Earnings call: Komercní banka reports mixed Q1 results amid digital push

On May 3, 2024, Komercní banka (BKOM) revealed its first-quarter financial performance, showing robust growth in client loans, deposits, and assets under management, but a notable decline in net income. The Czech bank’s net income fell by 21.3% to CZK2.8 billion, primarily due to provisioning.

Despite this, the bank is forging ahead with its digital bank initiative and expects to hit 1 million users by year-end. The bank’s expansion of its digital services, including the implementation of the Temenos 24 core banking system, coincides with a modest GDP growth forecast for the Czech Republic.

Key Takeaways

• Komercní banka’s client loans increased by 4.6% YoY.
• Deposits grew by 7.2%, and assets under management rose by 15.3%.
• Net income declined by 21.3% to CZK2.8 billion due to provisions.
• The cost-to-income ratio stood at 54.5%.
• The bank is progressing with its digital bank project, targeting 1 million users by year-end.
• Net interest income was flat QoQ and slightly down YoY, while fees and commissions rose by 5% YoY.
• Financial operations declined by 16% YoY.

Company Outlook

• Positive GDP growth forecast for the Czech Republic, up to 1.4%.
• Expecting mid-single-digit growth in loans and deposits.
• Anticipating low-to-mid single-digit revenue growth.
• Operating expenses projected to increase at a slower pace, resulting in positive jaws.

Bearish Highlights

• Net income decreased due to higher provisions.
• Net interest income remained flat QoQ and decreased slightly YoY.
• Financial operations experienced a 16% YoY decline.

Bullish Highlights

• Strong growth in client loans, deposits, and assets under management.
• Fees and commissions grew by 5% YoY.
• Operating expenses were under control, decreasing by 4.5% YoY.

Misses

• The bank’s net income was impacted by the need for increased provisions.
• Financial operations were negatively affected by subdued hedging activities and DVA impact.

Q&A Highlights

• Margins expected to improve through the year.
• Guidance for loan growth confirmed, with a focus on retail lending.
• Capital allocation will depend on corporate loan growth, with dividend accrual at 100% of 2024 profit.
• Stage 2 overlays for corporate part to be addressed in 2024, and for retail part in 2025-2026.

In summary, Komercní banka’s first-quarter earnings call presented a picture of a bank that is navigating a complex financial landscape with a keen eye on growth and digital transformation. While the bank has faced challenges, including a drop in net income due to provisioning and a decrease in financial operations, it has also seen positive developments in client loans and deposits growth, as well as controlled operating expenses.

As the bank continues to implement its digital strategy and maintains a cautious yet optimistic outlook for the Czech economy, investors and stakeholders will be watching closely to see how these efforts translate into financial performance in the coming quarters.

Full transcript – Komercní banka (BKOM) Q1 2024:

Jakub Cerný: Warm welcome from Komercní banka. It is the May 3, 2024 today and we are going to share with you the information about the results of Komercní banka for the First Quarter of 2024. Please note that this call is being recorded. Our speakers today will be Jan Juchelka, Chairman of the Board and CEO of Komercní banka; Jirí Sperl, Chief Financial Officer; and Didier Colin, Chief Risk Officer. Standing by in case of your questions also Jitka Haubova, Chief Operating Officer; Miroslav Hirsl, Head of Retail Banking; and David Formanek, Head of Corporate and Investment Banking. Essentially the same as 3 months ago, we will begin with the presentation of results which will then be followed by a questions and answer session. [Operator Instructions] So now let me hand over to the CEO, Jan Juchelka. Thank you.

Jan Juchelka: Hello, everyone. Thank you for sharing your time with us. It’s my pleasure to present to you together with Jirí Sperl and Didier Colin and potentially other members of the management team here the quarterly results for the first quarter of 2024. Let’s see the first slide showing us the highlights. Komercní banka remained very strong on both sides of the balance sheet. The client loans grew by 4.6% on a year-over-year basis, deposits grew by 7.2% and the other assets under management grew by 15.3%. What is still remarkable is that inside these assets under management, outside the banking balance sheet, there is 30.2% year-over-year growth on mutual funds which in our case, is mainly production of Amundi and private banking. Despite this very strong dynamic environment, we kept our loan-to-deposit ratio at almost 80%, liquidity coverage ratio at 154%. Cost of risk grew to 22 bps and I’m sure that this is one of the points which will create space for your questions. As a result of what I have just mentioned, the Group net income totaled to CZK2.8 billion which is down by 21.3%, mainly as a function of the creation of provisions. ROE close to 9% would be double-digit if IFRIC 21 was linearized. Total capital remained at very high levels of 18.8%, Core Tier 1 17.7%, cost-to-income 54.5% and below 50% should IFRIC 21 remain linearized. Let me remind that recently the General Shareholders’ Meeting decided to distribute the entire net profit of 2023 to shareholders. In our case, it was CZK82.66 per share. And today, it’s the first day when we are traded ex-dividend. Speaking about other important events, we have Delphine Garcin-Meunier as a new Member and Chairwoman of our Supervisory Board. Delphine is SG Strategic Manager In Charge of the Pillar which we named Mobility and International Retail Banking & Financial Services which consists from Avens [ph] International Retail Banking, mainly Komercní and BRD and African banks plus consumer lending. And we are working with the new statutory auditor which is KPMG Audit. Other highlights; we continue crafting the New Digital Bank and I will come back to it in more details. At the end of March this year, we had already 0.25 million users in our new application, KB+. And today, we are growing to the levels of 350,000. The number of KB Bank’s clients is up to 22,000 to 1,678,000. What is important here is that the new clients which we are registering in the KB+, in the new digital bank, is a mixture of successfully migrated clients plus newly onboarded clients. We were also recognized by Visa (NYSE:) as the number 1 Sustainable Bank and by Mastercard (NYSE:) as a Responsible Innovator in the Card Business. We can move to next point, please which is the New Digital Bank. Traditionally, after the first quarter, we are showing you the progress achieved in putting together a completely new digital solution for universal bank. And I need to say, we are continuing as planned with the migration of retail clients. You can see on the lower part on the left-hand side, the graph which is showing that from scratch we are growing very fast to the current levels which are already above 300,000, as I mentioned. And our plan is to be at 1 million users of KB+ at the end of this year. Again, it will be a mixture of successfully migrated clients plus newly onboarded clients. Speaking about retail, we are putting new functionalities and products in the application. And based on that, we take another cohort and another cohort of clients and migrating them accordingly to the portfolio of businesses or not businesses but products which they are currently buying from KB. It goes without saying that we do it in the continuously improving environment of agile@scale which we implemented back in 2018 and ’19 and using the DevOps working methods in working on the new software and applications. I need to say that this exercise is being pretty large. I will start with the core banking system. We are implementing fully the Temenos 24 core banking. We have already replaced TSYS and implemented TSYS prime card system. And we have already replaced Valantic Payment Hub. We are building, as we speak, the final stage of mortgage center. We are putting both the building saving products and mortgages in one place when gaining new efficiency. And we are implementing also data mesh concept and in-house developer analytical layer. This is from the, let’s say, technological perspective. We strongly believe that this investment which is fully supported by Société Générale (EPA:) Group, will give us a strong commercial and competitive advantage vis-à-vis the other players in our region. We are putting together a simpler proposition for clients using multi-currency accounts, selling subscriptions instead of individual products. We have instant payments already as a standard and pay-to-phone number as a new functionality which is already used by hundreds of thousands of our clients. Investments, insurance and what we have in preparation is a proposition for children, top affluent clients and we started working on the solution for e-brokerage. As far as the distribution channels part of this exercise is concerned, it’s fully omnichannel model with single CRM in place. It’s built as a mobile-first digital channel which in human language says that whenever you use our solution on your mobile phone, on your iPad or as a banker on our branch, we are always working with the same design of screens and with the same logic of the application with one exception that the banker in the branch has deeper view of — on what the client is doing with us, what is the history and how the best putting in place a proposition for her or for him. We have reduced by 90% all processes and products from the old world when putting together the new solution. And the simplification is the underlying growth which is accompanying this part of the development. We are working in-house when speaking about the new KB+ application. Next page, please. Macro-eco, KB worked in situation or in a country which was not growing last year. We do believe that it will grow this year. It will be a mediocre growth, around 1% but coming back to positive trajectory. We see that both the households and the companies have better, very stronger in the better tomorrow. And we also think that household consumptions and investments by private and public sector will be the main engines of the economy in 2024. Unfortunately, we are still witnessing very tight labor market situation. The unemployment rate in February achieved 2.6% which is technical 0. And in combination with the fact that wages in Q4 went up by 6.3% Q4 2023 means that the relative wages are in positive territory again when you compare that with the very low consumer price inflation. The inflation fell from the cliff to the percent of — to the level of 2% which is exactly the target of the Central Bank. You know that Central Bank has decided yesterday about another cut of 50 bps and lended the short-term price of money to 5.75% which we believe will pay back to banks in the higher demand on mortgage loans, consumer loans and corporate and business loans. Czech koruna, as a reaction of all what was mentioned, weakened by 2.4% on Q-over-Q basis and 7.7% on a year-over-year basis vis-à-vis euro. We can go to next page, please. Business performance of KB. The gross loans to clients went up by 4.6%, driven by both the households. Here, we are speaking about housing loans and mortgages and also businesses. Everything was in positive territory. When speaking about businesses, it’s more the larger corporations which are buying our loans or which are buying solutions from SG Equipment Finance Leasing. We can go to next page. Client deposits went up by 7.2%. Inside the deposits, there was a continuous shift from current accounts to term and saving accounts which is very logical in the current environment of rates. What we praise is the fact that the overall deposits remained stable or were growing. As I mentioned at the beginning already, we are very happy with the evolution of new inflows into mutual funds which grew by 30.2%. Our insurance like life insurance reserves went up by 2.7% and clients’ assets in pension company grew by mediocre 1.1%. In total, 15.3% more on a year-over-year basis. Next page. Next page is the financial performance. So here, I’m handing over to Jirí. Thank you.

Jirí Sperl: Thank you, Jan. Good afternoon, everyone. Let me lead you through the key messages of the financial performance and capital. As already mentioned, the net profit after tax was CZK2.8 billion in Q1 this year, i.e., less roughly by CZK760 million versus the last year, influenced mainly by the cost of risk that was higher last quarter by roughly CZK900 million. Record revenues, i.e., NII and fees and commissions were almost exactly at the level of 2023, while income from the financial operations was slightly lower. In terms of OpEx, there are basically 2 components. The first one, improving the cost base. it is related to the regulatory charges. What I mean is the Resolution and Deposit Insurance Fund that are significantly lower, by the way, as expected and indicated to you last time. While the underlying cost OpEx are growing slightly, influenced mainly by the depreciation. Of course, I will touch it in deeper detail later on. In terms of profitability, Jan was mentioning some indicators. Let me comment also IFRIC 21 adjusted. So maybe to mention only a return on a regulatory capital where the ROE is at the level of 13.1%. This is bringing me to the balance sheet. And it — dynamic growth continues even in the Q1 this year, adding quarter-over-quarter almost 7%, driven mainly by the deposits as the second quarter in a row. And more specifically, corporate deposits, as was commented by Jan. Otherwise, I cannot see any further big changes here. On the asset side, the new funds have been primarily invested into client loans. And the rest, I mean, the liquidity surplus, into the repo operations with the Central Bank, while the enhancements into GAEs went a bit down. Next slide is focusing on net interest income which stayed flattish quarter-over-quarter and a bit down year-on-year, minus 1.1% and the most material elements are following. Let me start with the year-on-year perspective. On positive side, it’s mainly dynamically growing constant deposits, as already commented by Jan. On negative side here, it’s mainly the increase of the regulatory cost or so-called regulatory costs. And what I mean is a significant increase of the volumes of MREL instruments, i.e., the senior non-preferred loans needed for the fulfillment of the regulatory requirements. That’s first. And second is the increase of the volume of the sub-debt. And also, maybe two figures to sub-debt that one year ago in our balance sheet was €100 million sub-debt for the time being, it’s €200 million. And also the canceling of the minimal obligatory reserves remuneration, starting, as you might remember, from or since October last year. From a quarter-over-quarter perspective, so now I’m referring to the bottom right chart. Again, on a negative side, it’s continuing of the shifts from current accounts to the pay deposits. We were expecting that but that’s true that it was in the first quarter of this year growing more than expected. And on positive side, it’s partially offset by NII from loans that recovered quarter-over-quarter by almost 6% which by the way, means naturally that the erosions on loans, margins stopped. Here, may be also that’s in line with our expectations. Simply the banks delayed that there are reactions on the down pricing, drying at least partially offset the gaps on the margins on deposits where the competition is still high. All in all and now referring to the upper left chart, this led to further drop of NIM quarter-over-quarter, it’s by 7 basis points. Fees and commissions, the Group here delivered a very solid result growing year-on-year by roughly 5%, supported by the usual suspects, i.e., gross fees in line with our strategy. Again, Jan was commenting the dynamic growth of these investments. And this quarter also somehow by better specialized fees from the financial services like income from bonds issuance for our clients, custody depository services, et cetera, et cetera. One comment to the bottom chart which is on a quarterly basis, there is a seasonal decline that was again expected as it is the case every year. The last chapter of the top-line is about the financial operations. Well, they are down year-on-year by 16% roughly. From my perspective, another evidence that the volatility in this category is higher than in the others. It is not the case for the blue part of the chart, i.e., FX income from the structural book which is typically currency conversions, FX from card transactions, clean payments, et cetera, et cetera, that brought a very solid result at the level of 6%. But it’s the case of capital markets activities. So basically, our investment banking that were last quarter negatively influenced by the subdued hedging activities of the clients. And this quarter also by the negative impact of the DVA, as visualized at the bottom of the page, left-hand side was roughly CZK125 million. OpEx, traditionally is under control, year-on-year, even down by 4.5%, in line with our expectation. What I mean is that the booked regulatory costs dipped by significantly, i.e., roughly by 35%. At the same time, it’s probably worth to and fair to mention that we finally received 2 weeks ago the final invoice from the local authority. And at the end of the day, the invoice or charge will be very slightly higher, roughly by CZK30 million, still year-on-year significantly down. And of course, this adjustment is going to be boosted into Q2 books. Otherwise, depreciation is still growing by low-teens space, reflecting mainly the acceleration of the New Digital Bank, I mean, our NDB. Personnel costs are growing by relatively high 10%. And there are basically 2 effects, reasons behind. The first one is naturally the increase of the base salaries for our employees. And the other one is kind of an accelerated success in our in-sourcing activities in agile part of the bank where we are progressively replacing externals that are much more expensive than the employees. The positive effect could be seen [indiscernible] part, that’s red color, declining by 8%. On top of the mentioned effects, I mean, insourcing also influenced by lower marketing and real estate costs. So, that’s all for the GOI [ph] and I’m passing works to Didier. Didier, please, work is yours.

Didier Colin: Thank you, Jirí. Good afternoon, everyone. So turning now to the evolution of the credit risk profile of our loan book. I will start with sharing with you a brief overview on the evolution of our default rates. They are not disclosed on the slide but definitely worth sharing with you. Starting with the mortgage loan portfolio. Here, in the first quarter, we’ve continued to see a very good level of resilience with default rate at their historically low point, so confirming what we’ve seen in the recent quarters. So good situation here. The consumer loan and the small business loan portfolio which we commented in the recent quarters last year due to the deteriorating trend that was recorded in 2023. In the first quarter of ’24, we’ve seen stabilization of this trend which is also a good news. And the stabilization, in fact, is at a level that is slightly higher than the levels reached in the pre-COVID period. So we are not talking here about a situation that is of some concern. What I could add also is that this 2023 deteriorating trend was analyzed and reviewed in detail relating to very specific situations and the appropriate measures were taken, for example, in terms of the adjustment of our credit policies. So this was done. And again, in the first quarter, we’ve seen a stabilization of this trend. Now turning to the Corporate segment. In the first quarter, we have recorded a bit of an increase of our 12 months default rate for the SME portfolio and re-assessed it. And in fact, this evolution is concentrated on a small number of client situation, to be precise, less than 10 but having a visible impact on our default rate and with levels which are again not a source of concern. And if looking or when looking at the overall default rate level, we are — for the Corporate segment, we are still below the COVID peak which we reached in 2022. And again, this situation in the SME segment is really a one-off type of situation and is not assessed as the beginning of the portfolio deteriorating trend for this segment. And I will finish this default rate overview with the Large Corporate segment where we continued in the first quarter to see near 0 default rate levels. So again, confirming the resilience of our loan book for that particular but very important sub-segment. Now this translated in terms of our risk classification with the few indicators that are in front of you. I will start with the exposures classified S2. So we’ve seen a very moderate increase by CZK2 billion from CZK122 billion to CZK124 billion. So in fact, this is almost a flat evolution. And on top of it, this CZK2 billion, in fact, was driven by a few IFRS 9 adjustments which are related to some methodology upgrade or model recalibrations which we had to implement for our Retail segment. The intensity of the loan migration dynamics which is a point that I mention every quarter, continue to be very low in the first quarter which again, confirms the stability of the credit profile of our loan book. And if we now look at the exposure classified S3 or defaulted, we have a small increase of again CZK2 billion, taking this exposure category from CZK12 billion to CZK15 billion. And in fact, this is the direct reflection of this few SME client situations that were transferred from performing to non-performing So far, contained and isolated evolution. If we look at the evolution of our S2 and S3 ratios, so S2 was almost stable, increased moderately from 15 — from 14.7% to 15%, again generated by this IFRS 9 technical adjustment which I just mentioned. The NPL ratio or S3 ratio increased a bit from 1.8% to 2.1%. In fact, this is solely due to this isolated evolution of our SME portfolio, the NPL ratio for the retail part of our loan book being stable quarter-on-quarter. And finally, here for this asset quality overview, our S3 or NPL provision coverage ratio went slightly down from 47% to 44%. And this is simply the mathematical reflection of the lower provision level applied to newly defaulted corporate exposure. Again, this being related to what I mentioned regarding this residual pocket in our portfolio of SME exposures. So turning to the next slide which gives you the overview of cost of risk. So we recorded almost CZK0.5 billion which is an equivalent of 22 basis points. And the composition, in fact, is relatively simple. You have a little bit over CZK150 million of provisions booked on those new SME corporate default in number less than 10 situations. Then we booked CZK150 million, so another one on our performing corporate exposure. And here, it’s to be precise, it’s concentrated on 3 client situations. So again, definitely not a sign of deterioration and of course for concern. And the last element is CZK170 million booked on our retail portfolio. And here, you have the breakdown. CZK80 million is related to the small business exposures, CZK50 million related to the consumer finance exposure and the delta to the total of CZK170 million is related to this technical IFRS 9 adjustments. One important point to mention which is the last point on the slide, is that in the first quarter, we have decided not to use our inflation overlay or inflation reserve for the very simple reason which I just mentioned, being that the evolution that we recorded for the SME portfolio is of a one-off and isolated nature. So for that reason, we decided not to use this reserve that was kept at the level of CZK2.3 billion unchanged or almost unchanged compared to the previous quarter. So taking into account this stable risk profile of our loan portfolio, we’ve decided to renew our guidance. Our guidance for the full year at the same level as what we communicated to you at the beginning of February which is a range anywhere between 15 and 20 basis points which is below our through-the-cycle cost of risk level assessed or estimated in the range of 20 to 30 bps. And this guidance is taking into account 3 main elements. The first one is that as we have seen it a bit, our 12 months default rate across all portfolio will be higher — slightly higher than the low level reached in 2023. So that’s the first element. The second element is, as it was communicated to you in the previous quarters, we expect a lower level of net recovery potential from our defaulted corporate portfolio compared to the high point reached in 2023. And the third element which is an element of comfort supporting this guidance is that if there would be a need to start using the inflation overlay reserve, we would do so having this CZK2.3 billion that was booked in 2022 for this type of situation. So this overlay — inflation overlay is definitely here point of support to this renewed guidance at the level of, again, 15 to 20 basis points for the year end of 2024. And on this, I will hand over to Jirí which will continue with the guidance and the outlook section. Jirí, the floor is yours.

Jirí Sperl: Thank you, Didier. It’s the last 2 slides. So first one focusing on capital and for the outlook. So let’s start with the capital. Capital value cost is still super strong and that’s despite the fact that we are accruing, as you know, dividend worth 100% of the 2024 profit. Having said that, the capital adequacy is exactly at the same level as 3 months ago, i.e., roughly 190 bps above the minimal requirements which by the way also means that it is in the very upper part of our management buffer, just to reminder, it’s 50 to 200 basis points. In terms of MREL, the message number 2 at this slide, the MREL requirements are fulfilled. So we do not expect that this year we are going to conclude further ones. So that’s capital in a nutshell. And let me also very, very quick comment on the outlook for this year. Why briefly, because we are basically confirming what we are telling to the market 3 months ago. There is only one slight positive exception which is related to the growth, as was mentioned by Jan at the very beginning. So 3 months ago, we were guiding 0.8% of the GDP growth in 2024. Newly, we are a bit positive up to 1.4%. Otherwise, no changes in the banking market outlook, i.e., both loans and deposits are growing mid-single-digits. The same for KB business outlook but with the addendum that we would like to gain a bit in both categories, loans and deposits, in loans mainly in the retail. And in terms of the financial outlook, again, the same. So it means revenues low-to-mid single-digit compared to 2023, while OpEx should grow slower and thus, to generate positive jaws. The risk was commented by Didier. So only to add a potential risk as usual, so they are listed there. So that’s potential further escalation. The war in Ukraine shocks and external demand, supply chains and more generally unexpected monetary and fiscal changes. So that’s I think the end of the presentation. And I’m passing word back to probably Jakub. Jakub?

Jakub Cerný: Yes. Thank you very much. So this has completed the presentation part of our meeting today. And in the next part, we will be happy to answer your questions. So let me remind you that this call is being recorded. [Operator Instructions] So our first question comes from Mehmet Sevim from JPMorgan.

Mehmet Sevim: I’d like to hear your comments on the margin developments from here. So NIMs come down a little bit and you’re still mentioning the elevated deposit costs. With the CNB now having cut rates quite visibly, have you reflected any of the lower rates to your deposit pricing so far? And do you expect to do that in the coming quarters? And how would you see overall the margin developments from here going forward?

Jirí Sperl: Okay. So that’s probably a question for me. Well, I was mentioning during the introduction of net interest income slide that yes, the banks, let’s say, went with the rates down buffer but not as quickly as was originally expected which of course, led to the decline of the margins or better stabilization/decline. Maybe a very important point also is that in these declines, margins on deposits, you already have seen the impact of minimal obligatory reserves, because in Q4 last year, this, I’d say, extra cost was not, let’s say, part of the pricing but in Q1, starting from the January; January 1, we fully implemented. And it’s clear that the business lines were not able due to the market competition. We’re not able to, let’s say, down price accordingly. So this is not a negligible impact on top of my head. I think the impact here is around 10, 12 basis points. Of course, better through the years, the target is, I would say, clear once the competition allows that. And it’s very much about the smaller changes we go down with the pricing. And having said that, that’s why we believe that the NIM should improve throughout the year.

Jakub Cerný: And the next question will be asked by Mate Nemes from UBS.

Mate Nemes: Yes. I have two of them. The first one would be on volume developments, particularly loan growth. It seems like that in retail you have seen some slow growth in the first quarter, sequentially offset by some decline from a high base in corporates. I was just wondering if you could provide some further color on what you’re seeing in the market, both in terms of retail and also on the corporate side? How does the pipeline look like in corporates? How much confidence do you have in a continued gradual pick-up from here onwards? And also on the retail side, what do you see among your clients in terms of demand for mortgage products? Are we going to see perhaps a further pick-up in new volumes or new originations? Any color on that would be quite helpful. That’s the first question. The second one would be on capital. I appreciate there hasn’t been much of a movement in terms of how do they risk given the loan book hasn’t moved much. But the reality is you are accruing dividends at 100%. You have a strong capital base. You’re, like you said, you’re close to the upper end of the buffer. Can you perhaps provide any update on capital allocation? More specifically, whether you see any concrete opportunities for inorganic growth? And if so which area or which space would be of interest?

Jirí Sperl: I will probably ask the answer for the first question. But then probably have my colleagues, Mirek and David will add some sentences going back from the market. In terms of the growth, as I was mentioning, we are confirming our guidance, i.e., to grow a bit above mid-single-digits. So let’s say, 6% to 7% and the drivers will be a bit different than was the case in the past because as we our completing or almost completed the retail transformation, we would like to start to monetize the heavy investments there. So the main driver of the growth in 2024 will come from the retail, i.e., mortgage loans and the consumer loans. In terms of our expectation for the market growth for mortgages, it’s expected, whatever between 5% to 6%. The KB would like to grow by 6% to 7%. In terms of consumer loans, our ambition is even higher. So the expected growth of the market is around 6% to 7%. We would like to grow at either high-single-digit or maybe even low-teens. And we did have already good tools for that and probably Mirek will comment on that. In terms of business loans, here, we were beginning significantly the market shares like last, I don’t know, 5 years, something like 5 years. So starting from 2023 and also due to the fact that corporate part of the transformation is starting right now or started 3, 4 months ago full steam. The objective or target for CIB is basically to follow the market first, i.e., to grow mid-single-digits and at the same time, focus a bit more on kind of originate to distribute activities. So that’s a kind of general introduction. And now I’m passing word to my colleagues, please.

Miroslav Hiršl: If I may start and thank you, Jirí, I would add a few words on top of what was mentioned by you, speaking mainly about mortgages. The market has been recovering over the last 4 months. The year-over-year growth is above 70% and we are not that fast. We are growing as well significantly but at the pace of approximately 50%. To put it bluntly, I would say, that the growth of the market hit us in the most vulnerable moment in the middle of change management as we are just rolling out all our solutions based on one mortgage factory. So we are in the middle of massive change management. It has happened already on primary production of branches. Now we are launching the solution towards the third-parties but it always takes some of your energy and effort and it is happening at that moment. On the other hand, it’s temporary. I would like to see us coming back to our natural 22% market share on the new production in units of months. And we are still confirming our ambition to reach 25% after we finish the rollout and have the full capacity to focus on business again. So I’m rather on the optimistic side.

David Formánek: Just a few comments from my side regarding the business financing or corporate lending. So generally speaking, there is a question of the, let’s say, trust in the economic growth. I would say that the sentiment on the side of the corporate sector is rather or is getting more and more positive so that we can expect also a better investment appetite and also the appetite for further acquisitions. So some of the important players, local players are very active in the area of potential acquisitions. So you can also see increasing — and this is also just to complement what Mirek has been saying, we see more and more residential developers to be able and to discuss with us potential residential financings which also could give us better confidence in the appetite on the side of the buyers. So generally speaking, very much depends on the further macroeconomic development and on the confidence and also on the decrease in rates because the decrease in rates even though the corporate lenders are also strongly depending on the euro rates. So — but generally, when we see that the trend is the decreasing rates that the confidence will grow.

Jan Juchelka: If I may add just a few sentences on the corporate investment banking, one should not forget that there is also expected higher activity on the side of municipalities and public sector. So we do expect that the state through its agencies and funds or through the National Development Bank and the municipalities will smartly use the available European funds in order to support the prosperity of the country. The banks are ready obviously to stay at service of this type of investment. So we do believe that this activity might be beneficial for everyone.

Jirí Sperl: If I may, because — yes, if I need to sort of touch on the question number 2 which was about to the risk-weighted assets evolution and capital allocations, et cetera, et cetera. You are perfectly right that in Q1 the gross transumption [ph] of the equity was limited. But at the same time, it’s necessary to take into account that the growth of corporate loans was in Q1 negative, very slightly negative. And as was indicated by the way 3 months ago and by the end of the year, of course, there was growth, as I was mentioning, it is expected that year-on-year-on-year basis it will be mid-single-digits. So this is going to consume some capital in the quarters to come and we will see how much. And based on that, we will at the end of the year sort of decide how to allocate the equity.

Jakub Cerný: [Operator Instructions] Our next question comes from [indiscernible] from Raiffeisen.

Unidentified Analyst: Just a short one. Maybe it’s too early to discuss this but is there any chance or do you consider it any time releasing those Stage 2 overlays of I think CZK2.3 billion you mentioned, right? Because as you said, asset quality is fine more or less on all fronts, there are some couple of isolated cases on SME level. But how about the likelihood of at some point in time kind of considering maybe releasing this?

Jan Juchelka: Thank you for the question. For the corporate part, we will probably work on it in 2024. For the retail part, we’ve decided, I think it was last year, to keep it until ’25 and ’26. Just to stay on the safe side given the turbulence periods that we’ve crossed in the last 2, 3 years and this part of our portfolio being more at the end of the economic chain, if you will. So this is the plan today. Corporate part on the agenda for 2024, one way or the other, will not — we don’t have any details because they are not even yet defined. And retail, ’25, ’26. And the split between the 2 is something like CZK0.7 billion for retail and CZK1.6 billion for corporate.

Unidentified Analyst: Maybe one on the dividend. There was no change in the comment as regards this year’s dividend 100% payout, right?

Jan Juchelka: Not at all.

Jakub Cerný: [Operator Instructions] So our next question comes from Karel Nedved from Fio Banka.

Karel Nedved: Recently, you have started the negotiation with the City of Prague regarding the sale of the property, the building you own in the City Center. If I’m correct, the City of Prague is offering CZK3.6 billion. Can you give us a bit more details how the negotiation is going and what extraordinary profit you assume you will have? And in what period when do you assume the transaction will be finalized? And related to that question, as you mentioned, your plan is to pay out 100% of this year profit. So I assume here that this extraordinary profit from this transaction will be also paid fully to the shareholders. Am I correct here?

Jirí Sperl: Should I take it, Jan? Okay. So as you noticed and it was public information, we are in the process of the sale of the first head office building, Vaclavske namesti. There was a kind of fully fledged tender process. In the last round, the highest price offered was by City of Prague. And based on that, we informed the market that the negotiation is starting on the contextual recommendation with City of Prague. CZK3.6 billion is the offer for the SPV because it is — the building is part of the SPV. As a matter of policy, we do not comment on further pricing considerations and also the impact, what are the expectations. What I can indicate now is that if the transaction is completed, the impact into the P&L of the bank would be positive.

Jakub Cerný: So let’s wait a few more seconds if there is any question.

Jirí Sperl: Sorry, your question was also when the negotiations should be completed. If everything goes well, it’s mid of the year, i.e., end of June, end of July something like that.

Jakub Cerný: Right. So we don’t seem to have any further questions at the moment. So I would like to ask Jan for the concluding remark.

Jan Juchelka: All right. Thank you very much again for your interesting questions, for your active participation here. Let me thank also my colleagues for preparing the presentation and for answering to your questions here. It was our pleasure to provide you with, we believe, a very strong performance of KB. We expected your questions related to the increased cost of risk obviously. And I do believe that Didier has satisfied your needs of more information and more explanation here. We do believe that down the road for 2024, we will be back to the targets for our cost — expected cost of risk. And in the meantime, you will check with us after the second and third quarter. We are looking forward for the next round of presentations obviously. And in the meantime, if you wish, we stay at your disposal for any question you may have. Thank you, again and thank you for your confidence to KB.

Jakub Cerný: Thank you, all. This has concluded the meeting. You can disconnect.

Jan Juchelka: Thank you. Bye, bye. Have a good weekend.

Jirí Sperl: Thank you. Bye, bye.

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