MONETA Money Bank, a.s.

Transcription

1 MONETA Money Bank, a.s. Consolidated financial report as of and for the six months ended 30 June 2018

2 Contents 1 Disclaimer Letter from the CEO Key performance indicators Macroeconomic environment Group performance Business performance Financial performance Outlook for 2018 and risks Basic information about MONETA Money Bank, a.s Auditor s review report Condensed consolidated interim financial statements for the six months ended 30 June Condensed consolidated statements of profit or loss and other comprehensive income for the threemonth and the six-month periods ended 30 June Condensed consolidated statement of financial position as at 30 June Condensed consolidated statement of changes in equity for the six-month period ended 30 June Condensed consolidated statement of cash flows for the six-month period ended 30 June Notes to condensed consolidated interim financial statements Reporting entity Basis of preparation and presentation Use of judgements and estimates Significant accounting policies Recognition and initial measurement Debt instruments Equity instruments Impairment of financial assets Hedge accounting Transition to IFRS Consolidation group Dividends paid Net interest income Net fee and commission income Total operating expenses Investment securities Loans and receivables to banks Loans and receivables to customers Due to banks and Due to customers Legal risks Significant legal disputes Litigation risks in respect of the 1998 acquisition of a part of Agrobanka s banking business Administrative proceedings initiated by Czech Trade Inspection Authority ( CTI ) against MONETA Auto, s.r.o. ( MONETA Auto ) Legal Challenges of General Meeting Resolutions Legal Challenges of Resolutions of General Meeting held on 26 October Protest and Action against Resolutions of Annual General Meeting held on 25 April Segment Reporting Related parties Risk management Capital Management Loans and receivables to banks and customers according to their categorization (IFRS 9) Walk of allowances to Loans and receivables to customers (IFRS 9) Break down of allowances according to loan type and stages (IFRS 9) Coverage of Non-Performing Loans and receivables (Stage 3 according to IFRS 9) Net impairment of financial assets Maximum credit risk exposures Fair values of financial assets and liabilities Subsequent events Management affidavit Alternative performance measures Adjusted Return on Tangible Equity Reconciliation Glossary... 49

3 1 Disclaimer Forward-looking statements This report may contain projections, estimates, forecasts, targets, opinions, prospects, results, returns and forward-looking statements with respect to, inter alia, the 2018 financial guidance, profitability, costs, assets, capital position, financial condition, results of operations, dividend and business (together, forwardlooking statements ) of MONETA Money Bank, a.s. and its consolidated subsidiaries (the Bank and the Group ). Any forward-looking statements involve material assumptions and subjective judgements which may or may not prove to be correct and there can be no assurance that any of the matters set out in forward looking statements will actually occur or will be realized or are complete or accurate. The assumptions may prove to be incorrect and involve known and unknown risks, uncertainties, contingencies and other important factors, many of which are outside the control of the Group. Actual achievements, results, performance or other future events or conditions may differ materially from those stated, implied and/or reflected in any forward-looking statements due to a variety of risks, uncertainties and other factors. Any forward-looking statement contained in this report is made as at the date of this report. The Bank does not assume, and hereby disclaims, any obligation or duty to update forwardlooking statements if circumstances or management s assumptions beliefs, expectations or opinions should change, unless it would be required to do so under applicable law or regulation. For these reasons, recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. Material assumptions for forward-looking statements A number of economic, market, operational and regulatory assumptions were made by the Bank in preparing its forward looking guidance Positive macroeconomic outlook will persist in the medium term 1 : 3M PRIBOR assumed to gradually increase and reach 2.8% 2 in 4Q 2019 Consumer loan market portfolio Yield expected to bottom out at around 8% 2018 Effective Tax Rate to be reduced by the impact of IFRS 9 one-time charge Cost of Risk assumptions: o 15 20% higher allowance level under IFRS 9 o 2018 supported by significant gain from legacy NPL monetization o Contingency for potential large commercial default o Cost of Risk likely to bottom out during 2018 Flat operating cost impacted by 10% - 15% productivity improvement over next 3 years, offset by increased depreciation and amortization charges of additional investments Third parties data Certain industry and market information in this report has been obtained by the Bank from third party sources. This report has been prepared by the Bank. The Bank has not independently verified such information and the Bank does not provide any assurance as to the accuracy, fairness or completeness of such information or opinions contained in this report. 1 Assumtions used in the Intitial 2018 & Medium term guidance published on 7 February CNB forecast from 4Q 2017 ( oad/zoi_iv_2017_t_1_makroindikatory.xlsx). 3

4 2 Letter from the CEO It gives me pleasure to announce that in the first six months of 2018 MONETA delivered consolidated net profit of CZK 2.1 billion and is targeting to achieve net profit of CZK 3.7 billion for the full year This was another period of strong performance in both retail and commercial lending. The commercial success resulted in annualized Reported Return on Tangible Equity of 19.6% for the half year ended 30 June The pressures we have seen on our net interest income eased somewhat as the benefits of higher interest rates began to flow through, moreover it was also supported by successful lending growth and we generated net interest income of CZK 1,783 million in second quarter 3. This confirms our expectation to return net interest income to growth path at the end of the year. We also decelerated fee and commission income decrease through our sale of third party products achieving a 14.5% year-on-year increase in commission income to CZK 270 million. We are efficiently managing operating costs despite the wage inflation and increase in our investments into IT and digital capabilities, resulting in flat year-on-year base and amounting to CZK 2,370 million in the first half of Our profit was positively impacted by the extraordinary gain of CZK 648 million on sale of legacy non-performing portfolio recognized in Cost of Risk. The Group made real progress in the development of our digital offering to our customers supporting strong lending results achieving gross performing loans year-to-date growth of 7.7% to CZK billion as at 30 June Retail Segment Our retail lending segment continued to show strong growth with lending up 10.1% compared to 31 December This was driven particularly by mortgages, where we enjoyed a 23.6% increase in gross performing balance, due to tremendous success with production, higher by 82.5% year-on-year. Another driver of progress in retail franchise is auto lending, which grew by 5.4%, and consumer lending, where we enjoyed a 4.9% rise in gross performing loan balance compared to year end. It was also supported by the strength of our digital offer for customers, with 30% of our new consumer lending originated online, compared to 15% in the first half of 2017, and 7.3% of consumer loan production being done exclusively online. On the deposit side, we managed to attract new customer retail deposits and grew by 8.5% year to date. Commercial Segment Our commercial lending segment continued to show strong growth up 5.3% in the first half of 2018, with particular strength in small business lending where gross performing balance grew by CZK 0.9 billion. With rapid build-up in small business instalment lending new production increased by 57.7% year-on-year. This is particularly pleasing as it is one of our key strategic priorities. Coupled with that, we are able to serve small businesses very efficiently through our digital tools, with 23% of our new commercial lending originated online, up from 12% in the first half of 2017, and 5.4% of our small business loan volumes executed completely online. Digital Strategy Momentum Another key strategic pillar is our focus on executing digital strategy. We saw a 67.9% year-on year increase in our registered users in our Smart Banka platform, reaching 228,000 as at 30 June Smart Banka saw nearly 3 million transactions in the first half of 2018 and accounted for a 15.4% share of all the bank s payment transactions during the period. I am proud that we have been recognised by Zlata koruna 2018 as the best finance mobile platform. As we continue to develop our offering, we have also added to an Open banking capability which allows clients of our four major competitors to view their accounts within Smart Banka. In early July 2018, MONETA has tested and successfully launched its brand new, responsive and user-friendly web platform We are ambitious, though, and believe in the great potential of these new tools offering to serve our customers better and to attract new ones to the Bank. Risk Management The Group has been able to improve its Cost of Risk further in the first half of 2018 leading to a positive result of CZK 151 million as we have continued to reduce our legacy NPL exposure, achieving a CZK 648 million gain from selling down more of our legacy non-performing portfolio. This is 3 Excluding oportunistic repo operations. 4

5 both prudent and efficient for us to do and it is something we will look to continue where opportunity arises. Capital Management The Group continues to retain a strong capital position to support our further lending growth and investments with a capital adequacy ratio of 16.0% as of 30 June We are expecting to approach 15.5% capital adequacy ratio by the end of Outlook We are confident in the benefits our actions are delivering for the Group, customers and shareholders. As a result, we are increasing our guidance across a number of our KPIs, including an uplift of CZK 300 million to our initial net profit guidance for the full year 2018, taking it to more than CZK 3.7 billion. Tomáš Spurný CEO and Chairman of the Management Board of MONETA Money Bank, a.s. 5

6 3 Key performance indicators Six months ended 30 Jun 2018 Year ended 31 Dec 2017 Change Profitability Yield (% Avg. Net Customer Loans) 5.6 % 6.3 % (70) bps Cost of Funds (% Avg Deposits) % 0.15 % 5 bps NIM (% Avg Int Earning Assets) % 4.3 % (50) bps Cost of Risk (% Avg Net Customer Loans) (0.24 %) 0.32 % (56) bps Risk-adj. Yield (% Avg Net Customer Loans) 5.8 % 6.0 % (20) bps Net Fee & Commission Income / Operating Income (%) 19.0 % 18.7 % 30 bps Net Non-Interest Income / Operating Income (%) 25.0 % 28.7 % (370) bps Reported RoTE 19.6 % 16.0 % 360 bps Adj % CET1 Ratio 20.2 % 17.7 % 250 bps RoAA % 2.2 % 0 bps Liquidity / Leverage Net Loan to Deposit ratio 90.3 % 87.4 % 290 bps Total Equity / Total Assets % 12.9 % (50) bps Liquid Assets 4,5 / Total Assets % 36.2 % (920) bps LCR 161 % 183 % (2,220) bps Equity Total Equity (CZK m) 23,158 25,763 (10.1) % Tangible Equity (CZK m) 21,590 24,462 (11.7) % Capital Adequacy RWA Density % 46.3 % 695 bps CET1 ratio (%) 16.0 % 17.4 % (140) bps Tier 1 ratio (%) 16.0 % 17.4 % (140) bps Asset Quality Non Performing Loan Ratio (%) 3.3 % 4.1 % (80) bps NPL Ratio Retail (%) 4.1 % 5.6 % (150) bps NPL Ratio Commercial (%) 2.3 % 2.6 % (30) bps Core Non Performing Loan Coverage (%) 61.5 % 64.1 % (260) bps Core NPL Coverage Retail (%) 62.8 % 67.4 % (460) bps Core NPL Coverage Commercial (%) 58.9 % 56.7 % 220 bps Total NPL Coverage (%) 93.4 % 77.0 % 1,640 bps Efficiency Cost to Income Ratio 49.7 % 47.9 % 180 bps FTEs (average) 3,240 3,304 (64) Branches (24) ATMs (13) All ratios are annualized. 4 Repo transactions with banks and customers which are closed on back-to-back basis by reverse repo transactions with CNB are included. 5 Interest earning assets include encumbered assets of CZK 10.3 bn in liquid assets and CZK 3.3 bn in Loans to customers. 6 RWA density ratio recalculated to be in line with BIS Working Papers: Leverage and Risk Weighted Capital Requirements. New methodology applied since June

7 4 Macroeconomic environment In the first quarter of 2018, the Czech economy decelerated from the very high growth rates observed in previous quarters. On the other hand, the first quarter of 2018 year-on-year GDP growth amounted to very solid 4.2% 7, especially in comparison with other countries of the European Union. The key supporting factors were household consumption and the corporate investment activity. International trade contributed to the performance of the Czech economy negatively as the growth of imports outweighed the growth of exports, probably due to currency movements and weaker external demand. Domestic demand remained robust as the retail trade grew by 5.0% year-on-year in May The financial situation of households is further supported by decreasing unemployment, which reached 2.9% at the end of the second quarter of The Czech National Bank (CNB) monetary policy stayed on the track of the new interest rate cycle and monetary tightening. Most recently, the main monetary policy interest rate grew by additional 25 basis points to 1.25% in early August 2018, mainly due to the three following reasons. First, the dynamics of wage development exceeded the CNB expectation, which might impose intrinsic inflationary pressures. Second, CZK exchange rates remained weaker compared to the gradual appreciation projected by the CNB. Finally, besides the mentioned inflationary pressures, the headline inflation was already 60bps 10 above the monetary policy target at the end of June. In addition to the three hikes observed in the first half of 2018, the CNB is expected to continue in tightening of monetary conditions with an estimated gradual increase of the key interest rate to 2.5% before the end of Operating expenses grew by 0.4% year-on-year, whilst Cost of Risk dropped by 60.9% year-on-year 14. The banking industry net income decreased by 2.1%. in the first quarter of The industry total net assets grew by 4.1% year-on-year in the first quarter of 2018, driven partly by an increase in loans to customers (by 5.3% year-on-year) 14. The growth of customer receivables remained above 4% 14 in the same quarter and accelerated in the segment of households, which confirms that strong credit demand persists. The stock of nonperforming loans continued to decrease and shrank by 20.8% year-on-year with the NPL Ratio decreasing to 3.7% 14. The overall profitability of the banking sector, measured by ROE, decreased to 16% in the first quarter of as the Tier 1 capital growth (5.4% year-on-year) 14 outweighed the development in net income. The common equity Tier 1 (CET1) ratio improved year-on-year and reached 17.6% in the first quarter of The excess total capital grew to CZK 268 billion, from CZK 250 billion in the first quarter of Thus, the lending capacity of banks remains more than sufficient to finance the potential future economic expansion. The slowdown of the Czech economic growth is limited by several factors, among others also by the domestic labor market. In the second quarter of 2018 the extremely low unemployment rate decreased further and additionally, as reported by the Czech Labor Office, the stock of currently offered job vacancies was higher than the stock of unemployed persons 12. The lack of labor force accelerated the wage growth to 8.3% year-on-year in the first quarter of 2018 in nominal terms 13. The risks for the future economic growth increased in the second quarter of 2018, mainly due to the uncertainty about the future development in international trade. The start of the new interest rate cycle and good economic performance helped to stabilize the market operating income, which slightly increased by 0.3% year-on-year in the first quarter of Interest income continued to accelerate its growth and reached a 11.3% increase yearon-year in the first quarter of , while non-interest income continued in decline (by 16.1% year-on-year) Source: Czech Statistical Office, Quarterly Sector Accounts 1 quarter of Source: Czech Statistical Office, Retail trade May Source: Ministry of Labor and Social Affairs, unemployment statistics. 10 Source: Czech Statistical Office, Consumer price indices - inflation - June Czech National Bank, August 2018 macroeconomic forecast. 12 Source: Ministry of Labor and Social Affairs unemployment statistics. 13 Source: Czech Statistical Office, Average wages - 1. quarter of Source: Czech National Bank, ARAD. 7

8 5 Group performance 5.1 Business performance The Group generated consolidated net profit of CZK 2,121 million in the first half of 2018, supported by an extraordinary gain of CZK 648 million on sale of legacy NPLs realized in the first half of Solid New Production across both commercial and retail segments supported the Group s gross performing loans year-to-date growth of 7.7% to CZK billion as at 30 June The retail gross perfmorming loan balance increased by 10.1% when compared to 31 December 2017, standing at CZK 67.4 billion as at 30 June Majority of this growth was driven by a continuing increase in New Production of mortgage loans, higher by 82.5% year-on-year, which drove balances up by 23.6% during the six months ended 30 June The consumer loans balance grew by 4.9% in the first six months of 2018 to CZK 36.1 billion, because of improved attrition and solid New Production. MONETA Auto retail loans recorded balance growth of 5.4% since 31 December However, the decline in outstanding credit card and overdraft balances continued in the first half of 2018 falling by 9.7% compared to 31 December The commercial gross perfmorming loan balance stood at CZK 64.5 billion as at 30 June 2018, an increase of 5.3% from the 31 December 2017 balance. Small business instalment lending New Production grew by 57.7% yearon-year, driving balances up 38.7% year-to-date to CZK 3.1 billion as at 30 June This was achieved through an expanded physical and digital distribution network. The investment loan balance grew by 3.8% to CZK 35.7 billion as at 30 June 2018 and the working capital balance increased by 11.4% to CZK 10.3 billion when compared to 31 December The combined balance of MONETA Auto commercial portfolio and MONETA Leasing remained flat at CZK 14.8 billion compared to 31 December 2017, with an increase in MONETA Auto commercial lending being offset by a decline in MONETA Leasing portfolio. The Group s customer deposits continued their gradual growth, demonstrating an increase in both retail and commercial segments and stood at CZK billion (excluding CZK 7.0 billion of repo transactions) as at 30 June 2018, increasing 5.6% from CZK billion (excluding CZK 9.4 billion of repo transactions) as at 31 December Across both segments, balance growth came primarily from current and saving accounts. As the cost of these deposits stayed flat at 0.17%, the Group s overall Cost of Funding (including all due to banks and customers) remained low at 0.20% despite the increasing interest rate environment. The Loan to Deposit Ratio ended at 90.3%. The due to banks balance remained significantly lower compared to 31 December 2017 and stood at CZK 14.1 billion as at 30 June The decrease was driven by net outflow of opportunistic repo operations. The Group retains a highly liquid position, despite the significantly lower volume of opportunistic externally funded repo operations, compared to last quarter of The Liquidity Coverage Ratio (LCR) stood at 160.7%, with liquid assets primarily consisting of CZK 21.3 billion in reverse repo operations with CNB and investments into Czech government bonds of CZK 21.0 billion (including CZK 10.0 billion of encumbered assets) 15. The LCR kept safe above regulatory limit, ending at 160.7% as at 30 June 2018 and confirming excellent liquidity position. 5.2 Financial performance The Group s Net Interest Margin declined to 3.8% in the first six months ended 30 June 2018, from 4.3% for the year ended 31 December The Yield on loan portfolio declined to 5.6% in the first half of 2018, compared to 6.3% for the year This was majorly a result of retail Yield decline driven by growth of mortgage franchise, while commercial Yield remained relatively stable. Net fee and commission income of CZK 905 million for the six months ended 30 June 2018 declined by 1.4% year-on-year. This drop was in line with trends observed in 2017, namely a continued decline in loan servicing fees driven by the run-off of the fee-earning portfolio and deposit servicing fees because of the switch to free current accounts as experienced in prior years. This decline is partially offset by higher transactional fees and third-party income for distributing insurance and investment funds, where the Group achieved year-onyear income growth of CZK 34 million, or 14.5%. Net income from financial operations amounted to CZK 186 million in the first half of 2018 compared to CZK 516 million in the same period of The decline was driven by an extraordinary gain on sale of bonds portfolio of CZK 343 million realized in the first half of Operating expenses for the first half of 2018 amounted to CZK 2,370 million, up 3.1% year-on-year. The Group incurred CZK 1,172 million of personnel expenses, remaining flat compared to the same period last year. Administrative and other operating expenses reached CZK 930 million, with a 2.5% year-on-year decrease. The saving from no MSA/TSA charges (CZK 47 million) and no IT separation costs (CZK 35 million) in 2018 and lower 15 Total balance of encumbered assets included in the Consolidated Statement of Financial Position amounts to CZK 13.6 billion of which CZK 10.0 billion relates to Czech government bonds 8

9 contribution to Deposit insurance fund and Resolution and recovery fund (CZK 10 million) was partly offset by lower solicitors liabilitity release (CZK 59 million lower year-on-year). Depreciation and amortization expenses increased by 57.6% to CZK 268 million, where the key driver was higher amortization due to investments into IT separation and Digital. The balance of Intangible assets grew 65.4% year-on-year. Net impairment of financial assets resulted in a net gain of CZK 151 million (pre-tax) for the six months ended 30 June 2018, driven by a gain on sale of legacy NPLs of CZK 648 million. The Core Cost of Risk, excluding the impact of legacy NPL sale, amounted to 78 bps compared to Core Cost of Risk of 59 bps for the full year of As a result, the consolidated net profit for the first six months of 2018 was CZK 2,121 million. Annualized Reported RoTE for the half year ended 30 June 2018 increased to 19.6% from 16.0% for the year ended 31 December A continued low rate of NPL formation complemented by proactive NPL management resulted in a reduction of the Group NPL Ratio to 3.3% as at 30 June 2018 from 4.1% as at 31 December The overall Total NPL Coverage stood at 93.4% as at 30 June 2018 (compared to 77.0% at 31 December 2017), following IFRS 9 implementation. The CET1 Ratio decreased to 16.0% 16 as at 30 June 2018 against 17.4% as at 31 December 2017, driven by the 2017 dividend distribution, IFRS 9 capital reduction and by loan balance growth, partly offset by positive impact of RWA optimization. The CET1 Ratio is gradually reaching the medium-term target of 15.5%. The positive economic development is visible in all areas of economic activity. Consumption and investment capacity of domestic households and companies increase, which is offset among others in inflation. The growth of deposit balances should continue as disposable income of households increases with growing wages and decreasing unemployment. The Group delivered CZK 2.1 billion of net profit in the first six months of 2018, which constitutes year-on-year decrease of 3.4% caused primarily by one-off bond sale impact in Based on the positive results of the first half of 2018, the Group is targeting to achieve consolidated net profit of at least CZK 3.7 billion for the whole year 2018, compared to initial guidance of CZK 3.4 billion. Operating income is down by 10.1% year-on- year to CZK 4.8 billion, driven by lower income across all categories. Nevertheless, the Group is increasing the full-year target operating income to CZK 9.7 billion at least, compared to CZK 9.5 billion in the initial 2018 guidance, amid the reversal in quarterly net interest income trend. Operating expenses reached CZK 2.4 billion with the Cost to Income Ratio at 49.7%. The Group remains on track to maintain the full-year cost base at CZK 4.9 billion as communicated in the initial guidance. The Cost of Risk totalled (24)bps in the first half of the year, as it was positively impacted by legacy NPL sales and improving asset quality. Given these results, we are further improving full-year 2018 guidance on the Cost of Risk to between 20-30bps on reported basis, compared to 45-55bps in the initial guidance. 5.3 Outlook for 2018 and risks The outlook for the economic development for the next quarters remains optimistic. The August macroeconomic forecast by the Czech National Bank predicts a 3.2% GDP growth in , followed by 3.4% growth in The economy should be supported mainly by domestic demand. The unemployment should decrease further, however, given the current very low level, the wage growth pressures will persist and constitute a risk for the future growth of productivity. Interest rates are assumed to continue in their gradual increase by approximately 125bps by the end of This, together with recommendations of CNB aimed at limitation of mortgage lending and real estate price growth, may result in the slowdown of lending activity. On the other hand, the credit appetite, supported by continuously positive financial condition of Czech households and companies, indicate that the growth in lending volumes should still outperform the economic growth of the country. The Group is exposed to standard risks and uncertainties which have already been disclosed in the prospectus of the Bank relating to public offering and the listing of the Bank s shares on Prague Stock Exchange (IPO). A non-exhaustive list of risks, to which the Group continues to be exposed, is set out below: Risk of unfavorable development in the economic environment which may result in a fall in demand for credit products offered principally to individuals and SMEs, as well as greater credit risk. Risk that despite the mitigating steps implemented by management the staff attrition at the MONETA Leasing platform would further materially impact the commercial performance. Interest rate risk, particularly on the negative rate side. Changes in the legal environment, including consumer protection laws. Changes in the regulatory environment, including capital and liquidity requirements. 16 Does not include net profit for 1H 2018, and is subject to corporate, regulatory and regulator s limitations. 17 Source: Czech National Bank, August 2018 macroeconomic forecast 9

10 Unsettled court and administrative proceedings particularly as described under paragraph

11 6 Basic information about MONETA Money Bank, a.s. BASIC DETAIL ABOUT MONETA Name MONETA Money Bank, a.s. Registered Office Vyskočilova 1422/1a, Praha 4 Michle Company ID Legal form Joint stock company Date of registration 9 June 1998 Registered share capital 511,000,000 Paid up 100% Branches, ATMs and employees: Number of branches as at 30 June 2018: 203 and 31 December 2017: 227 Number of ATMs as at 30 June 2018: 655 and 31 December 2017: 668 Number of employees (FTEs) in the first six months ended 30 June 2018 was 3,240 (decrease of 64 compared to the year end 2017) Business activities: The Bank and its consolidated subsidiaries (the Group ) operate in the Czech Republic and focuses primarily on secured and unsecured consumer lending and commercial financing. The retail portfolio consists of secured and unsecured lending. Unsecured lending products include consumer and auto loans, credit cards and personal overdrafts. Secured lending is provided in the form of mortgages and finance leases. Commercial lending products comprise of working capital, investment loans, finance and operating leases, auto loans, financing of small business and entrepreneurs, providing guarantees, letters of credit and foreign exchange transactions. The Group provides a wide range of deposit and transactional products to retail and commercial customers. The Group also issues debit and credit cards in cooperation with VISA and MasterCard. In addition, the Group intermediates additional payment protection insurance which covers the customer s monthly loan payment in the event of unemployment, accident or sickness. The Group also acts as the intermediary to provide its customers with other insurance and investment products. Ownership structure: The latest available list of shareholders holding, according to the registry of the shareholders administered by the Central Securities Depository Prague, more than 1% of the shares is available in the investor relations section of the Bank s website at 11

12 Bank s Supervisory Board The Bank s Supervisory board held 4 meetings in the first six months of Name Position Position held from Position held to Maria Luisa Cicognani Chair of the Supervisory Board 22 May 2017* 24 April 2021** Miroslav Singer Vice Chairman of the Supervisory Board 22 May 2017* 24 April 2021** Michal Petrman Member of the Supervisory Board 21 April April 2020 Clare Ronald Clarke Member of the Supervisory Board 21 April April 2020 Denis Arthur Hall Member of the Supervisory Board 21 April April 2020 Gabriel Eichler Member of the Supervisory Board 26 October October 2021 Tomáš Pardubický Member of the Supervisory Board 26 October October 2021 * Maria Luisa Cicognani and Miroslav Singer were elected by the General Meeting as the members of the Supervisory Board on 24 April **Changes occured after 30 June 2018 are comprised in the chap Subsequent events. Bank s Management Board The Bank s Management Board held 27 meetings in the first six months of Name Position Position held from Position held to Tomáš Spurný Chairman of the Management Board 1 October October 2019 Philip Holemans Vice Chairman of the Management Board 20 April 2016* 18 July 2022** Jan Novotný Member of the Management Board 16 December December 2021 Carl Normann Vökt Member of the Management Board 25 January January 2021 Albert Piet van Veen Member of the Management Board 1 May May 2021 * Philip Holemans was elected by the Supervisory Board as the member of the Management Board on 17 July ** In June 2018 the Bank s Supervisory Board approved the prolongation of the term of Philip Holemans for further 4 years, i. e. from 18 July 2018 to 18 July

13 7 Auditor s review report KPMG Česká republika Audit, s.r.o. Pobřežní 1a Praha 8 Česká republika Independent Auditors' Review Report to the Shareholders of MONETA Money Bank, a.s. Introduction We have reviewed the accompanying 30 June 2018 condensed consolidated interim financial statements of MONETA Money Bank, a.s. ("the Bank"), as set out in sections 8 and 9 of the consolidated financial report of the Bank as of and for the six months ended 30 June 2018, which comprise: the condensed consolidated statement of profit or loss and other comprehensive income for the three-month and six-month periods ended 30 June 2018; the condensed consolidated statement of financial position as at 30 June 2018; the condensed consolidated statement of changes in equity for the six-month period ended 30 June 2018; the condensed consolidated statement of cash flows for the six-month period ended 30 June 2018; and notes to the condensed consolidated interim financial statements. Management is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with IAS 34, 'Interim Financial Reporting'. Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review. Scope of Review We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE 2410"). A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we wouid become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 13

14 Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying 30 June 2018 condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with IAS 34, 'Interim Financial Reporting'. Other Matter Management is responsible for the preparation of the Bank's consolidated financial report as of and for the six months ended 30 June 2018 report for the six-month period ended 30 June 2018 in accordance with the Act No. 256/2004 Coll., as amended ("Zakon o podnikani na kapitalovem trhu" / "The Act on Capital Markets Undertaking"), which includes the condensed consolidated interim financial statements, as set out in sections 8 and 9, and other information, as set out in sections 1-6 and of the consolidated financial report ("the other information"). Our conclusion on the condensed consolidated interim financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our review of the condensed consolidated interim financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the condensed consolidated interim financial statements or our knowledge obtained during the review. If, based on the work we have performed, we identify a material inconsistency in the other information, we are required to report this fact. Prague 7 August 2018 KPMG Česká republika Audit, s.r.o. 14

15 8 Condensed consolidated interim financial statements for the six months ended 30 June Condensed consolidated statements of profit or loss and other comprehensive income for the three-month and the six-month periods ended 30 June 2018 Quarter ended Half-year ended CZK m Note 30 Jun 18* 30 Jun Jun 18 * 30 Jun 17 Interest and similar income 1,874 1,874 3,747 3,813 Interest expense and similar charges (92) (50) (169) (97) Net interest income 9.8 1,782 1,824 3,578 3,716 Fee and commission income ,069 1,073 Fee and commission expense (90) (79) (164) (155) Net fee and commission income Dividend income Net income from financial operations Other operating income Total operating income 2,385 2,771 4,770 5,303 Personnel expenses (579) (612) (1,172) (1,174) Administrative expenses (358) (395) (826) (920) Depreciation and amortisation (141) (86) (268) (170) Other operating expenses (37) (53) (104) (34) Total operating expenses 9.10 (1,115) (1,146) (2,370) (2,298) Profit for the period before tax and net impairment of financial assets* 1,270 1,625 2,400 3,005 Net impairment of financial assets** (130) (181) 151 (261) Profit for the period before tax 1,140 1,444 2,551 2,744 Taxes on income (192) (289) (430) (549) Profit for the period after tax 948 1,155 2,121 2,195 Items that may be reclassified subsequently to profit or loss - Change in fair value of AFS investments recognised in OCI n/a 26 n/a (230) - Change in fair value of AFS investments recognised in P&L n/a (320) n/a (343) - Deferred tax n/a 57 n/a 110 Items that will not be reclassified subsequently to profit or loss - Change in fair value of equity instruments designated at FVTOCI 0 n/a 0 n/a - Deferred tax 0 n/a 0 n/a Other comprehensive income, net of tax 0 (237) 0 (463) Total comprehensive income attributable to the equity holders ,121 1,732 Profit for the year after tax attributable to the equity holders 948 1,155 2,121 2,195 Weighted average of ordinary shares (millions of shares) Basic and Diluted earnings per share (in CZK) * The financial instruments as at 30 June 2018 have been recognized and presented in accordance with IFRS 9; prior period balances have not been restated. ** Impairment of investment securities has been added in 2018 as a result of application of IFRS 9. 15

16 8.2 Condensed consolidated statement of financial position as at 30 June 2018 CZK m Note 30 Jun 18* 31 Dec 17 Assets Cash and balances with the central bank 7,498 7,127 Derivative financial instruments** Investment securities ,013 n/a Financial assets available for sale 9.11, 9.19 n/a 57 Financial assets held to maturity 9.11, 9.19 n/a 11,723 Hedging derivatives with positive fair values 33 4 Change in fair value of items hedged on portfolio basis (81) (6) Loans and receivables to banks ,981 53,380 Loans and receivables to customers , ,680 Intangible assets 1,568 1,301 Property and equipment 1, Investments in associates 3 2 Current tax assets Deferred tax assets Other assets TOTAL ASSETS 186, ,734 Liabilities Derivative financial instruments** Due to banks ,139 29,643 Due to customers , ,469 Hedging derivatives with negative fair values 16 4 Provisions Current tax liabilities 11 2 Deferred tax liabilities Other liabilities 2,525 2,154 Total liabilities 163, ,971 Equity Share capital Share premium 5,028 5,028 Statutory reserve Reserve from revaluation of FVTOCI 0 n/a Available for sale reserve n/a (57) Share based payment reserve (2) (2) Retained earnings 17,519 20,181 Total equity 23,158 25,763 TOTAL LIABILITIES AND EQUITY 186, ,734 * The financial instruments as at 30 June 2018 have been recognized and presented in accordance with IFRS 9; prior period balances have not been restated. ** These lines have been renamed from Financial assets, resp. liabilities, at fair value through profit or loss to Derivative financial instruments. 16

17 8.3 Condensed consolidated statement of changes in equity for the six-month period ended 30 June 2018 Statutory Reserve from Share based payment Retained CZK m Share capital Share premium AFS reserve Total reserve revaluation of FVTOCI reserve earnings Balance as reported 31 Dec , (57) n/a (2) 20,181 25,763 Cumulative effect of adopting of IFRS 9 57 (695) (638) Restated balance 1 Jan , (2) 19,486 25,125 Transactions with owners of the company - Dividends (4,088) (4,088) Total comprehensive income Profit for the year after tax 2,121 2,121 Other comprehensive income after tax - Change in fair value of FVTOCI investment securities Deferred tax 0 0 Balance 30 Jun , n/a 0 (2) 17,519 23,158 Balance 1 Jan , n/a (2) 21,266 27,268 Transactions with owners of the company - Dividends (5,008) (5,008) Total comprehensive income Profit for the year after tax 2,195 2,195 Other comprehensive income after tax Change in fair value of AFS assets - Change in fair value of AFS investments recognised in OCI (230) (230) - Change in fair value of AFS investments recognised in P&L (343) (343) - Deferred tax Balance 30 Jun , (100) n/a (2) 18,453 23,992 17

18 8.4 Condensed consolidated statement of cash flows for the six-month period ended 30 June 2018 Half-year ended CZK m 30 Jun Jun 17 Cash flows from operating activities Profit after tax 2,121 2,195 Adjustments for: Depreciation and amortization Impairment of tangible and intangible assets 7 4 Net impairment of financial assets (151) 261 Net gain on sale of available for sale financial assets n/a (343) Amortisation of coupon of financial assets available for sale n/a (37) Net gain on revaluation of investment securities (10) n/a Amortisation of coupon of investment securities (65) n/a Net interest income from hedging derivatives 38 n/a Net gain/ loss from revaluation of hedging derivatives 71 n/a Net gain/ loss from revaluation of items hedged on porfolio basis (75) n/a Release of provision for restructuring not recognized in depreciation and amortization (63) n/a Net loss on sale of tangible and intangible assets 3 3 Dividends on investments 1 0 Tax expense Changes in: 2,575 2,802 Derivative financial instruments (assets)* (98) (9) Loans and receivables to customers (9,041) (5,892) Other assets 24 (171) Due to banks (15,504) 4,593 Due to customers 4,922 9,980 Derivative financial instruments (liabilities)* (17) 32 Other liabilities 366 (461) (16,773) 10,874 Income taxes paid (338) (482) Net cash used in operating activities (17,111) 10,392 Cash flows from investing activities Proceeds from financial assets available for sale n/a 8,204 Acquisition of investment securities (9,184) n/a Proceeds from investment securities 92 n/a Proceeds from hedging derivatives 15 0 Acquisition of property and equipment and Intangible assets (753) (397) Proceeds from the sale of property and equipment and Intangible assets 0 20 Dividends received 1 0 Net cash used in investing activities (9,829) 7,827 18

19 Cash flows from financing activities Dividends paid (4,088) (5,008) Net cash used in financing activities (4,088) (5,008) Net change in cash and cash equivalents (31,028) 13,211 Cash and cash equivalents at beginning of period 60,490 20,424 Cash and cash equivalents at end of period 29,462 33,635 Interest received** 3,812 4,014 Interest paid** (116) (100) * Lines Financial assets at fair value through profit and loss and Financial liabilities at fair value through profit and loss disclosed in 4Q 2017 and earlier reports has been renamed to Derivative financial instruments since 1 January ** Lines Interest received and Interest paid represent interest as per contractual rate and are included in cash flows from operating activities. Foreign exchange gains relating to average balance of cash and cash equivalents in foreign currencies for half-year ended 30 June 2018 are in the amount of CZK 20 million (half-year ended 30 June 17: loss CZK 25 million). 19

20 9 Notes to condensed consolidated interim financial statements 9.1 Reporting entity MONETA Money Bank, a.s. (the Bank ) is a company domiciled in the Czech Republic. These condensed consolidated interim financial statements ( interim financial statements ) as at and for the six months ended 30 June 2018 comprise the Bank and its consolidated subsidiaries (together referred to as the Group ). 9.2 Basis of preparation and presentation These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Group s last annual consolidated financial statements as at and for the year ended 31 December 2017 ( last annual financial statements ). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group s financial position and performance since the last annual financial statements. These condensed consolidated interim financial statements have been reviewed by the auditor (see the Auditor s Review Report in chap. 7). The Group s interim financial statements were authorised for issue by the Management Board on 7 August Going Concern These condensed consolidated interim financial statements are prepared on a going concern basis, as the Management Board of the Bank are satisfied that the Group have the resources to continue in business for the foreseeable future. In making this assessment, the Directors of the Bank have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources. Functional and presentation currency These condensed consolidated interim financial statements are presented in Czech Koruna (CZK) which is the functional currency of all Group entities. All amounts have been rounded to the nearest million, except where otherwise indicated. 20

21 9.3 Use of judgements and estimates In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty are consistent with those that applied to the last annual financial statements. 9.4 Significant accounting policies The significant accounting policies used in preparation of these interim financial statements are consistent with those used in the Group s last annual financial statements as at and for the year ended 31 December 2017, except for changes in accounting for financial instruments resulting from the adoption of IFRS 9 Financial instruments ( IFRS 9 ). Changes in classification and measurement of financial assets and liabilities due to transition to IFRS 9 including financial impact to the opening balance sheet as at 1 January 2018 are described in the Group s last annual financial statements, note 4.1. In terms of capital adequacy requirements, the Group has decided not to apply the transitional arrangements specified in Article 473a of Regulation (EU) No 575/2013 for mitigating the impact of the introduction of IFRS 9 and analogous expected credit losses (ECLs), and therefore its own funds, capital and leverage ratios will already reflect the full impact of IFRS 9 and analogous ECLs. Following chapter comprises description of significant accounting policies related to financial assets and financial liabilities that were influenced by transition to IFRS 9 since 1 January Recognition and initial measurement The Group initially recognises financial assets measured at amortised cost on the date on which they are originated. All other financial instruments are recognised on the trade date which is the date the Group becomes a party to the contractual provisions of the instrument. All financial instruments are initially measured at fair value plus or minus transaction costs, in case of a financial asset respectively financial liability not at fair value through profit or loss. Financial assets include debt and equity instruments Debt instruments Debt instruments include loans and debt securities. They are classified into one of the following measurement categories: Amortised cost; Fair value through other comprehensive income (FVTOCI); or Fair value through profit or loss (FVTPL). Classification is based on the assessment of the business model under which the asset is held and on the assessment of contractual cash flow characteristics of the instrument. The Group has defined its business models as follows: Held to collect (HTC) business model for financial assets acquired with the intention to be held until its maturity and to collect contractual cash flows. Sales, which are insignificant or infrequent, related to management of increased credit risk of the asset, or close to maturity of the financial assets are considered to be consistent with HTC business model. 21

22 Held to collect and sell (HTCS) business model for financial assets acquired with the intention to be held to collect contractual cash flows and to be sold. More frequent sales within this portfolio are expected, mainly for the purpose of managing the Group s liquidity needs. Other business model for financial assets neither classified as HTC nor HTCS. Currently, the Group helds all debt financial assets (securities as well as loans and receivables) within HTC business model. Contractual cash flow characteristics are assessed by analyzing the contractual features of the financial asset to determine whether they are connected with cash flows consistent with basic lending arrangement, i. e. comprising solely payments of principal and interest from principal amount outstanding ( SPPI test ). Principal is the fair value of financial asset at the initial recognition and it changes due to repayments over the time. Interest represents a consideration for time value of money, profit margin, credit risk and other basic lending risks. If a financial asset does not pass SPPI test it is measured at fair value through profit or loss (FVTPL). Currently the Group does not classify any non-derivative debt instrument in the FVTPL. Debt instruments measured at amortised cost Debt instruments are measured at amortized cost if they are held within a business model whose objective is held to collect (HTC) contractual cash flows where those cash flows represent solely payments of principal and interest. After initial measurement, debt instruments in this category are carried at amortized cost using the effective interest rate method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial asset to the carrying amount. Amortized cost is calculated taking into account any discount or premium on acquisition, transaction costs and fees that are an integral part of the effective interest rate. Interest income from debt instruments measured at amortised cost is recorded in profit or loss in the line Interest and similar income. Impairment on debt instruments measured at amortized cost is calculated using the expected credit loss approach. Loans and debt securities measured at amortized cost are presented net of the allowance for credit losses in the statement of financial position. Debt instruments measured at FVTOCI Debt instruments are measured at FVTOCI if they are held within a business model held to collect and sale (HTCS), where the assets cash flows represent payments that are solely payments of principal and interest. Subsequent to initial recognition, unrealized gains and losses on debt instruments measured at FVTOCI are recorded in other comprehensive Income (OCI). Upon derecognition, realized gains and losses are reclassified from OCI to profit or loss. Currently, the Group does not classify any debt instrument in FVTOCI Equity instruments Equity instruments are measured at FVTPL, unless an election is made to designate them at FVTOCI at the initial recognition or at the date of transition to IFRS 9. For equity instruments measured at FVTPL, changes in fair value are recognized in the profit or loss in the line Net income from financial operations. A major part of current equity securities portfolio is classified as FVTPL. For the residual minor part, the Group elected the irrevocable option provided by IFRS 9 to classify it as at the date of transition as FVTOCI. All Gains and losses resulting from FVTOCI equity instruments including when derecognized or sold are recorded in OCI and are not subsequently reclassified to profit or loss. Nevertheless, dividends received from FVTOCI equity instruments are disclosed in the profit or loss in the line Dividend income Impairment of financial assets The Group measures allowance for credit losses, using an expected credit loss approach as required under IFRS 9, for the following categories of financial instruments: Amortized cost financial assets; Debt securities classified as measured at FVTOCI; and Undrawn loan commitments. 22