MONETA Money Bank, a.s.

Transcription

1 MONETA Money Bank, a.s. Consolidated financial report as of and for the nine months ended 30 September 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 Condensed consolidated interim financial statements for the nine months ended 30 September 2018 (Unaudited) Condensed consolidated statements of profit or loss and other comprehensive income for the three-month and the nine-month periods ended 30 September 2018 (Unaudited) Condensed consolidated statement of financial position as at 30 September 2018 (Unaudited) Condensed consolidated statement of changes in equity for the nine-month period ended 30 September 2018 (Unaudited) Condensed consolidated statement of cash flows for the nine-month period ended 30 September 2018 (Unaudited) Notes to unaudited 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 Meetings Resolutions Legal Challenges of Resolutions of General Meeting held on 26 October Legal Challenges of 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... 48

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, the Group or MONETA ). 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 In preparing updated 2018 guidance, the Bank has made a number of economic, market, operational, regulatory and other assumptions of both quantitative and judgemental nature. These assumptions may prove to be incorrect and involve known and unknown risks, uncertainties, contingencies and other important factors, which are outside the control of the Bank, including the following: Positive macroeconomic outlook will persist. 3M PRIBOR assumed to gradually increase as per the Czech National Bank forecast. 1 issued on 1 November Cost of Risk includes contingency for potential large commercial default. Third parties data Certain industry and market information in this report has been obtained by the Bank from third party sources. 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 Latest CNB forecast from 1 November 2018: wnload/zoi_iv_2018_t_1_makroindikatory.xlsx 3

4 2 Letter from the CEO I am pleased to announce that in the nine months of 2018 MONETA delivered a consolidated net profit of CZK 3.4 billion, a 7.8% higher compared to the same period of last year (CZK 3.1 billion). Our profitability translates into Reported Return on Tangible Equity of 19.8%, which was up significantly from the 17.5% reported this time last year. This enabled us to increase our guidance for 2018 consolidated net profit to CZK 4.1 billion and exceed our initial profitability commitment by more than CZK 700 million. In line with the increase of our net profit guidance, the Management Board will consider to propose higher dividend pay-out of 2018 dividend and the previously announced guidance is increased from CZK 5.5 gross per share to CZK 5.6 gross per share. It is also my pleasure to announce that we have reversed the negative trend in net interest income to the growth path. In the 3Q 2018 we have generated net interest income of CZK 1,859 million, which is 3% higher compared to the same period last year. This achievement is mainly driven by portfolio growth, consumer loan pricing improvement, successful repricing in commercial portfolio and from higher interest rates environment. Net fee and commission income remained relatively flat year-on-year at CZK 1,352 million, compared to CZK 1,392 million as at 30 September Servicing and penalty fees continued to decline in line with the expectation which was partially offset by continued growth in the third-party products offering, achieving a 15.5% year-on-year increase in fee and commission income. We further continued in efficient management of operating costs resulting in stable year-on-year cost base despite increase in our investments into IT and digital capabilities, amounting to total cost base of CZK 3,465 million for the three quarters of Our Cost to Income Ratio, at 46%, ahead of management expectations. Equally importantly, we achieved a significant success in legacy NPL sales, where we generated pre-tax gain of CZK 1,072 million year to date, out of which CZK 663 million had positive impact into Cost of Risk. Our franchise made real progress in the core areas where we are focusing our efforts to become the leading bank for both Czech households and small businesses, with an ongoing focus on the development of our digital offering for customers. Retail Segment MONETA showed continued accelerated growth in retail lending during the third quarter, with a 20.8% increase yearon-year to CZK 70.9 billion. This was primarily driven by accelerated growth in mortgage balance of 50.7%, complemented by growth in auto financing (+10.6%) and consumer lending (+9.1%). Given the strong performance in mortgage lending, MONETA increased its mortgage balance market share to 2.4% 2 and maintained its position as one of the top five mortgage providers in the Czech Republic. Moreover, in new production we achieved the market share of 8.2% 3. In consumer lending MONETA maintained its market share of 18.8% 4 despite continued competitive pressure in the consumer lending market. Commercial Segment Our commercial loan portfolio showed strong growth once again, increasing 7.3% year-on-year in the third quarter. Continuing the trend in the first half of the year, growth during the period was largely due to a strong performance in small business lending, which grew 65.3% year-on-year, supported by strong investment lending, which grew 8.6%. As I have said before, supporting small businesses is one of our key strategic priorities for the Bank. This helped us to grow our client base, with a 4% increase in the number of primary banking customers to 617,000 compared to the same period last year. 2 Source: CNB ARAD 3 Source: based on signed contracts from hypoindex.cz 4 Source: CNB ARAD, Bank. Gross loans excluding non-residents and loans in foreign currencies. Consumer loans represent non- purposed and purposed consumer loans, debt consolidations, American mortgages and all other MONETA products classified as consumer loans. 4

5 Digital Strategy Execution Executing our digital strategy remains a critical focus. The Bank s new website, launched in July 2018, enjoyed a 61% increase in organic traffic for September year-on-year. The number of registered users of Smart Banka increased by 53.1% year-on-year, totalling 247,000 at the end of the third quarter, with 17.6% of payment transactions executed via Smart Banka. During the quarter, MONETA continued to develop its open banking capability, which allows clients of four other banks to view their current accounts via Smart Banka. New digital initiatives planned for the fourth quarter 2018 include a tablet-based digital loan process to be rolled out to loan brokers and Česká pojišťovna / Generali. I am very pleased that in 2018 Best Bank Award MONETA with our Smart Banka was voted by public as 2018 leading banking innovator 5. During the period, our retail business was supported by the continued improvement of our digital offering for customers, with 30% of our new consumer lending of CZK 4.5 billion originated online, compared to 17% for the same period in Similarly, in our small business, 23% of new production was originated online which amounts to CZK 444 million. Risk Management We continued to experience an improvement in asset quality, following similar progress made in the first half of the year. Legacy non-performing loan (NPL) sales have had a positive impact of CZK 663 million on the Cost of Risk. NPLs were reduced by 23.2% year-on-year, to CZK 4.2 billion and a continued low rate of NPL formation complemented by proactive NPL management resulted in a drop of the NPL ratio from 4.4% in Q to 3.0% in Q Capital Management MONETA continues to retain a strong capital position with a capital adequacy ratio of 16.6%. This was supported by capital optimisation initiatives ofczk 1,210 million. Potential acquisition of Air Bank and Home Credit CZ & SK On 8 October 2018, the Bank disclosed that it entered into a non-binding Memorandum of Understanding with Home Credit Group B.V. to potentially acquire Air Bank, the fastest growing challenger bank in the Czech Republic, and Home Credit CZ & SK, well-established consumer finance business, operating for two decades domestically and in Slovakia. In this context, we have disclosed the result of our preliminary agreement contained in the non- binding Memorandum of Understanding as well as strategic, commercial and financial implications of the potential acquisition. During the 4th quarter of the year, the Bank shall perform due diligence process of all entities and focus on confirming hypotheses and assumptions set forth in a business case developed for this potential opportunity. Subsequently, the Bank shall negotiate necessary documentation which will serve as basis for shareholder decision at an extraordinary shareholder meeting. Such meeting has not been planned yet, however we expect it would take place in the 1st quarter of Additionally, we wish to reaffirm that the 2018 dividend will not be impacted by the potential acquisition opportunity and the Bank plans to proceed with practice established for dividend distribution during prior years. Extraordinary Shareholder Meeting planned for 13 December 2018 The Management Board of the Bank has decided that an extraordinary shareholder meeting to secure an amendment of the Bank s Articles of Association will be planned for 13 December The planned amendment is required by the Czech Act No. 458/2016 Coll., amending Czech Act No. 90/2012 Coll., on business companies and cooperatives. The legislative change requires incorporation of employee representatives in the second tier of governance structure non-executive Supervisory Board - and stipules requirement that the number of the Supervisory Board seats be dividable by three. Two thirds of the Supervisory Board members are to be elected by the Bank s shareholders at a General Meeting and one third by the Bank s employees. The Bank plans to propose increasing number of seats of its Supervisory Board from 7 to 9 and execute necessary changes subsequently. The Extraordinary General Meeting is to be convened and the notice of the Extraordinary General Meeting, including a specific proposal for a resolution on amendment of the Bank s Articles of Association, is to be published in accordance with applicable laws and the Bank s Articles of Association. The potential acquisition by the Bank of Air Bank and Home Credit CZ & SK will not be the subject matter of the Extraordinary General Meeting. Outlook The macroeconomic environment continues to be supportive to our business and the outlook for GDP growth in the Czech Republic remains strong. We expect to see improvements to our operating environment brought about by interest rate hikes and we are now seeing the stabilisation of pricing of our new consumer loans. 5 Source: 5

6 The Bank s management continues to have a positive outlook for the business for the remainder of the year and we have, again, improved our guidance across several key metrics for the full year: we expect growth in the gross performing loan book of 13%; we expect total operating income to increase to approximately CZK 10.0 billion; our cost base is expected to be around CZK 4.8 billion and our Cost of Risk is planned to be in the range of 15 25bps (excluding legacy NPL sale 70 80bps). This results in our expectation to deliver consolidated net profit of around CZK 4.1 billion for the full year 2018 and we expect the reported Return on Tangible Equity to more than 17%. The Management Board will also consider an increased proposal for a 2018 dividend pay-out of CZK 5.6 gross per share. Tomáš Spurný CEO and Chairman of the Management Board of MONETA Money Bank, a.s. 6

7 3 Key performance indicators Nine months ended 30 Sep 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 % 6 bps NIM (% Avg Int Earning Assets) % 4.3 % (50) bps Cost of Risk (% Avg Net Customer Loans) 0.00 % 0.32 % (32) bps Risk-adj. Yield (% Avg Net Customer Loans) 5.6 % 6.0 % (40) bps Net Fee & Commission Income / Operating Income (%) 18.0 % 18.7 % (70) bps Net Non-Interest Income / Operating Income (%) 27.7 % 28.7 % (100) bps Reported RoTE 19.8 % 16.0 % 380 bps Adj % CET1 Ratio 20.9 % 17.7 % 320 bps RoAA % 2.2 % 10 bps Liquidity / Leverage Net Loan to Deposit ratio % 87.4 % 350 bps Total Equity / Total Assets % 12.9 % 30 bps Liquid Assets 6,7 / Total Assets % 36.2 % (1,140) bps LCR % % (5,130) bps Equity Total Equity (CZK m) 24,400 25,763 (5.3) % Tangible Equity (CZK m) 22,700 24,462 (7.2) % Capital Adequacy RWA Density % 46.3 % 790 bps CAR ratio (%) 16.6 % 17.4 % (80) bps Tier 1 ratio (%) 16.6 % 17.4 % (80) bps Asset Quality Non Performing Loan Ratio (%) 3.0 % 4.1 % (110) bps NPL Ratio Retail (%) 3.9 % 5.6 % (170) bps NPL Ratio Commercial (%) 2.0 % 2.6 % (60) bps Core Non Performing Loan Coverage (%) 63.4 % 64.1 % (70) bps Core NPL Coverage Retail (%) 64.9 % 67.4 % (250) bps Core NPL Coverage Commercial (%) 60.1 % 56.7 % 340 bps Total NPL Coverage (%) 95.8 % 77.0 % 1,880 bps Efficiency Cost to Income Ratio 46.0 % 47.9 % 182 bps FTEs (average) 3,215 3,304 (89) Branches (25) ATMs (17) All ratios are annualized. 6 Repo transactions with banks and customers which are closed on back-to-back basis by reverse repo transactions with CNB are included. 7 Interest earning assets include encumbered assets of CZK 4.7 bn in liquid assets as at 30 September 2018 (31 December 2017: CZK 3.5 bn), where majority is used as collateral in repo operations and CZK 2.9 bn of clients receivable recognised in Loans to customers used as collateral for received loan in MONETA Leasing as at 30 September 2018 (31 December 2017: CZK 3.9bn ) from third party. 8 RWA density ratio recalculated to be in line with BIS Working Papers: Leverage and Risk Weighted Capital Requirements. New methodology applied by the Bank since June

8 4 Macroeconomic environment In the second quarter of 2018, the deceleration of the Czech economy continued as the year-on-year GDP growth reached 2.4% 9. On the other hand, when compared to other member countries of the European Union, the growth rate remains very solid, which is further supported by the quarter-on-quarter growth rate, which amounted to 0.7% 9. The key supporting factor remained domestic household consumption and investment activities of companies, where the gross capital formation grew year-on-year by 7.8% 9. The economic growth in the country persists, still driven by the robust internal demand as the retail trade grew by 4.2% year-on-year in August The financial situation of households keeps improving, due to a combination of a very low and stable unemployment level, which reached 3.0% at the end of the third quarter of , and significantly growing wages, by 8.6% yearon-year on average in the second quarter of 2018 in nominal terms. The growing average wage is offset in the inflation, which remains slightly above the Czech National Bank (CNB) monetary policy target, despite the increasing base interest rate. Thus, CNB decided to continue in the tightening trend and increased the two-week repo rate again in November to 1.75% 12. Consumer prices grew by 2.3% year-on-year in September 2018 and the key drivers were living, energy and food 13. On the other hand, the month-on-month decrease of consumer prices indicates that the monetary policy tightening starts to be visible in limiting the inflationary pressures. However, as the tight situation on the job market, where the job supply exceeds job demand, keeps pushing wages up, the willingness of consumers to spend will continue to push prices up. The economic prospects for the Czech economy remain to be positive. The recently recorded slowdown is natural due to limitations of the economy, which is not able to absorb long-term growth rates highly above 4%. The risks for the future economic development still lie mainly outside the country, with the geopolitical situation, trade wars and Brexit taking the lead. On the other hand, the internal inequality on the job market is more and more visible and starts to be a real limiting factor for the production part of the economy. The increasing interest rates and good economic performance helped to continue the market trend of growing operating income year-on-year in the second quarter of 2018 (+1.2%) 14. The main contributor was the interest income, which accelerated its growth and reached a 12.2% increase year-on-year in the second quarter of , while non-interest income kept declining (by 13.6% year-on-year) 14. Operating expenses slightly shrank by 0.3% year-on-year 14, whilst Cost of Risk dropped by nearly 50% year-on-year 14, showing a significant improvement in the market loan portfolio quality. The banking industry net income grew by 0.8% in the same period 14. The market total assets grew by 5.5% year-on-year in the second quarter of 2018, driven by an increase in performing loans to customers. On the other hand, the positive development in the quality of loan portfolios led to a sharp decline in the stock of non-performing loans and a drop of the NPL ratio, which reached 3.5% in the second quarter of The growing trend was also observed in customer deposits, where both commercial and retail deposits with banks increased by a higher single-digit year-on-year 14. The overall profitability of the banking sector, measured by return on equity, increased to 19% in the second quarter of The common equity Tier 1 (CET1) ratio improved year-on-year and reached 18.8% in the second quarter of The excess total capital grew to CZK 275 billion, from CZK 265 billion in the second quarter of Thus, the lending capacity of banks remains more than sufficient to keep financing the continuing economic expansion and potential investments into the production capacities. 5 Group performance 5.1 Business performance The Group generated consolidated net profit of CZK 3,363 million in the three quarters of 2018, supported by an extraordinary pre-tax gain of CZK 1,072 million on sale of legacy NPLs realized in the three quarters of Solid new production across both commercial and retail segments supported the Group s gross performing loans year-to-date growth of 10.6% to CZK billion as at 30 September The retail gross performing loan balance increased by 15.8% when compared to 31 December 2017, standing at CZK 70.9 billion as at 30 September Majority of this growth was driven by doubling of new production of mortgage loans year-on-year, which drove balances up 38.9% during the nine months ended 30 September The consumer loans balance grew by 6.4% in the nine months of 2018 to CZK 36.7 billion, a result of improved attrition and solid new production. MONETA Auto retail loans recorded balance growth of 3.6% since 31 December However, the decline in outstanding credit card and 9 Source: Czech Statistical Office, Quarterly Sector Accounts 2. quarter of Source: Czech Statistical Office, Retail trade August Source: Ministry of Labor and Social Affairs, unemployment statistics. 12 Source: Czech National Bank, CNB Board decisions 1 November Source: Czech Statistical Office, Consumer price indices inflation September Source: Czech National Bank, ARAD. 8

9 overdraft balances continued in the three quarters of 2018 falling by 11.5% compared to 31 December The commercial gross performing loan balance stood at CZK 64.5 billion as at 30 September 2018, an increase of 5.4% from the 31 December 2017 balance. Small business instalment lending new production grew by 48.8% yearon-year, driving balances up 51.2% year-to-date to CZK 3.4 billion as at 30 September This was achieved through an expanded physical and digital distribution network. The investment loan balance grew by 5.8% to CZK 36.4 billion as at 30 September 2018 and the working capital balance increased by 5.1% to CZK 9.7 billion when compared to 31 December The combined balance of MONETA Auto commercial portfolio and MONETA Leasing fell slightly to CZK 14.5 billion compared to 31 December 2017, with an increase in MONETA Auto commercial lending more than 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 September 2018, increasing 7.7% 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 0.21% despite the increasing interest rate environment. The Loan to Deposit Ratio ended at 90.9%. The Due to banks balance remained significantly lower compared to 31 December 2017 and stood at CZK 9.2 billion as at 30 September The decrease was driven mainly 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 safe above regulatory limit at 131.7%, with liquid assets primarily consisting of CZK 17.5 billion in reverse repo operations with CNB and investments into bonds of CZK 20.7 billion (including CZK 4.6 billion of encumbered bonds) Financial performance The Group s Net Interest Margin declined to 3.8% in the nine months ended 30 September 2018, from 4.3% for the year ended 31 December The Yield on loan portfolio declined to 5.6% for the nine months 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 1,352 million for the nine months ended 30 September 2018 declined by 2.9% 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 56 million, or 15.5%. Net income from financial operations amounted to CZK 298 million in the three quarters of 2018 compared to CZK 619 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 Other operating income increased by 95% to CZK 436 million, primarily due to gain on legacy NPL sale. Operating expenses for the three quarters of 2018 amounted to CZK 3,465 million and remained stable yearon-year. The Group incurred CZK 1,743 million of personnel expenses, decreasing by 2.3% year-on-year, driven by drop of average FTE (2.6% year-on-year). Administrative and other operating expenses reached CZK 1,294 million, with a 6.8% year-on-year decrease. The saving from no servising charges (CZK 47 million) and no IT separation costs (CZK 35 million) in 2018 was further supported by lower contribution to Deposit insurance fund and Resolution and recovery fund (CZK 10 million) and higher solicitors liability release (CZK 10 million year-on-year). Depreciation and amortization expenses increased by 51.8% to CZK 428 million, where the key driver remains higher amortization due to investments into IT and Digital. The balance of intangible assets grew 53.4% year-on-year. Net impairment of financial assets resulted in zero gain/loss for the nine months ended 30 September 2018, driven by a gain on sale of legacy NPLs of CZK 663 million. The Core Cost of Risk, excluding the impact of legacy NPL sale, amounted to 68 bps compared to Core Cost of Risk of 59 bps for the full year of As a result, the consolidated net profit for the nine months of 2018 was CZK 3,363 million, a 7.8% increase year-on-year. Annualized Reported RoTE for period ended 30 September 2018 increased to 19.8% 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 3.0% as at 30 September 2018 from 4.1% as at 31 December The overall Total NPL Coverage stood at 95.8% as at 30 September 2018 (compared to 77.0% at 31 December 2017), following IFRS 9 implementation. 15 Total balance of encumbered assets included in the Consolidated Statement of Financial Position amounts to CZK 7.6 billion of which CZK 4.6 billion relates to bonds 9

10 The CET1 Ratio decreased to 16.6% 16 as at 30 September 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 in the amount of CZK 574 million and inclusion of CZK 636 million from 2018 midyear net profit into regulatory capital. 5.3 Outlook for 2018 and risks The outlook for the economic development for the next quarters remains optimistic. The November macroeconomic forecast by the Czech National Bank predicts a 3.1% GDP growth in , followed by 3.3% 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 70 bps 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 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 3.4 billion of net profit in the nine months of 2018, which constitutes year-on-year increase of 7.8%. The year-on-year growth is primarily driven by gain on legacy NPL sales, partly offset by one-off bond sale impact in Based on the positive results of the three quarters of 2018, the Group is targeting to achieve consolidated net profit of around CZK 4.1 billion for the whole year 2018, compared to initial guidance of CZK 3.4 billion. Operating income is down by 3.0% year-on-year to CZK 7.5 billion. Nevertheless, the Group is increasing the fullyear target operating income to around CZK 10 billion, compared to CZK 9.5 billion in the initial 2018 guidance, amid the reversal in quarterly net interest income trend and positive impact of legacy NPL sale. Operating expenses reached CZK 3.5 billion with the Cost to Income Ratio at 46.0%. The Group aims to maintain the full-year cost base around CZK 4.8 billion, thus improving the initial guidance. The Cost of Risk ended 0 bps in the nine months of the year 2018, as it was positively impacted by legacy NPL sales and improving asset quality. The Group is targeting full-year 2018 guidance on the Cost of Risk to between 15 25bps on reported basis, compared to 45-55bps in the initial guidance. 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 unfavourable 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. Unsettled court and administrative proceedings particularly as described in the note Includes CZK 636m 1H 2018 net profit (net of expected dividend payment), excludes 3Q 2018 net profit, and is subject to corporate, regulatory and regulator s limitations. 17 Source: Czech National Bank, November 2018 macroeconomic forecast 10

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 September 2018: 202 and 31 December 2017: 227 Number of ATMs as at 30 September 2018: 651 and 31 December 2017: 668 Number of employees (FTEs) in the first nine months ended 30 September 2018 was (decrease of 89 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, inventory financing, 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 issues debit and credit cards in cooperation with VISA and MasterCard and cooperates with EVO Payments International in acquiring services. 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 7 meetings in the first nine months of Name Position Member position held from Member position held to Gabriel Eichler Chairman of the Supervisory Board* 26 October October 2021 Miroslav Singer Vice Chairman of the Supervisory Board** 24 April 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 Tomáš Pardubický Member of the Supervisory Board 26 October October 2021 * Mr. Gabriel Eichler was elected as Chairman of the Supervisory Board with effect from 2 August 2018 after Ms. Maria Luisa Cicognani resigned from her position of the Chair and member of the Supervisory Board and her position in Remuneration Committee as of 1 August ** Mr. Miroslav Singer was elected as Vice Chairman of the Supervisory Board with effect from 22 May Bank s Management Board The Bank s Management Board held 37 meetings in the first nine months of Name Position Member position held from Member position held to Tomáš Spurný Chairman of the Management Board 1 October October 2019 Philip Holemans Vice Chairman of the Management Board 17 July 2014* 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 * Mr. Philip Holemans was elected as Vice Chairman of the Management Board with effect from 20 April

13 7 Condensed consolidated interim financial statements for the nine months ended 30 September 2018 (Unaudited) 7.1 Condensed consolidated statements of profit or loss and other comprehensive income for the three-month and the nine-month periods ended 30 September 2018 (Unaudited) Quarter ended Nine months ended CZK m Note 30 Sep 18* 30 Sep Sep 18 * 30 Sep 17 Interest and similar income 1,953 1,858 5,700 5,671 Interest expense and similar charges (94) (54) (263) (151) Net interest income 8.8 1,859 1,804 5,437 5,520 Fee and commission income ,600 1,634 Fee and commission expense (84) (87) (248) (242) Net fee and commission income ,352 1,392 Dividend income Net income from financial operations Other operating income Total operating income 2,755 2,452 7,525 7,755 Personnel expenses (571) (610) (1,743) (1,784) Administrative expenses (367) (395) (1,193) (1,315) Depreciation and amortisation (160) (112) (428) (282) Other operating expenses 3 (40) (101) (74) Total operating expenses 8.10 (1,095) (1,157) (3,465) (3,455) Profit for the period before tax and net impairment of financial assets 1,660 1,295 4,060 4,300 Net impairment of financial assets** (151) (140) 0 (401) Profit for the period before tax 1,509 1,155 4,060 3,899 Taxes on income (267) (231) (697) (780) Profit for the period after tax 1, ,363 3,119 Items that may be reclassified subsequently to profit or loss - Change in fair value of AFS investments recognised in OCI n/a 52 n/a (178) - Change in fair value of AFS investments recognised in P&L n/a 0 n/a (343) - Deferred tax n/a (11) n/a 99 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 (422) Total comprehensive income attributable to the equity holders 1, ,363 2,697 Profit for the year after tax attributable to the equity holders 1, ,363 3,119 Weighted average of ordinary shares (millions of shares) Basic and Diluted earnings per share (in CZK) * The financial instruments as at 30 September 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. 13

14 7.2 Condensed consolidated statement of financial position as at 30 September 2018 (Unaudited) CZK m Note 30 Sep 18* 31 Dec 17 Assets Cash and balances with the central bank 7,336 7,127 Derivative financial instruments** Investment securities 8.11, ,772 n/a Financial assets available for sale 8.11, 8.19 n/a 57 Financial assets held to maturity 8.11, 8.19 n/a 11,723 Hedging derivatives with positive fair values Change in fair value of items hedged on portfolio basis (331) (6) Loans and receivables to banks ,836 53,380 Loans and receivables to customers , ,680 Intangible assets 1,700 1,301 Property and equipment 1, Investments in associates 2 2 Current tax assets Deferred tax assets Other assets TOTAL ASSETS 185, ,734 Liabilities Derivative financial instruments** Due to banks ,201 29,643 Due to customers , ,469 Hedging derivatives with negative fair values 2 4 Provisions Current tax liabilities 61 2 Deferred tax liabilities Other liabilities 2,008 2,154 Total liabilities 161, ,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 18,761 20,181 Total equity 24,400 25,763 TOTAL LIABILITIES AND EQUITY 185, ,734 * The financial instruments as at 30 September 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. 14

15 7.3 Condensed consolidated statement of changes in equity for the nine-month period ended 30 September 2018 (Unaudited) 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 3,363 3,363 Other comprehensive income after tax - Change in fair value of FVTOCI investment securities - Deferred tax 0 0 Balance 30 Sep , n/a 0 (2) 18,761 24, 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 3,119 3,119 Other comprehensive income after tax Change in fair value of AFS assets - Change in fair value of AFS investments recognised in OCI (178) (178) - Change in fair value of AFS investments recognised in P&L (343) (343) - Deferred tax Balance 30 Sep , (59) n/a (2) 19,377 24,957 15

16 7.4 Condensed consolidated statement of cash flows for the nine-month period ended 30 September 2018 (Unaudited) Nine months ended CZK m 30 Sep Sep 17 Cash flows from operating activities Profit after tax 3,363 3,119 Adjustments for: Depreciation and amortization Impairment of tangible and intangible assets 7 6 Net impairment of financial assets 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) Amortisation of coupon of financial assets held to maturity n/a (5) Net gain on sale of investment securities (17) n/a Amortisation of coupon of investment securities (136) n/a Net interest income from hedging derivatives 53 n/a Net gain/ loss from revaluation of hedging derivatives 322 n/a Net gain/ loss from revaluation of items hedged (325) n/a Release of provision for restructuring not recognized in depreciation and amortization (70) n/a Net loss on sale of tangible and intangible assets 4 3 Dividends on investments (2) 0 Tax expense Changes in: 4,324 4,206 Derivative financial instruments (assets)* 6 (16) Loans and receivables to banks not included in cash equivalents 0 (38,502) Loans and receivables to customers (12,657) (8,441) Other assets 70 (231) Due to banks (20,442) 17,646 Due to customers 7,740 14,106 Derivative financial instruments (liabilities)* (34) 34 Other liabilities (170) (573) (21,163) (11,771) Income taxes paid (157) (385) Net cash used in operating activities (21,320) (12,156) Cash flows from investing activities Proceeds from financial assets available for sale n/a 8,282 Acquisition of financial assets held to maturity n/a (3,087) Proceeds from financial assets held to maturity n/a 5 Acquisition of investment securities (9,481) n/a Proceeds from investment securities 707 n/a Proceeds from hedging derivatives 27 0 Acquisition of property and equipment and Intangible assets (1,185) (691) Proceeds from the sale of property and equipment and Intangible assets 3 20 Dividends received 2 0 Net cash used in investing activities (9,927) 4,529 Cash flows from financing activities 16

17 Dividends paid (4,088) (5,008) Net cash used in financing activities (4,088) (5,008) Net change in cash and cash equivalents (35,335) (12,634) Cash and cash equivalents at beginning of period 60,490 20,424 Cash and cash equivalents at end of period 25,155 7,790 Interest received** 5,756 5,864 Interest paid** (177) (151) * 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 nine months ended 30 September 2018 are in the amount of CZK 14 million (nine months ended 30 September 17: loss CZK 39 million). 17

18 8 Notes to unaudited condensed consolidated interim financial statements 8.1 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 nine months ended 30 September 2018 comprise the Bank and its consolidated subsidiaries (together referred to as the Group ). 8.2 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 were neither reviewed by an auditor nor audited. The Group s interim financial statements were authorised for issue by the Management Board on 6 November 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. 18

19 8.3 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. 8.4 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. 19