Ladies and gentlemen, welcome to the conference call of MONETA Money Bank regarding the 1st quarter of 2023 financial results. Please note that this conference call will be recorded. This event will have a live presentation followed by Q&A session. As a reminder, all participants will be in listen-only mode. May I now hand over to Mr. Spurny, who will lead you through the conference call. Sir, please go ahead.
Good morning, ladies and gentlemen. I have the pleasure of opening today's presentation of our first quarter results for the year. If we turn to page 2, we've generated a net profit of CZK 1.2 billion. This is based on the strength of operating income of CZK 2.8 billion, which is 6% down compared to comparable quarter last year. If you look at the structure of the operating income, you actually have a quite good performance on the net fees and commissions. On operating expenses, these are stable at CZK 1.5 billion. The operating expenses increased nominally by 1.6%, this is mainly due to increase in mandatory charges that we have to contribute to regulatory funds. Operating profit at CZK 1.3 billion.
We had a very good quarter with respect to cost of risk. We raised CZK 90 million. This is based on good performance of the underlying portfolios, and even more importantly, on a very successful disposal of NPLs in the first quarter, which not only supported the cost of risk but also reduced quite significantly, both the absolute amount of NPLs and relevant ratio. If we turn page to page three. If you look at our balance sheet, the absolute size of balance sheet exceeded CZK 400 billion. This is on the strength of deposit growth. We had at the end of first quarter, CZK 350 billion, which constitutes 19% growth year-over-year.
If you look at the first quarter, we have raised additional CZK 16 billion in deposits. We have a very high volume of high-quality liquid assets consisting of cash and government bonds. The HQLA increased by nearly 68%. That, in turn, transfers itself into highest liquidity coverage ratio ever, 274%. If we take a brief look at the asset side, our gross performing loan portfolio is CZK 267 billion, showing a nascent growth of 3.4%. This is coming namely from the retail. The loan to deposit ratio declined 76%, this is also the lowest loan to deposit ratio ever since we have come to the public market.
The investment portfolio hold to maturity at CZK 80 billion. We look at the relative metrics of the bank, this is on page 4. We improved the yields on the loan portfolio overall by 40 basis points, we expect that by the end of this year we will come near or at 5% through repricing of the existing portfolio. Cost of funds increased 2.9% for the first quarter. We expect that with our current strategies, this might climb up a little bit. Nonetheless, net interest margin of the bank is 2.1%. For the remainder of the year, we expect this to be stable at 2%, we also provide you later on in the presentation our forecast of net interest income for the following 3 quarters.
Capital position solid on consolidated basis at 18.1%, and we will go through detail of both consolidated and individual capital adequacy later on in the presentation. The result turns into return on tangible equity of 16.8%. Finally, not finally, actually, let's look at the operating platform. We currently operate 140 branches. As you can see year to year, we have closed 9% of the branch network, and this adjustment is rightsizing of the network to the efficacy of our digital strategy, and we will continue in this endeavor for the next two years. If you look at ATM infrastructure, as you know, last year we have successfully entered into alliance with Komerční banka, subsidiary of Société Générale.
During the first quarter, we materialized agreements with UniCredit and Air Bank. We have expense-free access now to more than 2,000 ATM machines in the country, and this will enable us later on in the year to consider how to make withdrawals, how to put fees on withdrawals in the 2nd half of the year or 4th quarter rather, on the non-alliance network, and further improve the net fee income commissions position in the bank. In our fight against inflation, we have decreased employment in the bank to 2,553 FTEs. This constitutes nearly 13% decrease year-over-year. The decrease is 50% related to improvements in productivity in the bank, and about 50% of the decrease is a result of lower demand, namely for our credit products.
If you look at the client base, it's developing steadily. Even the growth slowed down compared to last year. Somewhat last year, we recorded 5.4%. Now, first quarter generated a 4.6% growth in the customer base. We continue to have solid performance on the digital channels. If you look at our mobile banking platform, within a year, it attracted 333,000 of new users. This is partly a result of our cybersecurity strategy, where we request push notifications in the mobile banking platform to access Internet Banka. Also, we are just trying to discontinue SMS messages as they are prone to cybersecurity fraud. On the following page, on Tuesday, two days ago, we held a shareholder meeting. The shareholder meeting was successful from our perspective.
There were four key decisions made at the shareholder meeting. Number one, we've elected Mrs. Kateřina Jirásková, the current CFO of PPF Group, into our supervisory board. Secondly, we've approved financial statements, both consolidated and individual. Third, we have approved management remuneration report successfully. Fourth, point is that we received shareholder support for 8 CZK per share dividend distribution, which will be paid on 25th of May, if I remember correctly, the date. With that, I will turn over to Klára, who will give you a brief view on the operating environment, from perspective our macro in Czech Republic.
Thank you. I'm turning to page 8, and let me comment on the macroeconomic environment. From the GDP evolution point of view, the Czech economy is slowing down. While the GDP growth for 2022 was 2.5%, in the fourth quarter it reached 0.3%. In the first quarter 2023 will be 0.6% negative. For the full year, the Ministry of Finance is expecting economic stagnation. The forecast stands at 0.3%. However, this does not seem to impact unemployment dramatically. In February, the unemployment rate was 2.5%. The full year expectation is at 2.7%. The economy therefore managed to absorb the last year's wave of Ukrainian refugees into the labor market.
The country continues to experience significant budgetary deficits since 2020. This year, the budgetary deficit has been framed at CZK 295 billion. In March, it has already reached CZK 166.2 billion. The government seeks to consolidate the state budget by a lower spend and increase taxation. It seems to have limited ability to influence mandatory expenditures in the short term. While the government maintains the original target of CZK 295 billion, reaching of it might be a challenge. The government debt as a percentage of GDP has reached 44.1%, which is still way below the Euro area. Let me comment on page 9, the inflation and interest rates. The inflation remains high. In March, it has reached 15%. The key contributors are food and housing.
We can observe some decline in fuel-related costs. The expectation of the Czech National Bank for 2023 is 10.8%. Interest rates are reflecting this development and the monetary policy of the Czech National Bank. The Czech National Bank has been keeping the two-week repo rate at 7% since 2022, and we do not expect a decline in the near future. The yield curve remains inverted. The short-term one-month PRIBOR is at 7.1%, while the long-term is at 4.5%. As a result of the inflation and the interest rate environment, we would expect interest rate decreases only later in 2023.
This is it for the macroeconomic environment, and let me hand over to Andrew for the digital successes.
Thank you, Clara, and good morning, ladies and gentlemen. Going to page 11, we again present an overview of the key aspects of the bank's digitalization strategy over the last 5 years. I'm not gonna dwell on the detail here, but what I would do is just draw a contrast with the things we focused on over the last 5 years, and the focus that we've had in the last couple of quarters, where there's been a meaningful shift towards deposit products and deposit gathering, reflecting the environment that we, that we're now in. I think this is nicely illustrated on the following page, where you see that the digital distribution platform is now playing a pivotal role in our deposit gathering efforts.
On the right-hand side of the page, you can see that the digital origination across all of the major deposit product categories is up significantly year-over-year. The digital platform is now accounting for the largest share of origination across all of the deposit products. In contrast, on the left-hand side of the page, you can see the development of the digital origination on the lending products, where we are down year-over-year in all cases. This broadly reflects slowdown in demand in the market generally, as well as some tightening of risk appetite on our side in the lending products. Going to page 13, we present the development of the mobile and internet banking platforms.
As Tomas highlighted earlier, we've seen significant growth in the number of mobile banking users, up 55.4% year-over-year. As Tomas said earlier, this is reflective partly of growth in the client base and activity in the client base, but also a concerted effort on our part to migrate clients to the mobile banking application as the primary means of authentication for online transactions and log in to Internet Banka. This is in the context of increased fraud activity in the market, where we see basically across the entire European market, increase in phishing campaigns. We're much more able to protect our clients if they're onboarded into the mobile banking application.
In terms of transactions, we see transaction intensity on the internet and mobile banking applications increasing significantly, up 29.7% year-over-year. The growth is primarily driven by mobile, as you can see. Going to page 14, we present some detail on the card portfolio. We see continued growth in the card payment transactions, up 23.8% year-over-year. This reflects again, overall growth in the client base and increased activity and a move away from cash. Interestingly, on the right-hand side, we see the development of tokenized card payments. These are card payments made via a tokenized card in a mobile phone or a smartwatch, typically.
Here we see growth of 74.4% year-over-year as our clients become increasingly digital and adopt this technology. Finally, in the digital section, on page 15, we present the app store ratings of the mobile banking application in the two major app stores, iOS and Android. Where we, in both cases, have a rating of 4.8 out of 5, reflecting the fact that our mobile application continues to be one of the most popular in the market. That concludes the digital section, and with that, I will hand over to Jan, who will take you through the profit and loss section.
Thank you, Andrew. Good morning, ladies and gentlemen. I'm now on page 17, and we'll continue with the profit and loss statement. Let me repeat the key financials. The MONETA Group reported net income of CZK 1.2 billion on revenues of CZK 2.8 billion and delivered return on tangible equity of 16.8%. Lower revenues are driven by net interest income declined by 16.2%, partially offset by net fee and commission income up by 19% and also more than doubled other income. Cost base of CZK 1.5 billion remains broadly stable and is only marginally up due to higher regulatory charges. On the cost of risk line, we report CZK 116 million net release against CZK 95 million last year. This favorable result was mostly offset by solid loan portfolio performance and NPL reduction.
More to that will be provided by Norman in the next section. On page 18, we continue with the detailed analysis of NII. Firstly, lending interest income in the top right corner is up by CZK 368 million, achieved through a loan book expansion of 3.4%, accompanied by a loan portfolio yield up by 40 basis points year-on-year. Treasury income went up by CZK 1 billion, delivered through a combination of more liquidity, expanded portfolio of hedging derivatives, and also base rate increased by 2.5% year-on-year. Interest income increased by CZK 1.4 billion year-on-year was more than offset by cost of customer deposits, which is up by CZK 1.8 billion during the same period.
Main drivers of the continuing deposit cost pressure are the 19% deposit base expansion. Accompanied by persisting needs to reprice a significant portion of the deposit base to the current market level. On page 19, we provide you with a projection of net interest income and net interest margin for the rest of the year. Firstly, net interest income projection shows 9.6% improvement between Q1 and Q4 this year. Predominantly driven by continuing growth of highly high-quality liquid assets funded from expanding deposit base at positive margin, accompanied by higher income from hedging derivatives. With respect to the net interest margin, we expect stable development at 2% for the rest of the year. This projection does not assume deposit repricing this year, as the market conditions do not allow us to do so.
However, we manage closely our deposit strategy and remain flexible to do the repricing immediately when market situation allows. On the next page, we continue with the development of net fee and commission income. The 19% growth is driven by higher commissions for the third-party product distribution together with higher transactional activity. At the same time, higher number of transactions drives the fee expense up. The income side is further broken down into categories on the next page. The chart on the left reports transactional income growth of nearly 14%, accompanied by pickup in servicing fees, while predominantly early termination fees are below the last year due to limited opportunities for refinancing. Third-party commissions on the right side reached CZK 354 million, about CZK 100 million above the year ago.
More than 42% growth was achieved due to strong performance of the insurance product distribution, further supported by new commercial conditions. Page 22 provides detail view on the insurance product and asset management distribution. Chart in the top left corner shows quarterly number of pension insurance contracts sold, which increased 6-fold year-on-year. At the same time, life insurance annual premium equivalent increased by nearly 7% year-on-year. We seek to maintain these production levels achieved in the first quarter for the rest of the year. On the right-hand side, you can see pickup in distributed volume of investment funds in the first quarter. As a result of that, we report increase of the outstanding amount of distributed investment funds by 21% year-on-year in the, in the chart below. Now we arrive to the cost section starting on page 23.
As mentioned before, the cost base remained broadly stable year-on-year. The only increase is visible in regulatory charges which went up by CZK 50 million, and we were able to partially offset the impact through lower personal and administrative expenses. Quarterly development is further broken down on the next two pages. Page 24 first. On the right-hand side, we report quarterly development of the employments. During the last 4 quarters, we reduced the employment by 12.8%. In the 2Q this year, we seek to further reduce the employment down to 2,500 and keep stable at this level, and by this way to mitigate negative impact of the labor cost inflation. On page 25, we provide detail to the administrative costs and depreciation and amortization.
administrative, sorry, costs on the left are 7% down year-on-year, predominantly due to lower intensity of marketing activities this year. On the right, moderate growth of depreciation and amortization is driven by ongoing investment into IT infrastructure. We are building digital capability, while lease costs remain broadly stable year-on-year. Let me hand over to Jan Novotný, who will continue with the balance sheet section. Thank you.
Thank you very much, Jan. Good morning, ladies and gentlemen. Let me now walk you through the balance sheet development section of today's presentation. As you can see on the page 27, our overall balance sheet has reached record level of almost CZK 405 billion, mainly thanks to the very successful deposit raising on all channels, and especially in the digital realm, as mentioned already by Andrew. We have achieved very strong 19% growth in the key category of core customer deposits, where we have reached CZK 305 billion level at the end of Q1 2023. We have still achieved solid growth also in the net customer loan category on the asset side, where we have achieved level of CZK 266 billion with 3.3% year-on-year growth.
This is fully in line with our strategy to focus more on customer deposit growth, and we will continue to follow this strategy going forward. Moving to the next slide number 28. Here you can see the evolution of our lending base in last five quarters, and you can see also the evolution of the segment share on this book with a slight share increase in the high yielding small business loan portfolio, ending with 5% share, retail with 69, and 26% share of SME lending. On the next slide number 29, you can see also the evolution of the loan portfolio yields. Left side of the page is depicting the overall portfolio, and on the right side, you can see the split per segment.
We have also newly added the impact of the hedges for the portfolio, and you can see that after adding the impact of the hedges, the overall yield has reached 5% for the bank and 4.8% for the retail portfolio. The effect of hedges is rather small on commercial, as large portion of the loans are based on float pricing and therefore, the hedge density in commercial is rather on the lower level with limited impact. Let's dive a little bit deeper into the product and segment development overview, starting with the retail portfolio. For that, please let me hand over to my dear colleague, Andrew Gerber, our Chief Product and Marketing Officer.
Thank you, Jan. Moving to page 30, we present the development of the retail loan portfolio, which grew 4.1% year-over-year, driven mainly by the drawdown of preexisting mortgage commitments. The mortgage portfolio grew 5.6% year-over-year. What's important to say is that when we look at the new originations in the mortgage business, these are new deals signed and entering the pipeline, we're seeing very low origination, down 90% year-over-year. This is a trend that's reflected broadly across the market. This will, this is starting to impact the skin flow into the book. You will see the portfolio growth starting to slow over the coming quarters.
In consumer lending, the portfolio has remained flat year-over-year. This again reflects lower new volume origination, down 30% year-over-year, partially offset by lower early termination on the portfolio, which was down 26% year-over-year. In auto, we see the portfolio continuing to grow 7.6%, which is broadly continuing the trend that we saw in the previous quarter. In the revolving products, the portfolio declined 1.4%. Again, this is continuation of what we saw in the previous quarter. Moving to page 31, we present the yield development on the portfolios, where we see improved new volume yields across most of the product areas.
In mortgages, the new volume yield has increased to 5.9%, although I would say that given the very low volume being originated in the mortgage business at the moment, this has limited effect on the portfolio yield. What's really driving the portfolio yield up is to a small degree, the refixations, but most significantly, the impact of the hedging. In consumer lending, the portfolio yield has reached 9.3. Sorry, the new volume yield has reached 9.3%, and this is helping to stabilize the portfolio yield. This market remains fairly subdued, so we will see how it develops over the coming quarters.
Likewise, in auto and supplementary housing loans, you see the new volume yields continuing to improve and gradually flowing through to the portfolio yields. With that, I'll hand over to Jan again, who will take you through the commercial portfolio.
Thank you very much, Andrew. Please let's move to the slide number 32, where we have prepared similar split for the portfolio for the commercial part. On the right side of the page, you can see that the commercial portfolio ended up at CZK 82 billion, which represents 2% year-over-year growth. There is also visible drop of the portfolio in Q1 by CZK 1.2 billion, caused mainly by the repayment of 2 large exposures in working capital category. On the right side of the page, you can see the evolution of different products with 0.5% growth on investment loans. Already mentioned decrease of CZK 1.2 billion on the working capital. Still very strong growth on the small business loan portfolio, where we have reached 18.5% year-over-year growth.
This growth, however, is slightly slowed down in last 2 quarters, caused mainly by lower demand, tightened risk approval strategy for the segment, and also by the increased pricing. Just flip me to the next slide number 33, which is showing the evolution of the portfolio yields as well as the yield on the new volume origination. You can see that we have maintained high profitability requirements on new origination as well as for the refixation where applicable, which is resulting in a quick portfolio yield growth across all the product types. Now let me move to the page number 34, where you can see the detailed analysis of the refixation or repayments of the current MONETA books, meaning retail and commercial combined. As you can see, 67% of our loan book will be repriced or repaid within the next 36 months.
You can also see the split into variable rate, fixed maturity, and fixed refixation period, including its respective amount in the next 12, 24, and 36 months. That was the overview of the evolution of our lending portfolio. Now let's move to the similar overview also for our funding position. For that, please let me hand over back to Andrew.
Thank you, Jan. Moving to page 35, we present the development of the funding base Where we've seen significant growth up 17.7% year-over-year, driven, as we said, through strong deposit gathering activity. The deposit growth is broadly based across both the retail and the commercial segments. Going to page 36, we present the development of the cost of funds. Overall, the cost of funds growth continued in the first quarter. Year-over-year, cost of funds increased 198 basis points. We see similar increase in cost of funds, both in core customer deposits and wholesale funding. Within the core customer deposits, again, we see similar growth across retail and commercial. Slightly higher in commercial, Sorry, slightly higher in retail, slightly lower in commercial.
Broadly, cost of funding is growing across all segments. As Jan said earlier, we're not especially optimistic about market conditions allowing significant repricing later in the year, but we remain ready and very flexible to implement repricing when the conditions allow. On page 37, we present the development of the retail deposit portfolio, which has grown 19.6% year-over-year, driven by strong growth in savings and term deposits up 35%. We see continued decrease in the current account deposits, driven by customers moving excess liquidity out of current accounts and into higher yielding savings accounts. We believe we're beginning to approach the point where the current account portfolio should stabilize. This is partly due to the growth that we have in the portfolio.
As those clients become active, we hope to see them building balances. Partly due to the fact that, when we look at the individual accounts, we feel we're close to the point where what we're seeing in the accounts is the just the monthly float that's required rather than any excess liquidity. We will continue to monitor that and see how it develops over the coming months. Moving to page 38, we present the development of the commercial deposit portfolio, where again, we see strong growth overall up 17% year-over-year. Again, it's very similar to retail. Strong growth in savings and term deposits up 69.7%, continued outflow from current accounts. Finally, to the deposit section on page 39, we present the wholesale funding base.
The wholesale funding base decreased 9.7% year-over-year, driven by the growth in deposits, in core customer deposits, enabling us to reduce our reliance on more expensive, wholesale funding, particularly in the due to bank segment, which decreased 47.7% year-over-year. That concludes the balance sheet section. With that, I will hand over to Jan Novotný, who will take you through the liquidity and interest rate management.
Thank you, Andrew. Let me take you through the section regarding liquidity and interest rate management. We are on page 41, where you can see that at the end of the first quarter, our position in a highly liquid high-quality liquid asset stood at CZK 108 billion. On top of that, we keep between CZK 2.5 billion-CZK 3 billion cash sitting at branches and ATMs. The high-quality liquid asset position increased by 68% year-on-year, predominantly funded by customer deposits expansion. If we look on the high-quality liquid assets as a share to customer deposits, you can see that we increased the liquidity share from 22% a year ago to 31% at the end of the first quarter. On the next page, we report the split of customer deposits from the insurance point of view.
At the end of the first quarter, out of CZK 350 billion of customer deposits, 83% were covered by the insurance. Furthermore, this relatively high share was further increased during the year by 2%. One comment to that, in the Czech Republic, insurance covers retail and commercial deposits at individual client level up to EUR 100,000, which is equivalent of CZK 2.4 million. On page 43, we provide you with a split of assets and liabilities based on variable and fixed interest rate. On the asset side, the balance of variable rate earning assets stood at CZK 151 billion or 39% of the total, which represents a significant increase from 25% a year ago.
These assets consist from free liquidity, then variable rate loans, and also fixed exposures, swapped to variable through hedging derivatives. The increased share of variable assets provides protection against high interest rate environment persisting for longer period. On the liability side, we maintain liabilities bearing variable interest rates of CZK 200 million. This represents 55% of the total, and it mainly consists of CZK 157 billion of saving accounts, which we can reprice within three months. At the end of the first quarter, our simplified NII sensitivity shows that the two-week repo rate reduction would improve the NII by about CZK 450 million annually. This estimate that the benefit from repricing deposits will more than offset lower net interest income on the asset side.
On the next 2 pages, we show detail of investment portfolio classified as held to collect. The chart on the left shows the breakdown by the fixation profile, including hedging derivatives. A slight majority of the portfolio has a refixation date within 3 months. On the right side, we report a portfolio yield and interest margin above the cost of funding, where the yield doubled during the year and the interest margin improved by 30 basis points to 1.7% in the 1st quarter this year. On the last page of this section, page 45, we report duration of the investment portfolio.
During the last 12 months, we shortened the duration from 6.7 to 4.1 years or 40% in relative terms through increased hedging density, which you can see on the right side went up from 26% to 53% this year. This concludes section dedicated to our liquidity and interest rate management. I will now hand over to Norman, who will take you through the next section. Thank you.
Thank you, Jan. Good morning. We're now on page 47 with an overview of the risks for the past five quarters. In Q1, we recorded a net release of provisions of CZK 160 million or 17 basis points. This is likely better than the cost of risk of the first quarter of 2022, but a significant improvement compared to Q4 in 2022. Both the commercial as well as the retail book showed a net release of provisions, the latter largely driven by sales of non-performing loans. The main drivers of this result are continuing solid core performance, good payment morale of previously downgraded and foreborne receivables, and most importantly, non-performing loan sales, which generated significantly better results than initially anticipated.
The pre-tax P&L gain on these NPL sales in Q1 amounted to a total of more than 220 million CZK. On the following page 48, here we show the evolution of the loan portfolio, loan loss balances and overall coverages for the past five quarters. Gross receivables grew by around 7.7 billion year-over-year, loan loss allowances dropped by more than 13% over the last 12 months, largely driven by a drop in our NPL stock, thanks to upgrades of downgraded receivables to performing status, NPL sales and so far experienced solid core performance. With regard to the total stock of provisions, in the amount of 4.8 billion, here you can see that more than 900 million constitute managerial overlays, which we have built up over the last 12 months.
We're still addressing increased risks stemming from high energy prices, inflation and higher interest rates. As for the overall coverage, this dropped from 2.1% a year ago to 1.8%, which is largely a result of the reduction of our NPL stock in the reporting period. Moving to page 49, here we show the development of NPL in and outflow since March 2022. The first quarter of this year showed a net NPL reduction of more than CZK 280 million, supported largely by repayments and NPL sales as indicated earlier. As a consequence, quarter reported the NPL stock decreased by almost CZK 300 million and stood at CZK 3.5 billion at the end of Q1 this year. If we move to page 50, here we have a more detailed overview of how the NPL stock evolved.
Year-over-year, both the retail as well as commercial NPL stock showed significant drops and stood at CZK 2.7 billion for the retail book and CZK 779 million for the commercial book respectively. As far as the NPL ratio is concerned, this dropped from 1.8% a year ago to 1.3% at the end of Q1 this year, which is the lowest level recorded ever. Last but not least, in the, in the risk section of this document on page 51, here we have the evolution of the delinquency rates. Overall and across delinquency buckets, delinquency rates remain on a comparatively low level and are still below pre-COVID levels. In particular, in Q1 this year, we saw a further improvement compared to Q4 in 2022.
Summarizing the risk section, I would say the main message is that the core performance of our credit portfolio remains solid. Overall, we have not seen any significant changes in key risk performance metrics, despite the adverse indications stemming from increased energy costs, high inflation, and changed interest rate environment. It is currently widely expected that the full year inflation will remain north of 10%, and GDP will be at most likely positive for the full year. Despite a better than expected Q1 performance, on customer risk, we maintain a cautious view on the overall impact on the quality of our credit portfolio. The key unknown obviously is still in which direction the labor market is going to move, as the unemployment rate remains still on a fairly low level.
In our provisioning approach, we try to address these risks by having accounted for potential deterioration through extensions of the management overlay framework. As I said before, at the end of March, we had a total overlay of more than CZK 900 million, and this will be subject to reviews going forward and when necessary, we would even further increase that. With that, and now over to Thomas on capital management. Thank you.
Okay. If you look at page 53, it provides you with an overview of the capital requirements. If you look at the consolidated basis, which is on the left-hand side of the page. This year we face an increase of 50 basis points due to countercyclical buffer, going from 2% to 2.5%. If we move on to the right, we face an increase of 2.6%, and this is composed of two components. One component going up is the countercyclical buffer. Second component is the MREL requirement, which increases from 2.7 to 6.1 by the end of the year. In the midterm, we have to meet 4.7.
All in all, we need to, on individual level by mid-year, sorry, by April, meet 21.1% and end of the year, 23.2%. Where do we stand? On the following page, you can see our current position on page 54. On top of the chart we have the consolidated position, and you can see that on consolidated we are well ahead with 18.1% capital adequacy ratio, with the CET1 ratio at 16.4%, 40 basis point improvement from a year ago. On individual, we are currently at 21.5%, so we are 40 basis points over the requirement. The composition is similar, where the overall capital adequacy stands at 19.1%, with the CET ratio in excess of 15%.
On the following pages, we show you the stand-alone individual and then the consolidated composition of evolution in regulatory capital, in risk-weighted assets, and in the MREL adequacy ratio. In a nutshell, going forward, by the end of the year, we need minimum of EUR 3.5 billion of MREL eligible instruments. We will begin marketing subordinated deposits in the second half of May. We will target our existing customer base, and we hope to be done with this by mid-July latest. If we do not raise sufficient amount, we will repeat the process in August and September. If that is not sufficient, we will move on to the international debt market and look for a window to issue it. If we look at the consolidated basis, similar picture.
However, what is perhaps of interest here, we ended last year with CZK 3.3 billion of excess capital. If you look at how the position in excess capital changed, it is clear that the increasing regulatory requirements are eroding the excess capital. CZK 860 million went in that direction. We have optimized the RWAs, however, we are now able to offset it through the RWA optimization, and we also retain 20% of the net profit. If you look at the RWA, the optimization is clearly visible from the density bubble, which is under the spec. We are at the end of the first quarter, slightly over 40%. You can see the 2-year development.
I think the rest of the page is fairly self-explanatory. Now let me move on to page 58. Just a couple of comments regarding the minimum target profitability that we provide you. If you look at this is a repetition of the guidance that we gave in February 2023. Cumulatively, we seek to achieve minimum profitability in a 5-year horizon of CZK 23.6 billion. That would constitute an 18% improvement over the past 5 years when we delivered CZK 20 billion. This holds. For 2023, we stated a minimum target of CZK 4.3 billion. We are currently redoing the operating plan as the conditions are fairly fluid and fairly unpredictable.
We will update the minimum target. Based on what we see and what we have done in the fourth quarter of last year and this quarter, there is some likelihood that we will move the minimum target up, as we did a lot of work to be able to do that. With this, I thank you for your attention. I thank my team for fantastic presentations. Let's move on to Q&A.
Thank you. We will now begin the Q&A session. If you would like to ask a question and have joined the call via Zoom, please use the Raise Hand button on your screen. Alternatively, you can use the Q&A chat box found on your Zoom toolbar. Before speaking, please ensure that your local device is unmuted, and if you have joined us on the phone, please press Star followed by one on your telephone keypad to enter the queue. One moment please for the first question. The first question comes from Mehmet Sevim of J.P. Morgan. Please go ahead.
Good morning. Thanks very much for the presentation. I have a couple questions on the deposit liquidity increase, please. Your proactive decision was very timely given the increased focus on bank liquidity right now globally. I'll have three questions here. First of all, do you expect this growth trend in deposits to continue at a similar pace throughout the year, so with deposits well exceeding maybe CZK 400 billion, or is there a level of liquidity that you won't target to exceed once you reach that level? Secondly, what are your strategic plans with your new acquired liquidity longer term, once the rate environment normalizes? In the short term, I understand you're deploying a portion in government bonds.
Longer term, maybe is it fair to see it as a preparation for a higher growth environment, or is that a structural shift in the balance sheet, with LDR to stay low through the cycle? Finally, how do you assess the flight risk of these newly acquired deposits and customers once rates come down, given arguably the primary motivation of these customers is the premium pricing that Moneta offers at the moment? Thank you very much.
Good. Excellent questions. The internal target is in the range of CZK 375 billion-CZK 390 billion in core deposits for this year. This hinges upon our ability to maintain both steady profitability and at the same time offer competitive rates to the market, and we will adjust the pricing strategy. I would say 75% weight is on ability to deliver the profitability target, and 25% is to enhance the absolute value of the deposits that we carry. The third part of the decision-making is to granularize as much as possible the deposit base into insured deposits below CZK 2.4 million insured amount, so that we have as granular as possible deposit base, and this we work on for the last 12 months.
What do we plan to do with the liquidity? Our policy calls that the HTC portfolio should be 25% or lower with respect to the structure of the balance sheet. We have various appetite limits across the segments, that is commercial and retail. Number one priority from a 18-month perspective is to continue to strengthen support to self-employed and micro or small enterprises, where we currently have exposure of CZK 12.5 billion. If I can be slightly prescient, I would like to double it because this is the most profitable business line that we've created since the IPO. Secondly, at some point, we will come back to the unsecured market with more rigor on the pricing.
If the inflation comes down and situation stabilizes, we will be able to also open somewhat the fairly tight underwriting criteria. We will become very selective in mortgage lending through digital, focusing on refinancing of existing mortgages, seeking to have low cost of distribution. We have the SME segment, where we discontinue lending to commercial real estate, and we will focus on our traditional customers, which is agriculture and related, because we have a strong franchise that in that element. The deployment will be pretty much proportionately similar across the balance sheet. However, I would like to take retail and small business, ideally to 80% of the balance sheet within next 3-year horizon. Slight risk of the deposits.
As a matter of fact, yesterday we had asset liability committee. We have new results for the sensitivity of the deposits and the sensitivity on the savings products, both retail, commercial, is about 33%. We will make a concentrated effort to seek to cross-sell those customers with current accounts and hope to anchor them in the bank through transactional banking. This is work for next 24 months, where we need to enhance how we spend our marketing budget and how we focus the incentive schemes in the bank.
If you look at Andrew, if you look at Jan's KPIs and also head of distribution, for the first time in history of the bank, they actually have deposit efficacy inside of their KPIs, and we have completely focused the sales force from lending to current account distribution and activation. I hope this answers the question.
That's all very helpful. Thank you very much, Thomas. Just one question, if I may. You mentioned 33% sensitivity in retail deposits, if I got this correct. How do you calculate or define this, please?
Well, you have to ask Jan for a check, because I have no clue how they do it. Hang on.
Just from a high level point of view, we run models in our asset and liabilities team, management team, and these models are based on measured behavior of our customers, how do they reacted on changes of the interest rate in this environment, as well as in our in our deposit pricing proposition. Based on that, we saw during the last 12 months, increasing sensitivity of these deposits. Hence we incorporated or we updated the assumption in the model going forward.
It's, I would say 80% behavior driven and 20% assumption driven.
Great. That's super helpful. Thank you so much.
The next question on the line comes from Simon Nellis of Citigroup. Please go ahead, your line is open.
Hi. Thanks for the opportunity. Hi, Thomas. My question is on the net interest income forecast that you've given us nicely for the next three quarters. I think if you add them all up, you get to NII of around CZK 8.5 billion for the full year. I think your target for revenue is around CZK 12 billion. How confident are you that you can hit that CZK 3.5 billion?
Sorry, Simon. We are well prepared for your question because we expected it. Jan Novotný will cover this one off the bat.
In our guidance, or our CZK 12 billion revenue guidance is based on the net interest income of CZK 8.5 billion. On the net fee and commission income, we estimate at minimum CZK two and a half billion. On the other income, the rest, which is CZK 1 billion, check it out. The drivers of this, if you compare these estimated balances against 2022 actuals, the increase of net fee and commission income is predominantly driven by higher volumes distributed in life insurance products and also the renegotiated commercial conditions. This is what I mentioned in our in my previous section. On the other income line, we will benefit from a higher ethics margin this year in both segments, retail and commercial.
At the same time, last year we reported, a negative result of interest rate swaps of about CZK 300 million in the other income. This year, this will not repeat this year, as we stopped, doing the opportunistic, import transactions.
One leg of these swaps was in the other income, and the other leg had positive impact on the net interest income. We stopped doing these operations because they are now no longer economically viable, with the increase of rates in the Euro, in the Eurozone. The other income will be significantly stronger than last year.
Got it. Thank you. Yeah, my next question, I guess to the extent possible you can answer it, is you have a number of kind of new core shareholders. I see PPF is now on the board. Can you maybe discuss, you know, who these new shareholders are, if they have any influence on the bank, and if there's any change in strategic direction that you see? I think combined, you know, the four new larger shareholders, they have just over 50%. Do you see any potential for them to kind of consolidate that stake, one of them consolidating control?
Not currently on the second part of the question and on the former part of the question. Whether they exert influence, I think that we treat them, we treat them as any other shareholder. So far they're not trying to project any of I would say strategic directions. I meet fairly frequently with all three shareholders and discuss with them what I can discuss with them without discussing what I am not supposed to discuss with them. So far, we enjoy constructive, amiable, and excellent relationships across the three shareholders. I mean, it's known that we have PPF. The change in the supervisory board is a function of the 30% they hold in the bank.
I know Kateřina Jirásková for the last 20 years, she's an excellent CFO for PPF Group. I enjoy a very good relationship with her. She is also very qualified to ask the right questions on the supervisory board. I think, all in, she's a strong addition to the supervisory board. Second, I am in, the second shareholder who publicly announced their stake is J&T. It's actually a fund, and I have a point of contact there, which is very senior, and we discuss things that we can discuss. Again, the relationship I would call in as excellent and very productive from a shareholder point of view.
Of course, we do have some cooperation and somewhere we compete, so we have to deal with that. The third shareholder who also publicly disclosed his stake in the bank is Mr. Tykač. Again, I meet with him frequently, discuss things that I can discuss, and the relationship is very good. It might seem absurd, but I actually find it a lot easier than in the time prior to concentration of the stakes, because I had to travel a lot, which I can be slightly facetious. Now I take a metro as opposed to jet plane, so I think it's environmentally sound as well.
Absolutely. One last question on the tax. What portion of the tax is the windfall profit tax, and how is that? Is it booked quarterly, or how does it work? I'm not sure.
Well, the windfall tax, we prepay the amount based on 2022. This is the estimated tax. Now, as we have a higher bond holding which is exempt from corporate income tax, we shall not pay the windfall tax unless the government changes the rules. Under the existing rules, our working thesis is that with the measures we have taken in the fourth quarter and the first quarter of this year, we will be not liable for the windfall tax. On this front, I would like to mention that our contribution to state budget in 2022 increased by 60%. This is not the prepayment, the down payment on the windfall tax, but that's other taxable items that we contribute to the state budget.
60% up, and the absolute amount we paid is CZK 3.6 billion to the state treasury. We felt that enough is enough, and we optimized the tax position, and we will not pay the windfall tax. It's as simple as that.
Is there any rumblings of the from the government side that they might change the formula on you?
So far, no. So far, no. If you look at the large competitors we face, Mr. Blažek from ČSOB, subsidiary of KBC, who likewise said that they will pay nothing. It is also based on safe time, based on view on statements of, I think, CEO of Komercni who also downplayed the expectations on revenues from this. I mean, the taxation of profits that we generate and withholding taxes increased by 60%. It accounts to CZK 3.6 billion. This year it will be even more, assuming we increase the deposit base. We think that the government should consolidate the budget rather than take the money from us, because we contribute significantly more to this spending by the government, and we optimize the position. No rumbling yet. It will come, probably.
Mm-hmm. Thank you very much. That's all for me.
The next question on the line comes from Thomas Unger of Erste Group. Your line is open. Please go ahead.
Unfortunately, we do not have audio.
Thomas, please ensure your line is unmuted locally.
Yes. Can you hear me now?
Yes.
Wonderful. Thank you. Thank you for taking my questions. The first one will be on the guidance on 2023. That's where you ended the presentation. I appreciate the comments that you gave us, the further details on the NII and other revenues. But did I get it correctly, you see upside in the profit estimates for 2023? Where you see the upside in the P&L? That will be my first question. The second will be on a risk cost. The risk indicator was very solid in Q1. I didn't see any deterioration yet.
Do you see anything now in March, April, anything visible? Anything expected in the coming quarters? You've extended the overlay, which is now at a quite ample level. Do you see any potential for narrowing the range for the risk cost guidance of 2023? Lastly, I would just like to get a feeling of your thinking on a management board level on the strategy approach. Has anything changed with the banking crisis now in March? Has that had any impact on your approach? Also if you could tell us about deposit movements in April, I'd appreciate that. Thank you.
Deposit movements in April are positive. We continue to gather deposits at fairly strong rate. I think on the 14th of April, we had a peak mid-month, we had about CZK 357 billion in deposits. This evolves during the second quarter positively. With the change with the crisis in the U.S., we were amazed that you can resolve government paper quickly in the state of California. I think we all got very educated on the three facilities that we have with Czech National Bank, we are fairly confident. Other than that, the decision to improve the liquidity of the bank was taken with my colleagues in August 2022, I've communicated it.
I think we didn't change anything because we took the decision to beef up liquidity through summer 2022. What has changed, independent of what happened in the US, is that we've taken a different view on the duration of high interest rate environment in the Czech Republic because we just don't see how the Czech National Bank will justify cutting the rates in the near term. However, the bank is now positioned to benefit from cutting the rates, and we are well insulated against other increase in the rates. We have a very good position, sort of both ways, more favorable if they cut rates. Where we expected this to happen at the beginning of third quarter, we think it will be a lot later.
Norman will answer when he wants to narrow the range, or whether he wants to widen it. Go ahead.
We have a, as you know from the guidance, we have a cost of risk range of 25 to 45 basis points for this year. It is clearly higher than what we currently have since we had a net release. As I tried to explain during my part of the presentation, the net release was the result of various factors. One, still solid core performance, the upgrades of forborne receivables, and most importantly, the NPL sales, which we have the big one, which we announced in Q1, is also front-loaded in Q1. This helped us very much on the cost of risk line for this year, and we saw a significant appetite on that portfolio, which generated a significantly higher than initially expected profit.
Obviously, the environment we are in is unprecedented, as it has been for the last three years. Models do not fully capture what we see on the macro front, most importantly, the high inflation, the energy costs, and also the fairly sudden increase interest rate environment. GDP subdued at most, I mean small growth, if we are lucky this year. I think that, let me call it like it's an interesting cocktail or mix of macro key indicators, which make it increasingly difficult to predict how both retail customers as well as commercial customers are going to deal with that going forward. Should we see a continuing positive trend in the second quarter and should we manage to monetize NPL sales, which we have in our plan.
To be specific, we plan to monetize roughly an equally sizable portfolio as we sold in the first quarter for the rest of the year. Give or take CZK 500 million-600 million face value. Should we generate solid results, then we will be looking at our currently provided guidance to which extent it could be changed. Yeah. Also looking at the parameters on the overlays. That's something which we're going to look at going forward.
The answer, Thomas, the answer is second quarter, earliest maybe third quarter. We want to be absolutely certain that the timeline between the lower GDP growth and the translation into NPLs is six to nine months, which is why I see what happens. Far, the sky is blue and the sunshine is raining upon us, but this can change. Now, you asked about the upside, yeah, or downside. If you look at the revenue operating income, the CZK 12 billion whatnot is actually a very aspirational target. The downside on that is CZK 100, and maximum upside on that is in the range of CZK 50. This is not going to move the needle a lot this year.
For 2024, we do have significant upside because the mortgage portfolio will be repriced partially, and we will also benefit from whatever volume of deposits we are able to manage. On the net fee income, there is some upside, but the number will come close to what Honza said, which was CZK 2.5 billion, and you can look at CZK 50 million up and down difference. The upside would have to come from significantly higher transactional intensity coming in the second half of the year, which comes with some economic recovery, but it's highly unlikely that this will happen. The revenue or operating income is pretty much spoken for. We have some upside on the costs.
We have really worked on the cost side a lot. The first quarter and second quarter will be still a little bit impacted by some one-offs, which tend to be negative. The net results could be seen in the second half of the year. This has to be taken with a caution because we are under huge pressure to adjust wages across the bank. Pretty much everything is on Norman, if you will, as always. We can't predict what will happen, and we are very cautious on the cost of risk.
Okay.
That's it.
Thank you very much for your answers. Appreciate it.
Thank you.
The next question on the line comes from Karel Nedvěd of Fio banka. Please go ahead. Your line is open.
Hello. My question relates to capital management and MREL requirements. How confident are you that you will meet, you know, your MREL requirements, meaning that you will get those CZK 3.5 billion needed in the first round of offering of these subordinated deposits on May or later in the year? Basically, how attractive will you make these subordinated deposits? Can you share with us the details of your offering? As a related question to capital management, a follow-up question. Do I understand this correctly that if you fully meet the MREL requirements of this year, then we can anticipate the payout ratio to be still 70%? Or how that payout ratio would vary depending on the success of MREL requirements meeting?
This question always, sort of amazes me because we have a published dividend policy which is part of our corporate disclosures. That policy is, amongst other on the website of the bank, and it has not been changed. The minimum payout is 70% in that dividend policy. If we were to change it, we will publish it. Linda Kabanova, as the boss of the bosses of the investor relations, will send this to the market, and we will notify all analysts and the whole world. That remains unchanged, and this is rock solid. 70% is minimum, because this is the rule under which we operate. That's number one. Number two, if you're asking me how confident I am to issue it, I am 100% confident we will succeed.
If you ask me what will be the attractiveness of this subordinated deposit, we will price it based on a 5-year swap. What we think is adequate risk premium for the bank. We discussed this in the shareholding meeting, and I have to think. Sheila and I said, okay, if I look at the swap market today on Tuesday, I reckon it will be somewhere between 6.5% and 7.5% for 5-year return given to shareholder, which by the interest, will be paid monthly. We are aiming it at a specific segment of the retail market. We agreed internally in the bank that the MREL related subordinated deposit will have minimum investment value of CZK 100,000. There is no barrier in the amount of deposit.
I have confidence in my people. I have a wonderful team of 55 retail bankers who are responsible for distribution of collective investments. I have a great head of distribution who actually always asks questions at the management conferences. I have a great head of distribution of retail branch network. I'm 100% confident they will succeed because they will get well paid for succeeding. If that fails in the mid-year, we will have digital platform on which to rely, so we will widen the scope of distribution to digital in September 2023. Again, I'm 100% confident we will succeed.
Okay. Thank you very much.
Thanks.
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Excellent. It seems that we have no additional questions. Would you allow me just two seconds? We delivered profit of CZK 1.2 billion. We are on the way to meet the minimum profitability target of 4.3%. We will adjust the profitability target based on the current forecast of the bank. The forecast will be finished by in May, and we will publish its results, together with our second quarter results. We have discussed the upside and the downside. We are not going to reprice the deposits in second quarter because we do not believe the market conditions are enable to that. The first possible date for review of the cost of risk range is mid-year. It might come in the third quarter based on our consensus or lack of thereof, when we will time it.
On windfall tax, unless the rules change, under the existing rules, we have inoculated the income in a way that we will not pay windfall tax. I stress, and our contribution to state budget has been 60% higher in 2022, and it will further increase this year, because of the indirect taxes that we finance. With that, we are looking forward to second quarter. We are optimistic, vigorous, good energy in the bank. We will get the MREL under control. You will see that. I'm confident that our people will not fail in that endeavor. We will look forward to present to you our results for the second quarter. Until then, we are grateful for your interest in the bank. Thank you very much, and have a good weekend.
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