Welcome to the conference call of MONETA Money Bank regarding first quarter of 2022 results. Please note that this conference call will be recorded. This event will have a live presentation file, followed by a question and answer session. As a reminder, all participants will be in a listen-only mode. I now hand over to Mr. Tomáš Spurný, CEO and Chairman of the Management Board, who will lead you through the conference call. Sir, please go ahead.
Good afternoon, ladies and gentlemen. We will cover our presentation, which we published this morning, on the bank's website. If I can have your attention on page four, we highlight our quarterly performance. First and foremost, the bank generated net profit of CZK 1.3 billion. This is a considerable year-on-year improvement as we increase profitability of the bank by 116%, compared to Q1 2021, and 19% compared to fourth quarter of 2021. The composition of key lines on the P&L, we've generated operating income of CZK 3 billion. This represents growth of nearly 13%. We've also accomplished to keep the cost base flat at CZK 1.5 billion.
Please note that this includes, regulatory charges for the rest of the year, as we don't accrue those, but we book them, as they materialize. The pre-impairment operating profit at CZK 1.5 billion, this is 29% increase. Due to improving quality of our loan portfolio, we were able to accomplish positive cost of risk through release of loan loss provisions at the level of CZK 95 million, which obviously enhanced the result. Turning a page to page five, key areas of balance sheet and return that we've delivered. On the deposit gathering activity, our deposits stood at the end of the quarter at CZK 294 billion. This represents 10.8% growth year-over-year.
We've also accomplished good growth in distribution of the 35 asset management products that the bank offers, ending the quarter with a balance of CZK 25.5 billion, which represents 27% growth. On lending activity, our loan portfolio reached CZK 258.6 billion. During the quarter, it generated growth of 11.5%. The P&L result translates into return on tangible equity at the level of 18.8%, which is 910 basis points increase from comparable quarter in the previous year. Capital adequacy of the bank stood at 17.7%. On the following page, on page 6, we have the key trends. I covered the profitability.
On the excess capital position, we do have regulatory capital in the amount of CZK 29.8 billion. This translates into the overall capital adequacy ratio of 17.7%. This is against the regulatory OCR requirement of 13.6% and management target of 14.6%. We have CZK 5.3 billion of excess capital. This excess capital number does not include the accrued dividend that we will pay out shortly, which is CZK 7 per share or in the absolute amount of CZK 3.6 billion. During the first quarter, against backdrop of challenging capital market situation, we managed to place EUR 100 million in senior preferred bond, which is MREL-eligible, so we begin to build the MREL coverage position gradually.
On the liquidity, operating liquidity of the bank at CZK 70 billion, this remains broadly stable with a strong liquidity coverage ratio of nearly 170%, and we marginally decreased the loan-to-deposit ratio to 88%. Now let me turn a little bit to macroeconomic environment here in Czech Republic. Sorry, first, we covered the strategic KPIs on page 8. We have 8 elements of strategy. First element, retail franchise development, growth in retail in the overall lending activity at 13.3%. The composition of the growth is strong across all of the product categories.
On deposit taking and liability side, overall growth in deposit base of the bank in retail 14.4%, augmented or supported by strong distribution of asset management products, while the conditions were fairly volatile in the first quarter. In the small business development, we have a solid growth of 26.6% backed by strong campaigns of the bank focusing on high margin, high return lending product categories. Small drop in deposit base and a notable shift towards higher interest earning products. You see a very strong growth on the savings and term deposit category. Within the SME performance, again, we have fairly good growth on the SME lending portfolio.
This growth is matched by slight increase of the SME deposits and again, a notable shift to higher interest earning products, which translate into cost of funds of the bank, as we will cover that later. We continue in development of digital distribution categories. What is notable to say here that today, or during the first quarter, we sold nearly 28% of our current accounts to online services, and 43% of consumer lending is now going through the digital channels. There is some strong improvement on that. The remaining categories remain well stable. On page nine, the other four elements of our strategy dealing with risk management first and foremost.
We've been quite successful in decreasing the NPL loan portfolio by CZK 2 billion in last 12 months, CZK 1 billion during the last quarter. The NPL ratio came out at 1.8%. We, however, continue in a prudent posture with respect to coverage. You can see that the overall cover of the NPL loan book stands at more than 120%, and the overall loan portfolio coverage is at 2.1%. We have a fairly comfortable position there. On capital, I've covered the capital. What is perhaps important to add that we have marginally decreased the RWA density by 2.5%, and the overall density stands at 43.7 as of the end of the quarter.
On cost control, we employ on full-time equivalent basis 2,929 people. This is 3% decrease year-on-year. If we adjust the cost to income ratio and subtract a relevant portion of the regulatory charges, we would come out at 43%, which we consider good efficiency for the bank currently. The cost base remains steady, increasing by 20 basis points year-on-year against comparable quarter. We are also building momentum and realization of our ESG strategy. Apart from other things, we launched ESG dedicated website, where we will continue to regularly report on progress we are making on this dimension of our strategy. We've also published the 2021 sustainability report, which we are proud of.
The report also shows dramatic decrease of the carbon footprint that the bank achieved during last five years. Lastly, we've approved in context of our CSR activity CZK 5 million grants to various NGOs and civic initiatives. On page 10, briefly, the evolution of the operating platform where the branch network or the physical footprint of the bank remains unchanged in the 12 months with some branch improvements being done during the last quarter.
We have quite dramatically restructured the tied agent network that was acquired from Wüstenrot, reducing the number of agent offices from 60 to 41 and restructuring this distribution arm of the bank. On ATMs, no change really, except we are modernizing the network and utilizing higher proportion of deposit-based ATMs, which are highly popular with our small business customers, and we experience strong growth in the volume of deposits through those machines. In terms of client acquisition, we had fairly strong growth on the 12-month basis. The bank added approximately 70,000 customers, 71,000 customers, according to that, we had during the first quarter addition of about 27,000 customers across the board. The similar growth we are delivering on the digital channel usage.
If you look at the mobile banking platform, 600,000 users, and we have continued growth in penetration of the internet banking platform of the bank. I mentioned the employees. We have reduced staffing in the bank by 3%. Now, let me cover a little bit about the operating environment in Czech Republic from macro point of view. Starting on page 12, the GDP forecast for this year had been reviewed. It currently stands at growth of 1.2%. The budget deficit is forecasted for this year at CZK 280 billion, decreasing by about 40% from the previous year. First quarter's deficit stood at CZK 59 billion.
All of this is followed in parallel by increasing in debt net growth in absolute and relative level. The Czech Republic remains relatively unleveraged compared to many other countries within the EU. On page 13, the country continues to enjoy stable outlook, good rating. If you look at the GDP contribution last year, it was driven pretty much by investments. This year, the composition of contribution is similar. However, we are probably seeing tail end of the investment activity as interest rates are at the highest level since early turn of the century. In terms of industrial activity, during the first quarter, we see a notable decline in industrial orders. The activity also, the growth of the activity went into negative territory as of end of February.
Similar situation prevails in retail sales as people are bombarded on a daily basis by increasing price messages in the media and high inflation. On the foreign trade, we see steady performance, slight growth on the exports. However, the imports have dropped during the first two months of the year. On the following page 14, a little bit on inflation. The latest inflation number 12.7%. This was reported at the end of first quarter. In the table below that, we have circled out the key contributors to inflation, which is housing, energy. We have price adjustments spilling into foodstuffs and transportation and telecommunication, and we show you the impact of increase in prices in gas and electricity, which is quite rapid, steep.
This obviously contributes to the current situation. On page 15, how does that translate into interest rate environment? If we look at the two-week repo rate, key rate by Czech National Bank, this was increased on the first of April to 5%. We think that another hike of at least 50 basis points is imminent. The yield curve is inverted, so the short term is significantly higher than the long tail. This is consistent with the lackluster growth forecasted for this year. We also see notable increase in the 10-year government bonds. The rates are coming up quite quickly and dramatically. On page 16, what is our situation in unemployment?
We see an incremental increase to 2.5%, so nothing dramatic. Continued increase of wages. In the graph, we show you that the wage acceleration 6.1% for last year. I would say that on the micro level this pressure prevails and continues to be felt by the bank as we are faced with increasing demands that we increase wages across the board in order to help our staff to weather the inflation pressure. Savings rate for this year predicted at 15% and a relatively unchanged situation from indebtedness point of view. However, that data set is fairly old. The next section on page 18 deals with a quick review of the latest evolution of the banking market.
We use first two months of the year as the ending data point as the data were not fully available. However, commenting on the deposit market, on page 16, the market grew 5%. The bank grew at 10%. You can see on the right-hand side of the page, that our retail deposits continued to expand quite rapidly at 14% against the market growth of 4.9%. We had a slight drop in commercial deposits due to our pricing strategy, which we are augmenting during the second quarter of this year. On page 19, the lending market. If you look at the overall retail and commercial lending market, it grew at 4.9%.
The market reached nearly CZK 3.6 trillion. MONETA grew at 9.4%, so we overperformed in growth on the asset side. In retail, we are pretty much aligned in the first quarter with the market, due to compared to previous quarters, we slowed down the growth in mortgages quite significantly. We ended with a nominal portfolio of CZK 180 billion. On commercial, we have growth of 5.8% due to, as I mentioned previously, strong growth of small business and continued growth on the SME side. Let me comment in the next section a little bit on digital distribution, which we have on page 21. Here, you can see a notable drop in mortgages.
This is in the upper left-hand corner, where we did about CZK 700 million digitally. This is a 70% drop compared to first quarter of last year, and CZK 1 billion drop compared to the fourth quarter. This is due to the fact that our existing platform is very much focused on refinancing of existing mortgages. Obviously, with the increase of interest rates, this business shrunk quite considerably. Nonetheless, even with this performance, structurally, we maintain about 14% portion of the new volumes realized digitally. In asset management, which we sell namely through Smart Banka application, we managed to keep this stable with a stable both absolute amount and proportion against the backdrop of significant price corrections in the equity and debt market. We consider this a solid result.
Dramatic growth in the current account distribution capacity. This was based, I would say, by improvement of the process, but also during the first quarter, we had seen a bank fail in the Czech Republic. This was Sberbank CZ that stopped trading, and this enhanced our customer intake and current account sales. On small business, steady online performance with a steady proportion. On the following page, on page 22, we provide you with a view on usage and transactional growth. On the mobile banking platform, we are continuing to grow our users by 25%. We reached 600,000, and this trend continues into the second quarter.
Nearly 10% growth on the new internet banking platform that we started modernizing approximately one year ago, where we have in excess of 1.1 million registered users. If you look at the charts below on the transactions, we have rapid growth of the mobile banking transactions, nearly 61% and nearly 8 million transactions per quarter. The platform has become bigger in terms of number of transactions at internet banks. This testifies to success of both our strategy and ability to execute and implement new functionalities. On the internet bank, 7 million transactions. You can see that, compared to the previous four quarters, we have growth against three of those, and solid growth year-on-year.
On page 23, we were the first bank in the market to implement Google Pay and Apple Pay. You can see success in tokenization of our debit cards. The growth is nearly 50%, and more than 480,000 cards have been tokenized and registered for these big tech platforms. We see dramatic growth in usage, 125%, and this trend continues and actually accelerates. The other interesting comment here is that Apple seems to be a bit more successful in the Czech Republic. With that, briefly, we've made nearly CZK 1.3 billion in net profit, delivered return 18.8% on tangible equity.
My colleague, Jan Friček, will now take you through the details of the P&L.
Thank you. Good afternoon, ladies and gentlemen. I am now on page 25, and let me walk you through profit and loss statement. As Thomas already mentioned, in the first quarter this year, we delivered consolidated net profit of CZK 1,290 million, which corresponds to 18.8% return on tangible equity, nearly doubled year-over-year. On the revenue line, we achieved 13% growth, driven by higher net interest income by 17% year-over-year, accompanied by 3% growth of the net fee and commission income. Despite the double-digit inflation, we maintained cost base flat year-over-year. On the cost of risk line, we report a net release of CZK 95 million against CZK 418 million cost last year. This is primarily due to the strong repayment discipline and decrease of NPL portfolio.
Norman will provide more detail on this in the risk section later. On page 26, we provide you with the decomposition of net interest income. Nearly 17% growth year-on-year has two main drivers. Firstly, lending and interest income is up by 14% year-on-year, which is predominantly a function of the loan book expansion by 11.5%. Secondly, interest income growth is supported by hedging derivatives and excess liquidity in the Czech National Bank amid higher interest rates. This is visible in the bottom chart with income of CZK 491 million. On the other hand, changing interest rate environment resulted in a significant pressure on the cost of funding, namely on the savings accounts and term deposits.
In the first quarter, we report cost of deposits of CZK 656 million or 91 basis points, which is about two times more than the year before. Increasing cost of deposits was inevitable from several reasons. Deposit-based protection against the outflow to other banks, gathering incremental funding to enable the lending growth, and lastly, a reduction of the loan-to-deposit ratio to the target level of 85%. All together, our net interest margin in the first quarter stood at 2.8%. In the five-year horizon, we expect stable NIM oscillating around 2.8%, as further yield upside will be mostly offset by higher cost of funding. This obviously might improve with the acquisition of Air Bank, which maintains a significant excess of liquidity. On the next page, we continue with the development of net fee and commission income.
The 3.4% growth is driven by higher third-party commissions for distribution investment funds and insurance, and also by significantly higher number of transactions, namely card payments. Higher number of transactions is at the same time reflected in the higher fee expense. The income side is further analyzed on the following page. The commission income from the third parties is up by 12.2%, driven by asset management, which is visible in the top chart. In the bottom chart, we provide the detail of other fee income categories, of which fee income from transactions was the driver of overall 5.7% growth, 5.7% growth year-on-year. On page 29, we provide further detail about investment fund distribution. In the first quarter, we report income growth by more than 82% year-on-year.
The first quarter income of 73% was also supported by a time-limited tranche fund distribution. In the chart below, you can see that at the same time, the portfolio underneath increased by 27.4% year-on-year and stood at CZK 25.5 billion at the end of the quarter. Now cost base, as reported on page 30. As I mentioned before, cost base in the first quarter remained stable year-on-year, with cost-to-income ratio at 50.3%, more than 6 percentage points below the year before. The cost-income ratio is typically elevated in the first quarter of the year due to annual regulatory charges that are fully accrued in January. Let me briefly comment also on the development of individual OPEX categories on the left-hand side. Regulatory charges went up in line with our funding base expansion.
However, on top of that, the central bank has indicated that banks will be asked for an extraordinary contribution into the deposit insurance fund in order to refill the fund after the compensation payout in relation with the failure of Sberbank unit at the end of February. The extraordinary contribution hasn't been accrued yet, so it is not in the numbers, and it will be accounted for once we get the amount. It should be during the second quarter. There is obviously a risk that the extraordinary contribution will become recurring at least for several years. Personal expenses, here we report a reduction in the first quarter, CZK 586 million. This is by CZK 15 million below first quarter last year, and this is a function of 3% reduction of the FTEs.
The last two categories, namely administrative expenses and D&A, remain broadly stable. Altogether, we maintain the cost base in line with the full- year guidance of CZK 5.7 billion. Nevertheless, let me emphasize here that our guidance is based on the macroeconomic outlook, assuming inflation of 5.6%, while the reported inflation reached 12.7% in March. Impact of higher than expected inflation will become even more visible in the second half of the year, namely on personal expenses, energy, and rental costs. If you ask me to quantify risk in the cost guidance, my estimate is up to CZK 100 million, CZK 100 million with respect to higher inflation, plus the amount of the extraordinary contribution into the deposit insurance fund. The regular annual contribution to the deposit insurance fund is CZK 100 million.
Before I hand over to Jan, let me summarize Q1 P&L. Delivered net profit of CZK 290 million represents 29% of the full- year guidance. Operating income increased by 13%. Cost base remains stable. Net release of CZK 95 million is reported on the cost of risk line. Thank you.
Thank you very much, Jan. Good afternoon, ladies and gentlemen. Please let me walk you through the next section of today's presentation, the balance sheet development section. I will do the presentation together with my dear colleague, Andrew Gerber. Now, please let me focus your attention on slide number 32, where you can see the chart depicting our assets and liabilities composition and its evolution throughout the last five quarters. The overall size of the balance sheet has reached almost CZK 368 billion, with a very healthy growth, mainly in both net customer loans and core customer deposit components. In both cases, almost 11% year-on-year. Overall, MONETA maintains very resilient and high liquid balance sheet. Now, on the next page 33, you can see more detailed information about the customer segment representation in gross performing loan category.
This portfolio has reached CZK 258.6 billion, and as you can see, we have significantly grew in all segments, ending with retail portfolio size at CZK 178.1 billion, which represents the share of 69% on the overall portfolio. Now let's move to the next slide number 34. It shows the loan portfolio yield evolution. On the left side of the page, you can see that the yield on the total loans bank portfolio improved to 4% due to increased pricing on new origination, as well as thanks to the change in interest rate environment. On the right side of the page, you can see the split of the evolution per type of customers, the stabilizing results on retail side and growing loan portfolio yield on commercial side.
Now let's dig deeper into the product results, including the yields evolution split by the segment. We start on retail products presented by Andrew.
Thank you, Jan, and good afternoon, ladies and gentlemen. Moving to page 35, we present the development of the retail loan portfolio, which increased 13.3% year-over-year due to growth across three out of the four major product categories. Obviously, mortgages continue to be the primary driver here, up 19% year-over-year, reflecting continued strong performance of the market, but also continued increase in market share, which increased from 7.2% to 7.8% year-over-year in February, which is the last month for which we have market data. In consumer lending, the portfolio stabilized, growing slightly 1.5% growth year-over-year, after three quarters of decline.
This reflects both stronger new business performance, new business origination, which was up 20% year-over-year, and a significant improvement in the early termination on the portfolio, where in 2021, we saw significantly higher early termination, and in Q1, we have been able to bring this back in line with the long run average. In auto lending, the portfolio increased 13.2% year-over-year, reflecting generally strong demand for cars, both new and used. In the revolving products, we continue to see decline of 2.5% year-over-year, which broadly reflects the trend in the market.
Moving to page 36, we go on to look at the yields in the major retail loan products, where what we see is that the price, the rate increases in the market have yet to be fully reflected in pricing in the market, with the exception of mortgages, where new business pricing has increased between 250 basis points and 300 basis points year-over-year. Looking at the mortgage portfolio, you can see that the portfolio yield increased 10 basis points year-over-year, and we expect now to see continued increase of 20 basis points to 30 basis points over the course of the rest of the year, as new origination comes into the portfolio at higher rates, and part of the portfolio goes through refixation, which again is at similarly higher rates.
We expect roughly 25% of the portfolio by year-end either to be newly originated or refixed at current rates. We also present the yield, including the benefit of hedging instruments, where we see a 90 basis point increase year-over-year as we benefit from the hedging instruments underneath the portfolio. In consumer lending, the portfolio yield dropped 50 basis points year-over-year. However, you see that for the first time in a very long period, we had stabilization quarter-on-quarter, reflecting the fact that new business pricing in the market is now at very similar level to where our portfolio is.
We would hope to be able to keep this stabilization through the coming quarters as the new origination rate aligns with the market. Now I'll hand over to Jan, who will take you through the commercial portfolio.
Thank you very much, Andrew. Now let me please walk you through the sales split also for the commercials. On the left side of the slide number 37, you can see the overall portfolio size that at the end of Q1 has reached CZK 80.4 billion with year-on-year growth of 7.6%. On the right side of the page, you can see more detailed split. Very solid growth on investment loans and working capital portfolio, where we continue to focus on growing the profitable and low-risk customer relationships. Very good growth of auto loan portfolio, given the fact that this portfolio contains also the results of our leasing subsidiary that we put under the run-off mode.
The key success is continuous growth of high-yielding small business segment, where we were able, thanks to an extensive usage of state guarantee programs, to grow portfolio by more than 26% year-on-year. On the next slide number 38, sorry, you can see the evolution of the portfolio yield per product category. You can see increasing yields in investment loans as the new production pricing is significantly above the historical levels, and we should see increasing yields also going forward. The key change happened on working capital portfolio, again, due to significantly higher pricing on new origination, as well as by the fact that large portion of the working capital lines is based on still increasing private rates. Remaining two product categories are stable, slightly increasing despite higher new volume pricing.
However, those product lines still remains to be one of the most profitable portfolios from the return on equity perspective. That was an update on the asset side. Now please let us walk you through the results also on the liability side. For that, please let me hand over back again to Andrew.
Thank you. On page 39, we present the funding base of the bank, which expanded by nearly CZK 32 billion year-over-year or 11.6%, where retail has been the primary driver, accounting for around 88% of the increment. As Jan said earlier, it's inevitable that in this environment, interest rates will increase, but we've tried to play a more proactive role in the deposit repricing so as to ensure that through this, we're able to attract additional volume, not just repricing the portfolio. I think in this we've been fairly successful. On page 40, we look at the cost of funding impact that obviously comes through this.
Cost of funds overall increased 57 basis points year-over-year, where core customer deposits is obviously the primary driver, up 60 basis points, with both retail and commercial contributing. I think one important thing to say here is that the bulk of the deposits that have been brought in are on savings accounts, where we have the possibility to reprice once the market starts to move down. This is something we will be looking for the opportunity actively as and when the situation changes. Going on to page 41, we present the development of the retail deposit portfolio, which increased 14.4% year-over-year.
As I said, the savings accounts and term deposits were the primary contributor, up 20.5%. We saw limited growth on current accounts. This, I think, will continue as with higher interest rates, we see more interest in the deposits, the savings and term deposit products, which are paying interest. In commercial, the portfolio was broadly stable, growing 0.6% year-over-year. Similarly, you see the shift towards the savings and term deposits, which were up 17.4%, while the current account balances declined 6.3% year-over-year. Finally, on wholesale funding, the base expanded by the issuance of MREL-eligible bonds in the amount of CZK 2.4 billion in the first quarter of 2022.
Overall, the growth was 31.6% year-over-year, where the bonds in issue increased 27.9%. You see under due to banks and other, you see, growth of 40.3%. However, obviously, in the last quarter, this declined as the increased deposit balances gathered through the retail and commercial propositions reduced our need for repo operations. With that, I will hand over to Norman, who will take you through the next section.
All right. Thank you, Andrew, and good afternoon. We are now on page 45 with an overview of cost of risk for the last five quarters. In Q1 this year, we recorded a net release of risk provisions in the amount of CZK 95 million, or 15 basis points, which constitutes a significant improvement year-over-year, but also quarter-over-quarter. The main driver behind this positive development is the solid performance of COVID-related restructured portfolios, which led to an upgrade of around CZK 1.2 billion of receivables from stage three to stage two, leading to a release of around CZK 290 million of loan loss allowances. Furthermore, we have been seeing a continuing solid core performance visible in low delinquencies as well as NPL disposals, which we conducted in Q1 this year.
On the next page 46, here, we show the evolution of the loan portfolio, loan loss allowances, and overall coverages. While gross receivables grew by almost CZK 25 billion year-over-year, loan loss allowances dropped by around CZK 650 million, largely driven by an update of the forward-looking macro scenarios in our IFRS 9 models. A drop in our NPL stock, thanks to upgraded restructured receivables, NPL sales, and also the solid repayment morale of our customers. As far as the overall coverage is concerned, this currently stands at a solid 2.1%. Moving to the next page 47, here we show the development of NPL inflows and outflows since March last year.
The first quarter development was significantly and positively impacted by more than CZK 1.8 billion of receivables which were covered, out of which more than CZK 1.2 billion comes from upgrades of COVID-related restructured receivables. As a consequence, the NPL stock dropped by more than CZK 1 billion in the first quarter and by almost CZK 2 billion year-over-year. Going to page 48, here we have a more detailed overview how the NPL stock evolved. Year-over-year, both the commercial as well as the retail NPL dropped by around 30%. As a result of this, the NPL ratio dropped from 2.8% in Q1 2021 to 1.8% at the end of March this year. On the next page 49, here we have a breakdown of the COVID-related stock of non-performing loans.
As you can see on the right-hand side, out of the CZK 4.6 billion, CZK 1.6 billion are still COVID-related. Out of this CZK 1.6 billion, around 70% or around CZK 1.1 billion are being repaid regularly. Assuming a continuing positive payment behavior of these receivables, then this would be subject to an upgrade from stage three to stage two in the coming quarters. The last page in the risk section, which is page 50, here we have an overview of our different delinquency buckets, 30, 60, and 90 days past due. Overall and across delinquency buckets, delinquencies remain on a comparatively low level, still significantly below levels we have observed during pre-COVID times.
However, we would expect, given the inflationary pressure, cost pressure, and also the expected implications coming from the war in the Ukraine, that delinquencies will gradually rise again to higher level than the current ones. Summarizing the risk section, I think the core message is that the efforts which we have taken to support our customers in previous two years by means of payment holidays and restructurings appear to have paid off. This is clearly visible from the upgrades which we could conduct in the first quarter.
Now, while the negative implications coming from COVID appear to be coming down, at the same time, the impact stemming from inflation, energy price increases, increased interest rate environment, and last but not least, the implications stemming from the war in Ukraine, this still remains to be seen. We are carefully monitoring our portfolio. We have also assessed the trade relationships of our commercial customers with the conflicting parties. For the time being, we have not found any evidence that we would have to anticipate any material impact on our customers. As said, t he developments are quite dynamic, and we will be vigilant and carefully monitoring the portfolio as we move further into the next quarters. With that, I hand over to Jan.
Thank you, Norman. Let me comment on our capital position reported on page 52. In the first quarter, our accounting equity stood at CZK 30.8 billion, while our regulatory capital stood at CZK 29.8 billion. The increase in the positions is driven by the retained earnings. Focused capital management is demonstrated in the charts below. On the left-hand side, our risk-weighted assets stood at CZK 168 billion, which represents 9.1% increase against 2020, while our loan portfolio expanded by 14% at the same time. This favorable development supported further reduction of RWA density, which stood at 43.7%, which is by 6 percentage points below the 2020 level. On page 53, we report our capital adequacy and excess capital development.
In the first quarter, we reported a total capital adequacy of 17.7%, which represents 3.1% excess over the capital requirement, including the 100 basis points management buffer. On tier one capital adequacy, here we reported 15% against 11.7% capital requirement. The excess stood at 3.3%. In the chart below, we provide the development of the excess capital stood at CZK 5.3 billion at the end of the first quarter, which constitutes CZK 10 and 30 per share. This concludes the capital management section, and I will now hand over to Tomáš for the update about upcoming share issuance and final remarks. Thank you very much.
Very good. On pages 55, 56, and 57, we try to summarize the key highlights of the process, and we provide details, contact details, if anyone wants to get more detail. We will effectively start publishing very soon, how subscription will work. I suppose what is very important to mention here is that MONETA Money Bank has obtained regulatory clearance to acquire Air Bank. This came in, I suppose yesterday, and a few days before that, we were notified that PPF has received regulatory clearance to pass the threshold of 30% and acquire up to 100% of the bank. If I simplify things a lot, we are currently working on the prospectus document, on the offering document for the share subscription.
We expect that we will receive regulatory approval for such either mid-May or.
Mid to end May.
Mid to end May, better. Therefore, subject to fulfillment of this assumption, the process of share subscription would begin in beginning of June. This is illustrated on page 57. Initially, we will publish the document. The document will be available for shareholders to study for a period of three weeks. There is a sort of cool-off period. The three weeks, shareholders can look at the document and submit questions to the transaction, and consequently, we would like to finish and settle the first round of the offering by the end of June. Should there be any shares left, then second round should begin at beginning of July and be completed by the end of the month.
Again, for clarity, the first round will be, shares will be offered at CZK 82 per share. Each shareholder has a right to subscribe one share for holding two existing shares. In the second round, the shares will be offered for CZK 90 per share. The full subscription is guaranteed by PPF, so they have to take any and all excess remaining shares if there is no demand for those from other shareholders. Subject to successful increase of capital, we would then aim to close the transaction before the end of the third quarter. We will continue to publish information as we go through the process. On page 58, we provided a diagram how the shareholders can access the share subscription in a simplified format.
I would encourage anyone who wishes to know details about this process to contact our investor relations and our chief legal counselor, Tomáš Spurný, can answer questions either today or in due course to help people navigate through the process. So much for the share subscription. We have received the key approval. The PM has the key approval. Now we have to approve the issuance and the offering document, and then it will be a go. Pertaining to the first quarter, we would like to reiterate couple of things. We are maintaining our guidance, which calls for minimum net profit to be achieved by MONETA Money Bank in 2022. The minimum is CZK 4.4 billion.
We feel comfortable that based on the first quarter results and the trends prevailing during the month of April, we feel confident that we will deliver this target and hopefully we will do more than deliver this target. Nonetheless, we have cost risk. One part of the risk is coming from failure of Russian-owned Sberbank in the market, so we will have to contribute more than we anticipated in our annual plan to the resolution fund. We hope to find soon, and once we find what this cost is, should it be material, we will timely communicate to the market. This is probably 1/3 of it.
Second part, the other 2/3 of the cost of risk are related to wage inflation as we are under tremendous pressure to adjust compensation in the bank, and we have also real estate and other cost categories where the suppliers and vendors are putting us under tremendous pressure. We are trying to deal with that. At the moment, we quantify the entire cost at CZK 100 million, and we will continually report that. The second challenge is cost of funding as the rates have increased beyond the assumptions of our business plan. The business plan foresaw interest rates at a lower level.
There is some risk to the cost of funding, but we will seek to adjust also the revenue streams in order to deliver both, as I said, the net profit target and the revenue or the operating income target. Norman mentions the risk of consumer defaults or other risks related to the conflict in Ukraine, so it's too early to tell. However, I would also say that we have a good upside in the CZK 1.6 billion COVID-related portfolio, and we are also making significant progress on distribution or sales of NPL assets, where in the second quarter of this year, as we speak, we are marketing a fairly substantial portfolio. I'm sure we will, as always, deliver a solid result.
We very much want to thank you for your patience with us today, and we are open for any questions that you might have.
We will now begin the Q&A session. If you would like to ask a question and have joined the call via the phone, please press star one on your telephone keypad to enter the queue. If you have joined via Zoom or MS Teams, please use the Raise Hand function on your screen. Once your question is answered, please cancel the Raise Hand function. As a reminder, if you'd like to ask a question and have joined the call via the phone, please press Star followed by one on your telephone keypad. If you have joined via Zoom or MS Teams, please use the Raise Hand function on your screen. The first question comes from Simon Nellis from Citi. Please unmute yourself and proceed with your question.
Oh, hi. Hi, Tomáš and team. Thanks very much for the opportunity. Yeah, my first question is somewhat technical, just on the capital build. Can you just indicate how much of the first quarter earnings were retained? It's not completely clear to me that drove that increase in the core Tier 1. On the cost side, you mentioned some figures. Can you just clarify? I think you said that you see kind of CZK 100 million upside risk to your cost guidance from the resolution of Sberbank Europe, but you also said it could be a multi-year event. Could you just clarify that? Then I think another CZK 100 million from just higher inflation. A little more on the costs would be useful.
You mentioned kind of your proactive deposit pricing strategy. You said that's gonna change a bit in the second quarter. Could you just elaborate on that? Where you think yields both on the asset and liability side will kind of peak and then go to, what's your new kind of thinking on that?
I don't really wanna comment too much on our deposit taking strategy. We are aiming for NIM to remain in-
Sure
Corridor of 2.7%-2.8%. This is sort of the aim coming out of the business plan. We are taking tactical steps to raise additional CZK 10 billion of deposits until the closing of the transaction. This is broadly the target we have. With respect to retention of profit. In the first quarter, we retained 72% of our net profit into capital of the bank. With respect to the elevated costs, I said CZK 100 million is the risk. We think we have taken action to adjust the salaries of our lowest earners, the most vulnerable part of the population. One-third of it was done effectively in February, and 2/2 of it will be done first of June.
We quantify this pressure to our cost base somewhere between CZK 30 million-40 million CZK annually. This is number one. The rest of it, I don't dare to speculate on the resolution fund because it's very difficult. We pay, how much do we pay? CZK 100 million . You know, it's unpredictable to assess how much the regulator will set as the minimum watermark. If you look at Sberbank, the insured deposits were CZK 27 billion . I don't remember how much money was in the deposit fund.
32
32. They will want to rebuild the balance as quickly as possible, as it always is, the pressure will be significant. I'm just flagging this issue. Based on my inquiries, I didn't get any good answer, but we should sort of close the hatches and prepare for the worst, on that one. It will be steep. It will be painful. With respect to our cost guidance, I simply don't know. The rest, you know, it's difficult for me to put a clear number on it because we are trying to optimize the cost structure. However, we see not only energy price increases, rent increases, where we have inflation pegging, but we also see a doubling of insurance costs on, namely on cybersecurity related issues, even though we never had a claim.
We see 20% + on the overall insurance cost of the bank other than cybersecurity. It is this inflation is everywhere. It's like COVID.
Mm-hmm.
Very difficult to stop.
Yeah. Sorry, just on the Sberbank. So you're saying that you have to pay CZK 100 million? Is that the number that's already been given out or? Wasn't clear to me.
That's what we typically pay in a normal year.
A normal year, CZK 100 million. Okay, it could be.
That's the baseline. You know, let's see what comes out of the regulator. You know, they will increase it. As the banks are posting better profitability, I suppose the regulator will feel there is space to take the money from the banks that had nothing to do with that. The banks, we are the first to report the results, no?
Yeah.
We'll see. We will see what comes out of the market. It could. I don't want to speculate, but it could well double, at least. There's some probability attached to it.
Okay. Thanks a lot.
Our next-
Go ahead.
Apologies. Our next question comes from Thomas Unger from Erste Group. Thomas, please make sure you are unmuted locally and proceed with your question.
Yes. Hello. Thank you very much for taking my questions. First, I just wanted to confirm the provision releases that you booked in Q1 now with the amount that was mentioned in the presentation. I believe was CZK 290 million. Is that correct? That's the first question. Then secondly, on the coming back to the capital build in Q1, what was the reasons for the RWAs to be down quarter-on-quarter? And
Good management.
Okay, thank you. In the deposit growth, you just touched upon that and the LCR. I think in the presentation, you said you're comfortable at the LCR level of 170%. Is that correct?
That's correct. However, as we have seen with Sberbank, we have a target for this year to take the loan-to-deposit ratio to 85%, which is still a very relatively aggressive posture structurally on the balance sheet. We have one of the highest LTDs as we have optimized the balance sheet for performance. Nonetheless, as we lack an international reputable mother, we feel that we need to probably reevaluate this policy, as we have seen that Sberbank was illiquid in a matter of 2 days. We just want to play it carefully and want to reinforce the deposit position. Thirdly, if you look at our mortgage commitments on-balance sheet commitments or off-balance sheet commitments on loans are currently somewhere between CZK 7 billion-CZK 8 billion.
Our pipeline on mortgages is still around CZK 11 billion, CZK 10 billion-CZK 11 billion. We boast strong performance across, so we need the liquidity.
To answer your first question, yes, it's around CZK 290 million provisioning release related to the upgrade from stage three to stage two receivables.
Okay. Thank you. Just on Sberbank, I understand you don't want to speculate, but could you tell me what is the relationship between the secure deposits and total assets? Is there any hope for when assets are sold off, recovered, that the increase in the contribution to the resolution fund will be lower than what you're fearing now?
Right. I mean, I didn't say that I fear that it's going to double. I said there is the potential for it to double. Czech Republic does not have a very, how shall we put it, high recovery rate on failed banks, historically speaking. We will see what will come out of that. It's difficult for us to judge this as we are far, and we make sure that we stay far away from that process. This could take long time. As we have a conservative, and prudent regulator, we think that they will try to maximize the contributions to the fund. Where that lies, I really don't want to speculate, but I think it will be substantial.
Okay. Lastly, I'm sorry for taking too much of your time now, but just on the Air Bank, the timeline again, if you could just repeat going into the first capital increase. When do you assume this to begin and what approvals are required for that? The closing, I believe you moved it to the beginning of Q3, right?
That's correct.
As an assumption.
The approvals which are required from our side is the approval to take over Air Bank, to buy 100% shares in Air Bank and 100% shares in Home Credit, Czech Republic, Slovakia. For that, we need approval of Czech National Bank that we have secured. It's done. We also need two approvals from National Bank of Slovakia, one for the bank, one for the-
Payment services on Zonky.
We need two. These are pending. The fourth one that we need is approval of the offer documents or call prospectus, which describes the opportunity and risks related to the opportunity. This is the document that the shareholders will receive, as basis for decision whether to subscribe or not. This is in the process. We said that we expect the approval will be forthcoming, anywhere between mid-May till end of May. The last part of your question was the subscription. We would like to finish the subscription by the end of June.
Thanks.
First round.
Very good.
We hope that every.
Thank you.
We hope that everyone will subscribe to shares in the first round, so we don't have to do the second round.
Great. Thank you very much.
As a reminder, ladies and gentlemen, if you would like to ask a question and have joined the call via the phone, please press star followed by one on your telephone keypad to enter the queue. If you have joined via Zoom or MS Teams, please use the Raise Hand function on your screen. Once your question is answered, please cancel the Raise Hand function.
Yes.
Apologies. We have a follow-up question from Simon Nellis from Citi. Please go ahead.
Hi. Yeah, thanks for letting me ask another one. Just back on the retained earnings. Is it, I guess, just 28% is left, right? Is that the kind of new payout ratio that you're kind of guiding for? Or what's the intention there going forward with dividends?
Absolutely.
Yeah.
Absolutely not. We will, we simply want to retain now some capital in order to reinforce the bank for the closing, at the moment.
Got it. That's what I hoped to hear. On the consumer lending side, good to see that it stopped contracting, actually started to grow. What's the outlook there, would you say? I mean, do you think you're gonna continue to see growth in that book?
We're aiming to reach 8% as quickly as possible. This will not reflect into the portfolio, but it will reflect into the new rates. We will transparently show you next quarter at what rate we are underwriting. We are, in terms of number of transactions, we are doing about 60% of number of transactions online, where we typically achieve a better rate. It's also a function of how much we do with brokers and how much consolidation we do, because the pressure is on the consolidated loans, the highest. To provide a simple answer, Andrew targets 8% as quickly as possible, and we are pushing the rates 10-15 basis points weekly. We are basically repricing the minimum rates to reflect that.
If you look at the market shares, we are, as everyone is doing consumer loans, normalizing the market share to the size of the bank. We are now, with respect to market share, about 17.5% in balances. New volumes in the first quarter, I assume we had somewhere 12.5%-13% market share on new volumes. This is off the top of my head, so please don't take it with a grain of salt. We are between a rock and a hard place.
Mm-hmm.
We're trying to balance both the rate increase and to maintain the portfolio. Because albeit we have better stickiness of the loans, the early prepayment is still extraordinarily high on the consumer loan portfolio. The second most impacted portfolio from a yield perspective is the auto, MONETA Auto portfolio. Because as you get the repayments, you have to recognize the remaining commissions that we have on the capitalized into the effective interest rate. This repayment effectively pushes down the yield that we have on the portfolio. We are trying to work with that. The trend is clearly that Czech households are trying to diminish the leverage or decrease the leverage, household leverage, because everyone, and I will use vernacular, is freaked out.
Mm.
-by their energy bill, and they haven't gotten the mortgage bill yet. That's the next monster which is lurking in the dark.
Just one other one on the SME portfolio, which has been growing nicely. Do you think that's gonna slow down substantially now that, I guess, these COVID state guaranteed packages are expiring or have expired?
Perhaps Jan can give you a view on that.
I would assume that the portfolio, we would like to keep the growth throughout this year. Now it depends mainly on the evolution of the war in Ukraine. I think that would be probably bigger hit than the guarantee programs. We hope that we'll be able to continue to grow. That's the simple answer.
Okay. Thank you.
Simon, the more complex answer is that the most likely this will really diminish. We see what we experience is a fairly strong demand for euro-based lending from medium-sized to small customers. As I have lived the Hungarian and Romanian experiences, I am extremely opposed to provide euro-based loans, period, to those that have revenues in the local currency. We see that it's causing a conflict inside of the bank, and we see that the market is more posturing itself towards FX lending because it sort of slows down the inevitable with some customers. We see really, I would say decline in demand across because people, you know, reevaluate their investment plan.
We will try to deliver the business plan, but it's becoming a bit more difficult.
Complex. Understood. Thanks a lot.
Okay.
We have no further questions, so I'll hand back to the management team for any closing remarks.
Ladies and gentlemen, I would like to thank my colleagues for delivering, as always, very bottom-up performance. I would like to thank you for spending time with us. It's very important for us, and I am tremendously thankful for the very good questions we received. We are looking forward to seeing you next time. At the next quarter, we will be present at some conferences, the management will try to have a post-COVID interaction with the investor and analyst community and rebuild our presence in the capital markets. Thank you very much and all the best. Bye-bye.
Ladies and gentlemen, this concludes the call today. Thank you all for joining. You may now disconnect your line.