Good afternoon, ladies and gentlemen. Welcome from Komerční banka, and thank you for sharing your time with us today. It is 29th of October 2026, and we are going to discuss the results of Komerční banka for the third quarter and nine months of this year, 2026. In the second part of our meeting today, we are going to share with you details on Komerční banka's updated strategy to 2029. Please note that this call is being recorded. Our presenters today will be Jan Juchelka, Chairman of the Board and CEO of Komerční banka, and Jiří Přibyl, Interim Chief Financial Officer. We also have with us the other members of the management board ready to answer your questions later on. We will begin with the presentation of results, which will be followed by a short Q&A session.
After that, we plan a short break, which will be then followed by a presentation of the updated strategy, and again, a Q&A session. During the presentation part, all participants will be on listen-only mode. We would appreciate if you could keep your microphone muted during that time. That's for the housekeeping, and now let me hand over to Jan Juchelka to begin the presentation. Thank you.
Thank you, Jakub. Good afternoon also from me, ladies and gentlemen. I would like to extend a warm welcome to our shareholders, bondholders, analysts who are joining us today. We deeply value your commitment with Komerční banka. Thank you very much for your continued engagement with us. Today, I have the special occasion to deliver, together with my colleagues, the results for Q3 of 2026 and continue with extension and information about our strategic path between 2026 and 2029. Let me start with Q3 results. Komerční banka is printing CZK 13.2 billion of group net income for the first 9 months of 2026. We are coming with the cost to income ratio at the level of 44.7% and with ROTE exceeding 16%. Cost of risk remained very low. We remained, for the first 9 months, in the net release, represented by 2 basis points.
The contribution of third quarter was very strong. The net income of CZK 4.7 billion, cost to income at 42.1%, and ROTE with 17.7%. Speaking about business performance, Q3 2026 was extremely strong and the first nine months were very strong on commercial performance. The loan book was growing more than 11% and by 2 percentage points on quarter-over-quarter basis. Deposits by 6.7%, slightly low on quarter-over-quarter basis by 0.7%, and other assets management with rather stable continuity of sales. KB continued onboarding new clients. As a group, we recorded 81,000 new clients in the system, totaling at 2.33 million clients to whom we are providing our service. Komerční traditionally remained very strong on capital and on liquidity. The capital ratio remained at 18.6%, CET1 16.5%, and loans to deposits at a comfortable 84.6%.
Speaking about liquidity, LCR at the level of 172% and NSFR at the level of 134%. We are happy that we can continue making business in very stable and resilient Czech economy. The GDP is growing by 1.8%. We expect that down the road, it will exceed 2% of growth. Unemployment remains at very low level, which is giving us the hope and the belief and the conviction that the growing power of Czech households will remain very strong also for longer period of time. Industrial production continues growing by 2.6%, a solid growth despite the fact that energies and the shock of energy prices is already in place. Construction is slightly down in August, minus 1.4% after very strong previous period of time, where the public spendings combined with the private investments were pushing the construction forward. Speaking about interest rates, we will see next week.
Obviously, Czech National Bank is expected to discuss the rates. For the time being, it remains at 3.75%, whereas the market price of money continued to grow accordingly to the development in the world, in Europe and elsewhere. Speaking about the longer tail curves, 10 years IRS at 5.03%, which is up by 86 bps during last 12 months. For three months, PRIBOR 3.87%, and it added 36 Bips. Speaking about exchange rate and Czech koruna, it is rather stable, even though due to the pressures on the international markets, Czech koruna is weaker vis-à-vis euro by 0.7% on Q on Q basis, and is slightly weaker vis-à-vis US dollar by 1.1%. All of that translated into our commercial development. Let me invite you to page number eight.
You can see that speaking about loans in KB during the first three quarters and the third quarter of 2026 was represented by very strong and dynamic development and across the segments, which makes us happier twice. Speaking about the total numbers, it is 11.1% higher compared to the third quarter of 2025. Vis-à-vis the second quarter of 2026, we are growing by 2%. When putting the cut in place, the housing loans are growing by 7.5%, business and other loans by 14.8%, and consumer loans by 7.8. Speaking about business loans only, we can say that across the board, midcaps, large companies, and companies provided by financing from our 100% subsidiary, SGEF, were growing in double digit 11.1, 15.4, and 13.7% between those three main categories.
When we zoom a little bit on mortgages, and mortgages became part of public discussion here in the Czech Republic also, thanks to comments made by politicians. We are not surprised because affordability of housing is one of the cornerstone of public discussion, probably everywhere in Europe. Those were slightly cooled down by minus 2.0% between the third quarter of 2025 and third quarter of 2026. Whereas between Q2 and Q3, the fall is even sharper by 38% of new production. That is given by two aspects. First of all, the mortgages are becoming a bit more expensive compared to the previous years, and there is continuous increasing of prices of housing. We can go to next point. Here you can see that Komerční was all over the place as far as financing of Czech corporate clients are concerned. We were in public sector, in private sector.
We were across the segments, large companies, mid-size companies, municipal financing, and others. Obviously, some of those transactions which you see on your screen have a transformative character for clients on their own, which we like a lot to be the one who is providing with the service and accompanying the companies with continuing support. Next page, please. Now we are moving to deposits. Deposits were growing by 6.7%. It was mainly driven by saving accounts. Komerční continues, let's say, coming back to the market of deposits because back in 2022, 2023, probably we were not agile enough to follow the trends of behavior of our clients, mainly in retail. We are coming back largely, and we are filling the gap on the side of saving accounts whilst defending our position in current accounts.
We can say that on both sides, business and retail, we are growing our deposit base rather strongly. When speaking about individual deposits, it is growing by 11.5%. On the other side, and being very realistic, we are not super champions on the side of assets under management. Here we are growing by mediocre 0.7%. Nonetheless, inside the categories, which for us is represented by mainly three categories of products, investment funds, pension schemes, and insurance. The two latters are growing by positive 7.3% and 4.4%, whereas the investment funds are slightly going down also partly due to the fact that we have probably created a bit of competition between the saving accounts and the short-term solutions, which are part of our proposition for clients in investment products. I will stop myself here and I will hand over to our CFO, Mr. Jiří Přibyl, who is replacing me on the stage.
Jiří, it is yours.
Thank you, Jan. Good afternoon, ladies and gentlemen. It is my honor and pleasure to guide you now through the financial results of Komerční banka for the first nine months of this year, and as well for the third quarter as itself. During this time, Komerční banka delivered quite solid financial performance, as you will see now in the details. I am pleased to comment on the growing revenues quarter by quarter by 1.4%, and on a year-to-year basis on 1.8%. As you will see, we are not only growing nicely in the revenues, but we are still keeping under the control our risks and as well our expenditures. Now speaking in detail about the profit for the first nine months. Let us look deeply into this nice waterfall chart. I will now comment three main components of the delivery and of the movements in the P&L.
Starting with the NII. Year-over-year, we have delivered nice CZK 390 million uplift compared to the previous year. Similarly, in the NFC net fees and commissions, we continue to grow compared to the previous year by CZK 165 million. Those are contributors to our revenues. Speaking about the third element, which I want to again compare here compared to the last year, it is OpEx, where we are able to decrease these expenditures by CZK 309 million year-over-year. Speaking about the cost of risk, the part of the graph which is highlighted in yellow means that it is important to start my speech about the highlight of the last year. We have been releasing quite significant volume of the cost of risk in 2025. If you recall well, we have released CZK 1.4 billion in this respective time.
Now what we are seeing that we are releasing less compared to the previous year, but we are still in the period of release of the provisions, so the impact is seen as negative year-over-year. However, we are still quite positive and we are backed by the strong credit portfolio, by the strong management and resilient portfolio of the loans. Speaking now about the profitability indicators for the first nine months. I will highlight those which are linearized by the IFRIC 21. We have delivered, in case of ROTE, 16.1%. For the other return on average equity, we are 14.2. 17.7 in case of the average Tier 1 capital ratio. From the perspective of the return on average assets, we are keeping 1% return. Let us move now to the next slide, which will describe the evolution of the balance sheet.
I have to highlight here that, as you can see, there has been a quite significant move quarter-over-quarter. There are actually two drivers for that. One coming from the business and second one, which will be the starting point of my presentation, is structural change or structural input for our liabilities part of the balance sheet. During the third quarter, as Jan already presented, we have issued covered bonds in amount of EUR 2 billion, and as well, we have issued Tier 2 capital in amount of EUR 200 million. This has been a significant increase of our liabilities, meaning naturally that we are impacting the balance sheet itself. Those proceeds from these newly issued bonds have been mainly allocated to the repo operations with the Czech National Bank, and those high liquid assets are then, for that reason, increasing quite significantly year-over-year.
From the business perspective, definitely you can see the prints of what has been presented in the previous part, meaning that the loan production is year-over-year increasing nearly by 10%. As well on the deposit, we can see nice results of our deposit production in terms of 5%. I think we can now move to the next part of the presentation, and we will be speaking about the profit and loss. Here I am quite proud that we can describe nearly in all category of our NBI that we are improving quarter-on-quarter or year-over-year. Speaking firstly about the NII, all components of NII have actually contributed to a nice result that we have had in the last quarter and in the first nine months. Speaking about the first nine months, we have reached together CZK 19.7 billion of the NII.
Whereas the third quarter itself has contributed roughly CZK 6.8 billion, which means that it was the strongest quarter in this year. We are growing quarter-over-quarter by 3.8% and as well by 2% year-over-year. As I said, all the items were contributing, and I will speak just only about two, deposits and loans. The 1% growth in these items is actually given by the combination of effects starting from the positive effects of the volumes, which have been commented earlier on, and kind of the pressure on the spreads, which is naturally and continuously commented from our side. Last but not least, we have still nice contribution from NII from our investment banking, which is growing year-over-year by 12% and well contributing to the overall result of our interest income.
Let's move now to the next part of the P&L, and to comment our fees and commissions. Again, similarly as in case of NII, we are speaking about nice year-over-year growth. This case, it's about 3.2%, and we have reached in the total number CZK 5.3 billion of the fees and commissions for this year so far. Speaking about the quarterly result, we have balanced more or less the previous quarter in CZK 1.8 billion. If you are realizing on the graph that we are slightly below, I would say this is rather a result of the seasonal effects, but we are on a quite nice level and as well growing year-over-year for the quarterly results. Now, should we be speaking about the individual contributors to the NFC? I would comment those.
Firstly, net fees from the cross-selling, where we are continuing to collect a quite nice result from the sales of the mutual funds and investment solutions, and we are growing by 10% year-over-year. Similarly, meaning by the same pace of the 10%, we are growing in the deposit product fees, which is a good and positive result of the higher number of the clients and our progressive ability to increase the tariffs for our client. For the overall fee performance, the overall result is a result of our clients' activity and continued effort to increase the cross-sell, as in case of the mutual funds investment solutions, and broader product offering for the clients from our side. Let's now move to the next slide, and we will speak about the result from the financial operations.
This is the only case where we are year-over-year and as well quarter-over-quarter decreasing our results. I have to highlight here that we don't see actually any structural change or any missing point in our engine. We are rather speaking about the slower than the usual run rate, which might be impacted by the several aspects which I will now comment on. With the aspect for the year-over-year results, we have delivered CZK 2.9 billion for the first nine months, and roughly CZK 0.9 billion for the third quarter itself. Speaking about the evolution, year-over-year quarterly results, you can see it on the graph that we are quite significantly below. But let me here highlight one important point, which is important to keep in mind.
That the third quarter of year 2025 was the highest ever quarter in terms of the result for the financial operation. We are here comparing the best one versus rather usual quarter or rather slightly below the usual quarter. I would here keep rather the stance and nothing extraordinary is happening. The reason and the drivers for the lower production and lower results in terms of the financial operations are following on. On the capital markets, we are living now in the situation that the interest rates are rather stable or increasing. Same for the FX, where the Czech crown versus the main foreign currencies is developing more or less on the stable level, which is then perceived by the clients in relation that they are less active in the hedging operations and the operations which are helping them to protect against the unexpected evolutions.
From the perspective of net gains on the FX payments, this quarter was quite mixed from the two aspects, which is usual rather for the third quarter of any year. First one, those clients that are traveling are using more FX conversions. This is positive impact. At the same time, our new offer of multicurrency account gives the client a benefit of slightly beneficial for us conversion opportunity. The clients are benefiting from our offer, and this is again, going slightly against our results. As I said, overall, we don't see any structural impact in the result of the financial operations. This is all from my side for the financial operations, and we can now move from the P&L perspective to the OpEx side, to our expenditures.
Speaking about the expenditures and seeing the result that we have reached during this quarter, I can only confirm that Komerční banka again delivered a quite nice result and what we are promising. We have had the cost very well under the control. Year-over-year, we are decreasing our cost by 2.1%, and we are reaching roughly CZK 6 billion. Sorry for the personal cost, but the overall CZK 12.5 billion. For the quarterly result, we are, during the third quarter, on the lowest quarter expenditures during this year. Our cost during Q3 reached roughly CZK 4 billion. Let me now touch individual categories that I want to highlight for the costs. I will start with obviously the biggest one, personal cost.
We are year-over-year decreasing by 4%, which is natural result of our actions taken towards the management of the labor force. We are year-over-year decreasing the staff of the group by 8.8%. I think it's important to highlight here the expected steps that we will take further. We expect that we will continue in this trajectory for the first quarter and further of the next year. We will continue in decreases of the FTEs in the company. For that reason, we will book in the next quarter a dedicated provision in amount of CZK 150 million. This is not yet booked. It will be in Q4 2026. For the general administrative expenses, again, we have been able to reach a decrease by 4% year-over-year.
Studying the details we have identified, this is actually going across the board for all main items in the cost category. Nothing really specific to be highlighted. Going to the gray part of the upper right graph about the depreciation, that is quite steady and expected evolution of the depreciation as we are implementing the IT stuff that has been developed in the past years. In contrary to that, we see there is a positive effect as we are decreasing our retail network and as well our real estate portfolio, which is connected to that. I have to now comment as well our indicators related to the cost in relation to our revenues. Both are actually confirming that we are well on the track that has been expected and has been communicated prior to our investors.
Vis-à-vis the quarterly cost to income ratio, it has decreased by 1 percentage point to 42.1%. In case of an efficiency ratio on a full year basis, it is about 44.2%. This was all about the individual categories of profit and loss. Now let me speak about the situation in the asset quality, in the cost of risk, where we are continuing in actually very good performance. The portfolio itself is confirming its sound quality as well the quality of the risk management on our side. For the first nine months of 2026, the net cost of risk amounted to plus, so meaning release of 144 million CZK, which is equivalent to minus 2 basis points. For the third quarter itself, we have released only minor part in amount of 5 million CZK.
This is still, as we are commenting, an exceptional situation which the bank is about quarter. We are now speaking about the seventh consecutive quarter, releasing the provision for the cost of risk. The drivers for the evolution during the last quarter were some updates of IFRS 9 provisioning models and methodology, but we are still step by step heading towards the regularization of our results from the cost of risk. Moving now to the next slide, which is describing the asset quality of Komerční banka. We are continuing in the trend that you have been able to see in the previous presentations. Speaking about the left bottom graph on the page, you can see the NPL ratio evolution, which is decreasing quarter by quarter, and we have reached now 1.4%, which means that when comparing year-over-year, we are down by 40 basis points.
As a result of resilience of our portfolio, as a result of resolution of some NPLs, you can see that on the right bottom side graph on the page, we are showing the NPL provisioning coverage ratio, which is quarter by quarter increasing. This quarter, we have reached an amount of 52.4%. We have actually crossed 50%. For your reference, we have been there only three years ago. We are back above 50% after three years. This was remarks about our good quality of our portfolio and our assets. Let's move now to the next part, which is covering evolution of the capital adequacy and related stuff. Last quarter, we have been presenting here a decrease in the capital adequacy up to the level of 17.31%.
The actions that we have taken during the last quarter made us again to return on the path where we want to be in terms of the capital adequacy, and those steps are visible mainly on the bottom right graph on the page. Let me now comment on the most important pieces of the graphs. Starting with the one who is actually supported the capital adequacy during the last quarter and its T2 issuance in the third quarter, together with the one which has happened during the first quarter of this year, helped us to increase the capital adequacy compared to the end of 2025 by 174 basis points.
The other important aspects and impacts for the year to the evolution of the capital adequacy are indeed booking of the current year profit net of the provisions for the dividend distribution, which is helping us on a cumulative basis. The profit provision is indeed on the level of 80%, which are regularly communicating. An important point to highlight, which is quite natural, that in line with the growth of our loan portfolio, risk-weighted assets, which are increasing, have eaten up part of our capital adequacy, and at the end of September itself, it was 86 basis points. But as visible, we are able to easily cover the natural growth of our portfolio and be ready for the further growth of our businesses. We have now commented the risk-weighted assets. Let me continue with the risk-weighted assets.
As you can see in the table on the left side, we have grown in risk-weighted assets from the beginning of this year up to the amount of CZK 616 billion at the end of the September. Quarter-over-quarter, you will, however, see that we have decreased slightly the risk-weighted assets by roughly CZK 12 billion, which is a result of the kind of natural mix of the portfolio and the evolution itself. There has been no significant move, rather slight decrease. Overall, I will end up my comments about this capital evolution by the words that now being at this level of 18.33% of the total capital adequacy, we are somehow at the top of our higher range for the capital adequacy where we want to be. This is all for the description of the capital adequacy and evolution of the capital.
Let me move to the last slide of the first part of the presentation of the quarterly results. I will now comment on our outlook for the year-end 2026. Speaking line by line, I believe that the nice commercial momentum that you have seen in the presentation for the first nine months, it's no surprise that we believe that it will continue, and there is no change for our comments toward the loans and deposits evolution. We keep this high single-digit growth for both categories as a projection for the year-end. In terms of the revenues, as we have seen the results of the first nine months, seeing the inputs from the various angles, from spreads, from the evolution of the volumes, we believe that we have to downgrade a bit our target from the mid-single-digit growth to low single-digit growth, which is now the case.
For the operating expenses, as you have seen, we have it well under the control, and we do not expect that nothing surprising will happen till the end of the year. We keep here our target that we will stay flattish till the end of this year. As a result, our cost to income ratio will be around 45%. Here we are actually compared to the previous quarter, moving to the upper end of the interval that we have been indicating, which is naturally a result of the change of the target for the revenues. As I said, in terms of the cost, we will stay where we have expected to be. Moving to the next line, which is describing our target for the cost of risk. Last quarter, we have been indicating roughly 10 basis points of the creation for the year 2026.
We are now decreasing our expectation and going down to the creation of roughly five basis points, which is more or less connected with what I have already said in the previous part of the presentation, that we expect step-by-step regularization of the cost of risk reportings to the level that we were before we have started to release. I believe this is in line with what we are saying. In case of ROE, we are confirming the range that we have been presenting in the previous parts, previous quarters, and adding here ROTE so that you can actually have both these items on the same page, on the same row, actually compare them together. For the last line, we are here speaking about the total capital ratio.
As we have been just discussing on the previous slide, we have made our steps towards our expectation, and we expect to be still in the range of 17.0% to 18.5% at the end of this year. Speaking of these targets, I would like just to highlight one of the key risks identified. We have added a new one, which is related to potential taxation discussions here in the Czech Republic. We are, again, showing it here. Before handing over to the Q&A session, I will make a short bridge between the presented results and outlook for 2026 and our feelings towards 2027. I will not give and share any guidance on 2027 results, as this is always done by Komerční banka during the 2026 results release in February.
I believe that now it is a good opportunity to outline a few trends that we see that could be helpful for you to understand our further thoughts. Based on the gradual translation of the dynamic commercial momentum into the revenues you have already seen during this quarter, we expect further acceleration on interest income in 2027 compared to this year. Our ambition in fees for the next year is rather to confirm solid results of year 2026. We also expect that there could be a positive contribution from the financial operation. As a result of this, net banking income should improve in the territory of mid-single digits next year. On the operating expenses side, I believe that nobody will be surprised that we continue to have the cost under our control.
Altogether, this mixture between the revenues and between the costs, strict cost control, we plan to deliver high single-digit increase in gross operating income for the next year. Regarding the cost of risk, I will just follow up what I have just said. We expect a normalization in this item towards the gradual rates, which you were used to see prior. This concludes actually my presentation about the financial results for the third quarter of 2026. I will now hand over to Jakub to guide us throughout the Q&A, and I invite as well Jan to accompany us here.
Thank you, Jiří. Thank you, Jan. This has concluded the part presenting the third quarter results. Before moving on to discussing our strategy and midterm outlook, let us now make a short break or short space for questions related to current performance in the third quarter and nine months. We will address the questions on the medium-term outlook and the strategy after the next session dedicated to the strategy. If you wish to ask a question, please click on the raise hand button on the top bar of your screen, and then please wait for me to call you. I can see that our first question will come from the line of Jovan Sikimic from Oddo BHF. Jovan, please go ahead.
Thank you. Thank you for the presentation. Good afternoon. Just have a short one. I think you mentioned just a couple of minutes ago the reasons for risk-weighted assets drop in Q3, something like natural terms. Can you maybe just once again explain? Because I think there was a shift in the lending book, less of housing loans, more of consumer loans, which will normally have higher risk weight. Just maybe to repeat what you said to understand properly. Thanks a lot.
Thank you for the question. I believe that it was rather to comment that despite the fact that we see slight growth of the portfolio itself, we see, again, a shift between the individual categories of the portfolio, which resulted in a tiny decrease of risk-weighted asset. I would not see any structural change on up or down. This is rather negligible impact, which I wanted just to highlight that we are not extensively growing as well in risk-weighted assets. I would not put in it a huge attention.
I would maybe add one sentence. Visibly, consumer loans in retail banking were growing faster than mortgages. One should spot that they are growing from much lower base, first. Second, they are bringing back pretty satisfactory gross margin. So our aim is to push those consumer loans where the penetration of our clients with our consumer loans seem to be rather low. On the other hand, mortgages from commercial perspective is we are occupying anything between 18%-21% of market share, which is probably above our natural positioning in retail banking. Nonetheless, we have the luxury to turn our attention to those parts of mortgage portfolio which are bringing back also satisfactory returns. This is slightly also behind the sentence of Jiří.
Thank you. And our next question will be asked by Mate Nemes from UBS. Mate, please go ahead.
Yes, thank you very much. Just some questions on volume growth and NII. It is clear that you are showing growth strength in terms of corporate lending and also in retail. We saw another good quarter despite the normalization in housing loan growth. I was just wondering if you could give us a bit of a sense what you see in the pipeline in the next couple of months. Also, how shall we think about new mortgage production? Are we going to see, or would you expect a stabilization in new mortgage production around the current levels? Or would you see perhaps some further downside from here, given the affordability of real estate and higher borrowing costs? That is the first question. And the second question is on the 2027 outlook. You mentioned that you would expect further acceleration in interest income.
I was just wondering if you would clarify what exactly that means in quantitative terms or at least ballpark. That would be helpful. Thank you.
Mate, on the second question, may I refer this one to the next phase of our meeting today? Because I think we will provide some context to 2027 and onwards in the next part. So of course, please don't hesitate to bring this question back, but let us now focus on the first question and refer back again.
If I can kick off here, I am not sure I got the entire question. I will address the latest part, which was related what can we expect from the origination of mortgages. Mortgages in the Czech Republic were totaling at highest ever levels from volume perspective across the market. They were going without up pricing, if I may say, in the second quarter and first quarter. Komerční banka was one of the first who started to chip a little bit higher prices into the new production because simply we didn't want to run the portfolio of the new production at super stretched margin. Not too surprisingly, other main players followed us in going with the prices a little bit up. I am afraid that this one, the normalization of margins would be continuing trend over the time.
Obviously, what we don't know whether the cost of funding will be stabilized over time or whether it will be further growing. That depends, obviously, on the market situation. As a result of it, those mortgages might be a little bit less attractive for people. Hence, I would rather expect, again, normalization of the new production and potentially supported by what we hear occasionally from the government, by some help to youngsters or to people who are getting the first mortgage, et cetera. We will see.
Okay. Thank you. Our next question comes from Krishnendra Dubey from Barclays. Please go ahead.
Thanks for taking my question. I think it was pretty straightforward. I guess I was reading about this pension reform that government is bringing in, and you also have clients with assets which are managed by the KB Penzijní společnost. I guess in just those terms, trying to understand the fee impact that could happen with the new regulation coming in. That would be one of my questions here.
Is it a new regulation of pensions? Is it this one? We have the public outcomes of the discussion in press, and we have the main characteristics of the new regulation somehow described in the public domain. Nonetheless, the law has not yet been adopted, has not yet passed through the parliamentary voting. We will need still to wait which kind of potential adjustments or fine-tuning might the key indicators take on the way to be eventually approved. So it is probably too early to go to too many details of that. We are ready for the new scheme. Even in the most skeptical scenario, we believe that it will hit the entire market, and we have somehow quantified what portion might go after Komerční's pension company.
But I would wait with more detailed and more precise comments after we really know what are the very final valid and effective indicators which are changing the overall structure of the scheme. We do believe, though, and I will keep myself in the fees and commissions for the time to go, that we would be able to increase our
the contribution of fees and commission into the entire basket of revenues by higher efficiency on the side of investment solutions and on the side of insurance, even though the pension schemes might be a little bit harmed, especially at the beginning of the period. I do not know, Jiří, if you want to add anything on that front.
No, I think it is well described. Nothing to add. Thank you.
Thank you very much. Let me now propose to have a five minutes break so that we can prepare the next phase of our today's meeting when Jan will be presenting our updated strategy to 2029. See you again in five minutes time from now. Thank you.
Thank you.
Thank you for questions.
[Break]
Ladies and gentlemen, welcome back. Again, let me share with you my thanks for the attention we are paying to Komerční banka and our performance. After presenting the results for the third quarter, let me also now share with you an update to Komerční banka strategy for the period to 2029. I would like to explain how we intend to use the capabilities created by the KB 2025 transformation program to support profitable growth, higher operation efficiency, and to resilient risk-adjusted returns and attractive shareholders distribution. The banking market is changing rapidly. Intense competition, evolving regulation, technological disruption, and rising customers' expectations are increasing both the cost and complexity of doing business. At the same time, greater price transparency, changing deposits behavior, and pressure from digital challengers are making revenue growth more difficult to achieve.
In this environment, sustainable growth requires sharper strategic choices, faster execution, and strict focus on risk and resources-adjusted returns. Over the past several years, Komerční has undertaken one of the most complex and largest transformations in the Czech banking market. We replaced the core system of our retail technology, introduced the KB+ platform, simplified our product architecture, and reshaped the overall distribution. We delivered this while continuing to grow the business and maintain strong profitability, and sharing the profitability with investors. Our key strategic question now is the following: how do we convert the transformed foundations into stronger and more consistent economic outcomes? Our answer is not growth at any price, nor a new wave of large-scale transformation spending. It is a more selective and execution-focused model. We will direct capital liquidity costs and management attention towards opportunities that generate attractive returns.
We will continue to simplify the bank, and we are good in that. Use digital channels and AI to raise productivity and preserve the robust risk and capital profile that has long been a strength of Komerční. Today, we will cover the platform we have built, the choices we are making in retail and corporate banking, the revenue and cost trajectory, our approach to AI and emerging risks, and finally, the capital framework and 2029 scorecard. KB's next chapter is turning digital transformation into sharper returns. The slide you have on your screens summarizes the evolution of Komerční in three distinct chapters. In 2018, KB Change, what was the name of the program, began shifting the organization away from rigid processes, internal complexity, towards more client-centric culture. This involved restructuring of the organization, removing management layers, widening spans of control, and introducing agile at scale.
The second chapter, KB 2025, was the digital transformation. We treated mandatory technology renewal not as a replacement exercise, but as an opportunity to redesign retail banking. The result is a new digital bank, including a modern core, a new client platform, simplified products and real-time data capabilities, and a substantial leaner physical footprint. We cut the number of branches in the country by approximately one half. The third chapter, from now to 2029, is about disciplined, lighter, and leaner execution. We will leverage our strong client relationships and the new digital bank as foundations for growth, but combine that growth with a sharp focus on returns. This means choosing where to grow, choosing which products to scale, and being explicit about the resources consumed by each opportunity. It also means using automation, AI, procurement, operating model optimization, and selected Société Générale Group synergies to reduce the cost base.
Our value ambition for 2029 is an ROTE above 16% and a cost-to-income ratio below 40%. Instead of ROE, we are shifting to targeting ROTE to improve comparability with other banks. These two metrics should be considered together. The strategy is not dependent on aggressive revenue assumptions alone. It combines realistic revenue growth with a nominal reduction in costs, and we are very good in managing costs. The continued resilience of asset quality and better utilization of our established risk appetite and optimization of the capital structure. The comparison with 2025 also requires care. We are moving from a period of exceptionally low cost of risk towards a more normalized level as we make fuller use of available capacity within our unchanged risk appetite. Achieving approximately 60% of ROTE despite the normalization would demonstrate the strength of the underlying operating model.
This strong capital generation should support attractive and sustainable shareholders' distributions. We reiterate our dividend payout guidance of 80% for the 2026 result and are committed to distributing at least 70% of annual net profit for each of the years between 2027 to 2029, subject to financial performance, capital and liquidity requirements, regulatory approvals, and other relevant considerations. The central message is therefore straightforward. The transformation has been delivered. The next phase is to extract the commercial operating and capital benefits with discipline. KB+ is a future-ready digital bank. KB+ is sometimes described as our new application that significantly understates what has been built. KB+ is an integrated digital banking ecosystem based on a modern core. It connects the product engine, the transaction processing, data, and client interface into a platform designed for real-time scalable banking. This foundation has already changed our ability to innovate.
Time to market is approximately 3 times faster than it was back in 2020. Product complexity in retail banking has been reduced by 95%, which simplifies client choice and servicing and makes digital delivery more scalable. Real-time data creates the basis for better personalization, more effective engagement, and increasingly responsible AI use. On the client side, 1.8 million clients are now in the KB platform. The proposition is radically simpler, but it is not narrow. KB+ has the comprehensive functionality required to compete effectively with both established banks and digital challengers to compete, not to complete. So thank you for also accepting my small mistakes in the pronunciation. We are ready to face our traditional competitors on the market, including the digital challengers, which are so resistantly stepping in each and every market.
KB+ is holding the multicurrency proposition, dynamic pricing capabilities, instant payments as a default mean of payment, integrated authentication, and consistent experience across mobile, web, or brick-and-mortar branch. The combination is important. Digital challengers often compete on simplicity and user experience, while universal banks compete on breadth, advice, trust, and balance sheet capacity. KB, thanks to KB+, allows to combine these strengths, simple digital experience with the product breadth and advisory capabilities of a leading universal bank. The distribution model has also changed. More than half of the physical footprint has been removed since 2019, while the digital engagement and the digital sales have increased materially. The share of digital sales is now at 52%, and it used to be 14% back in 2020. This lowers the incremental cost to serve and allows branches and relationship managers to concentrate on advice, more complex needs, and higher value opportunities.
The strategic focus now moves from platform construction and migration to adoption engagement, cross-selling, and operating leverage. The platform is built. The task is to use it more intensively and more intelligently. KB 2025 transformation delivery, as you can see on the screen, is proving the evidence that the transformation was delivered without putting the franchise on hold. Client acquisition more than doubled following the launch of KB+ in 2023. Gross retail customer acquisition increased from the territory of 70,000 to 90,000 to the range of 160,000 per year after KB+ was launched. That is a material change in our ability to attract clients, particularly through digital channels. You can see this evolution just below on the left-hand side. Digital sales rose from 14.6% to 52%. That is not simply a channel statistic.
It changes the economics of growth by reducing the incremental cost of acquisition and servicing, and it frees employees' capacity for advice and complex clients' needs. Deposits grew at approximately 5% per annum, between 2019 and 2025. Loans grew at around 6% per annum. This demonstrates that the franchise continued to expand while the underlying infrastructure was being replaced. At the same time, the number of employees of KB Group declined by 15%, from 8.2 thousand to 6.9 thousand. This was achieved alongside business growth and reflects ongoing productivity gains. The physical network was also substantially reduced, as shown on the previous slide. Finally, we have been able to maintain very consistent profitability, averaging almost 14% over 2019-2025 period, including COVID period, including the war on Ukraine, which included significant transformation commitments, major economic volatility, and changes in the regulatory costs.
Maintaining solid profitability throughout is important evidence of execution capacity of Komerční banka's team. We are not claiming that every benefit has already been realized. Some benefits, particularly in IT area, run costs, automation, personalization, and the simplification of servicing will continue to emerge as the platform matures. But the high-risk delivery phase is behind us. The platform is operating at scale. We have completed migration of individual clients, and the bank is ready to focus on monetization and efficiency. Our strategy to 2029 is built around three linked elements: a competitive foundation, profitable growth, and shareholders' value creation. First, the foundation. KB holds a top-three position in profitable, highly competitive, and stable Czech banking market. The market's attractive returns continue to draw capital and competition, so incumbency alone is not enough. We are convinced that our advantages are the scale and quality of our franchise.
2.3 million KB Group clients, a strong position in retail market, including among affluent clients, leadership in corporate banking, and a modern scalable KB+ platform. The Czech economy remains very resilient with growth rate close to 2.5%, inflation and public finance under control, while a relatively low penetration of credit and selected financial products. That all provides headroom for organic growth. Second, the strategy will deliver profitable growth. We will prioritize opportunities based on risk and resource risk-adjusted returns. Growth will be assessed not only against credit risk, but also against capital, liquidity charges, and operating costs, and the profitability of the broader client relationship. Digital sales and the new client proposition allows us to grow at low incremental costs. We intend to reduce costs through simplification, through automatization, through AI, and through operating model optimization, and through selected Société Générale Group synergies.
We regard gross operating income or profit before credit loss provisions as a key measure of profitable growth. Under this new plan, we target an acceleration in gross operating income growth to approximately 7% per annum over 2026 and 2029, which is mainly supported by the revenue expansion and continued improvement in operating efficiency. We will continue to use a robust risk framework while making better use of the capacity already available within the established risk appetite and addressing effectively also newly emerging risks. Capital allocation. Capital allocation will remain very disciplined with strong capital levels and a more efficient capital structure. Third, shareholders' outcome. Our baseline ambition is annual mid-single-digit revenue growth. We target a cumulative 5% reduction in costs in 2029 compared with 2025, and consequently, very strong positive jaws. We expect steadily growing the net income with low volatility and resilient ROE.
Strong organic capital generation should allow us to fund growth, preserve prudent buffers, and provide attractive sustainable dividends through the cycle. We intend to distribute at least 70% of annual net profit for each of the years between 2027 to 2029. We also reiterate our guidance for an 80% payout ratio for 2026 result. The key point is that none of the three pillars works alone. Growth without resource discipline would dilute returns. Cost reduction without investment and client relevance would weaken the franchise. Distribution without a strong capital base would not be sustainable. Our strategy connects all of them. We have a competitive foundation. We can increase the growth rate. We will deliver attractive low-risk returns to our shareholders. Let me shed a bit of light on our retail banking. We want to outgrow the market.
Our ambition in retail is to grow faster than the rest of the market, but not indiscriminately. We will focus on opportunities that generate attractive returns. The route to doing so rests on three engines. The first engine, acquisition and activation. The second, scalable distribution model, and disciplined profitable growth. In acquisition, we plan to acquire 150,000 new clients. For us, new discipline, and we prove that we can do that. With this annual increase, we will gain 2 million clients by 2029 in organic way. KB+ gives us enough confidence and the digital onboarding and servicing environment capable of supporting this level of scale. You have seen we have delivered this or even higher pace of acquisition in the years following the KB+ launch. However, acquisition of clients is not sufficient on its own. We need active multi-product relationships.
We will industrialize offer personalization, increase client engagement, and capture a greater share of clients' financial needs. Our ambition is to increase revenue per client by 15% through stronger cross-selling. The differentiated proposition combines digital convenience with expertise. We want to help clients across their financial needs from everyday banking and borrowing to investments, insurance, and wealth. AI-enabled personalization will support more relevant offers and interactions, but with clear customer protection and data governance standards. The second engine is distribution. We have developed a scalable distribution model, and we will continue to reshape the network towards a structurally leaner and more integrated model with lower cost to serve and improved client convenience. KB+ will remain the primary sales and servicing channel for standard needs or clients in retail segments. Remote advice will scale, while branches will be focused more on higher value advice and complex client situations.
Branches will continue to be complemented by a more flexible KB Poradenství network of our exclusive tied agents. The contact center will increase its sales contribution while preserving its core service function. Digital sales are targeted to rise further to approximately 65% of our retail production, reducing cost to serve and improving convenience. We will also increase automation in small business credit decision-making. The objective is not to remove judgment where the judgment is needed. It is to automate more standard steps, shorten the turnaround times, and make relationship manager capacity available for client acquisition and for advice. The third engine in retail is disciplined profitable growth. Consumer and small business lending should grow faster, but within our return thresholds. We will manage mortgage portfolio growth tactically to ensure adequate profitability while benefiting from our newly developed capabilities, including the faster time to market provided by our new mortgage factory.
We target a sound growth in fees, primarily through faster growth in client investments and insurance, where we see significant potential, and by supporting clients across their wealth needs, increasingly including intergenerational wealth transfers. The common principle is to scale products and interactions that improve client outcomes and generate attractive returns after risk and resource consumption. This is how we intend to outgrow the market without recreating complexity or rebuilding a costly distribution model. Let me turn to corporate and investment banking now. This bank was born as a corporate bank. Here we feel home. We are keeping our leading position and we want to ensure that long term we keep this position. We will turn corporate investment banking into a flagship which continues preserving our value creation through highly intimate level of clients relationship throughout the corporate segments.
In this particular point, KB enters the new strategic period from a position of strength. We have a leading corporate banking franchise, deep client relationships, broad capabilities across lending, transaction banking, and investment banking. We have Société Générale at hand with a full scale of expertise in M&A, in advisory business, in financing, structuring the balance sheet, and similar. Our objective is to preserve this strong market position while improving the long-term economics of this business. Lending will remain the principal revenue engine of corporate investment banking. Corporate clients continue to require financing for investments, working capital, acquisitions, and transformations in the country or outside the country. We believe there are attractive growth opportunities within our existing risk appetite, particularly in selected sectors and client segments with strong structural potential. At the same time, we will not pursue loan growth indiscriminately.
We will prioritize value accretive transactions with strong profitability and efficient RWA consumption. Each opportunity will be assessed not only on the basis of its nominal margin, but also with regard to credit risk, capital consumption, liquidity consumption, and the overall profitability of the client relationship. This sharper prioritization does not represent a change of our risk appetite. It reflects our intention to use the existing capacity more effectively and to direct scarce resources towards most attractive opportunities. One specific growth priority is the mid-cap segment. We intend to strengthen our acquisition proposition through more flexible financing solutions and pre-approved lending limits for eligible clients. This will make our offer faster and more competitive while maintaining disciplined underwriting and appropriate risk controls. However, the development of CIB cannot rely on balance sheet growth alone.
More than in the past, we will focus on revenue streams that require limited capital or liquidity. These activities can deepen client relationship, diversify revenue streams, and improve returns generated by the franchise without requiring proportional growth in the balance sheet. Investment banking is an important part of this ambition. We plan to expand our offering, combining our knowledge of the Czech market and close client relationships with the broader expertise, product capabilities, and international reach of Société Générale Group. These products meet increasingly complex clients' needs. They also generate fees and transaction income with relatively limited balance sheet consumption. By increasing their contribution, we can improve the quality and diversification of CIB revenues while supporting clients in managing their financing, market, and strategic risks. Transaction banking offer is a similar opportunity.
We will increase API connectivity between KB and the client accounting systems, allowing our payments, cash management, and treasury services to become more deeply integrated into clients' daily operations. Greater integration should support transaction flows, client retention, and recurring revenues while keeping the incremental cost to serve at relatively low level. We will also deploy an upgraded e-trading platform. This is an existing platform. After the upgrade, it will be available to larger scale of clients, and it will contain larger scale of products. We believe that by increasing transaction volumes through e-trading, and making it accessible for a broader client spectrum will bring obviously more benefits for us. The next important element of the strategy is a simpler and more scalable operating model. We will accelerate the credit approval process through increased automation.
The objective is to automate more standard processes, improve data availability, and shorten the turnaround times while retaining the expert judgment where it adds value. Eligible mid-cap clients will be onboarded onto the KB+ platform, which already holds corporate clientele product proposition. We will also further digitize and automate our KYC reviews. Together, these measures should improve the client experience, reduce manual processing, and allow relationship managers to focus more on acquisition advice and complex financing opportunities. The strategic direction is therefore clear. Lending will remain at the core of CIB, but loan growth will be increasingly focused on transactions that generate attractive returns after accounting for risk RWA and liquidity consumption. Alongside lending, we will expand capital efficient revenues from investment banking, from transaction services, and from digital trading and advisory activities.
By combining selective balance sheet growth with a broader contribution from fees and the transaction income, we aim to preserve KB's leadership in corporate banking while improving revenue quality, scalability, and risk-adjusted returns. Approximately 4% revenue CAGR ambition is our aim for between 2026 and 2029. We target revenues of more than CZK 43 billion in 2029, compared with approximately CZK 37 billion in 2025. This represents cumulative growth of around 16%, approximately 4% per annum. Our NII momentum is set to build in 2027. It is important to bear in mind that the banking market is becoming more demanding with intense competition, technological disruption, rising customer expectations, and evolving regulation, making revenue growth harder to achieve. Although we believe we have answered for all of these challenges. Our revenue ambition is supported by a broad set of drivers rather than a single macro assumption.
We expect mid-single digit loan growth with faster expansion in consumer and small business lending. We expect deposit growth to remain aligned with loan growth, with faster expansion in retail and interest-bearing deposits. We will also continue approaching wholesale markets with issuance of debt instruments to support a stable, diversified, and cost-effective funding base. This protects the strength and diversification of funding while supporting balance sheet growth. Pricing and balance sheet allocation must reflect risk, capital, and liquidity consumption, the profitability of the overall client relationship, and market conditions. The objective is attractive risk returns, not simply higher nominal volumes. Client acquisition and product penetration are equally important. We expect improved revenue per client, supported by stronger engagement and cross-selling. As we build investments, insurance, wealth management and capital market, and other services, fee income should make a larger contribution to overall revenues.
Net interest remains an important revenue driver for us. But over the course of the plan, we expect stronger contribution from non-interest revenues components. More clients, broader product penetration, stronger fee income, and disciplined pricing create a more diversified revenue base. The roughly 4% annual ambition is deliberately grounded in the competitive realities of the Czech market. It is not based on assuming exceptional market share gains across every product. It reflects selective growth in areas where KB has capability, client relevance, and acceptable economics. Let me turn to costs. In this discipline, without exaggeration, I think we are pretty good. We target operating expenditure of approximately CZK 16 billion in 2029, around 5% below 2025 base of CZK 17 billion. This is a nominal reduction despite expected cumulative inflation of approximately 9% over the period.
As shown on the chart, we expect upward pressure from inflation of approximately 2.2% per annum. We will deliver gross savings of approximately 3.6% per annum on average, absorbing the inflationary pressures and delivering cost declines in nominal terms. The rate of savings will be different in each year because this program of the next wave of efficiency gains, it is this level of program rather than conventional cost containment. For reference, in the period of between 2020 and 2025, KB strategic plan delivered really cost savings. It means adjusted per inflation of some 2.8% per annum. Now, how we are going to achieve that. The first lever is the productivity through digitalization, automation, simplification, and AI. Better digital servicing reduces manual activity and the cost to serve. Automation will be applied to standard processes while employees focus on advice, exceptions, and higher value work.
The second lever is further optimization of the physical distribution footprint. This does not mean abandoning physical advice. It means aligning location, format, and capacity with changing clients' behavior and using branches where personal interaction adds the most value. The third lever is selective use of Société Générale Group synergies, including shared service centers. These capabilities will be used where they improve KB's economics, service quality, or control environment. They are a tool for KB's competitiveness and value creation for all shareholders, not an objective in themselves. The fourth lever is the maturation of KB+. During transformation, development, and dual running requirements were elevated. As the platform stabilizes and legacy complexity is retired, we expect lower development and maintenance costs. We will continue investing in the systems to keep them highly functional, evergreen, and competitive.
At the same time, lower development expenditure will result in gradually declining amortization charges from 2028 onwards. Finally, consolidating supplier relationships should strengthen procurement efficiency and reduce fragmentation and bring more cost savings. The cost targets includes continued investments in security, continued investments in regulation, data, and strategic capabilities. The aim is a structurally more productive bank, not short-term saving, that potentially weaken our future competitiveness. AI, we cannot not speak about it. Our ambition is to progress towards an AI native financial group. Of course, it does not mean replacing human judgment or deploying AI indiscriminately. It means progressively embedding AI into the way the group serves the clients, operates, develops technologies, and manages risks.
In productivity, we are building adoption through training and communities and selecting bottom-up use cases based on measurable business value and efficiency. Examples include faster access to knowledge, streamlined workflows, document processing, software development, and real-time copilots for bankers. In client relationships, AI will support targeting engagement and lead management. Voice bot and chatbot interactions will expand where they improve availability and convenience. Personalization should become scalable, allowing the bank to provide more relevant propositions across a large client base while preserving appropriate controls over data, suitability, and conduct. AI also supports the control environment. We plan to deploy Société Générale Group AI capabilities for communications monitoring and compliance controls. This is a good illustration of the advantage of group scale. KB can benefit from platforms, models, partnerships, and governance that would be more costly to develop independently.
Not speaking about the global trend of AI, which makes sense to answer in global scale. The technology foundation is convergence towards one data and AI platforms, shared models and governance to reduce duplications and create clearer standards for development, validation, and monitoring. At the same time, local accountability remains essential. KB is responsible for ensuring that use cases are appropriate for its clients, processes, and regulatory obligations. We recognize the risks. Inaccurate outputs, bias, privacy, cyber threat, fraud, model dependence, and third-party concentration. Becoming more AI-enabled, therefore, requires stronger governance, human oversight, and monitoring. We know that the trust of clients cannot ever be at stake. Our ambition is governed adoption at scale, not uncontrolled experimentation. Improving risk-adjusted returns, and I spoke about it already a couple of times. KB enters the strategy period with excellent asset quality.
The average cost of risk between 2019 and 2025 was approximately 10 basis points, with several years of very low or negative provisioning. We will maintain our prudent risk management standards, but we do not assume that such exceptional outcomes will persist indefinitely. Our established risk appetite provides approximately 20 basis points of available capacity. We intend to use that capacity more effectively to support profitable growth and to improve risk-adjusted returns. Importantly, the risk appetite itself is not being increased. We are improving utilization within existing boundaries, such as by faster growth of consumer and small businesses loans with attractive risk-adjusted returns. This is expected to result in a normalization of cost of risk from the unusually low recent levels. Let me reiterate that our risk appetite remains unchanged.
We see a clear opportunity to use the capacity more effectively by selectively targeting additional segments, particularly by extending lending to existing clients with established relationships. Risk-adjusted improvement also requires disciplined RWA management. Targeted significant risk transfers may be used where they improve capital efficiency and economic returns. Funding resilience will be reinforced through deposit growth and continued market issuance, preserving diversification and access to stable sources. The risk framework is also evolving to address emerging threats. We will further develop governance and tools for cyber and AI-related risks. AI create both direct model and conduct risks and a broader threat environment, including more sophisticated fraud, impersonation, and cyberattacks. These issues are being integrated into established operational technology and compliance controls. Climate and environmental considerations are similarly treated as risk drivers rather than as a separate overlay.
We identify material and environmental drivers, and we will continue to integrate appropriate approaches into credit, operational, and strategic risk management. The message here is therefore balanced. We will make fuller use of the risk capacity already available to support returns while preserving robust governance, excellent portfolio quality, and resilience to traditional and emerging risks. Capital remains a central strength of KB for many years and is the key component of the shareholders' proposition. Strong capital generation is a defining feature of KB, underpinned by low risk and low volatility, predictable and profitable business model. This will remain unchanged under the new strategic plan. Our roadmap maintains a sustainable capital base aligned with the strategic objectives while funding growth and enabling attractive distributions. The reference overall capital adequacy ratio is 17.9% in 2025. Organic capital generation is expected to add at least 300 basis points per annum before uses.
Dividends are the principal use of generated capital. RWA growth absorbs approximately 130 basis points per annum, with further effects from Tier 2 optimization and other movements. The resulting 2029 target remains above 18% for overall capital adequacy. Additionally, capital adequacy will be kept above 17.5% across the whole duration of this plan. We expect mid-single digit RWA growth below the growth of the business volumes. This reflects capital efficient expansion and planned optimization measures. In practical terms, we intend to generate more business per unit of RWA through pricing, product mix, distribution, collateral, balance sheet management, and selective risk transfers. We also intend to optimize the capital structure by increasing Tier 2 utilization within the regulatory limits. This should allow the composition of the capital base to become more efficient while preserving a strong CET1 position. For 2026, we have confirmed dividend payout guidance of 80%.
Across 2026 to 2029, the target payout ratio corridor is above 70%, subject to annual performance, capital requirements, regulatory approvals, and the usual corporate decisions. The strength of the proposition is in the underlying mechanism: resilient profitability, capital efficient growth, and strong starting position, and an explicit allocation hierarchy. KB remains managed in the interest of the bank and all its shareholders. Access to Société Générale Group expertise or infrastructure is used selectively where it improves KB's competitiveness, economic or control framework. Capital and distributions remain governed by KB's performance, obligations, and corporate bodies. Let me turn to 2029 target scorecard. This scorecard summarizes the financial ambition. We will continue to put profitability first and foremost, targeting a ROTE at least of 16% in 2029, assuming total capital ratio of approximately 18%.
With more options and strategic flexibility following our successful transformation, we will now focus on growing gross operating income by circa 7% at CAGR over the period. To do this, we will grow revenues by 16% and reduce absolute operating expenditure by 5%, creating this beautiful operating jaws. This is leading to a cost-to-income ratio below 40%. Our focus on growing gross operating income while preserving profitability will ensure that we continue to generate more than 300 basis points of capital a year. In turn, that means that we are confident to confirm an 80% dividend payout ratio in 2026 and at least 70% from 2027 to 2029 as the cornerstone of our investment case. These targets are mutually reinforcing. We expect positive operating jaws effect to be delivered every year. It is important to bear in mind that not all aspects of the new strategic plan are linear.
We expect the positive operating trend to build throughout the period to 2029. Revenue growth comes from more clients, higher engagement, selective lending, greater product penetration, and broader fee contribution. Cost reduction comes from the digital platform, from simplification, automation and AI usage, network optimization, procurement, and selected group synergies. Risk-adjusted returns improve through better utilization of the existing risk appetite and disciplined RWA management. Capital generation funds both growth and meaningful shareholder distribution. Overall capital is expected to remain above 17.5% across the period. There are, of course, uncertainties. The Czech market is highly competitive. Interest rates, deposit behaviors, credit quality, regulation, technology, and the macroeconomic environment may evolve differently from our baseline. Our response is not to build the plan around a single favorable scenario. It is to improve our adaptability.
A lower and more flexible cost base, diversified revenues, strong funding, robust governance, and capital position to give us the ability to absorb volatility. In summary, KB's next chapter is about turning a completed digital transformation into sharper returns. We intend to outgrow the retail market selectively, preserve leadership in corporate banking, reduce the cost base, embed AI responsibly, improve risk-adjusted performance, and sustain strong capital generation. We believe this provides credible route to at least 16% ROTE, a cost-to-income ratio below 40%, and attractive distribution through the cycle. Thank you. We will now be pleased to take your questions.
Thank you very much, Jan. As said, we will now be pleased to take your questions. If any points were not fully addressed during the previous parts, please do not hesitate to raise them again now. Of course, I specifically mean Mate's question.
Please use, again, the raise the hand button on your screen. Indeed, it's Mate who is going to ask the first question now.
Yes. Thank you very much again. I have a couple of questions. I'll probably start with two and then rejoin the queue.
Mate Nemes, you can please go ahead with your question.
Can you hear me now?
Yes, we can.
Excellent. Thank you very much. I have two questions to start with. The first one would be on revenues. You have a 4% revenue CAGR target through 2029. I was wondering if you could talk a bit about the underlying assumptions there, including policy rates, what sort of volume growth you would be budgeting for, and what do you expect in terms of fee growth. Also specifically, whether you are assuming some sort of tolerance band taking into account changes on pension fee regulation. That is the first question. The second question is on retail and customer acquisition. Jani mentioned 150,000 new clients targeted for acquisition annually. If you could talk about how you intend to pursue these clients, and talk a little bit about the economics of those customer acquisitions.
How long do you think the break-even period is for new clients, and how exactly you think about the customer acquisition costs in the current environment? Thank you.
All right. Let me take the second part of the question as the first, and I will afterward invite Jiří to help with the second part. The acquisition of new clients has been tested, and our capability has grown over time since KB+ was in place in 2023. Before, due to cumbersome technologies and not so good proposition, we are not able to engage with more than approximately 50,000 to 70,000 clients per year. Now, we have almost tripled the capability. We do that mainly through the digital channels, but with very strong contribution of our bankers wherever it is needed.
One should have in mind that in between, we have migrated 1.7 million approximately of our retail clients from the old systems to the new systems, signing with each of them a new framework agreement, hence getting the very actual data on our database and having better sense of what might be the wallet of each of them. When speaking about the newly acquired clients, obviously, we are attracting them through the adequate level of bonus which is waiting for them in the account, and we are starting to activate them. Today, if I am not mistaken, I am looking at my head of retail, the activation rate is approximately 40% of the newly acquired clients. And the overall cost is CZK 5,000 per client, the overall cost of acquisition. It is paying back pretty quickly, below one year.
On that front, we simply believe that, and I do not want you to be the masters of psychology, but we need to see the Komerční banka before the transformation, after the transformation. We were not even dreaming about what we are doing today on the retail banking. Coming to the point, pretty strong level of acquisition capability. We are targeting higher level of activation of our clients, so elevate that over time from these levels of 40% to higher levels, and to continue the payback through cross-sell and up-sell towards these clients. And I will ask Jiří to join us here on the stage and give you the answer for the first part of the question.
I will answer for the first one, which was, I think, combination of several parts. First one, starting with the components or combination of the growth of our revenues for the period of 2027 to 2029. Basically, we believe that throughout the period, we will be able to grow in all three main components of the NBI. But specifically looking for the evolution, at the beginning, we believe that net interest income will help us, specifically in the next year, where we will be probably facing the result of the regulatory evolution in the pension system. For the next year, the net interest income, as I have been speaking earlier, with the dynamic and the commercial momentum in loans and deposit business should grow, compared to this year, in a pace that will help us to boost our NBI to this mid-single digits.
The pace of the net fees and commission will step by step overcome during the three years so that the net fees and commissions will be the driver at the end of the period for the net banking income for the bank itself. Speaking now about the impact of the rates, I will just compare this, what we have just seen in the latest market predictions made by our economists just a few hours ago. These are more or less in line with our expectation that we have assumed when building the plan. We see somehow that the economists are expecting an earlier inflation peak. Then again, there is a kind of regulation of the environment from the perspective of the environment and as well from the rates.
There is nothing really tangible which could change compared to our assumptions that we have taken when building this plan from the perspective of the rates. Again, speaking specifically about the pension reform, which Jan described earlier on, the whole concept of the changes and stuff like that. For the next year, we expect impact into the net fees and commissions. Going forward, we see some positive aspects from the regulatory changes that might actually even speed up the business momentum for the pension saving products, and it will contribute to our revenue generation as well. I believe I have answered the questions.
Thank you. Our next question will come from Jovan Sikimic from Oddo BHF. Jovan, please go ahead.
Yep. Thank you. I have a question on costs. You mentioned also synergies with Société Générale to play a role, right? In improving cost efficiency. How would you quantify, or is it possible to quantify, what was the impact so far from that angle? Let's say in the last, I don't know, couple of years, where you also performed nicely on costs.
Well, when speaking about the synergies with Société Générale on the side of costs, let me be a little bit more specific here. Cybersecurity, public clouds, AI, global trends, heavy on CapEx, and not yet fully delivered capabilities in banking sector in favor of cost savings or revenue generation. We don't believe that it makes any sense to create our own small Czech island on LLMs, on agentic platforms or any other type of these activities. Hence, we see the massive investments made by the parent company towards these global trends, and we simply be part of it. The answer is the reaction or the message is rather of this type. We are not interested in creating our own separated autonomous systems where the threats or the opportunities remain global. Speaking about your question on how much it brought over time, we don't have the answer today.
I don't think we are able to quantify that. But it was meant in my speech, mainly on the side of technologies, cybersecurity, AI usage, and public cloud and related functionalities. Obviously, we remain very good member of Société Générale Group, and we believe that our engineers, our business people will deliver and contribute into building this group assets on that technological part of our being for the benefit of the entire group. And we will bring back for the benefit of Komerční banka the best what will be achievable there. Is it clear for me? Did I answer your question?
Yes. Sure. Thanks.
Thank you, Jovan.
Can I also ask on cost of risk? I think you guide what, 20 bps, right? Over the cycle.
This is the headroom we have when discussing the risk appetite statement.
Okay. So we can also assume, right, or we should assume over time, right, or maybe gradually coming from current low levels towards 20, right?
I would underline three times the word gradually.
Okay
We are not bringing any surprises in front of you. We want to be smarter in going more ambitiously into retail consumer lending and lending to SMEs, where we believe that we are somehow lagging behind our traditional market share or our capabilities.
Okay. Perfect. Thank you.
Thank you. Our next question is coming from the line of Amit Ranjan from J.P. Morgan. Amit, over to you.
Yes. Hi. Thanks for the presentation. Thanks for taking my questions. The first one is on loan-to-deposit ratio. You are now at 84.6%. Where do you see this going? Is there an upper limit that you think about this ratio, please? In that context, if you can also talk about covered bond issuance, you did EUR 2 billion. Is this going to be a more regular program going forward, please? The second one is on risk-weighted assets. I think you referenced SRTs. Do we have anything in the pipeline for 2026, please? Thank you.
All right. I will start with the composition of our deposit base. For many years, we were very much relying on current accounts, and probably we didn't react fast enough back in 2022, 2023 to absolutely massive changes of behavior of our clients who are optimizing their savings across the opportunities available, including saving accounts in other banks, including investments, including whatever type of product you can speak of. Here, we are bringing in 2026 pretty attractive proposition of saving accounts and term deposits for retail clients, but also for corporate clients who are helping us to build and to some extent rebuild our deposit base, which would remain more stable, which will remain more predictable, whilst preserving our position in the level of current accounts.
When speaking about current accounts, which are by definition the most attractive from a profitability perspective, we believe that when chipping in more focused activation effort, combined with cross-sell and upsell capabilities, we will keep them rather stable or slightly growing over the period of time. Is 60% the end of the story? It's probably too early to say. We believe that this is the healthy combination between various levers of deposits. When speaking about markets, we started to build our expertise on approaching the markets, testing the markets, appetite for KB's issuances, and we were very successful on that front. So when going to the market with attractive proposition for mortgage loans, we can reuse them also for helping ourselves with liquidity and funding. We have a program already signed or already in place, which we'll use down the road.
Hard to say whether we will continue in that for next long period of time, but we like to be tested from the market. This is also part of our job with you. Did I forget something?
There was a question for the SRT.
Yes, SRT. If I may complement on SRT, definitely we are looking for all the tools that are helping us to manage and optimize the usage of the capital, SRT being one of them. We have quite good visibility on the product, and it is, as I said, one of the tools that we might potentially use, and we found it quite useful. We might use it in the future. As well, we are thinking align with the issuance of the covered bonds with potential issuance of the Tier 2 capital, as you have seen on the slide. Both these are the sources of liquidity and as well as a source of additional capital or optimization of usage of the risk-weighted assets in our pockets to be potentially used.
Thank you. Our next question will come from Krishnendra Dubey from Barclays. Krishnendra, over to you.
Yeah. Thanks for taking my question. I have two. One on cost, and second is on distribution. On the cost, you are talking about CZK 16 billion target, and you said saving trajectory will not be linear, and the amortization will start declining in 2028. Could you give us some indication in terms of phasing? Should we expect the absolute cost base to start declining already in 2027 or is it kind of back-end loaded or in 2029, actually? A part of this question is just, are there any more restructuring, any charges coming in in that line? I will complete my capital, and then you can answer both. On capital, you are targeting 300 basis points of organic capital generation annually, while RWA will consume 130 basis points, and you intend to maintain the capital above 17.5.
Given the framework, should we think about the 70% payout for 2027-2029 as a floor with the scope of distribution to go above 70% if the capital generation and RWA growth develops in your plan? You are also talking about SRTs. Also your CET1 is equal to Tier 1, so could there be an AT1 issuance, which could change your thinking in terms of targeting of 15.5% of CET1 or Tier 1 in that regard? Those are the questions.
Speaking about OpEx, we started to undertake certain steps already now in 2026 in order to be not only variable, but also, let's say, physical or to prove that the cost management is bringing its first fruits already in 2027. I do not have in mind the exact graph of the exact curve of when exactly is coming which stage. What we can assure you is that we are not back-ending any costs to the very latest moments of the period between 2026 or 2027 to 2029. They are nicely distributed, not necessarily in a linear way, but they are phases in each and every year.
Speaking about the costs, CZK 16 billion and cost to income below 40%, both are equally important for us, and we somehow believe that it will work if we continue with the dedication of the management, which was already proved in the last years in place. Payout ratio 70%. This is our best estimation at our calculations when preparing this strategic plan. Obviously, we are guiding you 12 months ahead, so we will be probably more precise when opening the year of 2027 and see what are the main trends and expectations for 2027. This 70% or potentially more is based on, let's say, the central scenario, which I have somehow described during my speech, and I will let my colleagues to complement. I think there was a question as well for AT1 instruments to be potentially issued during this period.
As I said, we are checking, observing all potential means. However, for AT1, we still consider this not to be so effective as the others. At this very moment, we stay on the same page where we were in past, and we rather focus our potential attention to Tier 2 issuance. Still, we will check it going forward whether there is something new on that.
Sorry, just one small.
Thank you. Our next question will be coming from the line of Alice Suchánková. Let me ask you to introduce yourself and ask your question, please. I have heard that there are some problems with the connection. Can you please ask your question now?
Can you hear me?
Yes, we can hear you.
Okay, perfect. Hi, Alice Suchánková from Česká spořitelna. I was wondering if you could comment a little bit on how you see the potential bank tax that is now being discussed. I was also wondering, because you mentioned intense competition a lot of times during your presentation, and I was just wondering over the next 5 years, if you see your competition to be more in the traditional banks or how you are looking at, for example, competitors like Revolut and similar new players on the market. Perhaps how you plan to adapt your strategy to adapt this new competition. Thank you.
All right. Thank you very much for interesting questions. The first one is going to bank tax. It is coming third time from various composition of government coalitions in the last, let us say, 10 years. Czech Banking Association is keeping very intensive discussion with the government at any moment, and we are trying to put the entire goodwill of banking sector in favor of this country. I need to say that the banks are playing massively majority role in financing the economy, in financing the state debts, and in financing the Czech households. On that front, we believe that we are fulfilling all these expectations and obligations from the banking market, banking sector, which remains extremely stable over the period of time.
I need to remind that there was no government intervention needed during the COVID period, neither if you go back to the history in the 2008 global financial crisis. Hence, we believe that the goodwill we are creating with the governments will be put on the table when potentially discussing the taxation. Beyond what is publicly available, i.e., several proclamations of the government members, including the prime minister, we have no evidence that any law is being drafted or preparing by the government or discussed by the government or neither with the parliament. We take it very seriously, and the Czech Banking Association is undertaking appropriate steps to get in the dialogue also about this potentially new feature. But there is nothing to be disclosed or to be presented today because we simply do not know. When speaking about the competition, obviously, this market is pretty concentrated.
We are in very, I would say, promising and comfortable position of number three bank in this country. Nonetheless, we need to say that as we feel very comfortable and very, I would say, leading bank amongst the corporate, we have gaps to be filled on the side of retail banking. My speech was very much framed in our ambitions in retail banking, where we believe that we can be faster, lighter, and I would say more successful than we were yesterday. Should that be enough to beat our competition, mainly the main, the largest banks in the country? This to be seen. We do believe that we will bring through our steps higher value for the shareholders over time.
Thank you. Given the space allocated to this meeting, I think we have space for one or two last questions. The next one will be asked by Mate Nemes. Mate, over to you.
Yes. Thank you very much for taking my follow-up questions. I have two of them, please. The first one would be a follow-up on costs. I was wondering if you could give us a sense of the relative size of the building blocks for the net 5% cost savings. I understand you can't be precise quite yet, but if you can comment at least on to what extent the reduction of IT development costs and cost related to the digital migration will be playing a role in that 5%. Also on that, can we expect that element to be relatively front-loaded? That's the first one. The second question would be on lending growth. You're assuming a mid-single digit lending growth, and I was wondering if you could talk a little bit about the evolution of the lending mix.
Both retail and corporate are running significantly higher than that level currently. On which channel would you expect moderation? Related to that, is it a fair statement that the mid-single digit lending growth is a reasonably conservative assumption here? Thank you.
Yes, Mate. It is a reasonably conservative statement. Going to cost savings. Obviously, one of the main roles are technologies. We are not building a third bank in the bank, so we have just finished to build the KB+ full scale of retail bank with a new core banking system. We are sweating our shirts to put it in place, and it's in place, and we want to leverage on it. That's the first part of the answer. So we will spend less on the CapEx, which will come back through lowering or steepening a depreciation curve. Second, we will need probably a little bit less maintenance and support costs to be related to the technological stack.
As I mentioned, we will also leverage on synergies with SG Group, including capacities which are available in our sister companies, either in India or in Poland or in Romania, which are in charge of shared service centers, which is a very good opportunity for us in the field of, let's say, traditional IT-related activities. Last but not least, is the number of FTEs. Even a long time before AI became this super hyped buzzword, KB was able to turn down massively the number of employees by almost 20% back between 2020 and 2025. We will continue in that. Imagine we have AI at hand. It might be another portion which is bringing our overall OpEx base lower, also on the side of the need of FTEs. Again, this one is our very traditional discipline.
I will not be specific on each and every category, but I think that I'm bringing up the two most relevant parts. We have already mentioned that number of branches will be turned down to the territory of 108, 110 in 2029, and the related portion of the back office related to these branches.
Thank you. We don't seem to have any further questions in the line, so I would like to ask Mr. Juchelka for a concluding remark.
All right. Thank you very much. Thank you, Jakub. Thank you, Jiří, also for your excellent performance today. Thank you all of you who remained connected with us for such long hours. We enjoyed that. I enjoyed it very much. So thank you. Thanks a lot. I hope that our messages are understandable. If you need any question in between to be raised again, don't hesitate to contact us through the traditional connections and channels. If we don't hear from you, I am very much looking forward to see you and to be in contact with you at the occasion of full year results in the beginning of 2027. In the meantime, enjoy Christmas. Thank you.
Thank you.
Thank you. This has concluded the meeting. You can now disconnect. Thank you.