII from investment banking. That's here dark blue part. It added year-on-year plus CZK 1.4 billion extra. Also so-called others, and that's What's that? Light, light red part. That's mainly income on the capital. The upper right chart is traditionally showing the dynamics on quarterly basis. The main change of the trends is visible on deposit side.
As also already mentioned, the main reason here is increasing of cost of funds. We prioritize simply profitability in first half of the year. But since that time cost of funds started to increase, and unfortunately it is expected that this trend is going to continue also in 2023. Net interest margin, left upper chart, still increased. It is the case both for quarter-over-quarter and year-on-year. Quarter-over-quarter, there are some partially some technical reasons, but, let's say, lifelike business or fully lifelike business is year-on-year grows. On this basis, it went up by strong almost 50 basis points from 1.93 to 2.42, as was basically expected already last quarter.
Even here, it was kind of a front-loading of the positive impact for the 2023. We are expecting a bit of normalization down, let's say, whatever between 25 to 30 basis points on a full year basis. Fees and commissions are very successful story, probably the best news of Q4 result presentation. It's the best quarter since 2015. Basically it goes across all categories without the exceptions. All of them are better than one quarter ago. That could be seen very nice on the upper right-hand chart.
From our perspective, the most valuable success is coming from the chapter fees from the cross-selling, reflecting a very strong business activity in this, and for us, a very strategic area. Of course, of course, this was supported by very strong, let's say, business activities, in area of assets under management. At the same time, also transactions went up significantly, and year on year, it is plus 12%. Usually reminding that partially influenced by the base effect in 2021 due to COVID, let's say restrictions.
All in all, this slide, on full year basis, fees and commissions, were growing by strong 7.2, i.e., more than expected, and even more of a dynamic than our KB Change 2025 project is projected. Moving to financial operations. I would say no surprise for you that that is by definition that it is more volatile category going, you know, frequently up and down. Q4, referring to the upper chart, is a bit weaker than full year average, delivering roughly three-quarters of a billion CZK revenues. The main reason here is the negative impact of DVA or regulation of deposits evaluation. We were, let's say, referring to that during the Q3 results.
At that time, it helped us, and it is described at the left-hand bottom chart. It helped or supported this profit line by CZK 123 million. Now it went back. If you adjust by DVA Q3 and Q4 results, this would be in both quarters to the income at the level of CZK 850 million as again visible in the upper right chart. What's behind this good result? Still solid client FX flows and hedging activity continues. This quarter, very specifically, let's say, tailored hedging strategies for SME clients, particularly those based on FX options. This added significantly. At the same time, we repeated great result in net gains on FX from the payments.
That's the blue part of the chart, where during the last four quarters, we are delivering result almost every time above CZK 500 million. Comment is that a bit influenced by base effect in 2021, but not significantly. Finally, OpEx. OpEx is traditionally under control, even the Q4 confirmed our ability to adjust ourselves to the high, very high inflation environment. Jan was already mentioning the figures, it was above 15% in 2022. In this environment, we were able to manage the OpEx line at 6.1 level. You know, even without negative impact on resolution fund charge, it would be below 4, I think something around 4.7.
If you go category by category, referring to full year basis, bottom right-hand chart. OpEx growing, personnel cost growing by +3%. Of course, one of the reasons was that the extraordinary increase of the base salaries came relatively late during the year. It started to be valid since October 1st. Limited impact in 2022, but it will bring some impact into 2023. Again, the administrative costs are growing by +7%. Here, basically it goes across all of the categories and mainly inflation linked. I also recommending resolution fund charge. Just to remind, CZK 250 million extra for 2023.
We are expecting rather improvements, meaning, based on the statement of head of resolution fund charge that the collected amount from the total bank sector will be a bit lower. We logically expect also lower. Of course, it is subject to, let's say, risk profile of all banks and audit ranking. Last but not least, is depreciation growing by 8%, driven by software, let's say, delivered for digital, for the digital transformation mainly. All in all, this has led to cost to income ratio, so very, very left-hand bottom chart, to the level of 41.5 for full year basis.
We still do not know what is and will be the results of other Tier 1 banks, I mean, KBC and ČSOB. It's very likely that we will confirm once again leadership position in this in this area. If I'm saying leadership, I mean the best. That's the GOI. Now Didier, please, for reserves.
Thank you, Jiří. Good afternoon, everyone. Turning to asset quality in the Q1 of last year, the situation remained very stable compared to the previous quarters. I will start with a few comments on the non-defaulted part of our loan book. Basically, the S2 category remained at a stable level, and we continue to record low and contained risk-less migration dynamic between S1 and S2. As you can see, the S2 exposure marginally contracted by CZK 2 billion to CZK 103 billion.
This point of risk-less dynamic I just mentioned, in fact, we had a quite balanced intensity of flows between S1 and S2 for the low level of roughly a bit less than CZK 15 billion on both ways, meaning from S1 to S2 and vice versa, which compares to a total exposure a bit above CZK 750 billion. The resulting S2 ratio was as I just said posted at a fairly stable level of around 13%.
What is probably the main point, which I already highlighted in the previous quarters, is that our provision coverage ratio for this part of our loan book S1 plus S2, more than or more or less doubled in the last three years from 2019 to 2023, from 0.2% to 0.6%, reflecting the successive overlays and results we booked during the COVID period and more recently, reflecting the high inflation environment. That's for the non-defaulted part of our loan book. Now, looking at the default part, in fact, here we started to see a bit of an evolution of our default rate in the recent months.
I will start with the resilient portfolios, where we continue to see very low level of default rate for mortgage loan exposure and our small business loan exposure at levels which continue to be below pre-COVID. Now on the other portfolios, namely the consumer loan and the corporate portfolios, we started to see some early deterioration signs. When looking at the consumer loan portfolio, in fact, probably the main risk driver we've seen so far, but of a very low intensity, is the growing intensity of client applications for restructured credit.
Regarding the corporate segment, in fact, with the situation we've started to see, first is concentrated on a very low number of client situations, not really related to the higher energy cost, but more situations where the consumer demand for these few clients quite quickly contracted. This is so far the main default driver that we have detected. As a result of this, and as you can see, the defaulted exposure increased marginally by CZK 0.6 billion to CZK 18.4 billion.
In fact, this is a result of going into default CZK 1.8 billion, resulting from what I just explained. Partially offset by CZK 1.3 billion of outflow, reflecting the continued resilience of our recovery corporate defaulted corporate recovery capacities. All in all, our NPA ratio was contained at the level of around 2.3%, while the provision coverage ratio continued to be stable around the level of 50%, stable in the last two, three years and in line with the levels observed at the EU region level. This is for the Q4 asset quality. I'm now turning to the cost of risk overview.
As Jan mentioned, as you mentioned earlier, in the Q1, we recorded a small amount of net reversal for CZK 50 million. In fact, this can be summarized or broken down into two component per segment. Using the segment view, what we did in the Q1 last year is that we recorded a net release on corporate segment for CZK 200 million. In fact, this net release has itself two component, one for around half a billion in favorable impact into our cost of risk coming from the final release of COVID-related reserves. This was partially offset by some net creations for a level near CZK 300 million, reflecting this minor increase in corporate default rate.
Giving us this net figure of CZK 200 million release. Now going to the individual segment. We created a small amount for CZK 100 million, more or less. This has in fact two underlying factors. The first one is that we upgraded a little bit one of our provisioning model, PD model for the individual segments, having a better reflection of the or better integration or incorporation of the inflation risk rider, which generated something like near CZK 150 million. This was a little bit offset by some release of our inflation reserve for the simple reason is that the sensitive inflation-sensitive portfolio decreased in size through some repayment.
That's for the individuals or private individuals non-defaulted exposure. On the defaulted exposure side, we booked some residual level of additional cost of risk for an amount near CZK 55 million. Again, confirming the good level of resilience of our retail loan book. If I take a quick look at not the just the Q1, but the full year view, it's quite telling or an interesting view. We booked CZK 1.2 billion, which is for an equivalent of 15 basis points, by the way, in line with our Q3 guidance. The structure of it is quite interesting.
We have a little bit something like 1 basis point coming from net creation of provision on defaulted portfolio, which is again, as I just said, the confirmation of our good level of resilience from our loan book. Most of our provision creation effort came or was generated by this reserve peak at default in the context of the high inflation and high energy costs for 14 basis points. Now turning and finishing with the guidance for 2023, in fact, we are issuing it in the range of 20 to 25 basis points. Just to give you a bit of understanding behind this figure, we see three or four main drivers. The first one is the upcoming default rate intensity for our corporate exposure.
Depending on it, its intensity, of course, the full year cost of risk will fluctuate. The second component is the level of provision reversal that we expect coming from our legacy NPA corporate portfolio. Here we continue to see some good evolution, favorable evolution, so this will go in the other direction than the inflation overlay or inflation results that we might adjust going through the year. The last point, which is a favorable point, is the expected continued resilience of our retail exposure. This is what is behind this guidance in the range of 20 to 25 basis points. It's a relatively safe or conservative guidance.
Under our macroeconomy scenario, which was summarized to you at the beginning of this presentation. Now I'm going to hand over back to you, Jiří. Thank you.
Thank you, Didier. Let's focus a couple of minutes on dividends and capital management. The capital adequacy landed at 19.45 at the end of 2022. Significantly above the minimum requirements. Just to remind, as of now, it is the minimum requirements is 17.4. Expecting that starting from the beginning of April, it will increase by another 50 basis points already announced by CNB one year ago, related to countercyclical buffer. Good piece of the information is that 2.5, which will be the level at the beginning of April, is the maximum level, it cannot be increased anymore. There was a drop in capital adequacy during Q4 by roughly 170 basis points.
It was mainly influenced by the catch-up dividend paid in December. Worth CZK 10.5 billion. The impact of this payment was something above 200 basis points, 215, 216 basis points. At this slide, it is also worth to mention that the bank that I was touching the point already during the balance sheet chart that the bank issued another SNP loans, I mean, MREL eligible. At the end of the year, it was EUR 1.5 billion. Just to remind, at the end of Q3, it was half, it was EUR 750 million. We need to continue in this process even in 2023.
Based on current calculations, it is expected that we are going to issue another roughly EUR 1.4 billion. As we are running under SPE, it's intragroup transactions, which we benefit for the time being relatively significantly, because if you compare cost of these instruments for other banks issuing comparable instruments on capital markets, it's very uncomparable, I would say. That's capital position. Next slide, Jakub, please. Of course, such a strong capital position is allowing board of directors to suggest to the general meeting a dividend payout, expected and accurate level, 65% of the profit of 2022, which means slightly above CZK 60 per share. For the 2023 year, the same, i.e., also 65% payout.
In terms of the impact of dividend payout from 2022 profit, as GB has reflected expected payout in capital adequacy reporting already during 2022, and we are doing this all the time, payout of dividends in the proposed amount will not affect capital ratios at all. The upper right-hand chart is showing kind of the consistency of the capital policy management, and it is showing dividends paid during the last six years, together with the suggested dividend in 2023. There are basically two lines. The red one is describing the reported payout. You can see here, and you remember that very much influenced by dividend bans by regulators. The blue one is somehow normalizing, and it is a payout ratio adjusted by the catch-up dividends.
The message of this slide is that the bank has paid consistently 65% of the profit since 2018. It is also being suggested for 2022 profits and 2023 profit. Of course, subject to validation by general meeting, I needed to add. That's capital and dividends, and this is bringing me to the last slide of this presentation, which is outlook. Let's start very briefly with the kind of breakfast of the guidance we gave you three months ago still for 2022. It's relatively easy because almost all of the guidances have been delivered slash confirmed, with just 1 exception, and that's deposits.
Some of you might remember that three months ago, we guided you that the deposits will be on full year basis rather flourish. At the end of the day, it's even a bit a bit less, so it is roughly minus 3%. Back to 2023 guidance. Let's start briefly with the macro eco. It is expected that Czech economy will grow marginally in 2023. I think it is expected to the level of 0.3. Last last Three months ago, it was on top of my head, 0.5, so it's very comparable. Inflation is gonna peak in January, and then to start to direction down.
Still, 2023 will be very much influenced by high inflation, and it will still stay double digit. In terms of monetary policy, we are expecting that CNB repo rate will stay at current level, meaning 7 percentage points until Q3, and then it should start declining gradually. It's expected that at the end of the year should be at 5%. From my perspective, there is another upside risk, meaning that I still think that it will be a bit higher, that CNB is not going to go down so quick. Banking market outlook. Both lending and deposits are expected to grow mid-single digits. For lending, it's slightly below.
If I should mention a figure, I would say probably 4%, slightly below 5%. In terms of bank deposits, the same, but here we are rather at 5%. On this growing market, we would like, and our ambition, clear ambition is to gain market shares both in lending and deposits. In lending, we would like to continue in the positive trend we started, like three years ago, and since that time we are able to gain market shares. In a structure, it is expected that housing loans should or will increase rather slightly compared to 2022. But one of the, let's say, drivers should be consumer lending, that should grow around high single digit, and corporate lending as a mid-single digit in between.
In terms of deposits, as I was indicating, also we are targeting the gaining of the market shares, different region compared to the, to the lend-lending. Here, simply, we would like to regain what we a bit lost in 2022. Here we are guiding upper mid-single digit, and it is expected that the deposit of corporations will grow a bit faster. As goes, let's say, organic part of KB business outlook, key priorities remains implementation of KB Change 2025 strategy, introduction of the new digital bank to the market, et cetera, et cetera. In terms of financial outlook, revenues, the top line is expected to stay more or less flattish. In a structure, NII will probably retreat a bit, somewhat. Also the main reasons here was mentioned, so that's mainly due to higher cost of deposits.
Fees and commissions, the success story is gonna continue. We are guiding mid-single digits and again and again driven by volumes in mutual funds. Financial operations should grow relatively meaningful after, let's say, flattish evolution in 2022. OpEx, we strongly believe that we will be able to manage in a very disciplined and efficient way. The expectation is to grow by upper mid-single digit. Probably a bit more than in 2022. In 2022 it was 6%. Again, if I should be a bit more precise, I would say whatever around 7%. cost of risk, already mentioned by Didier. That's all. Potential risk remain the same as well, so potential further escalation of the war in Ukraine and generally the worsening of the external economic environment.
I think that's end of the presentation, and it's my pleasure to return words to the studio.
Thank you, Jiří. Ladies and gentlemen, this has concluded the presentation part of this meeting. Now we will be ready and happy to answer your questions. Let me remind you first that this meeting is being recorded. If you have a question, you can click on the icon with the raised hand image 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 your question later on. The first question is coming from a line of Andre. Andre, if you can introduce yourself and ask your question, please.
Hello, everyone. Yes, it's Andre.
We don't seem to hear you well. Can you? You should only be muted, but can you please speak more loudly?
Can you hear me now, Jakub?
Yes. Hello, Andre. Sorry, sometimes our check can actually miss it. Yeah.
Thank you. Thank you. I have a couple of general questions. One is on the new bank. How do you gauge the progress? Other than things like if whether or not the rollout is to plan, but for example, are you seeing any clients that are not Komerční banka clients signing up? And then also on the digital bank, how would you compare the offer, your offer to what's in the market, especially when it comes to pricing?
Right. I will start, and then I will ask Margus and Miroslav to continue. Thank you for this question, Andre. In fact, we will launch the proposition, if I remember well, 18th of April. For us, it's impossible to bring up any of the details of the proposition because it should go directly to the market. We are confident of the quality and attractiveness of the client's proposition, which will be brought to retail clients first, and which will be presented massively in the media, which will be also attractive enough for bringing us completely new clients.
Without going through any details, let me just say that we were during the preparation of the client's proposition, we're sticking to maximization of simplified or simplification of our composition of products, seamless accessibility of what client needs might be, mainly through mobile, but also through internet or through our brick-and-mortar branch network. Simplification is the word. We believe that we have enough data to set up the pricing and the client's proposition, the adequate way to keep it attractive or more attractive than we have today. I will probably ask Margus to add few words on the technological side and Miroslav on the client's proposition side. Sorry, guys, if I ask you in parallel, don't go to too many details. You might jeopardize the company, which is in preparation. Sorry for that.
If I go from the technological perspective, Jan actually pointed out very, very relevant topic here, that it's not so much only from the business perspective, how attractive we are to the customers, but it's also the kind of question, what will be the bank three or five years from now that we are going to run? When we are looking at the product portfolio, the products that are described in the system, if we are looking at the process complexity, and if we are looking at the overall simplification of what kind of machine it takes behind the scenes to run the customer offering, then that one will be significantly simplified.
This is where I would say that the true impact of that kind of simplification is rather coming at that moment when already a lot of customers have been migrated also from the, from the current existing systems to the new ones, and they're part of the new proposition. That one is definitely helping to speed up our development capabilities, but it's also helping to drive down the costs that it takes to run the customer value proposition. Responding to the business side and the customer offering, Miroslav is definitely the correct person.
Okay. Thank you. Let me start by saying that everything Jan and Margus said is true, and there's not so much left, but I'll add a few details just to illustrate the simplification topic that is quite crucial for us. Imagine that we reduce the number of products by 100 times. Out of 10,000, we go to 100. We reduced the number of price items on the prices 15 times. This is the job we did. We are moving four to five processes for every single thing you need to do to one process, whatever the channel, whatever the device. This is the exercise, how we are reshuffling the bank. As my colleague said, we are starting 18th of April, and now we are in the middle of preparation on retail distribution side.
I'm speaking about all those branches, contact centers, everybody going through trainings, learning how to migrate, how to propose, how to cross-sell after at the moment of the migration. I think we will tell you more probably next quarter once we see each other again.
Thank you very much. Maybe one to Jitka on ESG. What is the biggest challenge when it comes to, well, ESG in general, but perhaps Scope 3 emissions disclosure, if that can be answered as well. Thank you.
Yes. You are absolutely right that the main challenge is to continue, be fully in line with the regulation, especially European regulation, and also to have enough nice and welcome products for our clients.
Okay. Okay. Okay. Thank you.
Thank you, Andre. Thank you, all. Next question comes from the line of Robert Kaczmar from PKO BP. Robert, please go on.
Yes. Good afternoon, everyone. I have two questions. First, on the sensitivity to the tightening cycle, in the Eurozone, because you have quite a sizable book of FX lending. Can you perhaps share, and give some figures regarding the potential tailwinds from this part of your loan book? Second, regarding the cost of risk output that you presented, can you remind whether that the figure 20 to 25 basis points includes potential provisioning releases, like some general provisioning overlays, et cetera? Thank you.
I can start with the second question. Definitely it does. In fact, I mentioned the four drivers. One was new default or original default rate for corporate segment. The second one was the release potential we have within our corporate default portfolio. This is included. Overlays, of course, how they will be adjusted. The retail cost of risk creation that is expected to remain at relatively low levels. Again, under the central scenario, our central macroeconomic scenario, 20 to 25 is I would say is more on the high-end side. I don't know if this answers your question sufficiently.
Yes. Thank you.
On the first one, maybe I will let Jiří.
My understanding of the, correct me if I'm wrong, but of the question was whether we can see some risk coming from accelerated granting of euro-denominated loans. This is true in the Czech Republic because the, let's say, economy is euroizing. On the other hand, we are not expecting any significant impacts because, as a matter of principle, we are granting really huge majority of the loans to the companies who have their income in, let's say, euro currency. This is one thing. Other thing is that we do not take any, let's say, strategic FX positions. Even from this perspective, the impact should be rather limited. I'm not sure if this was answer to your question. If not, please precise.
Actually, what I meant was that we already should see the average rates on the EUR corporate loans doubling, right, from 1.6 perhaps to 3.3.4% level. I was wondering that this should actually provide you with some uplift to the NII going forward. I was just wondering what's the size of a potential impact on the NII in 23. Since you mentioned, I understand that you don't hedge this book.
Well, the impact is rather minor. Impact is rather minor as the margins on euro-denominated loans and Czech crowns-denominated loans is very comparable.
Okay, thank you.
Thank you. our next question comes from the line of Mate Nemes from UBS. Mate, please, go ahead.
Yes. Good afternoon, and thank you for the presentation. I have a couple of questions, please. Firstly, just a follow-up from Jiří. Can you just confirm that you mentioned a 25 to 30 basis point down movement in NIM in 2023? If so, is that mainly coming from rising funding costs, as you mentioned, perhaps some competitive pressure on corporate lending?
Yes. first sub-question, I was mentioning, and I hopefully, I hope I said it this way, the drop of NIM in 2023 will be rather between 25% to 30%. Not 35%. The other question was what are the drivers of.
Exactly. I was just wondering if the main driver really is the rise in funding costs.
Yes. Okay.
Are you also expecting, asset spreads to tighten further?
No, no. There are, I was mentioning it as the biggest, let's say, reason. Of course, there are also others. You know, the interest rates cycle is gonna be changed. In past, and mainly in 2022, we were very much benefiting from the increase in interest rates. Do some of you remember our sensitivity on increase of the interest rates? This will, let's say, return down. What is good piece of information on that is that in the meantime, we relatively significantly decreased our sensitivity for both increase and decrease of market interest rates. Currently, usually we are using 100 basis points of parallel shift of yield curve.
Full year impact would be, you know, in a very low hundreds of million CZK. Why this sensitivity decreased so significantly compared to 12, 18 months ago, because at that time it was above CZK 1 billion. Two main reasons. First one, shift from unpaid to paid deposit because current accounts are the highest sources of the sensitivity first. This was basically the main. Currently we are, I would say, well-positioned for the decrease, expected decrease of market interest rates. The other reason was that we slightly adjusted our hedging policy and started to hedge a bit more.
You know, always it has to be somehow balanced to hedge name sensitivity compared to NPV sensitivity. This was one reason, rates environment. The other reason is, let's say, kind of base effect coming from excellent result from deposits in the first half of 2022. This is base effect. In terms of loans, we are still expecting very slight decline in margins. In terms of outstandings, it's, let's say, small units of basis points, as we are expecting that in the environment when the interest rates are going down, the banks will, let's say, downprice their loans with a bit delay, which was not the case in the environment when the interest rates went up.
Last probably reason to mention is that, and it is a big change of our assumptions compared to six, nine months ago, as the market rates will stay at relatively high levels still, the majority of the 2023, probably we will not achieve the bottom of the cycle of switch between unpaid and paid. We are moving this point in time to 2024. That's basically three, four reasons why we are expecting NII down, slightly down.
That's very comprehensive. Thank you very much. I had one more question for Didier on risk. I think you mentioned that you would expect an increase in corporate default intensity. Could you perhaps elaborate a little bit on that? What sort of magnitudes are you having in mind as part of the central scenario here? Is that pickup going to be driven both by perhaps, as you mentioned, a lower demand from end clients for certain corporates? Or also you would expect now the energy costs or higher energy costs to feed into margins and then perhaps lead to business failures or defaults?
In fact, to answer your first point, for this guidance, between 20 and 25 basis points, we've taken fairly conservative assumptions in terms of default rates. I don't want to go into the details, but not going into the details, the assumption we took was simply a doubling of default rates, and with a provisioning rate, the entry into default, which is also in terms of the NMD component, is also quite conservative. This is embedded in our guidance. To answer your second question, in fact, what we are doing for 2023 is very similar to what we did for 2022.
For 22, we quickly constituted a portfolio which we call the Russian portfolio, where we tried to capture all our corporate exposure that would be impacted either through capitalistic links or through some tradings. This was a portfolio for in the range of CZK 30 billion. This portfolio is the one which concentrated most of the problem creation on the corporate segment at the time of entry into default. We are now doing the same, in fact, on the theme of increased or increasing energy costs. We've assembled or we are assembling as I'm talking to you today, a portfolio of roughly CZK 20 billion.
The way we did it was we selected the specific sectors more exposed, and then we did simple sensitivity analysis on their energy cost, and we then selected the ones of our client that under these simulations would be the most affected. We believe that with the inflation overlay which we constituted last year, that we are reasonably covered. I will tell you more in the coming quarters, obviously, as we will see how this portfolio evolves in the coming months.
Yes, we are organized exactly along the lines you just mentioned, and using similar logics as the one we took last year, and it proved to be quite efficient in terms of, you know, evolving both in terms of financial management and also in terms of commercial or client or relationship management.
That's great. Thank you very much.
Thank you, Mate. Our next question comes from the line of Mr. Slav Pavelski. Mr. Pavelski is a shareholder of Komerční banka. Could you please ask the question?
Good afternoon. Thank you for taking my question. I would like to ask you if you are considering share buybacks as Société Générale have it, because I believe that it's a better capital allocation than dividends. I mean, it's might be better to pay part of the capital back to shareholders in form of dividends and part as buybacks. What is your opinion about this?
Currently, we don't have it in our program in, such magnitude as, Société Générale does. If Jiří wants to bring more, you can, you can comment, please.
Yes, yes. I was talking, I was muted. Sorry. We are currently really not considering a launch of the buyback of shares. We prefer standard dividend for payments. One of the main reasons is that the buyback would lead to a technical decrease in free float and an increase in the share of the majority shareholder unless Soc Gen sells appropriate percentage of their holdings. Generally, the main reason is we do not want to reduce liquidity of KB shares, which is already limited. Thank you.
Thank you.
Okay. Ladies and gentlemen, just a reminder, if you have a question you can use the Raise the Hand functionality, or you can also unmute yourself on your if you are connected through a telephone, and ask your question directly now. The next question comes from the line of Marta Czajkowska. Marta please go ahead.
Yes. Hi, it's Marta Czajkowska-Bałdyga from, IPPO-.
I cannot hear anything. You can?
Marta, you seem to be muted.
Oh, yes. Sorry. I was muted still. Sorry. It's Marta Czajkowska-Bałdyga from, you know, IPOPEMA Securities S.A.. I have a question on like a follow-up question on NII sensitivity. You mentioned it's less than CZK 100 million for 100 basis points decline in interest rates for the full year impact. Is that correct?
That is correct, yes. Below hundreds of million CZK, yeah.
Okay. Thank you very much. The question is, also if I can ask about the, and understand the cross-selling fees that you book on your assets under management. Is that for distribution or this is asset management or how does it work?
Jiří, do you want to take it or, I should?
You can kick off and I'll follow.
Okay. Marta, basically it is combination. Part of that is for distribution and a part of that for asset management.
There's not much to follow, honestly, because both are significant and we rely on them.
Okay, perfect. Thank you so much.
If you'd like to ask a question through a telephone, please press star and six. Which should unmute you, and you can ask your question. We would like to wait a few seconds for you to do so. We don't seem to have any further questions at this point, so I'm handing back to Jan for a conclusion.
Right. Thank you very much, Jakub. Let me thank to all of you for your presence with us, for your interesting questions, for your attention you pay to the shares of Komerční banka. We are very happy that we have you around. Between, we will stay obviously at your disposal for other questions should they appear after this call or between now and next quarter call. Komerční banka has delivered strong results in 2022, despite the fact that it was a year full of uncertainty. We will stick to our core business also in 2023, we'll try the best combination of bringing the value to shareholders, making happy our clients, and making happy our employees.
We are looking forward for having you on the line at latest with the presentation of the Q1 of 2023. Thank you very much. Let me wish you all the best for today and for this week. Thank you also my colleagues for preparing this call and for presenting at this call. Thank you. Bye-bye.
Thank you. Bye.
Bye-bye.
Bye. Bye-bye.
This has concluded our call. Thank you very much for the interest, and you can now disconnect. Goodbye.