Dear ladies and gentlemen, welcome to the conference call from the MONETA Money Bank regarding Full Year 2022 Financial Results. Please note that this conference call will be recorded. This event will have a live presentation followed by a Q&A session. As a reminder, all participants will be in a listen-only mode. May I now hand you over to Mr. Spurný, who will lead you through the conference call. Sir, please go ahead.
Good morning, ladies and gentlemen. This is Tomáš Spurný speaking. I have the pleasure to begin today's presentation. If I may ask you to turn your attention to page two, we start with the summary. During 2022, we were able to generate net profit of CZK 5.2 billion. This translates to CZK 10.20 earnings per share. If you look at the geography of the results on operating income, we reached CZK 12.1 billion. This is approximately CZK 100 million better than we anticipated in last February's guidance. On operating expenses, we came in at CZK 5.6 billion. Equally, this is about CZK 100 billion better than originally anticipated. Our operating profit before tax and before cost of charge, cost of risk is CZK 6.5 billion.
This constitutes an increase of nearly 16% against the previous year. We generated cost of risk charge for the year in the total amount of CZK 90 million. This is despite the fact that we have created considerable management overlays in anticipation of current or upcoming likelihood of recession. Likewise, we come in below, significantly below the guidance through excellent performance of our workout team and the recoveries, namely in disposal of non-performing receivables. If you go to page 3, quickly regarding development of the balance sheet. Our asset base increased nearly 14%, CZK 388 billion.
This is chiefly due to the fact that we have raised CZK 49 billion of traditional liquidity into the bank. The deposit base ended up at CZK 334 billion. Likewise, we strengthened issuance of securities. The year-end issued securities come at CZK 10 billion. We raised additional CZK 3.9 billion in MREL eligible securities. Our accounting equity stands at CZK 31 billion, which is an increase of 5.5%. This reflects both the paid dividend during 2022, and over and above that, we added 20% of our current year earnings into the equity base. Gross performing receivables at CZK 270 billion. This constitutes growth of 5.6%. We will go through the details of that in a few minutes.
Investment securities portfolio increased by nearly 18% to CZK 58 billion, as we have purchased chiefly Czech government securities, but we've also invested into some of the MREL issues of our competitors. On page four, the key ratios. Our net interest margin declined 20 basis points. This is due to contemplated effort to gather additional liquidity. Part of that were formed by liquidity concerns this summer when we saw significant outflows from the bank. Secondly, our subsidiary, Moneta Building Society or MONETA Stavební spořitelna, is under legislative threat, as the government is likely to withdraw support of the interest rate subsidies.
We wanted to build additional liquidity buffer, should that business be impacted by the tax policy or rather, by the consolidation of public finance in Czech Republic. Today it is confirmed that it's likely to take place. On productivity, cost-income ratio improved to a level of 46%. We also exceeded our expectation on the minimum return on tangible equity target. We came in at 18.7% for the full year 2022. Loan-to-deposit ratio vastly improved to a level of 80%. At some point, we were operating the bank with this indicator at level of 94%-95%. This is a significant improvement of liquidity position of the bank. On capital, through MREL issuance and through optimization, we reached 18%.
If we turn page to key trends, I've already commented on the improved liquidity. We raised, all in all, about CZK 49 billion, and decreased wholesale cost of funding by replacing it with retail deposits. On the capital and MREL requirement, we fulfilled the requirement that what we believe is a palatable cost. Additionally, we optimized our RWA, used some exceptions in the regulations to improve the overall capital ratio. Apart from that, we have focused and will continue to focus on repricing of the loan book. Last year, with respect to the yield on the loan book, we added 50 basis points, and we expect at minimum same performance this year, gradually improving the NII.
With respect to dividend distribution, we exceed the guidance quite significantly, and we intend to propose CZK 8 per share. This is subject to regulatory acquiescence. We have to file some documents with the regulator in order to receive go ahead. Second, milestone is the shareholder approval on at general meeting, which is currently planned for 25th of April. If you look at the operating platform of the bank on page six, with respect to branches, we remain at unchanged position of 153 units. Nonetheless, during the restructuring discussions that took place in the bank in the second half of the year, we've decided to exit 14 locations which are peripheral to both distribution and customer service.
We plan that this figure, or footprint of the bank will change to 140 by the end of first quarter. Additionally, we've entered, as you know, into a shared infrastructure agreement with Komerční banka, hence our ATM footprint was enlarged to more than 1,400 ATMs. By the end of first quarter this year, we shall increase the footprint to more than 2,000 machines as we have attracted into this agreement Air Bank and UniCredit Bank. With respect to employment, we ended the year with 2,700, well, Shy 1, FTEs. By the end of first quarter, we will come near to our target of 2,500 FTEs as to reflect current business conditions and also, the continued drive to achieve higher productivity in the bank.
This will help us in the current year to offset inflationary pressures that we face with respect to our cost base. With respect to total customers of MONETA, we exceeded 1.5 million threshold on gross basis. The bank attracted 170,000 new customers, which is roughly double the performance of previous years. On our digital platform, we continue to enjoy a fairly strong success, namely through the integrated mobile banking platform called Smart Banka, where we exceeded 800,000 users, and I'll come back to it in a minute. Now, let me comment on the operating environment in the Czech Republic. Turning to page eight, if you look at the GDP expectation, this comes in at 2.5%.
We believe that Czech Republic has entered already technical recession, but the latest reported numbers show 30 basis points decline of the GDP. This, however, so far has not translated itself into higher unemployment, which remains at low level. The country has a significant structural deficit of public finance and continued to have high deficit for past three years. In the current year, the reported number is in excess of CZK 360 billion. The current year, 2023, the deficit is supposed to decrease to below CZK 300 billion, and the government, as of today, announced likely changes to real estate tax, withdrawal of support of the building savings societies, and additional did measures.
The liquidity gathering exercise that we have endeavored in the second half of the year, had proven to be useful as we will face difficult situation in our subsidiary. I would like to remind that 10% of our funding comes from MONETA. If we look at page nine, here we cover inflation, its complete and impact on interest rates. If you look at the inflation, this is estimated to come in at 15.8%. The chief contributors to inflation are obviously energy prices, which are translating itself into also higher food prices and certain services are getting more expensive. With respect to Czech National Bank and the key rates, we have seen in the past two years nine interest rate hikes.
The key rate is at 7%, and it seems to be held at this level, as the Czech National Bank had a policy meeting yesterday, and left the rates unchanged. We also illustrate swap and bond yield curves. My comment here is that if you look at weekly volatility, it has been significant, increasing actually during third and fourth quarter, where the rates are changing by approximately 20 basis points each week. We have seen weeks when the rates were bouncing 40 to 50 basis points. The environment is significantly different from what we experienced in the last five years. Let me provide you also with a quick update on the banking market and MONETA performance against such.
On page 11, we look at the relevant deposit market, which grew at 7% to GBP 5.6 billion. MONETA vastly outperformed this target. This growth, we have posted growth in excess of 17%. The most notable growth, and actually focus of our strategy, was to diversify the deposit base into retail deposits. Here we grew at 18% although it had significant cost and negative impact to the NII of the bank. Nonetheless, we've also enjoyed strong growth on the commercial deposit side, where rounded up, the market grew 10% and we posted growth of 14.5%. Turning the page to page 12, let me walk you through the development of the relevant lending market.
The lending market expanded at 5.6% to CZK 3.7 trillion. This is the first year where our growth in the loan book, the overall loan book, is lower than the market. We post 4.8% growth. We match the market growth on retail. Nonetheless, we have half the market growth on commercial, and this is due to the fact that the lending to commercial entities in Czech Republic is very quickly converting itself to euro-based loans. MONETA is Czech crown-based bank. We have not easy access to funding on that front. Secondly, our prudential policy seeks to avoid underwriting foreign currency loans for entities that do not have income, matched income in that currency.
We are at a relative disadvantage due to these aspects to underwriting such such lending. A brief comment on digital on digital distribution and service that we provide. If you look at page 14, we walk you through the five-year development of our digital digital platforms. We also try to estimate the impact of various features that we have added over those years. Here I would like to comment that we believe to be at the vanguard of providing digital services to our customers, and that is substantiated on page 15, where we believe to have delivered satisfactory and in some aspects excellent performance.
If you look at on the right side of the chart, the excellent performance on current accounts and savings account distribution, where we enjoy 60% and 35% overall proportion of our product origination to is attributable to digital channels. That's one factor. Second factor is that the distribution of current accounts came in at 60,000 units, which is double, more than double the previous year. If you look at on lending side, we continue to have growth. We've had 60% growth in digital distribution of consumer loans. This is predominantly down to existing customers of the bank, and we underwrote CZK 6.9 billion, reaching nearly 50% of the overall production being done through digital.
Likewise, on small business, the growth of volume constitutes 8.6% year on year, and nearly a quarter of the production to self-employed and small companies is now conducted through our digital channels. On page 16, we illustrate the growth in the digital platforms where I would focus your attention on the mobile banking platform, which grew nearly 50%. This is now the penetration of the core customer base increased from 39% to 55% of our customers now have downloaded the utility. And if you look at the transaction intensity, it is soon going to be double of what we do on the internet bank. Again, investment into wide and deep functionality of the application clearly bears fruit.
On page 17, just very quickly, our card business and digitalization of cards. If you look at growth in card transactions, they're in excess of 22%, which is, we believe, satisfactory performance in its own right. Additionally, if you look at cards that have been digitized, transactions are growing at more than 80%. In the midterm, we would like to, we would like to tokenize all cards that we issue and gradually discontinue issuance of plastic, improving ESG or green posture of the bank. With that comment, I will pause here or hand over to my colleague, Jan Friček, who will walk you through details of our financial performance. Jan, go ahead.
Thank you. Good morning, ladies and gentlemen. I am now on page 19, and I'll continue with the profit and loss statement. Let me repeat the key financials. MONETA Group reported net income of CZK 5.2 billion, EPS of CZK 10.2 on revenue of CZK 12.1 billion, and delivered return on tangible equity of 18.7%. Revenue growth of 8.5% is driven by higher net interest income, up by 8.2%, accompanied by net fee and commission income, up by 12.1%. Cost base of CZK 5.6 billion kept growth stable year-on-year, despite double-digit inflation in the economy. On the cost of risk line, we report CZK 19 million charge against nearly CZK 700 million last year. This favorable result was achieved through solid loan portfolio quality, low delinquencies, and NPL portfolio reduction.
More detail will be provided by Normann in the next section. On page 20, we continue with NII. Lending interest income in the top right corner is up by half a billion or 21%, achieved through loan book expansion of 5.6%, accompanied by improved loan portfolio yield by 40 basis points. Treasury income, which is reported below, went up by more than CZK 1 billion, supported by the base rate increase by 3.25 percentage points during the last 12 months. Higher treasury income offset nearly 2/3 of the CZK 1.8 billion increase of the cost of deposits. The growth of cost of deposits is a function of the 17% deposit base expansion, accompanied by repricing of significant portion of the balance to the current market level.
The inflow of new deposits improved our liquidity position and supports also our profitability through positive margin realized from placing excess liquidity in the central bank. Nonetheless, increased cost of funding led to NIM compression to 2.3% in Q4 against 2.6% reported for the whole year. This is in line with our outlook provided during the third quarter earnings call. Prospectively, we expect the NIM to reach a bottom in the first half of the year at 2.1%, and from the third quarter should start picking up subject to our ability to reprice deposits down. Reported NIM for the Q1 2024 should be back at 2.7%. On the next page, we continue with the development of net fee and commission income.
The 19% growth is driven by higher commissions through the third-party product distribution, together with the higher transactional activity of our customers. On top of that, net fee and net fee income reported in Q4 was supported by extraordinary bonuses from our partners. The most significant bonus was linked to completed migration of our payment card portfolio to Visa. The income side is further broken down into categories on the next page. The chart on the left-hand side reports transactional fee income growth of nearly 18%, accompanied by pickup in fee and servicing fees, while predominantly early termination fees are below last year due to limited space for opportunistic risk-based financing. Third-party commissions on the right-hand side reached CZK 322 million, against CZK 283 million last year. Nearly 14% growth was achieved through solid performance in both distributed product categories.
Further detail is provided on the next two pages. Income from distribution of insurance policies is analyzed on page 23. The split indicates that about half of the delivered income is generated by distribution of payment protection insurance linked to our lending franchise. Besides that, the main increase year-on-year was achieved in pension insurance distribution, which nearly quadrupled year-on-year. Turning to flip the page, we have asset management overview. The income growth of 28% was delivered through outstanding balance expansion by more than 3% and further supported by updated pricing policy. We can move forward to the cost section starting on page 25. On the left-hand side, we can highlight the year-on-year development. Overall cost base was kept broadly stable against 2021, as well as personal and admin cost categories.
Some moderate growth is reported in regulatory charges and D&A. Cost-income ratio was pushed down to 46%. This outcome required a lot of focus and cost discipline across the bank, offsetting the overall inflationary pressure. Quarterly development is further analyzed on the next two pages, let me go directly on page 26. On the right-hand side, we report quarterly development of the employment capacity. At the end of the last year, we reported 2,700 FTEs, which is 9.5%, or 282 below last year's numbers. Productivity improvements resulting from the FTEs reduction was critical to compensate for the average salary increase by 7.8% year-on-year, to maintain stability in personnel costs. Quarterly development on the left-hand side also illustrates the impact of the one-offs on reported results.
These one-offs mainly consist of severance payments and managerial performance bonuses that we typically accrue in the last quarter of the year. On the next page, we conclude this section with remaining two cost categories. In the chart on the left, we report administrative expenses adjusted for M&A-related costs that were reimbursed. Almost 17% growth year-on-year is attributable to higher energy bills together with other facilities related expenditures, accompanied by higher cost of cash transportation. Depreciation and amortization charge was up by 7.5% in the last quarter year-on-year, and by 4.4% on full year basis, due to ongoing investments into the digital capability and IT infrastructure. With that, I'll hand over to Andrew Gerber, who will continue with the balance sheet section. Thank you.
Thank you, Jan. Good morning, ladies and gentlemen. Moving to page 29, we present the development of the balance sheet, which expanded 13.9% year-over-year, with the customer deposit base increasing 17.2%, whilst the loan portfolio increased 5.1%, leading to a decrease in the loan-to-deposit ratio from 90% to 80%. We'll go into the detail behind some of these trends as we go through the material. Moving to page 30, we present the development of the lending base, which increased by CZK 14.4 billion year-on-year, with stable balance development visible in the last two quarters, in line with the bank strategy, as we took a more circumspect position with respect to new credit risk origination in light of the uncertain outlook.
Overall now, the retail and small business portfolios account for 74% of the total loan portfolio, just 1 percentage point below our target of 75. Moving to page 31, we present the development of the loan portfolio yield, which increased to 4.4%, driven by variable interest rate loans in the commercial segment and repricing across the retail products. When you look at the retail products, you see that the portfolio yield increased just 10 basis points, reflecting the fixed rate infrastructure of that portfolio. Whereas in commercial, the portfolio yield increased 150 basis points on the basis that 28% of that portfolio is floating. Jan Novotný will take you through some detail as to the repricing outlook for the portfolios later on in the presentation.
Moving to page 32, we look at development of the retail loan portfolio, which increased 6.8% year-over-year, predominantly driven by drawdown of existing mortgage commitments on the back of a very strong pipeline coming into the, coming into the. The mortgage portfolio itself increased 8.4% year-over-year. However, new business origination in the year 2022 was down significantly 69% lower, as the market slowed materially, and we expect this now to translate into lower growth over the coming quarters. Similarly, in consumer loans, we saw modest growth of 2.9%. Again, this was on the back of significantly lower new origination, with volumes down 6.8% in the year.
However, we benefited from a significant improvement in early termination in the portfolio, with early terminations down 28% year-over-year, leading to the modest growth in the portfolio. Moving on to page 39, we present the development of the yields into more detail. The new lending yields have improved significantly, supported by the higher interest rate environment. You can see in mortgages that the new volume yield increased 350 basis points, whilst the portfolio yield increased 160 basis points. Important to say is that this is the hedged yield. If we look at the underlying yield, the increase was more modest, 30 basis points to 2.4%.
In consumer lending, the new volume yield increased 160 basis points, reaching 8.9. This was enough to stabilize the portfolio yield overall. With that, I will hand over to Jan Novotný, who will take you through the commercial section.
Thank you very much, Andrew. Good morning, ladies and gentlemen. Please let me walk you through the similar slides for commercial banking part of MONETA Money Bank. Let me start on slide 34. You can see that we have ended up the year at CZK 83.4 billion, which is slightly below the end of Q3. This slight decrease was caused by several bigger transactions being repaid as the customers were optimizing their cash and lending position for their end-year financial statement. Despite the short-term decrease, we have achieved 33.1% growth year on year. You look on the right side of the page, you can see that we grew up in almost all categories.
The strongest growth in working capital and small business with a growth about 20% as well as in auto loan portfolio that we have grew up by 7.8%. It is also worth to mention that in Q4, we have discontinued three business lines in commercial and put them into run of mode. Leasing line, real estate financing line, and financing of housing cooperatives. The effect of the closing is not visible in Q4. However, it will have some impact on the new origination and portfolio size going forward. Now, let me move to page 35, where you can see the development of the new volume yields and the portfolio yield by the product category.
We have continued to increase the pricing on new volumes throughout fourth quarter, and you can see the increase in portfolio rates across all the product lines, but especially in working capital product, as the vast majority of those loans are based on the float rate. This leads me to give the overview on the next page 27, which is showing the composition of the overall bank portfolio from interest rate structure view. You can see on the chart, approximately 65% of our loan book will be repriced or repaid within the next 36 months. You can see the split into variable rate, fixed maturity, and a fixed re-fixation period, and its respective amounts within the next 12, 24, and 36 months. Now, please let us move to the other side of our balance sheet, and for that, I would hand over back to Andrew.
Thank you, Jan. On page 27, we present the development of the deposit base, which increased by CZK 44 billion year-over-year, CZK 39 billion in retail, CZK 10 billion in commercial, whilst the wholesale portfolio declined by CZK 5 billion. Overall, the strong development in retail and commercial deposit gathering was driven by competitive positioning throughout the year, where we aim to remain competitive, at least, relative to the large players in the market. We generally aim to move ahead of the market in order to try and gather deposits before the competitive intensity really increased. We were also very successful in exploiting our online assets in this space with 61% of the savings accounts opened during 2022 opened fully online.
Moving to page 38, we look at the impact on cost of funding. You can see the acceleration of the cost of funding growth continued into the fourth quarter in both the retail and the commercial segments. The cost of funds increased 214 bits year-over-year overall, with core customer deposits increasing 217 bits and similar trends in both retail and commercial. I think what's important to note here is that during the last six months, we have made a lot of effort in order to move a significant part of the portfolio into a pricing structure, which will give us the flexibility to reprice effectively every three months with the first large tranche due for repricing at the end of March.
What we expect to see now is continued increase in the cost of funds through the first quarter and partially into the second quarter. Subject to market conditions, we will be looking to start repricing of the portfolio later in the year, with the effect becoming visible in the third and fourth quarter. This, of course, is subject to development of rates on the market. What's important is that we've given ourselves the legal and the technical room in order to do this. Moving to page 39, we present the development of the retail deposit portfolio in a little more detail. Overall, the portfolio grew 18%. As I said, savings and term deposits were the main driver here, up 32.7%.
Whilst in current accounts, we saw 14.5% decline in the balance. This is driven predominantly by clients moving liquidity to higher yielding savings accounts now that they're available on the market. What's important here is, as Tomáš said earlier, overall, we recruited across retail and commercial 170,000 new clients during the course of 2022. We now see the first sign that this additional growth in the client base is sufficient to start stabilizing the current account portfolio. We will be watching that over the coming quarter. As I said, first signs there. With that, I'll hand back to Jan, who will take you through the commercial section.
Thank you very much, Andrew. On slide 40, you can see that the commercial deposit-taking franchise reported similar trends as visible in retail. We have reached overall balance of CZK 77.5 billion, which represents 14.5% growth. Thanks to improved product offering, also by refocusing our sales network from loan origination more towards deposit-taking. You can also see positive slowdown of decreasing balance on current accounts with continuous strong growth on savings and other deposits. Now on the last page of the balance sheet section on page 41, let me walk you through the evolution of our wholesale funding base of MONETA Money Bank. We have slightly increased our position in Q4, which was driven by successful issuance of additional CZK 1.5 billion MREL-eligible bonds in line with the MREL build-up plan of MONETA Money Bank.
This is all from my side. Thank you very much for your attention. Now please let me hand over to Normann for the risk metrics and security section of today's presentation.
All right. Thank you very much, Jan. Good morning. We are now on page 43 with an overview of cost of risk for the last two years. Looking at Q4 of 2022, here we recorded the cost of risk of CZK 216 million. This is impacted by adjustments of management overlays both for our retail and the commercial portfolios. These overlays shall account for the lack of sensitivity of our provisioning models towards the very specific macro and geopolitical situation we are currently facing. The total aggregate amount of such overlays at the end of 2022 stood at close to CZK 850 million. Moreover, we still benefited from upgrades of previously downgraded and poor loan receivables from stage three to stage two.
Despite the aforementioned overlays which were created throughout 2022, the full year cost of risk amounted to only CZK 90 million or 3 basis points, which is a significant improvement compared to the same period in 2021. On the following page 44, here we show the evolution of the loan portfolio, loan loss allowances, and overall coverages over the last five quarters. While gross receivables grew by more than CZK 12 billion year-over-year, loan loss allowances dropped by around CZK 600 million, largely driven by drops in our NPL stock, thanks to upgrades of previously downgraded receivables, sales of non-performing loans, but also a so far experienced solid payment morale of our customers.
As far as the overall coverage is concerned, this stands at 1.9% and remain unchanged the third quarter in a row. Moving to the next page, 45. Here we show the development of NPL in and out flows since December 2021. The fourth quarter of last year showed moderate net NPL formation, however, largely driven by a few isolated smaller commercial exposures. As a consequence, quarter-over-quarter, the NPL stock slightly increased by around CZK 40 million to a stock of CZK 3.8 million at the year-end. Continuing on page 46, here we have a more detailed overview how the NPL stock evolved in the last five quarters.
Year-over-year, both the retail as well as the commercial NPL stock showed significant drops and stood at CZK 2.85 billion for the retail book and close to CZK 940 million for the commercial book respectively at the end of Q4. The latter, meaning the commercial, increased due to some isolated downgrades we conducted in Q4, as I indicated on the previous page. As far as the NPL ratio is concerned, this dropped from 2.2% in Q4 2021 to 1.4% at the end of 2022. It remained unchanged compared to the second and third quarter last year. The last page of the risk section here, we show the evolution of delinquencies 30, 60, and 90 days past due over the last four years.
What you can see across these buckets, delinquency rates remained fairly solid. They showed some small increase over the last two quarters, but significantly less pronounced than what we had anticipated earlier in 2022. Summarizing the risk section, I think the core message is that despite moderately increased delinquency rates, the core performance of the credit portfolio remains fairly solid, and we have not yet seen any significant changes in key risk performance metrics.
Notwithstanding that, we'll continue monitoring our portfolio carefully with respect to the implications stemming from inflation, energy costs, and the overall geopolitical and macroeconomic environment. As far as our provisioning approach is concerned, here we have tried, and we continue to do so, address these risks by having accounted for potential deterioration of the credit portfolio through the extension of management overlays within the framework we have created. I said before, as of the end of December, we had a total amount of such overlays of around CZK 850 million, and this will be subject to reviews going forward. With that, I hand over to Jan Friček. Thank you.
Thank you, Normann. I'm now on page 49, where we report position of the capital requirement stipulated by the central bank for the group as well as for the bank on individual basis. As you can see on the left, our management capital target on consolidated level currently stands at 16.1%. From the first of April, it will increase to 16.6%. On the standalone level, the management capital target stands at 20.6%, and it's expected to go up during the year to 23.1%, predominantly due to increase of the MREL requirement. Both capital positions are further analyzed on the next two pages. Let me start with the consolidated position on page 50. At the end of the year, we reported regulatory capital of CZK 30.9 billion.
RWA CZK 372 billion, with RWA density reduced to 43.4% through the implementation of netting of derivatives. As a result of that, capital adequacy ratio stood at 18%, with excess of 1.9% or CZK 3.3 billion in an absolute amount. This does not include the dividend accrual in amount of CZK 4.1 billion, which is accounted separately. The chart in the bottom right corner reports development of the excess capital during the year. Increase of capital requirement in 2022 consumes CZK 2.9 billion of capital, nearly 10% of our total capital position. Nevertheless, this was offset through the RWA density improvement and regulatory capital optimization. If you flip the page, we can continue with the standalone view.
At the end of the fourth quarter, we reported regulatory capital position of CZK 35.3 billion, including MREL instrument of CZK 3.9 billion. MREL adequacy ratio stood at 21.4%, which is 80 basis points above our management target. The anticipated increase of the capital requirement by 2.5% will require additional capital or MREL-eligible instruments in amount of CZK 3.5 billion. We are considering several options: offering eligible deposit products to our clients or issuing eligible instruments either on the domestic or international market. From the time perspective, we will target the second half of the year. On page 52, we conclude this section with the detail of our dividend proposal. Management plans to propose dividend in total amount of CZK 4.1 billion or 8 koruna per share, which is 14% above the year before.
Implied payout ratio would represent 79% of consolidated net profit. This concludes the capital management section, and I will now hand over to Tomáš for the guidance and final remarks. Thank you.
Very well. On page 54, we start with the backwards view against guidance and our current results. The guidance was communicated last Thursday, and you can see that we have across the board fulfilled the minimum target. Now let's go to page 55. Here, we try to illustrate the minimum target for following five-year period in terms of net profit and in terms of operating profit. In terms of net profit, our minimum target for next five years stands at CZK 23.6 billion. This is improvement in cumulative earnings of 18%. As you can see, the improvement is more notable in 2026 and in 2027.
This is simply a function of the bank levy impacting the years of 2023 to 2025. The bank levy is estimated on a cumulative basis at about CZK 1 billion, not subject to change. Those earnings are diminished through that tax. Similar picture on the operating profit level. We would like to increase the operating profit level to a cumulative CZK 35.9 billion, whilst during past five years, the bank made CZK 29.5 billion. If we go to the following page 57, here you have the pro forma PNL from perspective of minimum target. Overall, during the five-year period, we would like to accomplish top line growth of at minimum 4% in 2023, this is probably most relevant.
We would like to match the operating income of past year or at least the minimum target is slightly below itself, billion versus CZK 12.1 billion. On the cost level, even though we take many initiatives to control the cost base of the bank, we believe that we will come in at CZK 5.7 billion, and this probably has three components. First component are regulatory mandatory charges. As we enjoy higher deposit base, this will be impacted by that. Second, even though we are reducing level of employment in the bank, if you look at 2022, the average salary in the bank accelerated by 7.8%. And we expect a similar trend will be present with us during 2023 due to the inflationary environment.
On the bottom line, 2023, we project minimum result of CZK 4.3 billion. The guidance is underpinned by 80% payout ratio with respect to shareholder distributions. This is obviously function of regulatory compliance and shareholder acquiescence with such. If we then look at page 58, you can see the key assumptions under the medium term plan. With respect to 2023, we expect GDP contraction of 70 basis points, which is more than the current recently published Czech National Bank's forecast. Unemployment at 3.2% during this year. The current unemployment is vastly below that. It's at level of 2.5%.
Inflation, when we constructed the plan, we estimated that the inflation would come down to 9.1%. Currently, the governor of Czech National Bank mentioned in an interview that the Czech National Bank's projection of inflation for 2023 stands at 11%. We see, we framed the plan in decreasing short-term rates, which is visible here in fairly strong crown against the euro of late. The current exchange rate is even lower. The crown is stronger against the euro than we have in the plan. On page 59, we show you the balance sheet volumes.
From volume perspective, our plan is ultra-conservative, because if you look at the gross performing and receivables, effectively, we are projecting stable loan portfolio over a period of three years, and this is due to the uncertainty with respect to mortgage market, with respect to affordability of consumer lending, and additionally, the lower demand across commercial customers that we serve. On the customer deposit base, we are projecting a decline, and the decline is caused by two factors. Number one, uncertainty, what is going to happen with the Building Society deposits, which are currently substituted by the government, and the finance minister today confirmed that the subsidy will be withdrawn.
The second factor in our deposit strategy pertains to repricing that Andrew explained how we have built the products in order to be able to reprice them on a three-month basis. The plan reflects expected outflow of deposits and stabilization in 2024 and 2025 for two years, and subsequently growth as the operating environment hopefully normalizes. All in all, the guidance says aspiration of the bank to increase the cumulative net profit by 18%, and I would like to stress that these are minimum targets which we would like to exceed as we have exceeded our targets in the past five years. Ladies and gentlemen, thank you for your patience with us, and we will now turn to Q&A and answer your questions.
Thank you. We will now begin the Q&A session. If you would like to ask a question and you have joined the call via Zoom, then please write it in the Q&A chat box or use the Raise Hand function, which can be located on the lower bar on your screen. Before speaking, please make sure that your local device is unmuted. Once your question is answered, please cancel the Raise Hand function. If you've joined via the phone, please press star one on your telephone keypad to enter the queue. One moment please for the first question. Our first question comes from Andrzej Łoś. Please make sure you are unmuted locally and proceed with your question.
Good morning. Thank you for the presentation. I have a couple of questions. First, on the windfall tax, it appears from the guidance that you are relatively relaxed about it, presumably because the NII has been weak, but also because you might be planning some mitigating measures. Can you comment on it, a little bit more, please?
We are proud to pay the tax as we are good citizens of this country. However, we are planning to enjoy tax-free returns on government bonds, and this will positively impact our tax base. We will continue investments into assets on digital, namely in the small business and in SME, perhaps accelerating those. We are, I would say, conscientious of the tax, and so we will use the three-year period to strengthen the customer base, the customer base of the bank, because if you look at 2022, we learned couple of things. Number one, nothing is forever. This pertains to the Building Savings Society, where we've been very successful competing against the four competitors that we have in the market.
The government decides to change this. We sought an alternative. We successfully created that alternative in the form of deposits. This was the first lesson. The second lesson is that we've paid reasonable interest rate on our savings products, return deposits to both retail and commercial customers. The MONETA, the value of MONETA brand has been improved quite considerably by that, substantiated by the 170,000 customers who came into us. Second lesson. The third lesson is the undisputable capacity of the digital assets that we operate, because if you look at 60% of the nearly CZK 40 billion on retail varies through digital assets.
We have actually, during 2022, entirely changed the strategy from lending, deposit gathering. As we are able to optimize the cost base in the bank, we will be able to optimize the cost base of the funding. We come out of 2022 difficult conditions as a clear winner in terms of connecting and deepening customer loyalty, and we are tremendously proud of that.
Okay. Lower loan-to-deposit ratio, more invested in bonds. That will help. Okay. My second question is precisely on deposits, on cost of deposits specifically. The ČNB seems to be implied rates will not fall too quick, and you're hoping that you'll be able to reprice those deposits from Q3. There's those other things that you mentioned before on subsidies and so on. If the ČNB doesn't cut, will you keep your rates unchanged at the risk of losing market shares and liquidity deteriorating, or will you just stay put?
We will behave according to the market, and I would split it into two parts. If you look at the portfolio, 68% of the portfolio will be repriced in three years. 28% of the portfolio will be repriced during 2023 on the asset side. This provides upside to the NII, which is not actually, in my view, present in many of the estimates by analysts around MONETA. There is a significant upside on the asset side. That's number one. Number two, we will adjust Obviously to the interest rate environment, we framed the assumption in fourth quarter based predictions by Czech National Bank with respect to the interest rates. This has changed, and we will see how situations develop.
We cannot guarantee that we will accomplish the reprice if the rates remain the same or if the rates go up. If you look at it from today's vantage point, our deposit book is already repriced by and large, not entirely, but by and large. The current account balances are stable. We are attracting, we continue to attract, very strong interest in our current account products. We are as optimistic as circumstances allow that we will manage the minimum target of CZK 12 billion, on operating income level, that we provide in the guidance. We have some potential upside, coming from other areas that I cannot comment right now, which would help us to supplement any gap on the expected NII performance.
Thank you. Thank you. Just to clarify, what did Jan say about the NIM outlook, 2.0% in 2023 or was it 2024?
Before the first quarter.
Thank you again. Bye-bye.
Thank you. Our next question comes from Robert Brzoza from PKO BP Securities Please make sure you are unmuted locally and proceed with your question.
Oh, hello. Good morning, everyone, and thank you for the presentation. I have a couple more questions. First of all, as I understand from the presentation, that the bonus for partners, which was included in the fee and commission line, was in the has manifested itself by lower expenses. Is that correct? The next question would be, it implies that the expenses in this line should return to a more normal level going forward, right? We treat it as one off. Second,
That's correct. That's correct.
Okay. On employee-related costs, did I understood correctly that you already included some severance payments for the recently announced layoffs in the full Q results? If so, maybe you can share the size of this additional charge or whether still there will be some outstanding costs to be borne in 2023. Moving on to the NII, you mentioned that you made-
Sorry.
Yes. Yes.
Ondra will... Jan Friček will answer the question because otherwise.
Okay.
In the fourth quarter, we report accrual for severance costs that will be paid in the first quarter of 2023 in amount of CZK 40 million.
Right. On the NII performance and outlook, you mentioned that you made a legal room for repricing. Can you be perhaps be more specific, were you referring to? Did you change, for example, frequency of repricing on loans or change some terms for deposits? What did you mean in detail here? Additionally, on the NII, are you looking when deciding about changing your approach towards deposit gathering, do you look at some parameters which guide you to set that decision in motion, say, loan-to-deposit ratio or much potential indicators should we follow as a guidance to your decision making? This is my almost last, pretty last question on the NII, if I may.
I apologize, but we will not answer that because this is public information. For obvious reasons, we don't want to share the approach. The legal room that Andrew has created in the product design, I will let him comment on the quote-unquote, "legal room."
This, this is with respect to the deposit product that I was referring. What we have done is we've created a product structure where the interest rate comprises a base interest rate and a bonus that is applicable for a three-month period. And then at the end of each three-month period, we have the opportunity to set a new bonus or indeed to leave no bonus, should that be the right thing to do. This is how the product works and effectively gives us a repricing point every three months.
Right. Correct. Understood. My last question on the NPL formation, you noted in the presentation it has increased somewhat both in quarterly and annual terms. I'm talking gross NPL formation, due to some incidents in the corporate segment. Could you give us more color on this? I mean, was it related to higher wage bill or higher energy spend? Do you have any visibility there whether that's something that by, given the situation in the overall eco-economy, could be repeated in the coming quarters or whether these were totally unrelated to the energy prices, to the inflation, something completely different and therefore should not be repeated in the coming quarters.
Right. The very particular sort of downgrades which we have conducted here in Q4 were indeed unrelated to the overall, let's say, economic situation, be it energy prices. You know, we have been going through a very extended period of literally zero defaults. Now we had a few minor ones, not big tickets. And on top of that, of course, we continue with the forbearance measures for customers who have a problem or a payment holiday, which would then downgrade. So it's... We don't see here with these isolated cases a general change of the trend. I cannot predict the future. That's why we have created the management overlays, both for commercial and for retail, which takes into account and stress tests parts of our portfolio exactly because of energy price increases, inflation, and the overall macroeconomic situation.
These particular increases which we have witnessed in Q4 were not unrelated, so I cannot see a beginning of a change of the trend. Very, very specifically, if you look at the increase in the NPL, it's driven by commercial. It's on page 46. NPL in retail are actually going down about CZK 80 million. In commercial, we had three notable defaults. One is default. One is not actually defaults but downgrades. One is a well collateralized agricultural enterprise which invested in a biogas power plant, and the biogas power plant was delivered with a delay. However, our level of co-collateralization to agricultural land and to assets of the company is sufficient. This was in the order of magnitude of about, and I'm fishing in my mind, I think CZK 80 million.
Secondly, we had medical equipment manufacturer who got into difficulties because cost of funding, where we believe that the company can be restructured. Again, we are fairly well collateralized on that. This is an order of magnitude of about CZK 50 million. These are the two that we have seen in the commercial, in the commercial realm. What we see on the commercial side, a small construction company getting into difficulty because the construction market is contracting due to high price of labor and real estate inputs. We see some companies. Nonetheless, I would like to stress on the risk side, as Norman reported, we have management overlays in the amount in excess of CZK 800 million.
It's CZK 850.
CZK 850 million. This is already on the books as cushion, over and above, the model outputs. If you look at the guidance, we have, conservative guidance. All in all, the bank is positioned to the tune of CZK 1.8 billion, perhaps CZK 2 billion, to absorb, any upcoming defaults on retail and for commercial, during 2023. We are, as well prepared as we can be for, potential difficulties. Last argument, in last year, we saw CZK 1 billion of non-performing receivables with a gain of CZK 247 million.
We have probably equivalent target for 2023, which is not embedded neither in the guidance or business plans of the bank, because by definition, we are unable to plan this subject to demand and satisfactory prices coming from third parties who buy these receivables.
Right. I understood. Can I just one last, because I couldn't hear clearly on my side. The figure CZK 2.4 billion, which you have given during the presentation, did it refer to the NII in the first Q23 or that was something different?
I haven't given any CZK 2.4 billion-
Okay.
Neither did anybody, neither did anybody else here.
Okay. As I said, I had some, I couldn't hear clearly. That's why I wanted to double-check. Okay. Thank you very much. That's all from my side.
Thank you.
Thank you.
As a reminder, if you would like to ask a question and you have joined on Zoom, then please submit your written question in the Q&A box or use the raise hand button. If you have joined on the telephone line, then please press star followed by one. Our next question is from Rostislav Taborsky. He asks, "Are you considering buybacks in the future?
Yes, we will consider this in lieu of the 80% payout. This is something that we have successfully approved with Czech National Bank. Previously, we were not able to execute it because of the onset of the COVID pandemic. We will consider buyback or buybacks once the MREL requirement is fully met by the bank. This would be third or fourth quarter of this year, and potential realization, if we elect to go this way, would come in at beginning of next year, that is 2024. This is something under consideration.
Thank you. Our final question comes from Thomas Unger. Please make sure you are unmuted locally and proceed with your question.
Yes. Hello. Hi. Can you hear me?
We can hear you.
Wonderful. Thank you very much. Thank you for taking my questions. I would have three questions that I so would like to raise. First of all, what do you assume in terms of the capital ratio development in 2023? Specifically, is there excuse me, is there potential for RWF optimization throughout the year? You don't expect any asset growth or loan growth throughout the year. Do you assume RWAs to decline throughout the year? The second question would be on maybe a bit more specifics on the revenue outlook for 2023 and 2024 midterm.
If you can talk about what you assume for the NII and how far you assume and fees and commissions to increase this year or next year. That would be great. Lastly, can you just talk about the risk development and your portfolio NPL ratio very low, and the stock of overlays is at CZK 850 million currently. Does the risk guidance for 2023 include any utilization of those overlays? You said that NPL sales the gains of that are not included in the outlook. A bit more color on 2023 risk environment, what you assume, will be wonderful. Thank you.
You should send us your spreadsheet, and we will fill it. If I can, slightly broadly, on the RWAs, we are not assuming decline because we have optimized the Dickens out of the RWAs. The only density reduction available to us is through additional collateralization, namely of the small business franchise, where this will have nascent or very low impact on the overall RWAs. That's the answer to the first question. Number two, you asked about the NII. We will not provide estimates or breakdown of the NII. The only comment I will make is on the net fees and commissions, where we would like this year to accomplish low double-digit growth. Three teenage years, let's say somewhere around 10%.
This is the aspiration of the bank with respect to net fees and commissions this year. This will come from third-party product distribution, and it will come from transactional fees. What was the third question?
Cost of risk.
On the cost of risk, Normann will give you some additional view.
As you can see in the guidance, we have put the 25-45 basis points. The managerial overlay, which we have created, the CZK 850 million, follows a certain logic because the output of the calculation, which we have done for potentially vulnerable portfolios, both in retail and commercial. Should these assumptions not materialize, obviously, then we don't need the managerial overlay anymore, and as a consequence, the cost of risk would be lower. To your question, yes, the cost of risk for this year within this range would include the managerial overlay. Should at the end of the day, the risk performance be better and the macro or the underlying assumptions for the stress testing would not materialize or not be relevant anymore, then we would come in with a lower number.
That tail amount, which Tomáš Spurný referred to, is not yet included.
Okay. Thank you very much.
Thank you. As a final reminder, if you would like to ask a question and you have joined on Zoom, please submit your written question in the Q&A box or use the Raise Hand button. If you've joined on the telephone line, please press star followed by one. Our next question is from Marta Czajkowska. Marta, please make sure you unmute your line and proceed with your question.
Yes. Hi. Can I ask if you could guide us through the downgrade of outlook for revenues in February 2022, you presented 2023 outlook for revenues at 12.5 billion CZK. This time, you expect at least 12 billion CZK for revenues. Can you just talk us through what were the main reasoning for this downgrade?
It's obviously coming from the NII and higher cost of deposits. If you look at the key assumptions under the plan in 2022, the key rates have changed from assumed 4.5% to 7%. This does have negative impact on the cost of deposits because. Well, I think it's obvious. On that front, the environment had developed in an entirely different way than what we had assumed in January 2022 when we were constructing the guidance at that point.
Okay, thank you. Maybe just another question. During the presentation you mentioned, there were some close lines on the corporate segment, namely, I believe leasing, real estate financing and third one, I didn't catch. Can you just shed some light why you see this decline in these areas?
Jan Novotný will give you an answer.
You know, there are three lines, which are the leasing. If you remember from the past, there was a company we had acquired back in 2014, and the company a long time struggled to meet the profitability requirements. From a cost perspective, we decided to really put it into the runoffs. There will be no more new origination in leasing. The second was real estate. We had a small team dedicated for the real estate transactions. But as the market is quite volatile, besides the fact that we have no delinquencies, neither covenant breach, we decided to stop or to do it very selectively to invest into the real estate. That was the second line. The third line was the housing societies. We decided again, on the legal side, we decided to discontinue again.
We did a very few volumes in 2022. That was originally acquired business from Wüstenrot. With a super tiny margin. I think we have a very big business-
Profitability.
Low profitability. I think we have a huge disadvantage in this case not to be on IRB, but to be a standardized approach. We're not seeing long term to achieve sufficient profitability. Again, because we wanted to save the cost and streamline the business, we decided to discontinue also origination on this one.
I would add on the leasing, we face very unfavorable tax treatment of risk charges. The risk charges are effectively not tax deductible due to a clerk in Czech tax code. If you run a leasing business, it actually takes a very long time before any losses that you suffer on the credit front become tax deductible, and this would be additional basis that negatively impacted, negatively impacted our view on the leasing business. We operated the leasing business mainly in order to be able to reclaim portion of our VAT base on services and commodities purchased by the bank. The leasing market had converted itself from provision of leasing to provision of credit.
We thought it nonsensical to have credit origination capability in the bank and to place it and as parallel term is in the, in the leasing company. I think we should actually be praised for being fairly fanatical about trying to achieve at minimum 15% return on equity in the subsidiaries, and if they don't fulfill this requirement, we close them.
Okay. Thank you for that. Just maybe one specific question about the public guarantee fund contribution for this year. Any thoughts on that?
The total will be around CZK 250 million.
So-
CZK 280 million. I'm sorry, I misspoke. CZK 280 million.
All together, including contribution to the Resolution and Recovery Fund.
Sure. Okay. Thank you very much.
We have any-
Thank you. We currently have no further questions. I'll now hand back over to Tomáš Spurný for closing remarks.
Right. If we summarize, looking backward, we've made CZK 5.2 billion net profit. This translates to 18.7% return on tangible equity. Net return is therefore 3.7% higher than our minimum management target, as we would like to deliver steady performance at minimum 15% return on tangible equity. That closes the discussion regarding 2022. Going forward on five-year cumulative basis, we would like to accomplish net profit of CZK 23.6 billion, which is cumulatively 18% higher than the previous previous five years. We estimate the bank levy impact at around CZK 1 billion. This will impact the bank's earnings during the years 2023 until 2025. We are tremendously grateful for your interest in MONETA.
We thank you for the participation, and collectively as well as individually, we wish you good weekend, and we are looking forward to our next interaction on 27th of April, 2023.
Thank you, everyone. This concludes today's webinar. You may now disconnect from the call. Goodbye.